Analysis: William Hill and the brave new world of US sports betting

William Hill looks almost unrecognisable from the firm many had consigned to the virtual scrapyard barely 12 months ago. An operational turnaround (Australia aside) and a return to online growth has it looking outward for the first time in a while and its setting its sights on a very long-term opportunity. The good ship Hills is setting sail for the brave new world of US sports betting, although the waters are looking a little choppy out there.

Fortunately Hills is looking a lot more able to stand the journey than this time last year, with its revised senior management team, the closure of the Israeli office and a shiny new London office, a massively upgraded mobile app and the almost infeasibly long-awaited launch of its html5 desktop front-end. And these are just the visible changes. Behind the scenes there has also been some major shifts in organisational structure, marketing and customer data analysis, and the recent numbers present a picture of a company very solidly back on its feet after more than a few months on its backside.

Group revenue was up 7% year-on-year to £1,711.1m, and while a write-off of goodwill on its Australian business led to a pre-tax loss of £43.7m, adjusted operating profit was up 11% to £291.3m. For online the picture was even more rosy with adjusted operating profit up 32% to £132.5m on the back of 13% revenue growth in the year. Retail meanwhile was down 1% in both revenue and profit terms and retains the looming threat of a reduction in FOBT stakes.

But neither were top of the list for management in its analyst presentation late last week. It also wasn’t Australia, once the shining star of potential growth, which showed a 6%cc decline in revenue and is currently undergoing a strategic review with a sell off appearing imminent. No instead it was to Hills smallest business segment, its US-facing sports betting business, that the operator turned to tell the new growth story. A US revolution is, possibly, about to occur and Hills looks like being right at the heart of it, with Bowcock saying it was “investing to be ready” for any big market changes.

Betting big on the US

But why the all-in shove on the US? The answer lies a little closer to home. International growth in online gambling is incredibly hard to come by, and for a UK firm even when it does come by, it barel to move the needle. Hills have been one of the most successful firms in the Italian regulated market for example with around 4% market share. But to put this into context that translates to around £45m or 7% of its total online revenue, and this is before you account for the substantial taxes and operational costs. It’s a lot of effort for relatively little reward.

Hills US business is predominately a Nevada betting operation, generating £56.5m of revenue in 2017, up 24% on the previous year, and £17.7m of operating profit. It’s best viewed as a retail business with a mobile app rather than a true omni-channel operation, with customers required to register and deposit in-person, although it’s nonetheless been very successful on the mobile channel. Mobile revenues were up 36% year-on-year and represented 58% of wagering, but frankly Nevada is a side-show to the real opportunity in the US.

William Hill’s Nevada betting operation generated £56.5m of revenue in 2017

If, and it remains a big if, the US Supreme Court rules in favour of New Jersey in terms of repealing legislation that currently restrains the states from offering sports betting then there is expected to be a sudden and rapid expansions of sports betting across the pond. New Jersey will lead the way, but US market experts Eilers & Krejcik Gaming estimate 32 stats could be offering sports betting by 2023 generating around $6bn in revenue. If Hills could attain anything even close to the 29% it has of the Nevada market then it would really be shifting that needle from its current position.

Hills true ambitions are doubtless a fair bit more modest than this and CEO Phillip Bowcock was keen to emphasise the rush of operators and suppliers trying to carve out their position saying “everybody is talking to everybody” and added nobody should expect the US to be profitable initially. This is a market where there will be shortage of competition. He also talked of the limited opportunities in any emerging US sports betting market with mobile and online not certain to make the first wave of any rollout and key operator licences likely to be reserved for land-based casinos.

As a result Hills is positioning itself for both B2C and B2B opportunities. As with its existing US business the operator could lead with its own brand on its own, as a joint-venture partner or even as a supplier through its proprietary self-service betting terminals. Bowcock said the operator was planning for “all eventualities” noting there was no clarity on if the eventual market would be retail only or if it would expand to include mobile and online.

More questions than answers

But there are still so many unanswered and unanswerable questions facing the brave new world of US sports betting. It’s uncertain just how big the opportunity will be, how many states get involved, how quickly things move in the notoriously slow US regulatory sector and how aggressively the casino operators will attack this new market. And before all of that we don’t even know if the PASPA ruling will be positive for the industry.

This will be a hugely competitive market, tax rates could be high and there will be a lot of regulations designed to protect the interests of the existing land-based operators. Any European operator expecting to breeze in and take significant market share is naïve at best, but PASPA permitting, there will be opportunities. And whatever happens Bowcock is hoping to put his firm at the centre and as one of the few proven operators in the market it feels like it’s Hills’ ball to drop here.

For Hills and the whole of the US (and most of the European) gambling industry this is arguably the biggest greenfield opportunity in years and it’s understandable it is playing its hand aggressively here. But as with any poker hand the final outcome is far from certain before the final card is dealt.