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Life without sports—betting firms begin to tally up their coronavirus losses

March 21, 2020, 12:30 PM UTC

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Given the relentless spread of death and economic gloom with the coronavirus pandemic, it seems a reasonably safe bet that most people’s reserve of sympathy will have been used up before they get to consider the plight of the bookmaker.

Any yet, the word ‘plight’ is no exaggeration. The $450 billion global industry is reeling from the shutdown of professional sports—from professional soccer and basketball to horse racing—as governments around the world clamp down with increasing severity on mass gatherings.

On Tuesday alone, two of the most prominent U.K.-based industry players issued profit warnings after the British Horse Racing Authority canceled all meetings until the end of April, dashing hopes that it could continue racing behind closed doors until the worst of the COVID-19 outbreak passed.

With that, bookies such as William Hill and GVC, the owner of U.K. high street betting chains Ladbrokes and Coral, lost their biggest money-spinner of the year, the Grand National, which is run every April at Liverpool’s Aintree course. And if the virus in the U.K. continues to follow its expected course (the government’s chief scientific adviser Patrick Vallance estimates the country is three weeks behind Italy), it’s hard to see either the Guineas meeting at Newmarket in May or the Epsom Derby and Royal Ascot meetings in June taking place either.

Although in long-term decline, horse-racing still accounts for a big chunk of a U.K. betting market that was worth 14.4 billion pounds ($16.8 billion) last year, according to Gambling Commission data. GVC said the suspension will take over 20 million pounds a month off cash earnings, excluding any mitigating effects.

Within hours of the Grand National news, the bookies were dealt another blow as UEFA postponed the Euro 2020 soccer championships by a year, denying them another valuable source of revenue. The Tokyo Olympics, more prestigious in sporting terms but less lucrative than either the National or the Euros, still hangs in the balance

All English and European soccer is also now on hold until the crisis passes, leaving the stresses of home-schooling as the only thing stopping habitual gamblers from going mad with boredom. A look at the upcoming events page on William Hill on Friday afternoon offered a choice between the Belarusian soccer league, Australian club rugby and…a table tennis competition. Two days earlier, CEO Ulrich Bengtsson talked up the prospect of customers switching to its “well-established virtual sports” as an alternative. He could do worse than ask the man behind the marble racing videos to provide content.

Betting on the U.S.

This is as much a problem for William Hill as it is for any emerging market country suddenly cut off from the capital markets. It has borrowed heavily in the last couple of years to expand its digital presence and establish itself in the U.S. casino market: an entirely rational diversification away from its British network of high street locations, but one that leaves it vulnerable until that U.S. investment starts paying off. 

With casinos across the U.S. starting to shut their doors due to the virus, that day is now further away than it seemed a month ago. You know your luck’s out when even your good bets go wrong.

William Hill—like many other companies right now—took pains on Tuesday to say that its balance sheet was robust, and that it had still had an undrawn 425 million-pound ($520 million) debt facility to fall back on. 

But access to that facility depends on keeping net debt to less than 3.5 times basic operating earnings (before interest, taxes, depreciation and amortization). At the end of last year, that ratio was 2.4. 

But what happens to EBITDA in the time of COVID-19? William Hill warned that it’s likely to fall by between 100 and 110 million pounds (approximately 40% of what analysts were expecting for 2020) in what might be construed as a central-case scenario, under which the racing ban stays in place through June and the NFL season resumes on time in September. 

Should the U.K. stores be closed for more than one month, it expects a further hit to EBITDA of up to 30 million pounds a month, at which point the company may end up dependent on the 330 billion-pound loan guarantee scheme outlined by U.K. Treasury chief Rishi Sunak on Tuesday. Systemically-relevant bookmakers, please form an orderly line.

“Banks may be happy to overlook (a covenant breach) in the short term, given the circumstances – but that’s not a given,” warned Hargreaves Lansdown analyst Emilie Stevens in a note to clients.

Small wonder William Hill shares fell 26% on the news on Tuesday, taking their losses for the last month to over 75% year-to-date. GVC, which shares many of William Hill’s problems, saw its shares fall 12.2%, to be down 61% on the month.

Both companies may be casting envious glances at other segments of the betting industry. Companies specializing in spread-betting—a phenomenon with its roots in sports but which has flourished in financial markets under the grander name of Contracts for Differences—have so far done far better out of COVID-19. They’ve been able to cash in handsomely on increased volatility in equity, bond and currency markets.

Plus500, an Israeli-based CfD startup that is a member of the London FTSE 250 midcap index, said on Monday that it expects revenue and profit this year to be “substantially ahead of current consensus expectations.” In addition to its normal transaction-driven fees, it said it’s done particularly well on ‘customer trading performance’ – that is, taking the other side of client bets on market movements.

That news was enough to push up the share price of IG Group, the world’s largest CfD provider, by nearly 4% on Tuesday, making it nearly more valuable than Hill’s and GVC’s together.  What odds on both, or either, surviving the year of COVID-19?

More must-read stories from Fortune:

—This famed economist doesn’t think we’re headed for another Great Recession
—These estimates of how much COVID-19 will hurt the economy are terrifying
—With the markets in turmoil, the ECB readies a bond-buying bazooka
—Here’s where Goldman Sachs predicts the stock market will bottom out—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO
—WATCH: What’s causing the looming recession

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