The commencement of a thorough strategic evaluation by gaming group 888 Holdings PLC marks a pivotal moment as the company explores various avenues to enhance shareholder value. Initiated on March 6, the review will consider a gamut of potential alternatives, which notably includes the full or partial divestiture of its US business-to-consumer (B2C) activities. In addition to this, 888 is contemplating a controlled withdrawal from its US B2C operations and is looking into other potential strategic transactions that could benefit the group.
The company has reassured stakeholders that the ongoing strategic evaluation will not have any effect on its existing business-to-business (B2B) partnerships in the United States. Despite not having defined a definitive deadline for the strategic review process, CEO Per Widerström has indicated that shareholders should expect a comprehensive update by the end of March, which will coincide with the publication of the company’s full-year results for 2023.
In a statement reaffirming his commitment since assuming the helm, Widerström remarked, “Since commencing my role as CEO I have been focused on ensuring the group is set up to deliver strong value creation in the coming years.” He acknowledged the intense competitive landscape and scale requirements in the US market, which necessitates sizeable capital investments to achieve profitability.
As it stands, 888 has a presence in four US states, namely Colorado, Michigan, New Jersey, and Virginia. It must be noted, however, that New Jersey is the lone state where the 888 brand is directly featured, with the 888casino being live. The company operates in other states through a partnership with Authentic Brands Group (ABG), which permits it to operate sportsbooks and online casinos under the Sports Illustrated brand — these include the SI Sportsbook and SI Casino in Michigan, and the SI Sportsbook in Colorado and Virginia.
Nevertheless, 888 has identified that the gross profit margin realized from its US operations remains lower than the overall group level, which is a reflection of considerable direct costs associated with operating in the market. These costs emerge from factors like duties, market access fees, and licensing outlays and are further compounded by the intense competition from incumbent operators with substantial financial resources.
Given the challenging circumstances, 888 has come to a determination that its existing structural setup is suboptimal in yielding satisfactory returns. This realization has been a key driver behind the initiation of the strategic review for its US-facing business.
Simultaneously, in alignment with the strategic review, 888 has also agreed to bring an end to its partnership with ABG in a mutual agreement. As per the settlement, 888 will pay ABG $25.0 million in cash from available resources, with an additional $25.0 million disbursed over the span of 2027 to 2029. This resolution is anticipated to result in annual operating cost savings within the range of $6.0 million to $7.0 million over the years 2024 and 2025.
“Our partnership with Authentic has consistently driven strong demand for the SI brand across both consumer experiences and product offerings,” stated Widerström, acknowledging the successful outcomes generated from the collaboration. “However, despite these successes, we have concluded that achieving sufficient scale in the US market to generate positive returns within an accelerated timeframe is unlikely,” he added.
The strategic shift comes in the wake of an announcement made in January of intended staff reductions by 888, which were confirmed to iGB. The company expressed that the decision aligns with its strategy to reach its long-term objectives but did not specify the departments that would be affected by the cuts.
During this period of strategic realignment, 888 disclosed an 8% decrease in revenues for the year 2023, amounting to £1.71 billion. This downturn was largely related to a strategic redirection away from dotcom markets, which the company estimates had an impact of about £80 million on revenues for the year. Despite not immediately attributing this drop to its US ventures, the update did reveal a 16% downfall in international business revenue, which equated to £517 million.
Yet in the midst of this uncertain landscape, 888 upholds a “positive” revenue outlook for the fiscal year 2024. The company has seen a reassuring trend of growth in active players, which bolsters confidence in the potential for robust revenue augmentation in online segments, both in the UK and internationally. Furthermore, 888 anticipates the impacts of compliance and safer gambling initiatives to stabilize beginning February 2024, which should contribute to a more favorable average revenue per user forecast.
December 2023 saw the initiation of a worldwide cost-saving program by 888, ambitiously targeting savings of £30 million. Supported by investments in automation and AI-driven data analytics, the program aims to empower the company’s core competencies. The anticipated cost savings are projected to allow for escalated marketing expenditure in 2024, which could enhance long-term profitability despite forecasts suggesting that adjusted EBITDA in 2024 might land at the lower end of consensus expectations.
The restructuring and strategic recalibration fall under the oversight of Widerström, who took over as CEO in October 2023. However, he will undertake this transitional phase without the aid of recently departed Chief Commercial Officer Phil Walker, who exited the role in January after a short six-month tenure. Other notable changes to the 888 executive suite in recent times include the appointments of Sean Wilkins as Chief Financial Officer, Rik Barker as Chief Information Technology Officer, and Ian Gallagher as Chief Product Officer, among others.
Widerström has strongly communicated his confidence in the company’s trajectory, asserting in January that 888 is well-positioned to achieve deleveraging and to generate robust returns for its shareholders in the ensuing years.
