It’s been a tough year for bookmakers, with UK sportsbooks suffering major losses, according to a new report.
The UK Gaming industry suffered a loss of £3.9 billion (or US$5.4 billion) in 2018, a 60% drop from 2017 and the lowest since 2012, a study by the UK bookmakers group found. At the same time, the amount of money wagered on sporting events in the UK fell by 19%, according to figures released by the government. As a result, bookmakers are now seeking ways to make up for their losses while also appealing to customers.
Why Did the Betting Favorite Get +3 Pints?
One of the biggest losers in the last year was Ladbrokes, which saw its share price fall by 20% in June and by a further 10% in October. That’s effectively wiped out the value of the company as it was trading at just 2.2 times bookmaker adjusted earnings before the COVID-19 pandemic, which significantly reduced gambling activity. Since June 2020, the bookies have seen their profit margins improve by nearly 5% as they’ve been able to offload their existing holdings of bets at better than average prices. Let’s take a look at some of the key reasons why the betting favorite got +3 pints in the first place.
The first and probably the most obvious cause of the betting favorite’s disappointing performance in 2018 is the lack of lucrative promotions. Back in 2016, the big British bookmakers launched a campaign to counter the increasing competition from offshore betting sites by offering bigger rewards, more bonuses and easier deposits and withdrawals. One of the major draws was the introduction of the Super Betting promo, which gave customers the chance to win big by placing a single bet of £10 or more. Typically, these kinds of bets have a 7% house edge, which means the customer wins £7 for every £10 bet. Because of the pandemic and the subsequent lockdown, the need for promotional offers lessened, and the bookmakers decided to keep the Super Betting promo on ice. The consequence of this was that the UK market suffered as customers decided not to bank with them or place bets with them while the offer was still active. In the two months after the pandemic, the Super Betting and some of the other lucrative promotions from the major bookmakers were taken off, which is why they’ve seen an uptick in profit margins since then. However, even in the last quarter of 2018, the majority of the UK’s largest bookmakers saw their profits improve due to the higher margins on bets compared to pre-pandemic levels. Many of the sportsbooks and gambling platforms saw their profits rise by 26% or more in the last quarter of 2018 as a result of the pandemic. However, UK bookmakers saw their profits decline by 19%.
The second factor impacting the betting favorite’s profits in 2018 was a significant decline in revenue. In fact, revenue across all industries, except for healthcare and education, declined by 6% in 2018. It’s been a tough year for all sectors, and the betting industry wasn’t spared. The problem for the bookmakers is that while they might’ve seen an immediate uptick in profits due to the pandemic, as the economy slowly starts to recover, they’re going to struggle to earn the same amount of money they once did. The UK’s largest bookmakers saw their revenue decrease by £3.9 billion (or US$5.4 billion), and some of the smaller ones saw a 50% drop in revenue. To compound matters, the British government has imposed strict lockdowns and curfews, which has significantly reduced the number of people who are betting and wagering, as well as the amount of money being placed on sporting events. With the lockdown restrictions lifted, people are likely to get back to their pre-pandemic levels of excitement, which in turn, could mean a decline in betting activity. Even now, as we start to see more people going to the bookies, there’s no indication that people are placing huge bets or that there’s been an increase in the sports betting market. While the UK bookmakers saw an immediate profit boost as a result of the pandemic, the subsequent lockdown and change to their business might be more significant in terms of their long-term earnings.
The UK’s largest bookmakers saw their operating margins increase by 9% in the last quarter of 2018 compared to the previous quarter, and this is probably because of the recent increase in customer deposits. The British bookmakers increased their share of the total take to 47%, as customer confidence soared during the pandemic. However, it wasn’t just the increased liquidity that helped the profit margins, as the bookmakers were also able to offload their existing bets at better than average prices, which is always a good thing for the bottom line. This has resulted in the UK’s largest bookmakers seeing their net margins rise by 6% in the last quarter of 2018 compared to the previous quarter. However, even in the last quarter of 2018, the majority of the UK’s largest bookmakers still saw their profits decline by 19%. The margins didn’t improve for everyone, as a number of smaller bookmakers, saw their operating profits decrease by 50%. These are largely due to the fact that the smaller bookmakers didn’t get the same increase in liquidity as the large ones and also had to deal with more competition. Many of the smaller UK bookmakers were more affected by the pandemic than the larger ones, as they had fewer resources and less experience. The smaller bookmakers also tend to focus on a single sport, which is why they have a more limited amount of events to offer, and hence, a smaller revenue stream.
Declining Share Price
The final factor weighing on the betting favorite’s share price in 2018 was a significant decline in share price. Even in the last quarter of 2018, the share price of the largest British bookmaker, Paddy Power, declined by 20%, which effectively wiped out the value of the company. The share price of Ladbrokes, one of the UK’s largest bookmakers, fell by 20% in June and by a further 10% in October. The share price of the other two largest British bookmakers, Coral and Paddy Power saw similar price declines in 2018. The share price of all five of the UK’s largest bookmakers declined in 2018.
The combined market value of the UK’s largest bookmakers decreased by £3.9 billion (or US$5.4 billion) in 2018, which is equivalent to a 59% decline from the pre-pandemic level. In the last quarter of 2018, the market capitalization of the UK’s five largest bookmakers was £2.8 billion (or US$3.7 billion), which is a 34% decline from the previous quarter and puts its market cap at the lowest level since 2012. To compound matters, the company with the second lowest market cap is a small UK bookmaker founded in 2006. This shows just how seriously the pandemic and the subsequent lockdown have affected the industry and the value of its shares.
The impact of the pandemic on UK bookmakers is significant, and if they don’t adapt quickly, they’re going to continue to see a significant decline in both profit and value. Luckily for the bookmakers, they have some savvy management that knows how to reverse this trend and make a profit. While the industry might be hurting, it’s also given them an opportunity to consolidate and strengthen their position in the UK market. The pandemic has forced the bookmakers to adjust and diversify their revenue streams, which has given them the time to rebuild, retool and reinvest. The money they save will help them withstand the financial storm. Many of the UK’s largest bookmakers have already started to adapt, and in the last quarter of 2018, they saw their profits increase by 13% or more. The subsequent lockdown restrictions will eventually be lifted, and there’s every indication that the UK’s gambling industry will bounce back stronger than ever before.