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  • Evolution breaks more quarterly records in Q2 as RNG segment returns to growth

Evolution continued on its growth path in Q2 2022 as it delivered record quarterly revenue of €344m, up 34% from the prior comparative period.

As in previous quarters, live casino delivered the majority of growth, as revenue from the segment increased by 36.7% year-on-year to €278.5m. 

Meanwhile, the RNG segment grew by 6.2% to €65.5m – a positive development for the supplier’s slot brands, which previously saw a small quarter-on-quarter reduction in revenue between Q4 2021 and Q1 2022. 

Evolution has long expressed plans for its RNG segment to deliver double-digit year-on-year growth, however on today’s (21 July) Q2 earnings call with investors, CEO Martin Carlesund said the firm did not have a fixed timeline on which to achieve this.

A recent development which may help Evolution deliver on its RNG promises was the announced acquisition of innovative – and sometimes controversial – slot developer Nolimit City, in a deal worth up to €340m. That deal is expected to complete during Q3.

Evolution said the acquisition marks another step on its path to becoming “the leading provider of casino games in the world,” and that it does not change its previously communicated double-digit RNG growth plans.

Looking at the revenue breakdown by region, Evolution saw growth across all geographies year-on-year, with North America and Asia accounting for the largest increases.

Asian revenue was up 68.8% to €110.9m, while North America brought in €46.1m, an increase of 69.5%.

The Nordics, UK and Rest of Europe regions delivered year-on-year growth of 31.1%, 2.5% and 5.8%, respectively. 

However, it is worth noting that in the mature Nordic and UK markets, revenues were slightly lower in Q2 2022 than in the previous quarter. 

Other markets generated €35.1m in revenue, an increase of 49.4%.

Commenting on the current situation in the UK, with a review of the 2005 Gambling Act looming over the industry and creating uncertainty in the market, Carlesund told investors: “I think that many operators now are not only trying to be compliant, they are a bit nervous about being compliant. 

“Meaning that they don’t even dare to do what they’re entitled to do because of the situation in the market. I expect that to calm down but how long it will take to get there, I don’t know. The potential of the UK market is of course much, much bigger than what we see today, but the regulatory aspects are difficult,” he concluded.

For Q2, the supplier’s EBITDA margin – which is renowned for being one of the highest in the iGaming industry – also increased year-on-year, from 68% to 69.3%. This left the firm with €238.2m in EBITDA, an increase of 36.4%.

Profit for the period totalled €200.9m, up 39.1% from €144.4m, giving earnings per share of €0.94, an increase of 38.2% from €0.68 in Q2 2021.

These figures brought operating revenue for the first half of 2022 to €670.7m, up 36.2%, while H1 EBITDA grew 39.8% to €467.9m. Profit for the first half grew by 44.2% to €398.6m.

Evolution CEO Martin Carlesund: “The potential of the UK market is of course much, much bigger than what we see today, but the regulatory aspects are difficult.” 

Evolution continued to expand its physical footprint at pace during the quarter, opening new live casino studios in Spain and Armenia, in addition to marking its fourth US state entry as it began offering live casino games from its Pennsylvania studio to customers in West Virginia.

Following the end of the reporting period, last week Evolution also opened its fourth US studio in Connecticut, where it plans to grow a team of up to 400 staff members working in technical, production, administrative and information technology positions.

“The operational delivery in the second quarter 2022 is nothing but fantastic and during the quarter we reached many significant milestones,” said Carlesund in a statement.

“These include the new studio in Connecticut, opening of the regulated Ontario market, opening of the new studio in Madrid, opening of the new studio in Yerevan, launch of live games in West Virginia and started construction of an additional studio in New Jersey. 

“All this on top of expansion all over the world adding close to 1,000 employees during the quarter shows the speed we are moving forward with.”

However, Carlesund added that Evolution is not immune to the macroeconomic factors currently weighing down on businesses across all sectors.

Martin Carlesund: “We are happy but not content with the margin of 69.3% in the quarter and we are likely to continue to see margins vary during the year, but expect to stay within the guided range for 2022.”

“Our fast expansion is affected by the current cost inflation especially in categories like energy, logistics, semiconductor products and wages,” he said. 

“We are happy but not content with the margin of 69.3% in the quarter and we are likely to continue to see margins vary during the year, but expect to stay within the guided range [of 69-71%] for 2022.”

More is yet to come from Evolution in the second half of this year. Since announcing it would release a total of 88 new games this year in February, the business has so far released 34 new titles. There are therefore a further 54 new games still to be released during H2.

At the end of the reporting period, Evolution held total assets worth €3.80bn, including €293.9m in cash and cash equivalents.

In a note sent to investors, analyst firm Regulus Partners said: “Evolution has clearly shifted its growth strategy from a product which takes share to a portfolio which finds opportunities.

“Insofar as this is still achieving impressive returns even in a challenging quarter, the strategy is clearly working. However, rapid growth in Asia is pulling in an opposite regulatory risk direction than North America. Equally, with live maturing in most markets, pressure is now on to turn RNG around.”

888 has guided to an annual revenue decrease of 18% in a trading update covering a strategically important Q1 for the operator.

The update encompasses the three months to 31 March 2022, with revenue expected to come in at $224m, down from the $273m reported in Q1 of last year.

Average monthly actives were also down 8% as 888 attributed the declines to its withdrawal from the Netherlands and lower revenue per user due to stricter safer gambling measures.

The operator’s B2C betting segment took the brunt of the downturn, falling 42% annually to $24m on a combination of customer-friendly results and a 28% decline in betting stakes.

“Choppy betting performance contains a lot of noise and not much of a directional guide, in our view,” said Regulus Partners analyst Paul Leyland when assessing the results.

Increased promotional investment also impacted the bottom line, particularly in the US, where the operator is pushing its SI Sportsbook joint venture.

The brand is expected to launch in Virginia in the coming weeks and the operator has hired a new US president from Bleacher Report to oversee a state-by-state expansion strategy.

Elsewhere, 888’s B2C gaming segment reported a 14% decline to $191m in Q1 2022. Overall B2C revenue fell by 18% to $215m as B2B revenue dropped by 6% to $9m.

It is worth noting that Q1 2021 was a particularly tough comparative period for 888 after the operator reported record performance in several key markets.

Sequential quarter-on-quarter performance came in flat at +1% overall, although B2C betting revenue improved by 19%, largely due to unusually low win margins in Q4 2021.

On a geographic basis, regulated markets including the US, Romania and Portugal performed well year-on-year for 888, while strong quarter-on-quarter growth in Italy helped to offset a larger annual decline in the UK, which was impacted by increased player restrictions and the cost of enhanced responsible gambling measures.

Despite the financial declines, Q1 2022 was a period of strong strategic performance for 888.

The operator launched its World Series of Poker brand in Michigan and was awarded a licence to operate online sports betting and iGaming in Ontario.

It then announced a further investment in 888AFRICA after subletting its brand rights to a team of experienced iGaming industry professionals.

Crucially, 888 is now closer to completing a deal for William Hill’s non-US assets after negotiating a revised purchase price with Caesars and raising £163m towards the deal via an equity placing.

Regulus Partners analyst Paul Leyland: “Strategically, the group could not have picked a better time to get transformative; operationally, the timing could not be more challenging, however.”

888 CEO Itai Pazner said: “The start of 2022 has been another busy period of progress for 888. We have launched in Michigan and Ontario, with Virginia planned to follow in May.

“Having revised the transaction terms for William Hill and completed an equity placing to part-fund the deal, we are on track to complete in June and continue to execute our plan to build a global online betting and gaming leader.

“Alongside these important strategic milestones, Q1 2022 revenue was slightly ahead of Q4 2021 as we previously announced.

“I am pleased with the group’s progress, and we are looking forward to returning to year-over-year revenue growth in the second half of the year, as we benefit from further launches in additional US states, together with our expectation of relaunching in the Netherlands and ramping up our recent launch in Ontario,” he added.

888’s near £2bn purchase of William Hill is now expected to close in June following a shareholder vote in May.

“The William Hill acquisition gives 888 the opportunity to reset growth,” commented Leyland. “Strategically, the group could not have picked a better time to get transformative; operationally, the timing could not be more challenging, however.”

888 has reported record revenue of $980.1m for full-year 2021 amid an annual rise of 15%.

The performance was driven by a double-digit rise of 18% in the operator’s core operating markets of the UK, Italy and Spain, while revenue from so-called growth markets – including Canada, Romania and Ireland – increased by 26% annually.

B2C gaming provided the bulk of 2021 revenue at $814.5m, up 17.7%. The operator launched 870 new casino games during the year, bringing its current content library to approximately 3,000 titles. It plans to double its investment in in-house content studio Section8 over the coming year.

B2C sports betting rose by 4.3% to contribute $127.4m as full-year B2B revenue came in at $38.2m. Three quarters (74%) of 888’s 2021 full-year revenue was derived from regulated and taxed markets.

888 CEO Itai Pazner said: “2021 was another record year from a financial perspective, and we have truly transformed the scale of the business over the past two years.

“This step-change in scale has come from a clear market focus on regulated markets, which now make up three quarters of revenue, and where we are seeing really positive market share trends.

“Given this strong financial and operational performance, the board remains confident that, with 888’s advanced technology, products and diversification across markets, the group is well-positioned to deliver long-term sustainable growth for all its stakeholders into the future,” he added.

The London-listed operator generated 40% of 2021 revenue from the UK ($388.9m) thanks to a 17% rise, while Europe, the Middle East and Africa (EMEA) rose by 4% to provide 34% of total at $333.5m.

The EMEA segment excludes Italy, which grew by 37% to $118.3m, or 12% of group total, while the Americas climbed 34% to 13% of overall revenue at $125.6m. The Rest of the World segment provided just 1% of overall revenue at $13.8m.

In the US, growth was modest at 6% year-on-year, reflecting reduced investment in the firm’s 888 brand and the cost of promoting the launch of the SI Sportsbook from Q3. The SI Sportsbook went live in Colorado in September and has a temporary licence in Virginia.

The full-year growth was driven by H1 performance and achieved despite a 4% year-on-year dip for H2 and a B2C revenue decline of 14% for Q4 2021.

The downturn was due to a culmination of factors, including the operator’s withdrawal from the Netherlands, a weaker than expected sports margin and a tough comparative period in 2020, a year boosted by Covid-19 trends and performance.

888 said those headwinds, combined with regulatory changes in Germany and the cost of improving safer gambling measures in the UK, damaged revenue by between $70m-$100m.

Almost 40% of 888’s active customer base now has access to its Control Centre responsible gambling platform, which led to a 23% uplift in the use of safer gambling tools during 2021.

Looking at the bottom line, full-year adjusted EBITDA rose by 6% to record levels of $165m. This resulted in net cash of $174.5m, although the balance sheet is about to be transformed by the acquisition of William Hill.

The board has opted against paying a dividend to shareholders because it will need to raise capital, including plans for a £500m equity raise, to finance the William Hill transaction.

That transaction is expected to complete in Q2 2022. “We continue to believe the William Hill deal will complete in 2Q22, as previously guided by management,” said Peel Hunt analyst Ivor Jones.

“Any equity raise will, we believe, be a rights issue, so the recent share price weakness should not imply a dilution to the interests of shareholders. However, the market conditions are clearly challenging for a £500m equity raise, particularly in the context of 888’s current, much-reduced, market cap.

“There remains much to like about 888, with the completion of the William Hill acquisition a catalyst for future upgrades. A much larger revenue base will make it more attractive to more investors,” added Jones.

In contrast, investment bank Numis said it much preferred the prospects of the “more geographically diversified” Entain as there is too much uncertainty around the valuation of 888 due to the pending Hills transaction and the result of the UK’s Gambling Act review.

Paul Leyland of Regulus Partners said 888 has four key challenges going forward, the results of which will determine the future success of the business. Two of those challenges relate to the William Hill acquisition.

“[888 must] use William Hill (betting-led) and the revitalised 888 brand to position further into the mass market, where growth is stronger and regulatory risks are lower, or risk falling into the regulatory ‘salami slicer’ in the UK and elsewhere,” commented Leyland.

“[It must also] ensure that William Hill’s retail estate adds value as a brand ambassador as well as a cash cow, or risk a crumbling medium-term outlook,” he added.

After the reporting period, 888 said January and February trading was up by “mid-single digits” compared to Q4 2021 but down double-digits when compared to the prior year.

Looking further into 2022, the operator plans to launch its services in several new markets, including Ontario, where it has received a licence, and re-enter the Netherlands.

The US will also be key to future growth. 888 intends to go live in up to four additional states with its SI Sportsbook and plans to launch poker on a B2B basis in Michigan pending regulatory approval.

888’s share price is down by 2% at the time of writing to 189p per share.

Flutter Entertainment has reported a 37% year-on-year rise in revenue to £6.04bn for full-year 2021 as its recreational player base increased by 23% in line with corporate strategy.

Group EBITDA fell by 6% during the period to £723m while the FTSE 100 operator’s share price also dropped in wake of the results by more than 12% to £94 at the time of writing.

Sports contributed more than half of 2021 revenue at £3.77bn as gaming revenue came in at £2.26bn.

The rise in annual revenue was attributed to benefits resulting from Flutter’s 2020 purchase of PokerStars owner The Stars Group, while the EBITDA decline was driven by increased investment in the US business led by FanDuel and regulatory impacts across the firm’s International portfolio.

Excluding the US, adjusted EBITDA came in 10% lower than 2020 as strong top line growth in Australia, driven by Sportsbet, was offset by headwinds elsewhere, including challenging Covid comparatives, International regulatory changes, UK & Ireland safer gambling costs and customer friendly sports results.

In 2021, Russia accounted £41m in revenue contribution while Ukraine contributed £19m. Flutter said it was monitoring the situation closely with that contribution likely to reduce rapidly due to the ongoing war in the region.

Flutter CEO Peter Jackson said: “2021 was another strong year for the group as we made good progress against our strategic objectives and grew our recreational customer base to more than 7.6 million customers.”

Broken down by geography, the US division achieved annual revenue of £1.39bn amid an operating loss of £289m. International, including PokerStars, generated revenue of £1.29bn during 2021, as did Australia, while £2.06bn was provided by the UK & Ireland.

In 2021, Flutter said FanDuel became the first large scale online brand to generate a positive in-year contribution from sports betting and gaming in the US at £9m, with the business on track to become EBITDA positive in 2023, according to management.

“In the US, we delivered over $1.9bn in revenue, leveraging our differentiated product proposition to remain the number one sportsbook in the market with a 40% share,” said Jackson.

“Despite our scale, we retain a challenger mindset; this year we launched a number of new features to our market-leading same-game parlay product, maintaining our competitive advantage in sports.

“I’m also pleased to see the progress on our path towards profitability; FanDuel sportsbook and gaming business delivered positive contribution in 2021 for the first time, a significant milestone for the brand,” he added.

In the UK & Ireland, Flutter claimed a full-year market share of 29%, resulting in online revenue growth of 3%. An unprecedented run of customer-friendly sports results in 2021 cost the division £232m in revenue year-on-year, with £149m of that damage done in Q4.

It was the easing of Covid-19 restrictions during 2021 that caused a reduction in revenue for Flutter’s International division, combined with the well-documented adverse changes to regulation in both Germany and the Netherlands.

In International, investments made since acquiring PokerStars have put it on a more sustainable footing and while this has resulted in reduced profitability, the necessary foundations for future growth are now in place,” said Jackson.

“Notwithstanding regulatory changes in Germany, Netherlands and elsewhere, we saw good momentum across key markets such as Brazil, Canada and Georgia.

“In addition, the announcement of our acquisition of Sisal will further enhance both the quality and shape of our International division.

“Overall, I am pleased with the progress we have made during 2021 and believe Flutter is exceptionally well positioned for future growth,” he added.

After the reporting period, trading during the first seven weeks of 2022 has climbed 2% year-on-year.

Commenting on the full-year performance, Regulus Partners analyst Paul Leyland said: “With these headwinds, the extent to which lockdowns have reduced fiscal, business and consumer headroom to cope with other crises may be brutally exposed, especially for digital entertainment businesses which benefited from significant policy-led distortions to land-based competition and consumer time/disposable income.

“Flutter has the scale, diversification and competence to handle these challenges, in our view. A much greater focus on sustainability is also critical to longevity, which management is effectively delivering.

“However, a combination of mounting external pressures and a responsible approach to their mitigation is potentially decoupling sustainability from growth. This will be tough to deliver and perhaps even tougher to explain,” he added.

Elsewhere, Flutter provided an update on its legal arbitration process with FOX over its option to acquire an 18.6% stake in FanDuel, saying it would continue to “vigorously defend” its position.

It said that while discussions between both parties had been productive and were at an advanced stage, it remains unclear as to whether a settlement can be reached.

As a result, the arbitration is proceeding in parallel with a court hearing date now set for 20 June 2022, which should result in a binding decision by the arbitrator in Q3 2022.

Amid the share price decline, Peel Hunt analyst Ivor Jones reiterated his Buy rating and £145 target price for Flutter stock.

“Trading momentum will accelerate through the year and, today, we have learned that there may be a negotiated settlement in relation to FOX,” he said.

“The exposure to Russia/Ukraine adds an element of uncertainty but with the Sisal deal due to complete and diversify the group into a leading position in Italy, along with strong market leadership in the US, we believe the shares, after a period of decline, represent good value.”

DraftKings CEO Jason Robins believes the company is ready to outperform its US rivals in the product and technology department after increasing annual investment in this area by 50%.

The operator’s stock slumped after reporting its Q4 and full-year financial results last week, where product and tech costs amounted to $253.7m in 2021, up from $186.2m in 2020.

This investment saw DraftKings launch a new in-play offering and front-end user interface for its Flash Bet product during Q4, as well as parlay and same-game parlay insurance capabilities, where bettors can still win, even if one or more legs lose.

Same-game parlays were also wheeled out on college basketball and NHL matches to expand the offering beyond the NFL, NBA and college football, while the operator’s new loyalty programme – Dynasty Rewards – went live in November.

“I think if you take a step back and look at the competitive picture, we’ve always said that we believe that product is where you win,” Robins told analysts during a Q4 webcast.

“Our strategy was to really pull forward a lot of the product and technology hiring that we needed to do. As we go forward, I think you should expect to see a meaningful slowdown in fixed costs, because for us, it was about trying to pull forward and achieve a higher level of scale, maybe a little ahead of where the revenue is,” he added.

DraftKings more than doubled annual revenue to $1.3bn in 2021 but reported an operational loss of $1.56bn as sales and marketing costs skyrocketed by 98% to $981.5m.

Reflecting investor sentiment, the analyst team at Macquarie said DraftKings had always been a long-term growth story, but that the path to profitability looks longer than expected, with the firm guiding to 2022 EBITDA losses of up to $925m.

DraftKings is competing for US market share as one of the “big three”, alongside overall market leader FanDuel, which is owned by Flutter Entertainment, and iGaming market leader BetMGM, which is a joint venture operation backed by both Entain and MGM Resorts.

Robins insists the 2021 product and technology investment should see DraftKings eat up ground on its two main rivals in key states.

“We were in a position where our top two competitors had thousands of engineers from more mature markets in Europe that they’ve built a team around for many, many years,” he said.

“We felt like product and technology was going to be the most important thing for winning long term – we had to be on a more level playing field with those we were competing with.”

DraftKings’ Q4 report said it had endeavoured to own in-house technology for all critical components of the product chain, alongside some third-party solutions and new technologies, including data science and machine learning, which would eventually combine to optimise conversion and efficiency.

Robins said the international diversity and European heritage of its major rivals could also work to DraftKings’ advantage.

“We feel like we’re actually out competing our top rivals right now, but in order to get there, we had to staff up on the product and technology side,” he said.

“We still have fewer engineers than some of our top competitors, but I think we’ve been able to ship products and rapidly evolve our products faster than anyone else in the market, and that is partly due to our focus on the US.

“We don’t have to use some of those engineers to focus on products overseas and I think that’s been very helpful.

“I think we feel like now we’re in a position where we can moderate fixed cost growth and allow the revenue scale and the contribution profit from states to kick in and drive improvements to the bottom line, starting later this year and certainly into 2023,” he added.

Regulus Partners analyst Paul Leyland agrees with Robins that product will eventually win out in the US, but that conclusion comes with multiple caveats.

“In our view, product and service will win out in the US, but it is far from clear who will gain a sufficient product and service advantage and how sustainable it will be,” he wrote in a research note to investors.

“Plenty of companies have thrown considerable sums of money at this question and failed, since it is more about having the right skills in the right combination, senior management applying common-sense, high quality project management, deep local knowledge, and luck.

“Until the winners of sustainable product and service advantage reveal themselves, outspending individual competitors does not seem to be moving the overall dial, making it a worse than nil-sum game,” he added.

DraftKings’ share price fell by 21% to $17.29 per share at close on Friday 18 February, extending a year-long dip in which the stock has shed a massive 70% of its value.

Flutter Entertainment has acquired Italian gambling giant Sisal from private equity owners CVC Capital Partners for €1.91bn.

The cash purchase is scheduled to complete in Q2 2022 and will help Flutter to secure a market-leading position in Italy, which is Europe’s second largest gambling market behind the UK.

Flutter expects the acquisition to result in an overall online market share of 20% in Italy, when Sisal revenue is combined with the operator’s PokerStars and Betfair brands. Sisal’s current market share stands at around 12%.

Milan-headquartered Sisal is set to generate €248m in EBITDA for the 12 months to December 2021. More than half (58%) comes from online, while the remainder is derived from a combination of retail and lottery operations.

Approximately 90% of Sisal’s 2021 EBITDA is generated in Italy, with the rest coming from regulated lottery operations in Turkey and Morocco. The transaction will see Flutter enter the lottery vertical for the very first time.

Sisal is also in the running for the contract for the next UK National Lottery licence, although it remains to be seen how this deal will affect that bid should the acquisition complete. iGaming NEXT understands the National Lottery licence application played no part in Flutter’s rationale for the deal.

Flutter said Sisal’s omni-channel offering would deliver a competitive advantage to Flutter given Italy’s gambling ad restrictions and the prevalence of cash deposits and withdrawals via retail.

The FTSE 100 operator has identified huge scope for growth in the market with many retail customers yet to migrate online, which Sisal’s omni-channel product can capitalise on.

While just 10% of overall Italian GGR was generated online in 2019, the Covid-19 pandemic has led to a material increase to around 20% over the last two years, according to Flutter.

Online penetration rates are well below the UK and Australia, where online share of total gambling spend was estimated to be circa 60% and 70% respectively in 2019.

Flutter said the Italian online market is projected to be worth £3.6bn by 2024, equating to forecast five-year compound annual growth of 18%.

Sisal expects to report revenue of €694m for full-year 2021. It will be accretive to Flutter’s adjusted earnings in the first 12 months post-completion.

“We see tangible opportunities to deliver material revenue synergies from the acquisition of Sisal through leveraging Sisal’s retail channel to grow online deposits for existing Flutter brands (PokerStars and Betfair),” said the operator, which expects to cost synergies to be circa £10m as a result of the transaction.

It has also pledged to enhance Sisal’s sports betting offering by utilising Flutter’s pricing and risk capabilities, as well as its casino product via Flutter’s in-house gaming content.

Flutter CEO Peter Jackson said: “I am delighted to add Sisal, Italy’s leading gaming brand, to the group as we look to attain a gold medal position in the Italian market.

“For some time we have wanted to pursue this market opportunity via an omni-channel strategy and this acquisition will ideally position us to do so.

“Sisal has grown its online presence significantly in recent years, aided by its proprietary platform and commitment to innovation.

“I’m excited to see how Flutter can complement these capabilities through our scale, differentiated products and operational capabilities,” he added.

The total consideration for Sisal is €1.91bn (£1.62bn), which is payable in cash in full on completion of the transaction and includes full repayment of all Sisal’s debt.

The transaction will be financed by way of additional Flutter debt facilities, agreed with Barclays Bank. The transaction is conditional on merger control clearance and customary gaming and foreign investment consents.

Sisal CEO Francesco Durante is part of an experienced management team that will continue to lead the business under the Flutter umbrella.

He said: “Over the last five years, thanks to CVC’s support, we have successfully transformed Sisal into a leading digital and international gaming company.

“Through our commitment to digital innovation, international expansion and safer gambling, we have achieved a leadership position in Italy’s online gaming market and developed our global footprint by winning lottery tenders in Morocco and Turkey.

“We are delighted to join Flutter and are convinced that through its scale and operational capabilities, we will be able to further strengthen our leadership in the markets we operate in.

“I look forward to working with Peter and the team on the next chapter of Sisal history,” he added.

Flutter’s share price increased by 3% in early trading on the London Stock Exchange to 11,715p per share.

Regulus Partners analyst Paul Leyland said of the deal: “Flutter is buying a high quality digital business in a market that has gained scale, whatever the immediate future may hold.

“Given Flutter’s failure to meaningfully penetrate the Italian market outside PokerStars (demonstrating the destructive pointlessness of marketing me-too or over-specialised products), this deal further makes sense both in terms of acquiring a vital ‘Local Hero’ for digital betting and casino and critical omnichannel reach.

“Indeed, the combined Italian digital share would put Flutter into an online leadership position, outstripping the combined brands of Lottomatica and Entain,” he added.

Evolution found itself at the centre of a stock market storm last week after investors were spooked by a short-seller report that delved into the live casino supplier’s alleged black market activity, including in some countries subject to US sanctions.

The Stockholm-listed firm’s share price plummeted by 29% during the week, despite issuing a strongly worded statement that described the allegations as false and put the burden of responsibility firmly with its operator clients.

The controversy wiped more than $10bn off the value of a company that until that point had enjoyed an uninterrupted ascent to the top of the public market. Evolution’s share price increased by 196% throughout 2020, for example.

And Regulus Partners partner Paul Leyland believes the business is now paying the price for that trajectory.

“The big issue here is not what was actually being accused, but valuation,” said Leyland while in conversation with Pierre Lindh on the iGaming NEXT podcast.

“The thing that traditionally used to be a floor to share prices was a dividend. Well, try paying a dividend that touches the sides or gets you anywhere close to being relevant to shareholders at the historical valuation ratings of Evolution.

“Immediately, if you have an eye-wateringly astronomical valuation, you are vulnerable. If any shareholder buys into a company at an eye watering astronomical valuation and thinks they have bought something as safe as houses, then caveat emptor. Welcome to stocks and shares – they go down as well as up,” he joked.

The report – filed on 12 November by Ralph Marra of Calcagni & Kanefsky LLP on behalf of unnamed private investigators – alleged that Evolution games were accessible from Iran, Syria and Sudan.

It is common knowledge in the iGaming industry that many leading public companies, including Evolution, earn a significant proportion of revenue from “grey” or unregulated markets.

On this occasion however, the namechecked countries likely set off alarm bells in the minds of increasingly ESG-conscious investors that are not so familiar with the sector.

A similar dip occurred in the summer when Hindenburg Research published a short-selling report into US operator DraftKings. The report urged shareholders to jump off DraftKings stock due to the alleged black-market activity of its in-house technology supplier SBTech.

Again, the share price fell 11% following its publication.

The gambling industry looks like a prime target for short-sellers, with many share prices riding high due to gains accumulated during the Covid-19 pandemic, while examples of grey market operations are relatively easy to expose.

Leyland is keen to apply the law of diminishing returns to this tactic. He said: “The first couple of times you are able to do this, you generate shock, and shock generates overreaction. Overreaction is precisely what short sellers want.

“Nobody died, so the next time this happens, people are going to be a bit less shocked and if we look at the tangible damage, they haven’t lost any clients yet,” he added.

It would be a different story if Evolution’s top-tier operators were suddenly ripping up their contracts, but commercial partners won’t have been outraged by its findings.

Having said that, regulators will almost certainly ask more questions, and Evolution has already pledged to conduct an internal investigation after reaching out to the New Jersey Division of Gaming Enforcement (NJDGE).

Evolution is also in the fortunate (and well-earned) position of having an effective monopoly on live casino provision and established itself as an even more essential partner for operators following the acquisitions of both NetEnt and Big Time Gaming.

But regardless of the company in question, Leyland believes the influence of these short-seller reports will wane over time as investors get to grips with the gambling sector.

“If these short-seller revelations, like with DraftKings and SBTech, don’t actually land any tangible blows, then they lessen in impact each time they are deployed” he told iGaming NEXT.

“If it is the case that Evolution’s systems and controls are super robust, and that this is indeed an issue of a mild circumvention, then the story will die of its own accord,” he added.