Road to ICE 2024: Entain’s sports betting acquisitions spark trouble

2023 was a tough year for Entain, with its heavily pursued strategy of sports betting mergers and acquisitions leading to questions over the company’s future, ultimately costing chief executive Jette Nygaard-Andersen her job.

Entain acquired Polish sportsbook operator STS Holding in August, before also finalising its purchase of Angstrom Sports in October. While those two deals were outlined as particularly beneficial by Nygaard-Andersen, she was out of a job before the full potential of the moves could be reached.

Nygaard-Andersen, who had led Entain since January 2021, resigned in December amid growing pressure, in part down to her use of the company plane, but largely because of the several expensive acquisitions made under her tenure.

Nygaard-Andersen’s exit was another sign of the waning confidence in Entain, which manifested itself again when new investor Corvex called for further changes to fix the “unacceptable” performance of the company.

Entain’s sports betting M&A strategy

As part of its ongoing growth strategy, Entain placed a large emphasis on acquiring businesses it felt could boost its market share worldwide.

One of those was the £203m (€237.4m/$257.9m) purchase of sports modelling, forecasting and analytics specialist Angstrom Sports in October. The acquisition, Entain says, makes it the only global operator to offer in-house forecasting, analytics, risk and pricing for US sports betting markets.

At the completion of the deal, Nygaard-Andersen outlined its particular benefits for BetMGM, a joint-venture between Entain and MGM Resorts, in the US.

However, eyebrows were raised in August when BetMGM launched its brand in the UK, in partnership with LeoVegas – and not Entain. That means BetMGM UK is directly competing with Entain’s UK brands, which include LadBrokes, Gala and Coral.

The Angstrom move happened in the wake of a £750m purchase of Polish sportsbook operator STS Holding, another deal made in Entain’s acquisition-driven expansion in Central and Eastern Europe. This followed a November 2022 deal to purchase Croatian gaming and sportsbook operator SuperSport Group for €690m.

Sports betting was not the only industry in which Entain utilised its hefty M&A strategy to varying success. Having acquired esports-focused operator Unikrn and rebranded it in December 2022, by the following October it had announced it would be scaling back direct-to-consumer operations with Unikrn.

Entain enjoys mixed success

It would be amiss not to note Entain’s Q3 update, in which it reported a 7% increase in net gaming revenue, as well as year-on-year growth across all business sectors.

Revenue was 9% higher than the previous Q3, largely down to an impressive 14% rise in online gaming revenue. Retail was also up 4%. However, Entain’s online sports betting segment only increased 1% in revenue.

BetMGM continues to perform well in the US, with its $458m in revenue for Q3 an 8% jump. BetMGM also has 18% share of markets in which it operates, excluding New York.

Entain hailed a successful start to the NFL season, which it put down to the “significant” investment it had made in improving the customer experience with BetMGM.

Some losing faith in Entain

Despite those successes, the questions over Entain’s future continued to build as 2023 went on, in part down to the company’s December agreement of a £585m financial payment with the Crown Prosecution Service over historic activities in Turkey.

Entain’s Q3 update of BetMGM holding an 18% market share in US states in which it offered online sports betting and igaming was level with Q2, and only slightly ahead of the 17% recorded in Q1.

This stagnation led to investment bank and financial services giant Goldman Sachs downgrading Entain from buy to sell, with concerns over business growth. Goldman Sachs pointed to regulatory headwinds, increased competition and market dynamics as the reasons for its downgrade.

Nygaard-Andersen’s resignation threw Entain’s future into further doubt, stepping down after criticism over her leadership. A recent report in the Financial Times suggested contention within the group prior to her depature. Criticism from previous and current executives and investors focused on Nygaard-Andersen struggling with slow revenue growth.

Activist hedge fund Corvex Management, which acquired a 4.4% stake in Entain in December, labelled Nygaard-Andersen’s departure a “necessary” first step. However, Corvex also called for further changes following an “unacceptable” recent performance by the group.

In terms of Entain’s future plans, its Q3 trading update saw it discuss Project Romer. This outlined 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.