The strategic review launches today (6 March), with 888 to consider “potential alternatives” that can deliver value for the group.
Partial or full sale of US B2C operations are just some of the alternatives that will be looked at during the review. 888 will also consider a controlled exit of US B2C operations and other possible strategic transactions.
The group notes the review will not impact its existing B2B arrangements in the US.
888 has not set an end date for the strategic review. However, 888 CEO Per Widerström said shareholders could expect an update towards the end of March when it publishes its full-year results for 2023.
“Since commencing my role as CEO I have been focused on ensuring the group is set up to deliver strong value creation in the coming years,” Widerström said. “In the US, the intensity of competition and requirement for scale means huge investment is required to reach profitability.
“The strategic review of our US B2C operations will continue at pace. I look forward to updating shareholders on our plans for the wider group in late March.”
Why is 888 considering offloading US assets?
888 is currently active in four states: Colorado, Michigan, New Jersey and Virginia. However, only one state features the actual 888 brand, with the 888casino live in New Jersey.
A partnership with Authentic Brands Group (ABG) allows it to run sportsbooks and online casinos under the Sports Illustrated brand in other states. These include the SI Sportsbook and SI Casino in Michigan, as well as the SI Sportsbook in Colorado and Virginia.
However, the group says gross profit margin in the US is lower than the group level. This, it adds, reflects “significant” direct costs of operating in the market including duties, market access fees and licence fees. It also notes intense competition from “well-capitalised incumbent participants”.
As such, 888 has determined its current structure will not optimise returns. This ultimately has led to the launch of a strategic review for the US-facing operations.
Parting ways with Sports Illustrated
In line with the strategic review, 888 has also mutually agreed to end its partnership with ABG.
888 agreed to pay $25.0m (£19.7m/€23.0m) to ABG in cash from available resources. The group will pay an extra $25.0m between 2027 and 2029.
According to 888, this is expected to result in operating cost savings of approximately $6.0m to $7.0m per year in 2024 and 2025.
“Our partnership with Authentic has consistently driven strong demand for the SI brand across both consumer experiences and product offerings,” Widerström said. “A series of record-breaking months for SI Casino has underscored the strength of the SI brand.
“However, despite these successes, we have concluded that achieving sufficient scale in the US market to generate positive returns within an accelerated timeframe is unlikely.”
888 set to make redundancies
The review comes on the back of an announcement in January that confirmed 888 will be making redundancies.
Confirming the news to iGB, 888 said the changes will help it achieve long-term plans. 888 did not disclose which departments will be impacted by the redundancies.
This came alongside 888 reporting an 8% drop in revenue for 2023 to £1.71bn. 888 said this was driven primarily by a proactive mix shift away from dotcom markets. This, the group said, impacted revenues by approximately £80m in 2023.
888 did not specifically reference the US in the trading update. However, it did note revenue in its international business declined 16% to £517m.
Positive thoughts for 2024
Despite this uncertain backdrop, 888 retains a “positive” outlook for FY24 revenue.
In the update, it said consistent growth in active players is driving confidence in strong revenue growth online in both the UK and international segments. 888 also said compliance and safer gambling impacts will begin to annualise in February 2024, leading to a more positive outlook for average revenue per user.
A global cost savings programme launched in December 2023 with the aim of saving £30m. This is being supported by investment in automation and AI-powered data and insights to strengthen core capabilities. Cost savings, 888 says, will also allow for higher marketing spend in 2024.
While this will improve long-term profitability, 888 says additional investment means 2024 adjusted EBITDA will be at the low end of consensus range.
Widerström will oversee the changes, having taken over as CEO in October 2023. However, he will be without chief commercial officer Phil Walker, who stepped down in January after just six months in the role.
Other changes at the new-look 888 in recent months include Sean Wilkins joining as chief financial officer. Rik Barker is now serving as chief information technology officer and Ian Gallagher chief product officer.
Fredrik Ekdahl joined as group general counsel in October and Jeffrey Haas as chief growth officer in January.
“I am confident that we are set to deliver deleveraging and strong shareholder returns in the coming years,” Widerström said in January.