Why GVC’s Online Bet is Paying Off

Posted by Harry Kane on Thursday, August 15, 2019

Whilst the decision to slash the maximum stake for fixed-odds betting terminals (FOBTs) from £100 to just £2 may have sent shockwaves through the gambling industry in the UK, it’s fair to say that operators have experienced mixed fortunes since then.

After all, the Treasury initially decided to delay the rollout of the new legislation until October 2019, which in turn boosted operator’s coffers and caused a significant backlash from responsible gaming groups and lobbyists. However, it has since rowed back and opted to introduce the betting cap in April, forcing firms to significantly revise their operating strategies in order to remain profitable.

GVC Holdings is one brand that has embraced this challenge, as it has invested heavily in online channels whilst proactively closing some of its retail outlets. But how is the operator faring, and what can others learn from their strategy?

How has GVC Fared in the Year Ending June 2019?

In truth, GVC has benefitted from its tenacious and proactive response to the new legislation, as it began to revise its strategy and underlying business model once the £2 FOBT cap was officially announced in May of last year.

This accelerated transition involved the proposed closure of up to 1,000 high stores, with the renowned Ladbrokes chain accounting for the vast majority of these losses. This rate of closure was slightly higher that what had been proposed by rivals William Hill, who estimated that they would shut the doors on around 700 outlets across the length and breadth of the UK.

This bold move is not without cost, of course, as GVC saw revenues from its UK betting shops decline by 10% during the previous 12 months, whilst more than 4,000 job losses are also in the midst of being implemented nationwide. This makes perfect commercial sense, especially when you consider that FOBTs generated a staggering £1.7 billion for the gambling industry in 2018 alone.

At the same time, analysts believe that the company’s stock has lost roughly half of its value during the last 12 months or so, with the impact of the FOBT cap having been compounded by a revolt over pay and continued disquiet concerning share sales.

GVC’s strategy has resulted in some much-needed gains, however, which have offset the impact of the FOBT cap and enabled the operator to remain profitable during a challenging financial time.

The revenue generated through online operations increased by an impressive 18%, for example, driven by World Cup betting during the summer of 2018 and sustained global expansion (we’ll have a little more on this later in the piece).

This double-digit growth more than negated the 10% decline in offline earnings, whilst laying the foundation for future growth both in the short and the longer-term.

Shares in the company have also increased by as much as 4.7% during the last financial quarter, and whilst it’s believed that they may decline incrementally as the FOBT cap begins to take effect, the operator’s stock remains in relatively rude health given the prevailing market conditions.

How Have GVC Driven Such Concerted Online Growth?

At this stage, credit must be given to GVC for their proactive decision-making, which has actively seen the brand invest in its online operations on a significant scale.

The nature of this growth is also insightful, with GVC clearly pursuing growth in international markets that are expanding rapidly and more lightly regulated than the UK.

This is borne out by the numbers, with GVC recording the biggest levels of growth in Brazil and Australia. In fact, the company saw online sales in both of these burgeoning markets increase by a total of 38%, during the last year, with further growth expected in the near-term.

The Australian market is certainly a key area of focus for GVC, with sports betting alone generating A$1.06 billion-worth of revenue for the industry in the year ending April 2017. This represented impressive year-on-year growth of 15.3%, whilst casino gameplay and video poker also saw significant expansion during the same period.

At the same time, GVC has forged ahead with plans to crack the burgeoning U.S. market, which is fast becoming the promised land for operators against the backdrop of several positive regulatory changes (including the decision to strike down the 1992 Federal law that prohibited individual states from legalising sports betting).

Growth in the states during the last 12 months has certainly exceeded expectations following the decision to overturn this law, and GVC already has a foothold in this marketplace through its joint venture with the famous U.S. casino company MGM Resorts.

However, it lags someway behind several of its rivals that have already developed a significant presence in the U.S., with William Hill arguably blazing a trail for others to follow in this respect.

The reason for this is simple; as GVC must partner with a reputable, U.S.-based firm in order to operate online, and they have yet to fully secure this type of arrangement. However, it’s believed that they remain on track for a comprehensive launch in New Jersey ahead of the NFL season in September, which will provide a significant boost to their profits for the new financial year.

GVC has also been granted licenses to operate in Nevada and Mississippi, so whilst it may have lost some initial ground to its rivals it’s likely to emerge as a key player in the U.S. market over the course of the next 12 months and beyond.

The Last Word – What’s Next for GVC?

Like any market leading gambling brand in the modern age, GVC will face significant challenges as it continues to adapt to the latest regulatory changes being imposed by the UK Gambling Commission.

The firm is also likely to experience issues elsewhere in the world as 2019 comes to a close, with tightening regulations in Germany expected to see operators incur significant licensing costs if they’re to continue operating there this summer.

However, GVC’s focus on global growth and online gaming channels will stand the brand in good stead during these difficult times, whilst delivering a strong financial performance that will offset any additional costs incurred in the future.

This is great news for one of the world’s most prominent gambling brands, which continues to blaze a trail for others to follow in a strained regulatory climate.