Sports Betting: The obvious loser
For the first time since the start of the UEFA European Football Championship 1960, the tournament has been postponed one year. The event is also only one in a crowd of sports events that been postponed or canceled during the coronavirus outbreak. Including major leagues like the Premier League in Europe, NBA in the US, and several more events that usually attract millions of viewers worldwide. It’s on a magnitude that has not been seen since World War II and will, of course, have a massive impact on sports betting revenues in Q2’20.
When visiting any of the major sports betting sites like Bet365, Unibet, Betfair, or WilliamHill, the lack of major sports events becomes obvious. The sports betting offering is dominated by sports events in countries that have yet not been affected by the coronavirus outbreak and E-sport. The number of events is still numerous, and E-sports seems to have a golden opportunity with increased visibility. Furthermore, the large horse racing segment is still an option as well, just like none sport related events such as politics. Nonetheless, as the coronavirus outbreak is spreading across the world, we expect that the number of sports events will decrease further.
We believe that sports betting will decline 60-90% from the pre-corona outbreak level. In the best case, some of the major leagues, probably without an audience, will re-start in June, and until then, there will be some minor sports events that will maintain some sports betting activity.
However, in the worst case, it can take until mid-2021 or longer before the major sports events are up and running. This would have unprecedented financial consequences for the whole sports industry, and this scenario is unlikely as most major commercial clubs in any sport would push for playing without an audience if necessary.
We expect that the major leagues as Premier League will push for a re-start in June due to the large revenues from broadcasting that might be lost. For the clubs in major leagues such as Premier League, more the half of the revenues come from broadcasting rights, which can be compared to a small league as Allsvenskan (Highest football division in Sweden) where 10-20% come from Broadcasting rights.
In conclusion, we expect the sport betting revenues have started to decline from mid-March and will settle around a level 60-90% below normal, depending on the number of events and popularity. There is a good chance that we will see several sports events go live again from June without an audience if the event can attract enough broadcasting revenues. This will rapidly increase the betting activity. However, this should still be seen as the best possible scenario. The only positive effect for the online related sports betting is that some of the land-based sports betting revenues will go online, as people spend more time at home.
Online Casino: The winner
The online casino offering seems to have all the prerequisites to benefit from the coronavirus outbreak. The land-based casinos are closed in many countries, and in those that are still open, a large part of the population stays at home. As online penetration is around 20% globally, we can expect that the online segment will gain much when some of the land-based bets go online. Furthermore, with fewer sports betting alternatives, due to the cancel events, we also expect that sports betters, to a larger extent, will play on casino products instead.
With both these effects, we would expect a significant increase in player activity among online casino operators. However, so far, most of the companies with high exposure to the casino segment in Europe has not seen any significant increase in player activity. We can only speculate why the effect has not been seen yet, but everything points towards a boost going forward. In fact, several American operators have already seen a wagering increases of more than 40% in New Jersey and Pennsylvania, according to The Wall Street Journal.
If the lockdown of the community continues and people are maintained isolated with limited social contacts, to hamper the spread of the virus, we expect that social engagement online will become more and more important. This should benefit the casino games with social elements, such as Live Casino and Poker.
However, the regulatory landscape is complex, and in some countries, the closing of land-based operations might lead to complications for the online operations as well.
In conclusion, we expect to see an increase in activity for the online casino segment and especially for those games with social elements, such as Live Casino and Poker. In countries with low online penetration, the effect should also be more substantial.
We have to remember that there is an end to the coronavirus outbreak, and life will then start to return to normal. Sports betting events will re-start, and land-based casinos will re-open, which will bring back online casino activity closer to normal levels.
However, looking beyond the coronavirus outbreak, there is a significant risk of a global recession that may last for years. The online gambling segment and local land-based gambling are known to be relatively immune to the harmful effects that come with a recession. The exception is land-based casinos in resort destinations, such as Las Vegas and Macau.
During a recession, people decrease consumption due to the uncertain financial outlook and lower disposable income. Consumers especially cut on more significant expenses, such as traveling, which directly impact land-based casinos at traveling resorts. Meanwhile, online gambling is able to compensate by benefiting from increased boredom and people spending more time at home due to unemployment.
Valuation perspective and share price development
Despite the expected positive effects on online casino during the coronavirus outbreak and the relatively recession-resistant character of online casino. The valuations have dropped more than the OMXSPI index the last month, even when excluding those companies with sports betting focus that had a median of -56%. One other important factor is the companies financial positions. The companies with net debt had a median share price development of -42%.
In conclusion, we are not surprised that Evolution Gaming´s share price has performed better than both the index and the median. The company focuses on Live Casino with social elements and has a strong financial position. Meanwhile, Kambi´s share price is hurt by its sports betting focus, and Catena Media has a challenging financial position. Nevertheless, we believe digital solutions, high casino allocation, and recession-resistant character should benefit the online gambling sector more than what the share price development indicates. Furthermore, sooner or later, life will start to return to normal, and then some of these losers will become winners.
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