Say it quietly - 888’s US avoidance tactics

888 made all the right noises last week about its US ambitions even as the deal to conduct a reverse takeover of William Hill points in a very different direction.

With 888’s announcement last week of a £2.2bn reverse takeover of William Hill, it was left to the analysts to point to one telling detail about Caesars Entertainment’s disbursement of the parts of the business it didn’t want.

That detail is the tallying between the $1.2bn in net cash that Caesars will receive from the buyout and the circa $1bn the company recently earmarked for marketing the Caesars online sportsbook across the next three years.

In effect, as the Wagers.com Earnings+More newsletter suggested last week, 888 is indirectly funding a marketing and advertising blitz that will keep many of its listed European rivals tied up for potentially years to come.

Sports Illustrated launch in Colorado

Of course, you might argue that 888 is in part simply seeding the competition to its own JV with Sports Illustrated which launched the SI Sportsbook in Colorado just a week before the William Hill news.

Yet, in the presentation last week it took 14 slides before mention was made of this venture, noting that the acquisition brought “significant additional sportsbook operating expertise” including from William Hill’s pre-Caesars US experience.

This feels like something that was thrown in at the end of a long session looking to add plus points to an already signed and sealed agreement. Yes, William Hill has within it a good deal of sportsbook operational expertise and capability. So much of it, in fact, that Caesars decided it could do without it once it had extracted what it wanted from the US-facing business.

Buying William Hill transforms 888

This isn’t to be judgmental about that capability. But the obvious point about what 888 has bought is that it is a genuinely competitive contender in the UK, one of the handful of legacy betting names that still have some resonance. 

As was reiterated on the call and regurgitated by the analysts in their subsequent notes, this deal was “transformational” for 888 but the impact is wholly about how the company is now positioned in the old world.

This is not to decry it.

“William Hill adds product leadership in sports betting to 888’s leadership in online casino, and brings additional scale to both,” as the analysts at Peel Hunt noted. “The enlarged 888 would match leading competitors in product and platform investment and benefit from stronger market shares in key markets.”

Key markets in the UK, Italy and Spain

Those key markets, as was shown in the presentation are, in order: the UK, Italy and Spain. It is not, despite what Peel Hunt went on to say, an opportunity to “invest aggressively” in the US.

Yes, once the (very) tricky job of executing on the deal is completed, aggressive investment in future opportunities will very much be the order of the day. But there are at least three reasons why by that point it might not be wise to push on with the SI Sportsbook:

1. the time elapsed between now and deal execution could be long;
2. by which time the US ship will have sailed;
3. JVs can be unstable.

This last point is crucial. The SI Sportsbook JV partners are Authentic Brands and its publishing partner Maven, an unstable pairing that last summer “almost went to war” over the latter’s handling of SI. Their expertise, to put it politely, lies elsewhere. The JV has the feel of a match up where each one thinks the other is bringing the dowry.

It simply wouldn’t make sense for 888, once the hard work on executing the William Hill integration is complete, to do anything other than pour all its resources into continuing with an aggressive campaign in its strongest markets.

The strategic logic for 888

The chief strategy officer of 888, Vaughan Lewis, spoke on the earnings call of how the detail within the presentation demonstrated “how powerful the strategic logic is for this combination.” As Lewis added, “this is a combination that has been discussed many times over the years” and maybe previously it would likely have been bigger news than eventually it was.

The good news for 888 is that it can busy itself with getting the details right on the integration with its new acquisition, somewhat away from the spotlight and while all the attention, including that of its rivals, is elsewhere. In effect it has a degree of breathing space which is not always the case in a sector as fast-moving as this. 

Meanwhile, it might want to consider relegating the SI Sportsbook part of its next results presentation even further back into the pack.