Leading Las Vegas: A British firm is upending America’s booming online sports gambling market
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Harrison Butker, kicker for the National Football League’s Kansas City Chiefs, connected his right foot with the ball. It lofted high and deep towards the Tampa Bay Buccaneer’s end zone to commence Super Bowl LV in February. As the ball tumbled through the air, money hovered invisibly alongside it, buffeted by currents of possibility. Before the game, bookmakers put the odds that the game’s kickoff would result in a touchback at 77.8%. But Buccaneers wide receiver Jaydon Mickens, who caught Butker’s kick, chose to run instead, returning the ball to Tampa’s 23-yard line and making a tidy profit for gamblers who had wagered against a touchback.
The Super Bowl saw a record amount staked, not just on the game’s outcome, but on in-game bets such as this one. In total, American gamblers placed about $500 million in legal bets, dwarfing the $280 million gambled on the game the year before. Increasingly, those wagers are being placed online. The American Gambling Association estimates that 7.6 million Americans placed Super Bowl bets online last year, up 63% from the year before. In fact, so many online bets flooded in on game day that many digital betting companies couldn’t handle the demand: five of the most popular sports gambling apps experienced outages in at least some states on Super Bowl Sunday.
Among those anxiously watching the action that Sunday was Adam Greenblatt, the 47-year-old CEO of BetMGM. A Buccaneers victory could prove costly: one BetMGM customer had staked $2.3 million on the underdog team (that bet paid off, netting $2 million in profit for the gambler). More importantly, Greenblatt answers to a board jointly controlled by representatives of two tough bosses: Bill Hornbuckle, the CEO of MGM Resorts International, the Vegas-based owner of 31 hotels and casinos, in the U.S. and Asia; and Jette Nygaard-Andersen, the CEO of Entain, a U.K.-based gambling company.
Until last week, few Americans had probably ever heard of Entain. But on Sept. 21, CNBC broke the news that fantasy sports and sports betting company DraftKings was offering to buy the British company for $22.4 billion, an amount greater than DraftKings’ entire market value. The move significantly raised the temperature in the already hothouse online betting industry, where in the past year M&A activity has been brisk. It also sent Entain’s stock soaring 24% and caused DraftKings’s shares to slide about 12%—enough to entice some prominent investors, such as tech stock diva Cathie Wood, who already owned a sizable stake in the sports betting company, to scoop up more. (Entain’s stock has since drifted lower and is now trading at about 13% above its price before the DraftKings news became public.)
The London-headquartered Entain, which was formerly called GVC Holdings PLC, is a global gambling powerhouse. It owns more than 20 sports betting and gaming brands across Europe, Australia, Brazil and elsewhere. Among these are Ladbrokes and Coral in the U.K., which operate betting parlors as well as mobile betting apps, and the digital-only brands bwin, partypoker and PartyCasino.
BetMGM is a partnership between MGM and Entain. Its success is a strategic linchpin for both. That’s because the U.S. market opportunity is massive: by the time the Super Bowl rolls around next year, more than two-thirds of U.S. states are expected to have legalized sports betting. Vixio, a company that tracks gambling and payments regulation, estimates the U.S. market, including both sports betting and digital casino games, could be worth $19 billion in annual revenue by 2025. Entain itself says the U.S. market could reach $32 billion in annual revenue by decade’s end. And it thinks BetMGM could capture at least a fifth, and maybe as much as a quarter, of those dollars.
If you can’t beat ‘em
Super Bowl weekend was a critical test for Greenblatt’s company and its software—and luckily for him, BetMGM mostly passed. The company’s app crashed in Nevada and remained down for much of the game, but it held up better than rivals’ systems in the nine other states where BetMGM operated. Overall, the company’s Super Bowl performance was good enough to help lift it past DraftKings into the number two spot in U.S. online betting market share. So far, BetMGM has managed to maintain that position, behind long-time market leader FanDuel.
DraftKings clearly decided that if it couldn’t beat BetMGM, it ought to buy it—or, at least, it ought to buy the expertise and technology that underpin BetMGM’s success. And much of that comes from Entain. Although operated as a 50-50 joint venture, BetMGM’s pedigree is more Saville Row than Vegas Strip. Key BetMGM executives, including Greenblatt and Matt Prevost, its chief revenue officer, and most of its technology come from Entain.
It’s an example of the British invasion that has played a critical role in America’s rapid embrace of online gambling. In addition to MGM’s partnership with Entain, Caesars Entertainment, another Nevada-based casino titan, recently bought William Hill, a venerable British gambling operator, for $3.7 billion in order to gain access to its online betting know-how. Bet365, one of the U.K.’s fastest growing and most successful gaming companies, is rapidly expanding in the U.S. FanDuel’s parent company, Flutter Entertainment, is based in Ireland, but has its shares listed on the London Stock Exchange. It also has a partly British heritage, having been formed through the merger of Ireland’s Paddy Power and U.K. gambling powerhouse BetFair. “There’s a long tail of U.K.-based tech providers who have made a splash in the U.S. market, or are trying to,” James Kilsby, vice president of the America’s for Vixio’s gambling compliance division.
The U.K. companies have come in armed with a decade-and-a-half experience in online and mobile gaming that their U.S. counterparts lack. Their experience and their technology have made them formidable competitors in the U.S. market and desirable partners for many of casino operators. “Most of these casino companies are really construction, hotel and entertainment companies,” says Chad Beynon, an analyst who covers MGM and other gambling companies for investment bank Macquarie. “They understand the in-person customer experience.” But they are not digital natives. They don’t have the data and systems to easily compete online.
DraftKings is an online native, of course. But it built its business on the back of third-party software. Only in December 2019, seven years after its founding, did DraftKings acquire SBTech, the vendor that had built many of its systems. DraftKings also only offers sports betting, not igaming—the industry term for online games of chance such as poker, online slots and bingo. That matters because while many more states currently allow sports betting than igaming, igaming offers a better return on investment than sports betting due to a higher spend per customer, generally lower customer acquisition costs, and odds that are frequently more heavily in favor of the online casino. In contrast to DraftKings, Entain operates a technology platform it built in-house and that is considered among the best in the industry. The British company is also known for its innovative igaming offerings, which have helped make BetMGM the market leader in U.S. igaming with about a 30% marketshare.
A landmark Supreme Court ruling
Britain, a country whose bookies are famed for their willingness to make odds on almost anything, authorized online betting in 2005. The U.S., as is so often the case when it comes to vice, took a more puritanical approach. A web of U.S. laws enacted over 40 years made sports betting illegal outside of Nevada and New Jersey, and later effectively barred most other forms of online gambling.
But in 2018, a Supreme Court ruling toppled the most formidable of these legal barriers, overturning the Professional and Amateur Sports Protection Act (PASPA), on the grounds that it usurped powers granted to the states under the 10th Amendment. The decision paved the way for the current boom in online gambling. In the past three years, 32 states, plus the District of Columbia and Puerto Rico, have legalized sports betting, with 23 allowing gambling to take place online. By comparison, it took more than 40 years for about 26 states to legalize physical casinos.
The pandemic gave an added boost to the fast-moving legalization movement, as cash-strapped states sought new avenues to refill depleted coffers. “There are a lot of states that are just chasing the money in a very crass manner,” says Keith Whyte, the executive director of the National Council on Problem Gambling. The pandemic also boosted online gambling as those stuck at home during coronavirus lockdowns looked for new forms of entertainment and seasoned casino-goers became converts to app-based wagering.
How it all began
Greenblatt was instrumental in brokering the deal between MGM and Entain that created BetMGM in 2018. The South African-born executive had long-been a wheeler-dealer in the gambling industry, starting as an investment banker at Rothschild & Co. in the early 2000s. When the PAPSA ruling came down, he was serving as the director of corporate development and strategy at GVC, as Entain was called at the time. GVC had just acquired Ladbrokes Coral, where Greenblatt had held a similar role, and where he had developed a U.S. strategy that included a possible tie-up with MGM. After the GVC acquisition, Greenblatt had walked GVC’s then-CEO Kenny Alexander through the logic of a joint venture with MGM. Then Alexander had turned around and offered Greenblatt the chance to lead the new venture.
The rationale behind the partnership was this: MGM had an established brand and a large existing customer base that could be hopefully converted to online betting. It also had experience working with the U.S.’s fragmented regulatory environment. GVC (now Entain), meanwhile, brought to the table its industry-leading technology backbone. Because that technology doesn’t depend on outside software vendors, Entain can more quickly adapt its technology to each new market, according to Sandeep Tiku, Entain’s chief operating officer and the executive that led development of its technology platform. In the U.S., that flexibility matters because rather than being a single market, it is really 50 individual state markets, each with different rules.
Neither of the CEOs who inked the partnership agreement stuck around to see its potential fulfilled: In March 2020, MGM’s Jim Murren stepped down, and Hornbuckle, who was the company’s chief operating officer and oversaw its business in China and Macau, succeeded him. Then in July 2020, Alexander, although only 51 at the time, unexpectedly announced he was resigning. Shay Segev, Entain’s chief operating officer, replaced him but only lasted six months before he too quit. In January 2021, Entain tapped Nygaard-Andersen, who had previously been an independent director on its board, to lead the company.
The 52-year old executive tells Fortune that she took the job because she saw Entain’s growth potential and the chance to revolutionize the industry. Gambling, she believes, will increasingly converge with other forms of media and entertainment. “I knew there was an opportunity to change consumer experiences here, but also change how we are viewed as an industry,” she says. She doesn’t say it explicitly—choosing to speak in a circular way about recent calls in the U.K. for a ban on gambling ads and saying, “that is how the media saw us as a trade, as an industry, and I think that’s wrong”—but she is talking about trying to jettison betting companies’ historical associations with vice and addiction. “Entain is an entertainment company,” she says. “We fight for your leisure time just like the movie streaming services.” (As part of its effort to change public perceptions, the company is pioneering new technology to address problem gambling. Read more on that here.)
That vision plays well to Nygaard-Andersen’s background. Growing up in Denmark, she says she was fascinated by Hollywood and its glamour. Perhaps it was inevitable then that she ended up in the media and entertainment businesses, spending 16 years in various executive roles at the Modern Times Group. The Swedish company was once a major player in terrestrial and satellite television in the Nordics, but more recently refocused on gaming and esports. Nygaard-Andersen wants Entain to play in those domains too: in August, she briefed investors and analysts on a strategy to move into other forms of entertainment, particularly esports and casual video gaming: it acquired the assets of Unikrn, a U.S. esports betting platform, announced plans to bulk up its three in-house games development studios, doubling their headcount, and hired Justin Dellario, who had been head of esports for video game streaming platform Twitch, for a similar role at Entain.
Nygaard-Andersen is not the only one to see this convergence between traditional media and entertainment and sports betting. In late September, Endeavor Group Holdings, a talent agency and live-events promoter, announced it was buying OpenBet, a company that provides sports betting technology to much of the online gambling industry, including both BetMGM and FanDuel, for $1.2 billion.
But traditional sports betting and casino gaming—both online and in its betting parlors—remain Entain’s core, and where it sees the vast majority of future revenues. And U.S. expansion is a key pillar in Nygaard-Andersen’s growth plans. She has high expectations to meet: Entain has chalked up 22 consecutive quarters of double-digit online revenue growth, a figure that puts it alongside better-known technology companies such as Netflix, Airbnb, and DoorDash. “We are extremely excited about the U.S. market,” she says in a Zoom interview from her home in Copenhagen. “We are committed to being leaders in this market.” To that end, Greenblatt vows BetMGM will be present in every state that legalizes online betting from day one. And, he says, the company aims to be the Number One or Two gambling app in each of those states, with a long-term target of owning 20% to 25% of the U.S. gambling spend. So far, it is on target with a 22% share of all U.S. sports betting and online gaming through June.
Things looked less auspicious in BetMGM’s first year. The company made a few missteps—such as displaying sports-betting odds in a European format that confused U.S. bettors. (It now allows players to choose more conventional “American odds” if they wish.) It was late to launch its app in New Jersey and Pennsylvania and, as a result, struggled to gain market share in those states, especially in sports betting. (It has now clambered into third place by sports betting marketshare in those two states, and has the top igaming share.) Some analysts faulted the company for focusing too much on converting gamblers already in MGM’s database to BetMGM as opposed to trying to attract new players (it did eventually create a major ad campaign involving actor Jamie Foxx). For most of 2020, BetMGM seemed a perpetual third behind more established competitors FanDuel and Draftkings.
A few critics questioned whether MGM blundered by tying up with Entain. After all, globally Entain’s strength was igaming. But just five states have authorized igaming, compared to more than 20 for sports betting. Legislators view sports betting more as an extension of sports themselves, and there is lobbying support from professional sports teams and leagues, Kilsby, the regulatory analyst, says. The dynamic with igaming is different, he says, with lawmakers alternately more concerned that online casinos will cannibalize bricks-and-mortar ones as well as state lotteries, or that igaming is more likely to create gambling addicts.
By late 2020, however, BetMGM seemed to be outgrowing its teething difficulties. Monthly revenue jumped five-fold between September and March 2021, as it opened in more and more states. Entain’s igaming prowess began to look like less of a handicap: in states that do permit the online games, gross gaming revenue per igaming customer has proven to be much higher than for sports-betting and customer acquisition costs are lower. Long-term, BetMGM predicts that yearly gross revenue per American adult could average $160 per year for igaming, compared to just $90 for sports betting. BetMGM’s strong igaming revenues, combined with its improving performance in sports betting, are what allowed BetMGM to supplant DraftKings as the second-place gambling app by revenue share. “Remember, compared to DraftKings and Fan Duel, who have been in the market for years through their daily fantasy [sports] product, we actually built this business from scratch,” Nygaard-Andersen says.
By early 2021, the synergies that drove the MGM-Entain alliance began bearing fruit too: 15% of those depositing funds with BetMGM’s app are existing MGM M Life loyalty program customers, according to the March to June 2021 figures from MGM, and BetMGM’s return on marketing investment from those players is more than five times higher compared with customers it had to acquire without the MGM relationship. Overall, BetMGM’s net gaming revenue (wagers taken in, minus winnings paid out and other expenses such as player bonuses and taxes) in the first half of 2021 was $357 million and was growing at close to 20% each quarter. BetMGM says it expects to clear more than $1 billion in net gaming revenue next year.
But that growth has not come cheap. In some states, customer acquisition costs have been in excess of $400 per customer, as BetMGM has had to spend heavily on marketing and partnerships with teams and partners such as Yahoo! Sports. The company lost $92 million in the second quarter of 2021. MGM and Entain have had to commit to investing $450 million to fund the business this year on top of what it spends out of its own earnings, bringing their total investment to date to $660 million. “We’re still in the first inning,” Nygaard-Andersen says. “So, it is two years into the market, and you have a lot of players coming into the market, and the only way to establish yourself is really throwing money after the customer and you will always see that when the market is building.”
Greenblatt says that customer acquisition costs are dropping precipitously as BetMGM enters more states, and it gains economies of scale from nationwide advertising—the figures for Tennessee were 40% of what they were in New Jersey. The company says it can eventually drive average customer acquisition costs down to $250, although that still means BetMGM will need to hold onto those customers for well over a year in order to earn back its investment. Greenblatt projects BetMGM will break even on an operating basis in 2023, based on current assumptions for new states legalizing online betting, and that the company will eventually achieve 30% to 35% profit margins, in line with the rest of Entain’s business.
Zero to 100
For DraftKings, Entain’s technology is a clear draw. Every Saturday—the most-sports heavy day of the week with a flurry of soccer matches, horse races and other major events—the company’s systems handle seven times more transactions in the U.K. than Amazon processes there on Black Friday, according to Tiku, the Entain’s executive who oversees its tech and operations. It can do so reliably—its outage in Nevada on Superbowl Sunday notwithstanding—because the company handles almost everything in-house.
Entain manages its own data centers and employs more than 3,000 software engineers and coders to keep its systems running. The company’s tech “platform” means that any time BetMGM wants to open in a new state, the majority of the software capabilities it needs—from cybersecurity and fraud detection to payment processing and operations monitoring—already exist. As was hoped when Entain and MGM proposed their joint venture, this capacity has made BetMGM more agile in entering new states: tweaks needed to satisfy a particular state regulator can be made in days and weeks, not months. “This is only possible when you have your own technology,” Tiku says because there is no waiting for third-party vendor to deliver or need to renegotiate service contracts.
This same conclusion was likely behind DraftKings decision to acquire its previous tech vendor SBTech. But DraftKings pursuit of Entain may be an acknowledgment that the latter’s technology is in many ways superior, hence the bid, according to a report from Bank of America’s gaming industry analysts.
Entain is also sophisticated in its use of data analytics. It has profiles on more than 160 million players worldwide, and uses that data to train machine learning algorithms to recommend games and bets for customers. “We can understand a new customer with 70% accuracy in less than 12 hours, and, in less than three days, by 90% accuracy,” Tiku says. That’s an ability most of Entain’s American competitors—least of all the legacy casino brands—lack. Data analytics has also helped Entain design igaming offerings tailored to new markets: three games it created specifically for the U.S. market have been among the most popular on BetMGM’s app.
The company hopes the same data analytics will also help it sidestep any regulatory backlash against online gambling. In the U.K., it is trialing a system that uses machine learning to spot warning signs of problematic betting before a player gets into trouble. The company sees this as a key strategic asset as the industry faces increasing concerns about problem gambling in many jurisdictions. It’s part of what Nygaard-Andersen thinks can help turnaround negative perceptions of the gambling industry.
But so far, there’s little sign gambling addiction is a major issue for U.S. state governments. Whyte, from the National Council on Problem Gambling, notes that a third of states have failed to allocate any of the tax revenue they’ve gained from legalizing betting to combating gambling addiction. Kilsby, the gambling regulation expert, thinks views might shift. “It would not be a surprise if we did see some level of regulatory backlash in the U.S. given the zero-to-100-miles-per-hour pace of adoption in recent years, and the aggressive level of advertising and marketing we are seeing,” he says.
As BetMGM has grown, so too has its strategic importance to MGM, and Hornbuckle has grown increasingly interested in ensuring MGM has majority control of the venture. In early January 2020, Entain confirmed press reports that MGM had made an unsolicited bid to acquire not just the entirety of BetMGM, but all of Entain, for $11 billion in shares. MGM also offered that, as an alternative, it could make a partial cash payment to Entain’s shareholders. The offer equated to a 22% premium to Entain’s valuation at the time. But the company’s board, which included Nygaard-Andersen, rejected the overture as “significantly undervaluing the company.” For Entain investors, it proved a wise call—the company’s shares subsequently rose 70%. And that was before DraftKing’s offer, which sent Entain’s shares soaring another 24%.
Rather than raise its offer further, MGM broke off its pursuit of Entain on Jan. 19. Under U.K. law, after abandoning the takeover bid, MGM was required to wait six months before trying again. That period expired in July and many industry watchers had been expecting MGM to make another attempt. “There will be an endgame at some point,” Greg Johnson, an analyst at Shore Capital, said prior to the DraftKing’s bid. “A 50-50 joint venture, long-term is probably not the optimal solution for either MGM or Entain.”
With its $22 billion offer for Entain this month, DraftKings decided it was time to pounce. But MGM has made clear it won’t fold so easily. The casino company issued a statement that its agreement with Entain made MGM Entain’s exclusive partner in the U.S. market, and that it would have to consent to any transaction under which “Entain or its affiliates would own a competing business in the U.S.” It also said “having control of the BetMGM joint venture is an important step towards achieving [MGM’s] strategic objectives.” Critically, it left open the door for a possible deal, saying it would “engage with Entain and DraftKings, as appropriate, to find a solution to the exclusivity arrangements which meets all parties’ objectives.”
Analysts said that while it is possible MGM will attempt to outbid DraftKings to buy all of Entain, it is now more likely the casino group will try to secure complete ownership of BetMGM, perhaps at a bargain price, in return for consenting to DraftKings’s purchase of Entain. (This theory was given a boost Monday when MGM agreed to buy the operating company of Las Vegas hotel and casino The Cosmopolitan from private equity firm Blackstone for $1.6 billion. Bank of America analysts noted that this was not the move a company husbanding cash for another run at Entain would likely make.)
As part of a deal to acquire the rest of BetMGM, MGM would likely seek a long-term license deal from Entain for its technology. Another possibility, analysts say, is that MGM could demand that BetMGM be taken public in a deal that would give MGM majority control. Of course, it is also possible that Entain will reject DraftKings’ offer and try to remain independent, or that, unable to obtain MGM’s consent, DraftKings will be forced to walk away from the deal.
MGM had previously been building up its cash reserves, perhaps in anticipation of another bid. Some of MGM’s largest shareholders were thought to be pushing for a deal: Barry Diller’s digital media group IAC acquired 12% of MGM in 2020, saying it wanted to help MGM do more online. IAC controls two seats on MGM’s board and lent support to the casino company’s earlier offer for Entain. Keith Meister, the founder of activist hedge fund Corvex Management, also sits on MGM’s board and is thought to have backed the earlier takeover attempt.
Greenblatt and Nygaard-Andersen have both insisted that, despite the M&A drama, both Entain and MGM remain fully supportive of BetMGM, and that there’s been no impact on its business. Greenblatt says he has deliberately stayed out of discussions about MGM’s bid for Entain, but that he speaks to Hornbuckle and Nygaard-Andersen multiple times per week about both operations and strategy. “We get terrific support from both MGM and Entain,” he said. MGM declined Fortune’s requests to interview Hornbuckle or other executives for this story. It also declined to comment on speculation that it will make another attempt to buy Entain or buy out Entain’s stake in BetMGM. Instead, it referred Fortune to a statement Jonathan Halkyard, its chief financial officer, made to an industry conference on Sept. 9 in which he said “the extent of our involvement with Entain is as a joint venture partner, and working to make that business as successful as possible.” But of course, that was prior to the DraftKings offer became public.
MGM has more than just DraftKings to worry about. Its other competitors aren’t sitting still. Caesar’s Entertainment announced that it intends to invest $1 billion into online sports betting over the next three years. Its takeover of William Hill, and both MGM’s and DraftKing’s runs at Entain make one thing clear: while British gambling companies are playing a critical role in the rapid development of online betting in the U.S., the same know-how and technology that makes them successful, also makes them vulnerable. The U.S. market is a high-stakes one that no gaming company CEO with global ambitions, such as Nygaard-Andersen, can afford to pass up. But to win, she is having to wager her company’s independence.
September 28, 2021: This story has been updated to clarify Bill Hornbuckle’s role at MGM Resorts International prior to being named CEO.
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