Key Points
- UK and Ireland online revenue managed a 14% leap in Q3, snatching victory from the jaws of defeat despite a pretty nasty doubling of gaming duty in that same time.
- Brazil, on the other hand, slumped 36% before Lula basically shut down fixed-odds betting and online casinos back in September.
- As for the firm’s outlook, well, that survived, but their underlying EBITDA numbers now suggest they’re at the bottom of that £910m to £960m bracket.
The UK Keeps Entain Afloat While Brazil Hits the Skids
Entain’s third quarter was a tale of two different markets, and one of them has just gone and banned the things the company sells. Overall revenue actually rose a measly 2% in the three months to the end of September, that’s according to the latest trading update from Entain. And we’re talking CC (constant currency) figures here, with the company having sold off the CEE part of the business by now.
Online revenue went up by 3%, and that was mainly down to an 8% hike in gaming revenue, but the sports side of things actually took a 3% hit. Leave Brazil out of the picture and online revenue jumps by 5% for the quarter. You see, some other reports have been bandying about the number 8 as the online growth (year-to-date, of course), but that’s actually the year-to-date online growth, not the actual Q3 figure.
Entain’s chief executive Stella David seemed pretty happy about all this. “I am very pleased with the way Q3 turned out. It really does show how good our execution has been and the resilience of the business in general,” she said.
Gaming Duty Doubled to 40%, and Yet Gaming Still Manages Growth
The UK market actually turned in a pretty good performance, one that even managed to beat Entain’s own expectations. UK and Ireland revenue rose by 8%, which is impressive stuff, especially when you consider that the online side of things more than pulled its weight with a 14% jump. Online gaming alone rose a hearty 17%, which is little wonder given that online volumes jumped by 15% as Entain gained market share.
That bit about online gaming matters most since that is where the tax landed. Remote Gaming Duty went from 21% to 40% on 1 April this year, and according to the HMRC duty changes, a new 25% rate kicks in next year on most remote betting, except, of course, horseracing in the UK.
Jobs are starting to get hit in the face already. In September, Entain started consulting on the possibility of removing up to 400 Customer Care jobs (out of a total of roughly 2,000) because of higher taxes in the UK. The same report observed that the Treasury is even modelling higher slot machine taxes, after a think tank floated the idea of doubling Machine Games Duty on Category B machines all the way to 40%.
That explains the quite stern warning from David on Thursday: “We urge the UK Gov to carefully consider any further gambling tax increases which would threaten the viability of a lot of shops, jobs and livelihoods,” she said.
As for the shops themselves, well, they seem to have held up all right on their own for the meantime. UK and Ireland retail revenue rose by 1%, or 3% on a like-for-like basis once closures are excluded.
Brazil: From Licensed Market to Provisional Ban
Outside the UK, there was trouble too. International revenue was down 4%, weighed down by a 36% fall in Brazil due to reduced marketing and player engagement ahead of the ban, reported Proactive on Thursday.
Brazil was never an easy market to begin with. Brazilian NGR had been down 25% at constant currency in H1, as Entain disclosed in its interim results on 31 August. This was due to early poor sports results and competition, as reported.
Licensees will not be receiving their license fees back. While the measure was effective immediately, it requires approval by Congress within 120 days for it to become official. Reuters pointed out the ban is putting additional pressure on an industry that was already struggling due to high costs and regulatory pressures.
Football Results Dampened the Quarter Silently
There was the Brazil issue dominating the news, but then again, there was football which quietly did more harm. Favourable football results in August and September completely erased July’s excellent sports margin. Entain estimates that it caused a 1 to 2 percentage point margin headwind, which equates to a 4% online headwind.
Other markets remained stable. New Zealand, Spain, and Canada all had double-digit online growth. Australia grew only 1%, which was in line with expectations as its revenue had gone up by 12% in the first quarter, according to InfoPlay in April.
Guidance Stays, But Just Barely
Entain left unchanged its guidance from 28 September, set after the announcement of Brazil’s ban. It expects its online revenue to increase 4% to 6% in 2026, or the upper end of 5% to 7% if Brazil is excluded. Underlying EBITDA is estimated to fall into the lower end of £910m to £960m.
Assumptions of the forecast are that the ban would last throughout the whole year, and previously provided figures show how close it is to reality. In the first half of the year, the underlying EBITDA fell 2% to £479m, and net debt amounted to £3,599m at the end of June.
Entain’s US joint venture BetMGM reaffirmed its forecast of revenue between $2.9bn and $3.1bn and adjusted EBITDA between $300m and $350m. The latter number is expected to come closer to the former one. The 20% share of Entain CEE to EMMA Capital is expected in Q4.
Three Deadlines Are Now More Important Than Trading
Looking ahead, Brazil’s legislature has to decide the fate of the ban during its 120 days. The UK Budget will determine whether the machine duty for Category B machines is increased further. MGM Resorts will report earnings on 28 October, giving investors new information on BetMGM.
The market remains cautious. Shares declined 39% in the year to August, according to Interactive Investor, while FTSE 100 rose 18% over the same period.
Expert Analysis: Entain’s Greatest Number Is Also Its Biggest Problem
We consider the 17% rise in UK online gaming the most harmful number from Entain’s report this week. Those ministers who doubled the tax can interpret the number as evidence that it did no damage. According to our view, this interpretation is incorrect, and Entain’s own numbers explain why.
Revenues and profits are moving in opposite directions. In H1, the online NGR was up 7%, while online underlying EBITDA fell 5% to £395m. Entain stated that the company’s revenue gains were completely offset by the increase in UK tax. It means that growth on the shop floor did not translate into the bottom line.
We criticise Entain’s narrative itself rather than the Treasury here. The company mentions shops, jobs, and livelihoods, which are indeed important, but it rarely opens with UK margins. If Entain wants to win the debate, we believe that it should speak about UK profits, not just growth.
Another issue, albeit one that not many people like talking about, is that higher taxes may be helping the largest players consolidate the market at the expense of smaller rivals. Reuters reported in August that those duties had pressured Entain’s competitors, such as Evoke. We have no proof that tax consolidation happens but Entain’s share gains do fit this pattern.
Brazil, in contrast, needs to stop discussing and start paying attention. The operators relied on the agreement made by a sitting president, and now he changed it in three years without any refunds. The risks of the players going to unlicensed gambling sites are high.
Our conclusion is straightforward: political risks in gambling are shifting even faster than guidance ranges. Entain held its guidance this time, but the next test comes from Brasília and Westminster.
Explore more:
Share
5 views
