Buying Shares in Betting Companies: Gambling on Gambling

man looking at share prices on a computer screenWhen most people think of betting companies, the likelihood is that they will think of casinos or sportsbooks. Then they may think of placing a bet on a favourite sport or enjoying a few rounds of their preferred casino game, for example. That’s quite normal. Most people accept when they bet that in the long term the bookmaker or casino will always win – hence the numerous phrases that exist on the topic.

However, in today’s world most big betting companies are publicly listed and that means there are now many people who buy their own shares in betting companies, siding with the bookmaker or casino rather than against it.  With burgeoning growth online and the opening up of online gambling in the US regular multi-billion pound buyouts in the industry have now become common.  With further growth expected way into the future there are those who believe that gambling on gambling is a safer bet than betting against the bookie.

Granted, as with all investment, bumps have appeared in the road that have affected these companies at times (such as: stake limits on FOBTs, higher tax, new verification rules, corona virus, Brexit and new regulations). However, on the whole, it is a growing industry attracting a lot of investment.

A Double Whammy, But Things Keeps on Rising

fobt playerYou only need to take a look back to 2019 in the UK, and you’ll see that things didn’t look so rosy for the UK gambling industry. Despite the fact that the industry brings in £14.5 billion every year, it suffered at the hands of the reduction in maximum bets on fixed odds betting terminals (FOBTs). Rather than allowing users to place bets of up to £100, the maximum was reduced to just £2.  In a bid to make up for the lost revenue from that maximum bet slashing, tax duties were increased on online and mobile casino-style games. This saw it increase from 15% to 21%.

Now, you would think that such moves would be quite catastrophic for the entire industry. After all, it no longer brings in as much money from FOBTs and then loses additional money by paying extra tax. Indeed, many high street betting shops have taken a turn for the worse, and William Hill has announced on multiple occasions that it is selling off a number of shops due to lack of interest from bettors and the increasing struggle to contend with the UK market.

sport cancelledHowever, even though this was the case in 2019 (and the frequent closure of land-based establishments throughout 2020’s coronavirus pandemic situation didn’t help), the sector hasn’t suffered as dramatically as was stated. Yes, share prices in these companies did start taking a dip when the announcement over the reduction in maximum bets on FOBTs came about, but whenever a piece of negative news about any company or sector is announced, it’s likely to have a negative impact on share prices. This is just par for the course. The gambling sector is far from being a write-off as a result.

During periods of uncertainty share prices in many industries will move around in a state of flux. As the industry adapts to the changes brought about by the government, so too do the share prices, but as that uncertainly subsides people being to look at the industry’s bright online future and prices then generally rise as a result.

Online and mobile gaming still have a lot to offer to people, as has been displayed during months of lockdown throughout 2020 and into 2021. With many other businesses closed at this time, the gambling industry has provided people with a way to spend some of their free time and leisure money at home, and thus, has seen not only its own profits surge, but share prices of the companies too.

In fact, according to figures that have come from the Casino Sites Licensing Gambling Commission, the value of gambling in the United Kingdom has seen a continuous rise. Being valued at £13.8 billion in September of 2016 and then improving to the aforementioned £14.5 billion not so long after shows just how profitable it can be, and is.  This is only looking at the UK gambling market too, not including the US and other growing territories.

It is due to this growth and projected growth that investors have a huge appetite for purchasing shares in casinos, sports betting companies and other companies associated with gambling. At the same time, the UK gambling industry has seen quite the increase in the number of online casinos and sportsbooks launching on a regular basis. And it’s not just here where the UK’s gambling industry holds traction, either.

Profiting from Surging US Sports Betting Interest

caesars palace sign with william hill logoThe biggest news in the industry right now is all to do with the burgeoning US sports betting sector. Ever since the Supreme Court overturned the PASPA law in 2018, various states have introduced sports betting laws into their legislation. And there are several others primed to introduce the same within the next few years. That has got many people talking – especially those within the UK sports betting scene.

In February of 2020, there were three UK-listed betting companies that were in prime position to take advantage of the growing interest in that US sector. Price targets were raised on GVC Holdings (now named Entain), William Hill and Flutter Entertainment, following in-depth research conducted by the London-headquartered investment bank Jeffries. At the time, the bank stated that the US sports betting market could actually be worth four times more per year than the UK market by the time 2023 rolls around.

Each of the three brands mentioned saw their share prices inflate on a 20%, 10% and 10% basis, respectively. And with a re-rating taking place the following week, suggestions were made that all three companies’ share prices should have been even higher.

William Hill was especially well-placed to take advantage of the potential billions of dollars per year industry in the US. The company’s share prices fell to a five-year low in 2018 after the UK tightened its laws on the FOBTs, as those machines used to bring in a high level of profit for the brand. However, William Hill was already quite well established in Las Vegas, and it was in February of 2020 that it made the announcement that it would be the exclusive sportsbook provider for CBS Sports Digital.

That allowed it to gain access to the 80 million people who used the media giant every month. It also partnered up with Eldorado Resorts, which united with Caesars Entertainment in an $8.5 billion cash and shares merger. More recently, it was announced that William Hill had agreed to a takeover by the Caesars group, which is due to be completed in the second quarter of 2021.

In late 2020 MGM resorts tabled a bid to buy Entain for £8.1 billion.  The companies already have a 50:50 collaboration in BetMGM.  MGM, like Caesars with William Hill, are ultimately looking to buy the decades of knowledge and experience in how online gambling works and the various platforms and software these companies have developed.  The bid was rejected as being too low, which tells you a lot about the projected valuation of these mega-companies in the future.

The Lead on to the Future

profit rise arrow with coinsCasino establishments and betting shops have a hard time in attracting younger people inside. According to research, generation Y and millennials are quite drawn to participating in sports betting, especially in relation to football events, but have more reluctance to sit down at casino tables or machines to play games. Research also shows that the age group which frequents land based casinos most often are the over 40s.

However, younger people are certainly bucking that trend online. Plus, with the introduction of video game gambling (such as the casino that can be found in Grand Theft Auto V online), things have become even more intriguing for the younger generation. With this in mind the future looks bright for gambling companies where their income is concerned.

Rank Group

rank groupAs the owner of the Grosvenor Casinos chain, Mecca Bingo and being operational in the online sphere too, Rank is pretty much a powerhouse in the UK industry. The company chose to involve itself in numerous markets so as to increase its stream of income. In June of 2020, stock prices were close to a 30-day increase, hitting 221.30, which came following a steady rise from May of the same year. That had been preceded by a huge surge in February of 2020, which saw its share price hit a peak of 322.50 over the past five years. Rank’s market value was recorded as around £864.58 million at the time, and in the 2016-17 period, it brought in a wonderful £71.1 million in profit.

William Hill

willim hillThe William Hill brand has experienced a steady incline in more recent times, although it did hit a decent peak of 312.20 in late September last year. Since then, it has had quite the steady line for its shares, resting around the 260 mark. The company retained its position as leader in the sports betting market for the 2019-20 period, and that’s likely due to its long-standing position within the industry. People trust the companies with experience, and William Hill certainly brings that. Perhaps there will be an alternative look to its share price once the takeover by Caesars is completed.

Flutter Entertainment & Stars Group

stats group flutter mergerThe company that owns Paddy Power, Betfair, PokerStars, SkyBet and a host of other brands operates under the name Flutter Entertainment. Of course, more people are familiar with Paddy Power and Betfair than they are with Flutter. Since March of 2020, Flutter has seen a dramatic increase in its share prices, which went from the low of 6,442.56 at that time and has boomed up to more than 15,000 as of the beginning of January 2021. For the past five years, the company has been on a sort of steady move, with a brief up-and-down slide to its prices. However, it now sits in prime position, with investors clearly taking advantage of everything Flutter has to offer.

Entain (Formerly GVC Holdings)

GVC Holdings logoAgain, most people know Entain by its former name of GVC Holdings. However, the corporate rebrand of this company was backed by 99.9% of shareholders, and from December 10, 2020 it started out its trading life under this name. It hasn’t taken long for Entain to see an increase in its share prices, either. Beginning at 1,055, it only took a single month for the share prices to see a rise to 1,475 each. Clearly, the brand has a lot going for it, and investors are happy with its rebranding as well.  MGM tried to buy Entain for £8.1 billion in January 2021, this was rejected.  That causes and intial rise and then drop in share price but a rebound was quickly found when the group announced an increase in online profits and projected 27% growth in net gaming revenues.

Over the past few years, gambling stocks have generally been labelled by many as a good investment. It has been a consistent growth market, thanks to the fact that it has adapted to cater to the online and mobile gambling scenes. Of course, the price is susceptible to potential drops in value at any given time, especially with further gambling regulations on the horizon. That’s a risk that many people are willing to take, although there is confidence that for longer term investments the sector is due to see high growth.

The coronavirus pandemic did hit a lot of sports betting companies and their operators hard. After all, with a lack of sports events taking place in 2020, there was less available for people to bet on at these platforms. Therefore, not only did the some profits fall from that lack of sporting competition, but the share prices in those respective companies also fell as a consequence. Yet, they have since recovered, as the share prices of Entain and Rank Group have proven. And the likelihood is that they will continue to improve in the coming years.

Is it a good idea to invest in betting companies? Well, when compared to betting on the events and odds provided by these brands many would argue that, yes, it is. That’s not to say that you shouldn’t engage in sports betting or indeed buy shares. After all, if you enjoy betting you shouldn’t necessarily switch to shares, they are two very different things with very different risks. It is arguable though that there is a lot more to be gained from gambling on the company rather than gambling with them.

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