In a significant shakeup of its US strategy, 888 has entered into an agreement to sell certain consumer-facing (B2C) assets to Hard Rock Digital. While specific details of the assets involved in the transaction have not been revealed to the public, nor have the financial terms of the deal been disclosed, the anticipation is high as the industry observes this strategic maneuver. 888 anticipates that the sale will reach completion in stages, with finalization expected by the fourth quarter of this year, pending necessary regulatory consents.
This divestiture decision arrived shortly after 888 initiated a strategic review in early March. During this introspective period, 888 considered a range of “potential alternatives” in a bid to enhance value across the group. Among the options scrutinized was the partial or total divestment of its US B2C operations. Notably, the group has clarified that this sale will not influence its B2B agreements currently operational within the US.
The review revealed a gross profit margin in the US below the group’s average, attributed to the substantial direct costs, including duties, market access fees, and licensing expenses. These financial encumbrances further exacerbated by the competitive presence of well-established incumbent operators, led 888 to conclude that the existing operational model hindered the optimal return on investment.
Following the review’s findings, 888 had even contemplated a controlled withdrawal from the US B2C market. Therefore, the partial asset sale to Hard Rock Digital appears to align with a tactical retreat from the region. For the remaining B2C segments, 888 has begun a phased withdrawal, with plans to cease all such operations by the end of the year, again subject to regulatory green lights.
The impacts of exiting the US B2C sector are projected to generate an annualized Adjusted EBITDA benefit of approximately £25.0 million, which 888 sees materializing from the year 2025 onwards. Plans are in place to reinvest £10.0 million of these savings into growth and value creation initiatives. However, 888 expects to shoulder net one-off cash costs amounting to roughly £40.0 million due to the exit, including a brand license termination fee, with payments spread between 2024 and 2029.
Currently, 888’s operations span across four US states: Colorado, Michigan, New Jersey, and Virginia. Only New Jersey features the 888 brand prominently, with the 888casino actively engaging customers. Meanwhile, other operations, branded under partnerships, for instance, with Authentic Brands Group and its Sports Illustrated brand, extend to SI Sportsbook and SI Casino in Michigan, as well as SI Sportsbook in both Colorado and Virginia.
As part of reshuffling, the mutual termination of the partnership with Authentic Brands Group was agreed upon, for which 888 will compensate through cash payments totaling $50 million over a stretched timeline until 2029.
Financial targets released this week by 888 already incorporate the effects of these US B2C exits. According to recently published full-year results for 2023, the group saw revenue increase from £1.24 billion to £1.70 billion, with adjusted EBITDA climbing from £217.9 million to £308.3 million, reducing net losses from £120.5 million to £56.4 million.
During an earnings call, CFO Sean Wilkins acknowledged a disappointing performance, but CEO Per Widerström heralded “a new chapter” with the proposed rebrand to ‘Evoke,’ subject to shareholder approval at the upcoming AGM. Widerström believes that while 888 boasts strong customer-facing brands, Evoke could signify a definitive strategic direction.
Additionally, a newly announced Value Creation Plan (VCP) underscores the ambition to optimize costs further, delineate market strategies, increase efficiency, and exercise more disciplined capital allocation. The plan includes the formulation of six strategic pillars and a commitment to achieve an adjusted EBITDA margin expansion of approximately 100 basis points annually.
The announcement of these sweeping modifications underlines a transformative period for 888 as it eyes a sustainable, value-driven future with its reimagined identity and streamlined operations.
