William Hill has had quite tumultuous several years, maybe the most tumultuous ones in the operator’s more than an eighty-year history. In 2016, that burdensome period culminated in the company lowering its operating profit forecast, ousting its CEO, and walking out of two multi-billion merger and acquisition deals that would have either improved its uncomfortable state or made it even more uncomfortable.
Founded in 1934, William Hill has firmly established itself as a leading bookmaker and gambling operator, as a whole. Over the past eight decades, the company has seen the gambling industry rise and fall, has risen and fallen with it, has played an important role in its evolution.
In March, William Hill issued a profit warning, saying it expected full-year operating profit of between £260 million and £280 million instead of the originally forecast £280-300 million. Underperforming online division, recent regulatory changes in some of the operator’s core markets, poor sports results – these were some of the reasons it presented as the ones that had affected and would affect its operations and financial performance.
It was no secret to anyone that William Hill has had certain problems with its online gambling division. However, it seems that the problems have become so prominent and protruding that they have contributed to the company’s current state of an operator with a stable retail business but mediocre online business.
What went wrong for William Hill? Who is to blame? What should be done to mend the company’s issues? These are all questions with multiple and complex answers. This article offers several probable explanations based on the way the gambling operator has been acting recently.
A Quick Look at William Hill’s Online Business
William Hill operated its online business together with gambling software giant Playtech between 2008 and 2013. In 2012, the gambling operator announced that it would part ways with its partner by acquiring Playtech’s 29% stake in William Hill Online. The transaction was completed in March 2013. William Hill paid £424 million to establish full control over its online division.
The gambling operator said back then that the deal would accelerate its expansion. To further boost its growth plans, William Hill acquired the Spanish and Australian operations of online gambling operator Sportingbet SBT.L. That transaction, too, took place in March 2013.
William Hill explained the above acquisitions with the excellent performance of its online division in 2012. The company’s financial report for that year showed a 27% rise in revenue from online operations. That contributed to a 12% increase in overall group revenue.
Ralph Topping, William Hill’s CEO at that time, provided the rather ambitious forecast that within a five-year span William Hill would turn into a £5-billion business. The company was valued at around £2.8 billion at that time.
Things looked bright for William Hill and its online division. And they were quite bright. For a time. Now, almost five years after Mr. Topping’s prognosis, the gambling operator’s market cap stands at around £2.4-2.5 billion and its online business has not shown a particularly desirable performance over the past several quarters.
William Hill’s operating profit from online operations decreased 29% to £126.5 million in 2015. The significant drop resulted in a substantially reduced group full-year operating profit. It amounted to £291.4 million, down 22% year-on-year. The operator blamed certain taxation changes introduced by the UK government (the Point of Consumption tax and the increased machine games duty) for its poorer-than-expected performance.
In March 2016, the company lowered its full-year profit expectations on its underperforming online division and worst Cheltenham results in recent history. William Hill has not been the only operator to have faced challenges in establishing its Internet gaming business as a leading one. In fact, a serious number of its counterparts, companies with long experience in the retail sector of the global gambling industry, have met difficulties in transferring retail customers to their online businesses.
William Hill has been putting serious investment in improving its Internet gambling operations, investment that will sooner or later yield positive results with the right operational strategy. In fact, the company said in its third-quarter trading update that its online business has finally shown signs of recovery. Revenue from the division increased 4% in the three months ended September 30, 2016. In addition, William Hill said that it would probably reach the targeted £260-280 million in full-year operating profit.
The operator’s unconvincing performance cost it its Chief Executive. James Henderson, who spent two years at William Hill’s helm and served at the company for more than three decades, was ousted by its Board in July. Shares in the operator dropped 22% over Mr. Henderson’s tenure as a CEO.
A top official’s departure certainly shakes a given company. And William Hill experienced a stream of key officials’ departures. The operator even lost its Online boss – Andrew Lee – in late 2015, a man many believed would succeed Mr. Henderson on the Chief Executive post.
Failed Mergers
After three pairs of top-tier gambling operators announced multi-billion merger and acquisition deals in 2015 and completed the said deals in 2016, William Hill has remained one of the few larger companies to have not paired with an industry counterpart. It is not that the company has not been looking for a partner. As it could be seen it has so far failed in finding one.
Over the past several months, William Hill’s name has been mentioned in relation to two possible transactions that if completed, would have resulted in the creation of a gambling operator with gigantic presence in multiple jurisdictions and diverse product offering.
In August, a consortium between online operator 888 Holdings and land-based and online operator The Rank Group tried to allure William Hill twice. And failed to do so both times. The first offer valued the gambling operator at 339 pence per share, a price it considered too law to even be considered. The Rank Group and 888 showed certain persistence, sweetening their offer to 352 pence per share. William Hill rejected its suitors for the second time, arguing that it could not jump into a deal that was based on “risk, debt, and hope.”
It later on became known that the leading UK bookmaker may have rejected the above offer as it was discussing a merger with Canada’s Amaya at the time it was approached by its UK rivals. William Hill and the owner of PokerStars pursued a £5-billion consolidation that was eventually scolded upon by the UK gambling operator’s lead investor.
Parvus Asset Management Europe Ltd., a privately owned hedge fund that has a £370-million investment in William Hill, strongly recommended that the Board voted against the merger. According to the investor, the company was heading towards an endeavour that would worsen its present condition. Parvus did not deem an Amaya tie-up a profitable opportunity not only because the Canadian company is not as financially secure as it would be good for William Hill but also because its core product – online poker – is one that does not have where to go any further. Eventually, the bookmaker walked out of that deal, too.
Looking at the proposed transactions, they would have both expanded William Hill’s presence in core markets and would have diversified its offering with product verticals in which the company’s previous experience was little to none. However, both deals would have combined entities with heavy burdens to cope with and rather obscure potential for quick profitability.
A Good Merger Partner
Engaging in merger talks not once but twice within a two-month span certainly shows that William Hill is interested in finding a partner. Ladbrokes/Gala Coral, Paddy Power/Betfair and GVC Holdings/bwin.party started a wave of consolidation within the industry and it is only logical that other major operators would follow suit.
The reasons are clear – the industry is bound to become more competitive and more regulated. And although this is a good trend, in general, it does not make things easier for gambling operators. On the other hand, combining operations with fellow gambling companies can significantly improve their chances to find a top place in the global gambling market.
Judging by what has become known about William Hill over the past years, it will most likely look for a partner with a strong online business, probably an operator that is focused solely on the provision of iGaming products. It will look for a company in a good financial state, one that does not carry serious financial burdens with itself.
William Hill is currently present in a number of markets in one form or another. But expansion has become an important part in companies’ growth strategy so a partner with equally expansive global operations will certainly be found a good match for the UK bookmaker.
Conclusion
William Hill has had turbulent several years and so many challenges in such a short period of time can disturb even the strongest company’s operations. The onus is now on the operator to find where it all stems from and stop the rot in due time and manner. Investment in marketing and product verticals as well as a merger or acquisition deal can certainly help the company but only if conducted in a proper manner.
- Author
Olivia Cole
