Entain could end up just servicing North America, the UK and Ireland

Last week Entain announced it was leaving Eastern Europe to raise more capital for its other endeavors. It sold its Eastern and Central European operations to its joint venture capital partner EMMA Capital for 425 million euros, approximately $486 million USD which will be used to decrease Entain’s outstanding debt. According to its most recent preliminary findings in March of this year Entain lost £680.5 million or almost $910 million USD.

When making the announcement Entain CEO Stella David stated in a press release:

“Our initial divestment is a decisive first step towards Entain fully exiting Entain CEE and reflects our ongoing focus on maximising value for shareholders. This enables us to unlock the value created by our Croatian and Polish businesses’ and demonstrates our robust capital allocation discipline.

Driven by structural growth across our globally scaled portfolio and our improving operational execution, I am confident in our ability to deliver strong future cash-generation. Entain remains well positioned to be a long-term industry winner.”

Entain’s brands include Ladbrokes-Coral, which is popular in the UK and Ireland; Bwin-Party which is a popular brand throughout Western Europe and especially Germany, although they also have a legal presence in Canada as well; Sportingbet, which is a popular brand in parts of Western Europe (the Australian portion was sold to William Hill); Sports Interaction which is exclusive to the Canadian market; and most notably BetMGM which operates in North America and is a partnership between Entain and MGM Resorts International. Entain also has some other brands targeting the Netherlands and South America.

Few locations profitable

I spoke with someone from Entain who wished to stay anonymous and he told me that this divestment was just the start.

According to my source, he said he has it from sources in the company that Entain believes the only real locations where sports betting can be profitable is in the UK and Ireland along with Germany, Spain and North America. Ladbrokes-Coral is its biggest money generator along with BetMGM and Bwin.Party is also successful. Also, the company is closely monitoring the situation in Germany where Bwin is most successful, because there have been actions to strengthen enforcement rules of the 2021 Interstate Treaty on Gambling as well as increasing tax rates. If the taxes go up as high as speculated, Entain may need to reconsider its presence there.

Consequently, the source told me that the company is entertaining offers for its Betboo brand in South America, Sportingbet, and is looking at offers for all its brands except Ladbrokes-Coral, Bwin.Party, BetMGM and SportsInteraction.

“It’s so competitive and unless the company reduces its footprint and concentrates on only a few markets, it will never be profitable,” my source told me. He continued. “BetMGM is seen as the one brand that could be most profitable as long as more states legalize sports betting, particularly California and Texas and as long as states drop the tax rates to reasonable levels. Introducing casino gambling would also be quite helpful for profitability. If states are going to increase taxes to match New York’s 50% as some have threatened then Entain will need to revisit many of the states it currently operates in as well.”

BetMGM has room for growth in the U.S.

BetMGM currently holds about 14% of the U.S. market, a comfortable third place, but sits well behind FanDuel’s estimated sports betting market of over 40% and DraftKings share of about 27%. Sources have told me that they believe BetMGM could get its share to close to 20% particularly if FanDuel and DraftKings start pouring money into marketing its prediction markets, something that BetMGM CEO Adam Greenblatt clearly said the company has no interest in until all the legal confusion surrounding them goes away.

So, Entain is leaving Eastern Europe including Poland and Croatia, but if my source is correct then Entain is going to start looking at all the markets it currently operates and may stick to the three markets it knows it has the most potential growth, namely the UK, Ireland and North America.

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