Gambling recovered from Covid, but could now be laid low by legal hurdles

The house always wins, even in the midst of a pandemic. In the early days of lockdown, as the stock market lurched into stomach-churning freefall, the share prices of Britain’s gambling powerhouses also tanked.

The cancellation of sports events cut off the steady revenue stream that many had come to enjoy, not just from horse racing but, increasingly, from football betting, which typically involves small stakes but extremely high volumes.

With no certainty over the return of sport – and of the football cash cow in particular – the immediate future looked bleak. Since then, two things have happened.

First, football has returned – behind closed doors – and the fixture calendar boffins are making up for lost time by scheduling games more or less every day, with more of them televised than ever before.

Second, firms with a strong offering in areas such as online poker and casino games have enjoyed a significant uptick in website traffic, as the boredom of lockdown helped spur new account sign-ups.

On Thursday, the world’s largest online gambling firm, Flutter Entertainment, will update the market on its performance in the six months to the end of June.

Flutter – the owner of Paddy Power Betfair – has been one of the most resilient performers in the sector, thanks to its scale and diversification in both geography and the products it can boast since its $6bn mega-merger with Canada’s The Stars Group, which includes Sky Betting and Gaming.

While some UK rivals such as William Hill still rely all too heavily on UK sports betting customers, Flutter has an array of impressive arrows in its quiver.

The deal with Stars saw it acquire PokerStars, one of the leading global brands, as well as a sizable presence in Australia and an improved casino range. This, according to Russ Mould, investment director at stockbroker AJ Bell, made Flutter one of the firms “best-suited to helping or entertaining the UK’s population while it was under lockdown”.

Flutter also owns FanDuel, a fantasy sports betting site used by more than 8 million sports fans in the rapidly expanding, newly liberalised US market in which Flutter – like every British gambling company – is trying to establish a beachhead.

“Covid-19 will probably result in a faster rate of US sports betting legalisation, potentially followed by online casino legalisation, in our view,” say analysts at Jefferies.

All of this helps explain why Flutter Entertainment is valued at more than 40% more now than it was at the start of March, while rivals GVC (owner of Ladbrokes Coral) and William Hill have struggled to make up the ground they lost during lockdown.

Industry insiders say management at Flutter have also put in a more impressive performance than their rivals, particularly after GVC’s veteran boss, Kenny Alexander, announced his intention to step down.

Any signs in Thursday’s numbers of a stronger-than-expected recovery in sports betting could provide a further shot in the arm, not just for Flutter but for some of its more sport-focused peers, too.

And yet not all is rosy in the gambling garden, and 2020 could prove to be one of the most important years in the history of the UK industry, a sector which is genuinely world-leading.

So far, firms including Flutter and casino-focused rivals such as 888 have navigated the choppy waters of the pandemic adroitly.

But this year will also see the government kick off its review of the 2005 Gambling Act, the legislation introduced by Tony Blair’s government that gave Britain one of the most liberal gambling markets in the world, and created the industry we see today. There is a broad cross-party consensus that the regulatory pendulum must now swing back in the other direction.

If that happens, as with the pandemic, Flutter’s size and diversification will serve it well.

But it will also make the stakes for its US expansion much higher, and with no shortage of competition for American punters, that is going to be a fierce battle.

Flutter – and the broader industry – have ridden out the coronavirus pretty well but the real dangers still lie ahead.

Source: The Guardian

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