The Entain board’s Capital Allocation Committee launched the review in January, looking at its portfolio of markets, brands and verticals. This, Entain said, was with the objective of maximising shareholder value and reflecting the operational progress of the business.
Talk of potential brand sales intensified in March when the Financial Times reported that Entain had hired Wall Street firm Moelis to advise on asset sales. This came just a week after Entain posted a net loss of £936.5m (€1.10bn/$1.19bn) in its 2023 full-year.
Upon concluding the review, the committee listed several major findings. Among these is to consider “strategic alternatives” for Crystalbet, which was acquired in part by Entain’s predecessor GVC in 2018. Entain purchased the remaining 49% stake in the brand in 2021.
“The committee concluded that the brand is non-core to the group,” Entain said. “As such, strategic alternatives for this business will be considered, including interest already received from potential acquirers.” Entain did not disclose the identity of any interested parties.
What else is in the Entain review?
Alongside the possible Crystalbet sale, the committee also published several other conclusions from the strategic review.
These include that Entain has the “appropriate” portfolio of diversified strategic assets, brands, capabilities and geographic footprint to ensure it is well positioned to deliver high-quality, long-term growth.
The committee also noted Entain’s future potential. It referenced a “significant upside” of focusing on returning to organic revenue growth, expanding margins and winning in the US.
In addition, the committee labelled the group’s balance sheet and leverage position as “robust”. This was strengthened by the extension of a revolving credit facility and term loan repricing and add-ons.
Analysing progress in key markets
As part of the review, the committee also analysed the situation in the group’s key markets. This includes operational progress made by Entain towards its strategic objectives.
On this, Entain still expects to return to growth in the UK later this year. This comes amid the “levelling of the regulatory playing field” with the new voluntary industry code on player safer gambling checks and the new £2 online slot limit that comes into effect in September.
Elsewhere in Europe, findings suggest Entain CEE (Central and Eastern Europe) is performing well. The committee noted outlook for online casino liberalisation in Poland in particular, saying this increasingly encouraging.
As for the US, the committee says that the delivery of the product roadmap for BetMGM is progressing well. It notes the recent launch of new markets for both Major League Baseball and the National Basketball Association as key developments.
Also in the US, Entain recently secured approval from the Nevada Gaming Commission for a full licence in the state. This licence covers all Entain applications and certain subsidiaries without limitation.
In addition, the committee says Entain is returning to strong double-digit revenue growth in Brazil during Q2. This, it adds, is being driven by the actions taken to improve customer acquisition and retention accelerating our performance.
On a wider scale, the committee praised the impact of Project Romer: a plan to reach an online EBITDA margin of 28% by 2026 and 30% by 2028. To make this happen, Entain plans to simplify the group to improve operational leverage and drive cost efficiencies. This will include making cross cost savings of £100m by 2025.
Still work to do for Entain
Reflecting on the findings, Entain chair Barry Gibson said he is “pleased” with the progress the group has been making. However, he adds there is still work for Entain to do to improve its overall performance.
“While we still have more work to do to improve our operational performance, the board is pleased with the progress Entain is making so far in 2024 in line with our strategy,” Gibson said.
“The group has the core strengths, brands and products to be competitive across markets. We continue to be a global leader in betting and gaming. The board looks forward to updating the market further on progress at the interim results in August.”
It was also noted that the committee will continue to regularly review strategic progress and consider options to maximise shareholder value. This, Entain says, includes ongoing oversight of all significant aspects of capital commitments.
Does Entain need to sell?
Circling back to the stand-out finding of the review and the possibility of selling Crystalbet. Does Entain really need to let go of the brand?
Firstly, it is hard to ignore the heavy loss Entain posted in 2023. The £936.5m figure posted in the full-year results far overshadows the 11.0% rise in revenue to £4.77bn, which, itself, was helped by the acquisition of new brands.
However, this M&A activity obviously incurred additional costs for Entain. One of the major deals struck in 2023 was the acquisition of Polish-facing STS, which incidentally incited a shareholder revolt from Eminence Capital.
Add in the HMRC and CPS settlement that was finally signed off in December, at a cost of £585.0m, and it is clear to see why Entain is considering offloading assets to recoup some expenses.
In its March report, the Financial Times said assets not directly integrated into the Entain’s platform will be given priority for sale. In total, these accounted for close to a third of net gaming revenues in the first half of last year.
Crystalbet is one such brand. Other businesses that also meet this criterion, and in turn may also face the chop in the future, include Dutch-based BetCity, purchased for £398m in 2023, Ladbrokes Australia and Baltics-facing Enlabs.
The sale of such brands would also fit in with Entain’s lasting focus on growing across core markets, including the UK and US.