While the official announcement of her departure was filled with positive sentiment from both sides, it was an unkept secret that tensions had been running high in a problematic period for the operator.
In the week prior to this announcement, the Financial Times reported unrest was growing among investors amid a struggling share price and some contentious acquisitions.
One investor was said to have blamed ‘a headlong rush into M&A’ and that Nygaard-Andersen had “showed a lack of awareness and general understanding of the economics of the business and shareholder sentiment”.
This followed previous outcry from shareholders such as Eminence Capital, which voiced displeasure over the £750m acquisition of Polish operator STS in August.
In a further knock to her legacy, Nygaard-Andersen had picked up the nickname ‘Private Jette’ within the finance and audit teams as a result of her utilisation of the aircraft.
While that particular tag is seen by some in the industry as unfair and irrelevant in comparison with the real problems at Entain, it was viewed as a clear sign that Nygaard-Andersen was on borrowed time in a position she had held since January 2021.
Non-executive director Stella David has since taken over on an interim basis.
There is little doubt the next person who takes over permanently will be inheriting many operational issues. For a start, Entain is continuing its move towards operating only in regulated markets.
In November, Entain agreed to pay a £585m penalty across four years under a deferred prosecution agreement with the UK’s Crown Prosecution Service regarding its prior operations in Turkey under the management of former CEO Kenny Alexander.
This included allegations of failing to prevent bribery.
There has also been little for shareholders to cheer of late, with the stock at the time of writing standing at £9.79 per share, some way down from the peak of £22.10 in September 2021, and from the £15.03 it was priced at a year ago.
Across the pond meanwhile, Entain’s BetMGM joint venture (JV) with MGM Resorts International has conceded market share to competitors Flutter Entertainment (FanDuel) and DraftKings, with rumours of a fractious relationship and the prospect of the JV reaching its conclusion becoming a realistic possibility.
With so much to tackle in 2024, there will be no shortage of tasks on the new CEO’s to-do list, and NEXT.io, with the help of some industry insiders, has been taking a look into how each one could play out.
M&A off the menu?
What was once seen as Entain’s main strength is now viewed as a weakness. The major conglomerate we see today was built primarily on acquisitions from Alexander’s rule, under the company’s previous name of GVC Holdings.
Most notable were the purchases of Sportingbet’s operations in 24 countries in 2013 for around £31m, as well as BwinParty in 2016 for £1.1bn and Ladbrokes Coral in 2017 for up to £4bn.
Despite the senior management team’s attempts to stress how much the company has changed in recent times, particularly with regards to compliance, the M&A trend has continued since Alexander’s departure in 2020 (the group’s name change to Entain came in December that year).
Consensus though is that the team to have taken over from Alexander and Shay Segev (who was COO and then briefly CEO after Alexander’s exit) have lacked the required experience in gaming to spot the right deals at the right price. These should achieve long-term growth, and crucially, a return on investment for shareholders.
When translated into US dollars, the total outlay on acquisitions from Entain in the last three years stands at around $3.8bn, with 13 brands entering the Entain family.
To put that into perspective, Entain’s total group revenue for 2021-2023 (based on Q4 2023 projections) was about $17.4bn, meaning roughly 22% of group revenue has been reinvested in M&A activity.
The list of acquisitions Entain has made since the start of Nygaard-Andersen’s time in charge in January 2021 can be seen in the table below.
The conversions into US dollars are based on the exchange rate at the time the purchase completed.
Some of these acquisitions have proven more successful than others. The STS deal last year is viewed by some insiders as a shrewd investment, despite Eminence Capital’s protestation, building on the market entry into Poland that came with the Totolotek deal in 2022.
On the other hand, the purchase of Unikrn was arguably the most damning for Entain in this period.
Last October, two years after the acquisition, Entain confirmed it had shut down Unikrn’s affiliate programme and was scaling back its B2C operations. Unikrn’s website was shut down on October 20, and the standalone app that was live in Brazil, Canada and Chile now functions as an add-on across Entain’s other online sportsbooks.
Meanwhile, Entain took legal action against the former owners of BetCity in January, accusing them of concealing an investigation being carried out by the Netherlands Gambling Authority (KSA) in the lead up to the sale.
To further illustrate some of the perhaps disjointed nature of Entain’s acquisition strategy, a source close to the Avid Gaming deal told NEXT.io that the Avid Gaming senior management team never had any contact with Nygaard-Andersen during the sales process, which caused surprise.
While correspondence with the CEO of the buying company is not essential for a deal to go through, it is seen as standard practice.
Paul Leyland, partner at strategic advisory business Regulus Partners, offered some defence of Entain in this area: “I think Entain’s M&A track record is the wrong thing to criticise.
“One or two deals, like Unikrn, certainly didn’t make sense, but you could still see the logic in most of them. The problem is the M&A drive came from Kenny and Shay’s time.
“They understood things viscerally as operators and set a strategy of operationally fixing things. You always need the right analysts around you to oversee those things, and I think that is something they lost to a degree.
“The acquisitions they have been making don’t seem bad on the face of it, but if you do it without operational grip, they’re always bad,” he added.
While it cannot be determined what Entain’s future M&A strategy will look like without a permanent CEO in place, it is thought the spending spree should hit the brakes for the time being.
David Brohan, senior equity research analyst at Goodbody, said: “I think they need to focus on what they have. There have been regulatory issues which they seem to be coming out of.
“I think when the White Paper measures come to fruition in the UK, the long list of operators that have taken share with less compliance will find the operating conditions far more difficult, and that should give Entain more opportunity.“I think Brazil is certainly an opportunity they need to focus on too, but I don’t think they will do any M&A for the foreseeable,” he added.
Impact on performance
When looking at Entain’s bottom-line numbers, you would not necessarily see a company in dire straits. Group revenue for 2022 was up 10% to £4.3bn, and this is expected to have risen to between £5.5bn and £5.7bn for 2023.
The caveat though is the growth has not been organic and was always likely given how much shopping Entain has been doing, albeit with revenue impacted by Entain’s numerous grey-market exits.
With M&A now likely off the table, Brohan foresees more stability.
He said: “The revenue growth they have managed is a result of acquisitions. You only get a one-off hit with that. It feels like in 2024 we will be in a more organised trading environment. Sporting results volatility should be more important than it has been in the last two or three years.”
As mentioned, Entain’s share price has certainly seen better days.
The start of this decline was partially due to a market correction post-Covid restrictions, as demonstrated by Flutter’s share price dropping from a peak of £168.90 in March 2021 to £76.76 in July 2022. In contrast with Entain though, it has since recovered to a value of £164.50 at the time of writing.
Leyland explains the difficulties faced by Entain shareholders: “Sometimes shareholders don’t care if the price doesn’t go up, because a 5% dividend would negate that,” he says.
“But if the stock doesn’t pay a dividend and also doesn’t show sustainable growth, you lose the dividend and share accretion. You could want long-term value creation, but what does long-term look like?
“Even if someone says they can double the price of the stock, it’s not good enough if it already halved. If there’s no dividend because of the M&A, then you become frustrated with the M&A.”
So what must happen for the outlook to improve for shareholders?
“The first thing they need is for Entain to appoint a strong CEO,” said Brohan. “They also need profitability in the US and evidence that this is really a market that works.
“I think a high single-digit percentage market share on sports is a reasonable target. The Flutter vs Entain investment argument would be that Entain offers the same for cheaper, and with Flutter’s share price now back above £160, Entain is a hell of a lot cheaper, but they must start producing better results soon,” he added.
In July 2018, just two months after the Professional and Amateur Sports Protection Act was overturned, GVC and MGM Resorts International entered a 50/50 joint venture to create an online gaming platform in the US, which launched the following year.
That joint venture is set to reach its sixth birthday this year. But with US states starting to mature, Flutter has taken a clear sports betting market lead across the US via its FanDuel brand.
For 2022, Flutter’s US revenue totalled $3.12bn, while BetMGM’s US net gaming revenue came in at $1.4bn. For 2023, BetMGM’s US net gaming revenue reached the top end of guidance at $1.96bn.
While this would show some progress, Flutter has forecast £3.75bn ($4.7bn) in US revenue for last year, and DraftKings’ revenue guidance for the same period was about $3.7bn, leaving BetMGM very much chasing up an established duopoly.
In light of the struggle to compete with Flutter and DraftKings, speculation of a potential parting of the ways between MGM Resorts and Entain has abounded.
Fuel was added to the flames by Nygaard-Andersen at G2E last October when she said “joint ventures don’t last forever”, while speaking on a panel with MGM Resorts CEO Bill Hornbuckle.
NEXT.io understands senior management at MGM Resorts have grown increasingly frustrated with how the JV is playing out. Publicly, they remain committed, however.
There is a lingering feeling of disappointment that MGM Resorts has been left in a position where it does not have full control of its online fate in the US.
The possibility of one party buying the other out of the JV has been mooted, but would be difficult to execute.
Brohan said: “Would Entain really want to miss out in the long term? Would MGM have to build their own tech? I wouldn’t be pinning any short-term hopes on a buyout, but I would also say if things don’t improve for BetMGM in the US this year, it’s probably too late to compete with Flutter there.”
Leyland, meanwhile, admits that Nygaard-Andersen’s comment was not a wise one to make publicly: “It’s like standing up at your wedding and stating one in two marriages end in divorce, but you’re going to give it a go.
“I think it’s very difficult to see this playing out well for either MGM or Entain. The problem with JVs is the dependency on a number of levels. If Entain struggles, that can fix things for MGM, because it would make it easier to buy them out, but it would not be good for Entain shareholders.”
Will the hunter become the hunted?
While Entain’s M&A activity has only moved in one direction thus far, the possibility of Entain itself being acquired has not been ruled out, even if unlikely in the short term.
There is some history in this regard, after MGM’s $10bn offer to buy Entain in 2021 was rejected. Later that year, DraftKings walked away from the opportunity of acquiring Entain for $22bn.
The Mail on Sunday reported in January 2023 that a new approach for Entain was being considered by MGM Resorts, but nothing concrete has materialised to date.
Brohan believes that MGM Resorts is still likely to be in pole position if Entain does end up being sold, but a private equity buyout could also be on the table.
Operational grip needed
The route Entain will take to find Nygaard-Andersen’s successor remains unclear.
Both internal and external appointments are seen as possible, but Leyland suggests the second-in-command will be key, with CFO Rob Wood currently acting as deputy CEO.
“In situations like this, what you really need is a highly effective COO reporting to the CEO who can take care of the day-to-day issues while the CEO is acting as the face of the company, holding the court without grandstanding,” he said.
“They must together provide leadership, crisis management and credibility. They need to bring back operational grip at a senior level,” he added.
Industry figures are split as to whether a seasoned gaming professional will step in, or whether somebody from outside may prove a stronger choice.
Whatever the board decides, this could have a monumental impact on not just Entain, but the outlook of the entire online gaming industry across the next five years.
Entain, BetMGM and MGM Resorts were approached for comment for this article.