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Americans carve up Ladbrokes owner

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Americans carve up British dice cake
Americans carve up British dice cake

Bill Hornbuckle likes his cards. The MGM Resorts boss, born in Japan, brought up in Connecticut is relaxed about one of his biggest rivals muscling in on his turf, according to those that know him. He could be forgiven for letting the events of the last few days test his nerve, however.

DraftKings, America’s second-biggest sports gambling company, sprung a surprise last week by lodging a £16bn takeover bid for Entain, the British bookmaker with whom MGM has joined forces as momentum gathers behind the US sports betting market.

Some have speculated that MGM may be forced out of the joint venture by DraftKings. But sources close to the Las Vegas stalwart disagree. “MGM is never a seller,” says one deal insider. The Las Vegas firm was a buyer earlier this year, lodging its own £8bn bid for Entain in January. The British company rejected the approach.

Months on, the US gambling gold rush is still in full swing. In 2018, the Supreme Court repealed a ban on sports betting outside Nevada, the home of the Las Vegas strip. Since then, states have been free to legalise gambling, creating what will be the world’s biggest regulated betting market.

US casinos have looked to Britain for expertise in online gambling. For instance, Caesars Entertainment paid £2.9bn for William Hill and Bally’s Corporation will soon complete its £2bn acquisition of Gamesys, the FTSE 250 group behind Jackpotjoy and Virgin Games.

The prospect of Entain being swallowed by the Americans would leave the London stock market with only one bookmaker of scale: Flutter Entertainment, whose brands include Paddy Power, Betfair and Sky Bet.

But Flutter is looking beyond the UK with hopes for a stock market listing across the Atlantic of one its brands. Its boss Peter Jackson is focused on the opportunities stateside, with subsidiary FanDuel having established an early lead in the US sports betting market.

Like FanDuel, DraftKings is one of the new kids on the block. The brainchild of Jason Robins and two colleagues from business card maker VistaPrint, it started out in 2012 as a sports fantasy league website – considered a game of skill rather than gambling.

Though the business is valued at more than $20bn (£15bn), DraftKings is yet to turn a profit and is losing $3.5m per day.

By contrast, Entain generated £710m of operating cash flow last year. This geyser is the main draw for Robins, according to some.

Ladbrokes betting shop - Bloomberg
Ladbrokes betting shop - Bloomberg

“DraftKings primarily wants the cash flows from Entain,” says one talks insider.

But a senior UK gambling executive suggests DraftKings’ interest in Entain’s non-US assets goes beyond cash flow. “Geographical diversification, high cash generation, a world-class tech stack, and good brands,” they say.

One deal insider adds: “It wants to be like Flutter.”

Having the best technology behind online gambling apps and websites is crucial to operators’ success.

DraftKings thought it had secured this two years ago when Robins hailed a merger with SBTech, a company founded by Shalom Meckenzie. The combination would turn one of DraftKings’ biggest costs – licensing SBTech’s software – into a source of growth by selling it to others.

The bet has not paid off, however, gambling bosses say. One US source grades SBTech’s technology as “distinctly C minus”.

A UK executive who has worked with SBTech adds: “[The merger] clearly hasn’t worked and, quite frankly, it is a really poor product … Shalom Meckenzie was a big winner.”

Another insider adds: “I think it is inevitable that you come to this conclusion [that the merger has not been a success].”

Barry Gibson, the former Homeserve boss and Entain chairman, is sitting on the better technology that Robins needs. Gibson is now considering whether the £28-a-share offer should be recommended to his shareholders.

The price has satisfied even some of Entain’s biggest fans in the City. However, other concerns are in play.

Robins’ special shares in DraftKings give him control, despite representing only 3pc of its valuation. A deal partly funded by shares would mean Entain investors giving up influence. The potential power grab is concentrating minds in the City.

Wide-ranging powers for the Government to intervene in takeovers are also seen as a possible risk. Entain is the UK’s 14th biggest taxpayer, and new national security laws are written vaguely enough and are untested enough that some insiders believe ministers could object to erosion of income for the Exchequer.

MGM is the main obstacle, however. Its joint venture deal with Entain, signed three years ago, gave bosses the right to veto any takeover of the British firm.

“If this isn’t the market leader in the US for the next three to five years as this market opens up it will be a failure,” Kenny Alexander, then boss of what became Entain said in 2018.

Mr Alexander declines to comment when asked about his thoughts on the US business now. “I’ve moved on. I’m watching the racing.”

For now, Hornbuckle and his team are watching from the sidelines to see if Gibson and Robins strike a deal. At that point, they would need to come to MGM with a compelling reason to give the takeover its blessing. This will include offering some concessions, sources say.

Senior executives have put an $11bn price tag on the joint venture in recent days – a valuation that likely puts complete control out of reach for DraftKings because it would need to stump up at least $5.5bn in cash. Those close to MGM repeat that it is a moot point, as the operator is not selling.

In fact, it is likely to seek more control of its joint venture with Entain in exchange for allowing DraftKings’ bid to proceed. MGM may demand more seats on the board of their partnership or a greater equity stake.

MGM underlined its strong hand last week.

Any deal “would require MGM’s consent”, it said after DraftKings’ approach was revealed.

“MGM will engage with Entain and DraftKings, as appropriate, to find a solution to the exclusivity arrangements which meets all parties’ objectives.”

The situation is delicately poised. “This could die quickly,” cautions one insider.

But if a deal can be agreed, Entain’s sale would be a watershed moment for Britain as a gambling superpower.

For some this will be the latest example of a UK star to fall into the clutches of a US raider – though one that will not attract the same level of outcry as a supermarket or defence firm.

UK gambling bosses seemed resigned to their fate. Many believe it is the natural order of things – when a country like the US is liberalising betting – while the UK clamps down.

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