Land of opportunity for William Hill

William Hill has been quick to build on its small Nevada-based US presence since the US Supreme Court overturned the Professional and Amateur Sports Protection Act (PASPA) in May. Individual states are now allowed to set their own rules on sports betting and many UK-listed gambling companies are scrambling to get a piece of the action.

In terms of scale, William Hill's progress has arguably been the most impressive following news earlier this month of a partnership with Eldorado Resorts for digital- and land-based sports betting and online gaming across Eldorado’s 21 properties across 11 states. This will give William Hill access to Eldorado’s customer base of 23m. On top of this, Eldorado will soon complete its acquisition of Tropicana Entertainment, which will increase the estate to 26 properties and bring the total number of states to 13.

The 25-year partnership is exclusive for Eldorado, but William Hill is free to work with others. Eldorado will buy $50m-worth of new William Hill shares, and take 20 per cent of its US operations, and a share of the attributable profit (the exact proportion is not yet known, but brokers expect it to be around half).

This latest tie-up follows on from the half-year results in early August, when William Hill announced a new sports betting agreement with 11 casinos in Mississippi and another casino partner in West Virginia to provide technology and risk management services. Broker Shore Capital estimates that revenue from the US sports book could reach a run-rate of $100m by the year-end, equivalent to about a fifth of UK retail revenues, the majority of which will have been built up over just six months.

But William Hill will need every bit of those new US revenues and more to make up for an expected collapse in UK retail revenues and profits. It is highly exposed to a regulation to cut the maximum fixed-odds betting terminal (FOBT) stake from £100 to £2. The company was forced to impair the value of its UK retail assets by a mammoth £883m as a result. And it estimates that total net gaming revenue could fall by between 35 per cent and 45 per cent, while adjusted operating profits could drop by anything between £70m and £100m, which compares with £161m achieved by the division last year – 49 per cent of the total. And the pain does not necessarily stop there as up to 900 shops, or 38 per cent of the total estate, may become lossmaking, prompting closures at a cost of £50,000 to £65,000 a pop – and that's before addressing the thorny issue of exiting leases and selling freeholds.

Regulatory changes in Australia have also forced management to reassess that business, resulting in its sale to CrownBet Holdings for A$300m (£169m) enterprise value in March.

On a brighter note, the online business, which accounts for 40 per cent of adjusted operating profit, continues to do well, with first-half net revenue up 11 per cent.