30-second summary:
- GVC Holdings bought Ladbrokes in 2018 for about $4bn
- Ladbrokes had posted strong results as of late
- However, the CEO sold 76% of his stake in the company
- The maximum stake on fixed odds betting terminals was slashed
- These two factors led to a mass sell-off, resulting in a share price drop of 18.6% as of March 8
History of Ladbrokes
Ladbrokes Coral Group plc is a gambling company that bases its operation in Britain. It has been in operation since 1886, when it acted as a commission agent for training horses in Ladbrokes Hall, Warwickshire.
It made a significant acquisition in the British gambling space in February 2016, taking over the Gala Coral Group. The company then changed its name to Ladbrokes Coral.
Ladbrokes previously tried to buy Gala Coral in 1998, but the UK government blocked the acquisition. The Monopolies and Mergers Commission came to the conclusion at the time that a merger would be anti-competitive.
The 2016 merger made the group the largest bookmaker in Britain. It owns more than 4,000 betting shops, and has a further 30,000 employees.
The company had a listing on the London Stock Exchange for many years, as well as the FTSE 250 Index. However, GVC Holdings bought Ladbrokes Coral in March 2018, in a deal was worth around $4bn. GVC shareholders possess about 53.5% of the equity in the company, giving them a controlling share.
Turbulent times
GVC Holdings, has had a rough time of late. Its share price tumbled on March 8 by over 18%. This represented its worst performing trading day in more than nine years. The main reason for the large sell-off was because many of the top management sold off their stake, doing so at a discount.
There has been a lot of interest in gambling stocks over the past six months or so due to widespread changes in regulation in Britain, Europe and the US. Despite this turbulence, GVC Holdings was in a good position following strong results.
However, investors are now very wary following an announcement by the company. GVC has spoken about how the slashing off the maximum stake on fixed odds betting terminals will cause its core earnings to drop by about £136m ($177m) this year. FOBTs are very addictive, which is why the authorities are dropping the maximum stake to £2 from £100.
March 8 was a bad day for other major gambling stocks too, such as 888 Holdings, Paddy Power Betfair and William Hill. Ladbrokes shares fell 18.6%, to £5.57. While the stock was part of the FTSE 100 for a short time, after recent turbulence it has dropped out of this index.
A few days in advance of this happening, the chairman and CEO of the group sold 76% of his shares. Naturally, this added additional fuel to the fire for the sell-off and subsequent slashing of the share price.
What does the future hold?
While it has been a bad week for Ladbrokes, there is a lot of optimism for its future. It has been expanding operations significantly in recent times. This includes starting up a platform in the US for online gambling. Ladbrokes is working alongside MGM Resorts International for this offering.
With major changes in the US gambling sector, there is a serious opportunity for European gambling companies to step into a nascent industry and lay claim to a significant section of the market.
The Supreme Court voted in May 2018 to end the ban on federal sports betting. Since then, many states have made sports betting legal and opened sportsbooks to great success.
A couple dozen states are currently looking at doing similar. Many are also looking to expand their casino and online gambling laws, which presents an opportunity to GVC Holdings.
GVC Holdings still has to negotiate the issue of Brexit. It is planning to move a lot of its servers to Ireland as a result of the uncertainty. Its headquarters currently are in Gibraltar, which is an area of contention under Brexit. There has been no indication given as to how many jobs will be under threat due to this move.
