Private equity takes a big gamble in the gambling market

Private equity and venture capital managers are betting big on the global gambling market.

From casinos to sports betting apps, the buyout industry is hoping for luck with a record wave of recent investment in the sector.

Blackstone completed what is expected to become the industry’s biggest-ever deal last month, buying Australian casino operator Crown Resorts in a $6.3 billion takeover after a year continuation of the business.

But it’s not just Down Under where investors are getting in on the action. The regulatory thaw in the United States and hopes for a post-pandemic global recovery are triggering a broader gold rush.

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Casinos are at the forefront of the boom, with redemption shops betting that customers will return to the roulette, poker and blackjack tables as lockdown restrictions ease.

The Crown acquisition comes after a record high in 2021, according to Pitchbook data shared with Financial News sister title Private equity news. Global casino, gambling and betting private equity deal flow reached $6.3 billion last year, up from $1.2 billion in the previous 12 months. Venture capital deal activity also grew from $256.5 million in 2020 to $919 million last year.

US takeover giant Apollo struck several mega deals last year, acquiring Toronto-based casino operator Great Canadian Gaming for nearly $2.6 billion and paying $2.25 billion for the company. operation of The Venetian, one of Las Vegas’ best-known hotels and casinos.

Apollo partner Alex van Hoek said last year that the investment in The Venetian “underscores our belief in a strong recovery for Las Vegas as vaccines usher in a reopening of US leisure and travel. United and in the world”.

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While the predicted economic recovery is helping to boost transactions, PitchBook’s chief private equity analyst Wylie Fernyhough also says the growing demand for casinos is based on the growing revenue streams they offer: gaming revenue, but over the past 20 years, casinos have also completely changed the way they operate.

He explains: “It’s not just the casinos. They’re also typical hospitality companies that rely on other types of entertainment and room revenue, so we’ve seen Blackstone and a few other companies bet really on reopening the global economy and travel and hospitality, and a lot of this has also trickled down to investments in casinos.

Vegas isn’t the only place physical education stores are scouring the market. In the UK, Paul Breen, who works in the licensee leisure team at real estate agency Savills, says he has noticed that “the interest of private equity groups in the casino sector has certainly increased in recent months”.

“The sector has understandably been hit hard by the pandemic, but there’s a real sense of optimism that we’ve seen the worst of any disruption.”

Away from the casino tables, UK betting chains have also caught the eye of private equity firms. Last year, William Hill, which has more than 1,400 betting shops in the UK, was put up for sale by its US owner Caesars Entertainment.

Apollo and CVC-owned German bookmaker Tipico were reportedly in the race to buy the street betting chain, although it was eventually acquired by online casino firm 888 Holdings for £2.2bn .

Sporting ambitions

While some large private equity firms are showing interest in land-based casinos and betting shops, among venture capitalists it is the online sports betting industry that is attracting renewed interest, particularly in the USA.

The Supreme Court ruled in 2018 to strike down the Professional and Amateur Sports Protection Act, which banned state-sanctioned sports betting, with a few exceptions.

The move paved the way for states to legalize betting on sports such as football, basketball, and baseball, opening up a fledgling industry for investors looking for fast-growing opportunities.

“The opportunity in sports betting is just beginning,” says Wayne Kimmel, whose company SeventySix Capital invests in sports betting, esports and sports tech startups.

He explains, “It wasn’t an opportunity until May 14, 2018, when there was only sports betting in one state – the state of Nevada, and specifically Las Vegas. Now you have 30 states plus the District of Columbia that have now legalized sports betting in their states.”

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SeventySix Capital has invested in a range of betting-focused sports companies: in January it backed Odds On Compliance, a technology and advisory firm specializing in sports betting, iGaming and gaming regulatory compliance in the United States. United and abroad.

Kimmel predicts greater growth in the industry as more states legalize sports betting: “We will add 8-10 more states in 2022. We will approach 50 states over the next two years. Again, from this point of view, the market continues to grow bigger and bigger. »

Fernyhough of PitchBook says, “Especially in VC and some other areas of physical education, we’re seeing online gaming starting to open up in the United States in many different states and there’s a path to a widespread adoption and legalization. This opens up a pretty massive opportunity for some capable companies to gain market share.

He adds: “This power law dynamic is in play where there could be one or two winners in each state or region and the spoils will go to those few, so there is a lot of investment activity for try to help strengthen some of these actors. .”

Risky business

While the easing of bans in the US has opened up opportunities, looming UK regulations and concerns over addiction issues also show the risks. Betting companies are coming under increasing criticism from campaigners who warn the industry is not spending enough money to protect people struggling with addiction.

The UK Gambling Commission recently announced that the online slots industry must introduce a series of tough new measures to protect players, and further restrictions are expected in the spring.

Similar crackdowns have emerged across Europe: the Dutch government recently sought to tighten rules against unlicensed online betting operators, for example.

These risks are not expected to subside in the coming months, but despite the controversies surrounding the gaming industry, record levels of private equity investment show that many buyout stores seem to think the odds are still in. their favor.

This article was first published by Financial News sister title Private Equity News

To contact the author of this story with comments or news, email Sebastian McCarthy