Fancy a flutter on gambling shares? Esports boom set to boost UK firms

Counter-Strike, a video game in which counter-terrorists battle agents of chaos, frequently features in esports.

These are the contests between players, in front of live and online audiences, on which it is increasingly popular to bet. So popular, that by 2027 the global market is forecast to be worth £150billion.

Even if you would never care to join an esports competition, or wager on its outcome, you may now be considering taking a stake in this new form of gaming.

Shares in Entain stand at 1849p, but Peel Hunt, the broker, has set a target of 2000p, driven by the view that the US market in betting both on esports and real sports is a field of opportunity

Shares in Entain stand at 1849p, but Peel Hunt, the broker, has set a target of 2000p, driven by the view that the US market in betting both on esports and real sports is a field of opportunity

Jette Nygaard-Andersen, chief executive of the Ladbrokes owner Entain, no longer plays Counter-Strike. She wasn’t fast enough, or so she says. 

But she is moving rapidly to benefit from the growth in esports gambling, striking a deal this month to acquire Unikrn, a US platform.

Could the Unikrn purchase discourage the Las Vegas casino operator MGM from making another bid for FTSE 100-quoted Entain? 

Although MGM failed in an £8billion approach earlier this year, rumours persist it will return, although in the interim, Entain’s market capitalisation has leapt to £10.8billion.

Shares in Entain, whose brands include Coral and Foxy Bingo, stand at 1849p, but Peel Hunt, the broker, has set a target of 2000p, driven by the view that the US market in betting both on esports and real sports is a field of opportunity.

One motive for MGM to re-enter the fray would be the chance to gain full control of online gaming and sports betting business Bet MGM, its US joint venture with Entain, which is just one of the links in the web of relationships between American and British gambling groups. 

In April, Caesars Entertainment, the Caesars Palace casino group, bought William Hill, while Bally’s Corporation, another casino operator is close to a merger with Gamesys, the FTSE 250 online gaming company.

You may abhor gambling and the addiction it can cause. This newspaper’s campaign against predatory companies has been applauded by many, and you may decline to invest in the sector on moral grounds.

Or you may be keen to take a chance on the gaming explosion, but concerned that tougher regulation could follow the Government’s review of legislation.

Current gambling laws were enacted before the smartphone became the casino in everyone’s pocket and there is alarm over the numbers of younger people who began to gamble online during lockdowns.

Esports contests, in which video games players battle it out in front of live audiences, are becoming so popular to bet on, that by 2027 the global market is forecast to be worth £150bn

Esports contests, in which video games players battle it out in front of live audiences, are becoming so popular to bet on, that by 2027 the global market is forecast to be worth £150bn

But it’s still worthwhile monitoring the developments in the sector, since they are yet another example of the controversial eagerness of US companies to buy British businesses, cheaply if possible, and exploit their expertise.

The British and Irish have huge know-how in the sports betting area, as illustrated by the rise of Fanduel, which is already America’s largest online betting name, but gaining new customers ‘at an unbelievable clip’, according to Amy Howe, its interim chief.

Flutter, the Irish group behind Betfair and Paddy Power, owns 95 per cent of the company.

The US supreme court permitted sports betting beyond Nevada in 2018, enabling states to strike revenue-sharing agreements with gambling companies. New York is set to be next and Fanduel is confident that it will become an approved operator.

However, Fanduel’s planned Wall Street flotation has been postponed following legal action from Rupert Murdoch’s Fox Corporation. 

The dispute centres on an option granted to Fox last year to acquire 18.6 per cent of Fanduel, based on a valuation of $11.2billion, rather than the estimated current $18billion.

As a shareholder in Fox, I am watching this row with interest, intrigued to see it has not dimmed the rumours that Flutter, whose shares are rated a buy by both Bank of America and Deutsche Bank, may also be a takeover target.

Russ Mould of AJ Bell says: ‘I would never say never to a bid for Flutter, but at £25billion it is a really big fish to try to swallow. The question is: who has the balance sheet, cash flow and firepower to fund the deal?’

Mould also suspects MGM will resume its pursuit of Entain.

Despite the burgeoning of online gambling, many UK funds and investment trusts steer clear. 

Ben Yearsley of Shore Financial Planning believes this is a decision prompted by ESG (environmental, sustainable and governance) requirements, but says: ‘Entain is a top 10 holding at Aberdeen Standard Investment’s UK Income Unconstrained Equity.’

Other options for investors include the Betz Exchange Traded Fund (ETF) from Roundhill Investments, which holds Entain, Flutter and the technology business Scientific Games.

The US Ark Next Generation Internet ETF, run by star manager Cathie Wood, holds two gaming technology companies – Roblox and Skillz. However, this fund is now being shorted by Michael Burry, the manager made famous by the film, The Big Short.

A reminder that while all investing may be viewed as a punt, the gambling sector itself can be particularly risky as well as exciting.

Share of the week – Deliveroo 

It’s been a long way back for Deliveroo, but this week the food delivery firm’s shares hit their float price again.

It listed at 390p in March but was dubbed ‘Floperoo’ after the stock crashed by a third on its first day.

Now the shares are close to that level, having closed at 395p on Wednesday. They were slightly lower at 376.2p yesterday, valuing the firm at £7billion.

That follows a near-70 per cent rally from lows of 228p in April, compared to a 13 per cent drop suffered by rival Just Eat Takeaway over the same period. 

Along with continuing strong demand for takeaways, analysts have pointed to another compelling reason for this.

Following the boom in online groceries during the pandemic, investors are eyeing up a lucrative sequel: rapid grocery deliveries. 

These are services where customers can have convenience shopping delivered in as little as 20 minutes, using a smartphone app.

A plethora of British start-ups are battling it out over this space, from Getir to Weezy and Gorillas, but analysts say it is Deliveroo that’s hit the sweet spot. 

It is essentially now marketing itself as a logistics firm to potential partners, and has teamed up with firms such as Waitrose, Morrisons, Majestic Wines and Lloyds Pharmacy.

However, unlike Getir and other rivals, it is not investing in ‘dark stores’ or in buying goods itself. Jefferies says its first-mover advantage has made it ‘the definitive online food company’.

After such a disastrous start, that would be a tasty result for Deliveroo indeed.

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

source: dailymail.co.uk