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Shares in London-listed 888 are trading lower today, after the business announced it had turned to a loss after tax in H1 2023.

Group revenue was up 165.5% year-on-year to £881.6m in H1, due to the operator’s acquisition of William Hill which completed following the end of the H1 2022 reporting period, in July last year.

On a pro-forma basis however, (calculated as if 888 had owned William Hill throughout the comparative period), group revenue was down by 6.5%, which the operator said was the result of compliance changes in dotcom markets, together with a newly refined marketing approach and market focus within the business.

Revenue breakdown

888 has “proactively shifted the business mix and improved sustainability” since last year by focusing on regulated markets, it said, with 95% of revenue deriving from locally regulated or taxed markets in H1 2023.

Still, in its UK and Ireland online operations, 888 reported revenue down 9%, with the lower revenue reflecting the implementation of proactive player safety measures and a refined marketing approach, it said.

Revenue across its UK retail arm grew by 6%, meanwhile, as international online revenue dropped 14% due to the implementation of compliance changes in certain dotcom markets, together with a slower than expected recovery in the Middle East.

Turn to loss

Group adjusted EBITDA more than tripled to £156m compared to the prior-year period before the acquisition, while pro-forma adjusted EBITDA grew by a more modest 9%.

The business declared a loss after tax of £33m for the half-year, however, compared to a £12m profit after tax in H1 2022.

The turn to loss was driven by increased interest costs on 888’s debt together with the amortisation of acquired intangibles and certain one-off costs related to the acquisition, the company said.

Net debt was reduced by £68m to £1.66bn, giving the business a leverage ratio of 5.1x as of June 2023, down from 5.6x in December 2022.

With cash reserves of £188m and an undrawn £150m revolving credit facility, 888 said it had total liquidity of over £300m at the end of the reporting period.

2023 outlook and commentary

Looking to the rest of the year, 888 expects revenue to be lower than pro-forma 2022 by a low- to mid-single digit percentage, it said.

Still, the business also expects “significantly higher” adjusted EBITDA at a margin of 20% for the full-year 2023.

That would mark a significant improvement from 2022’s full-year adjusted EBITDA margin of 16.8%, while the business also aims to have a leverage ratio of under 5x by year-end.

“I am very pleased with the progress we have made in the first half of the year as the group delivered against the plans we committed to at our investor day last year, while also successfully navigating business, market and regulatory volatility,” said 888 executive chair Lord Mendelsohn.

“We made very strong progress with the execution of our integration plan and we now expect to realise the full £150m of synergies in 2024, a year earlier than the original plan. 

“Our strong cash discipline and higher profits also enabled a 0.5x reduction in our leverage. We have successfully delivered against our focused market strategy, changing the mix of our revenue and creating a more profitable and sustainable platform for future growth.”

Bragg Gaming Group is pleased to announce the signing of a new global distribution agreement with 888 Holdings, one of the world’s leading betting and gaming companies and owner of several internationally renowned brands including William Hill, 888, Mr Green and SI Sportsbook.

The new agreement further strengthens the companies’ existing collaboration.

Under the new agreement, Bragg’s exclusive content is expected to roll out with William Hill in the UK, Mr Green in Italy, Sweden and Denmark, and 888casino in Italy for the first time, following launches with the operator in the UK, Spain and Ontario over the course of the last year.

This collaboration further enhances the distribution of Bragg’s proprietary and exclusive content in
multiple regulated markets, offering a wide array of exclusive and popular titles from Bragg Studios
brands such as Atomic Slot Lab and Indigo Magic, as well as from its Powered by Bragg partners.

Lara Falzon, president and chief operating officer at Bragg Gaming Group, expressed her enthusiasm about the partnership: “We are thrilled to announce this exciting new distribution deal with 888 Holdings – including for the William Hill and Mr Green brands – given that 888 is one of the most renowned operators in the global gaming industry.

“This agreement is a testament to our commitment to expand Bragg’s footprint in key markets and
solidify our position as a leading content provider.”

Ofir Gal-Mor, group head of content, added his comments on the partnership: “Bragg Gaming’s
offering is well known throughout the industry for being forward-thinking and of the highest quality.

“We have worked closely together since early 2022 and look forward to elevating our partnership further with the addition of Bragg’s diverse content portfolio to our William Hill and Mr Green brands.”

888 has terminated discussions with FS Gaming Investments over the prospect of former GVC boss Kenny Alexander becoming the company’s new CEO.

888 withdrew from the talks after the UK Gambling Commission (UKGC) expressed concern over HMRC’s ongoing investigation into GVC’s activities under Alexander’s leadership.

FS Gaming had built up a 6.6% shareholding in William Hill owner 888. It wanted to use its influence to install Alexander as CEO, alongside Lee Feldman as chair and Stephen Morana as CFO.

Investors were clearly excited by that prospect and were left disappointed by the collapse of the talks. The 888 share price stooped by more than 20% on the announcement.

Turkish business probe

Entain (formerly GVC) is expecting to be hit with a substantial financial penalty following a probe by HMRC and the public prosecutor into its former Turkish business unit.

In May, the operator revealed that historical misconduct involving former third-party suppliers and ex-employees of the group may have occurred.

Offences covered in the investigation include a potential breach of the Bribery Act.

This case clearly remains an area of concern for the UKGC, which has commenced a new licence review of 888 in light of FS Group’s investment in the company.

If FS Gaming obtained a stake of more than 10% in 888, it would have triggered a change in corporate control. The UKGC must approve any change in corporate control.

If the corporate control application is rejected for any reason, the regulator’s only course of action is to revoke the licence of the operator entirely.

“The board concluded that the appointments proposed by FS Gaming have no reasonable prospect of being approved by the UKGC at this time and any actions by FS Gaming to effect a change of corporate control would likely put the group’s licences to operate in the UK at immediate and significant risk. Therefore, the board has unanimously concluded to terminate discussions,” said the company in a statement.

888 executive chair Lord Mendelsohn added: “We will be fully cooperating with the review, arising from potential issues with respect to FS Gaming’s investment and proposal, and look forward to bringing the review to a conclusion expeditiously.

“As a board we devoted significant time to considering FS Gaming’s proposal. However, following in-depth regulatory due diligence including engaging closely with the UKGC, the board had no option but to terminate discussions as it simply could not put licences in our largest market at significant risk.

“While this engagement temporarily interrupted the very thorough search process to appoint a new CEO, the board is finalising its appointment and expects to make an announcement in the very near future,” he added.

British bookmaker William Hill, now a subsidiary of 888 Holdings, has filed its financial results for full-year 2022 with Companies House.

Topline numbers

The operator’s total revenue for 2022 was £1.24bn, a decrease of around 0.5% compared to 2021.

The flat results came in spite of a significant drop in online revenue, which was mostly offset by large gains in retail, as the operator’s network of betting shops returned to normal following Covid-related lockdowns during 2021.

UK online revenue for the year reached £509.1m, down 19% compared to £628.6m in 2021.

That decline was due to a combination of factors, Hills said, including some of its customers returning to spend in retail shops, alongside the implementation of enhanced customer safety checks in anticipation of the UK government’s white paper review of the 2005 Gambling Act.

Retail revenue, meanwhile, shot up by 52.7% to £514.2m, compared to just £336.8m in 2021.

International revenue also fell year-on-year in 2022 to £212m, a 23.2% drop annually. This was attributed to additional regulatory measures combined with William Hill’s withdrawal from the Netherlands market.

Turn to profit

Despite faltering revenues across the UK online and international segments, group adjusted EBITDA for 2022 rose 32.8% to £214.8m, primarily driven by an increased contribution from retail.

Retail accounted for £95.7m of the total adjusted EBITDA, compared to just £0.1m in pandemic-hit 2021.

EBITDA across William Hill’s other business segments fell, meanwhile, with the UK online division delivering £112.2m, down 26.9%, and the international division delivering £33.1m, down 2.9%.

William Hill’s operating loss for 2022 totalled £31m, improved from a £65.5m operating loss in 2021. The business said that was due to reduced marketing expenses helping to offset reductions in revenue.

Profit after tax, meanwhile, totalled £168.4m (compared to a £58.9m loss before tax in the prior year), following a one-off foreign exchange gain on financing items of £198.8m, as a result of exchange differences on the operator’s debt to its parent company.

The business held cash and cash equivalents of £160.4m at the end of the reporting period.

External investments

William Hill was also an active shareholder in several other businesses throughout 2022, and the report included commentary on its various investments.

Its 19.5% share in sports data supplier Sports Information Services (SIS), for example, allowed it “to exert significant influence” over the business, it said, alongside a seat on the firm’s board of directors.

SIS generated revenue of £231.8m and profit after tax of £3.9m during the reporting period.

William Hill’s shareholding in Green Jade Games, meanwhile, was sold to Caesars for £9m in June 2022, before the supplier folded in April of this year.

The operator also wrote off a £1m investment in game developer Good Luck Have Fun Group, and held no value in the investment as of the end of the reporting period.

In February 2022, William Hill acquired game developer Live 5 for a total consideration of £4.3m.

The revenue and profit resulting from the acquisition have since been “immaterial,” it said.

Looking to the future

The report also considered William Hill’s ability to continue operating as a going concern under 888’s ownership.

It assessed that even while facing several headwinds – such as the impact of 888’s suspension of VIP customers in the Middle East, reductions in profitability due to regulatory, macroeconomic or competitive pressures, increases in interest expenses and the potential adverse impact of the Gambling Act review – the business would still have the resources to continue operating for the foreseeable future.

Indeed, following cost-cutting measures that may be implemented to offset lower-than-expected cash generation, the enlarged 888 group “could withstand a decrease in forecast EBITDA of 31%,” it forecast.

The board of 888 considered the likelihood of such a decrease to be “remote,” however.

UK-listed 888 has agreed the sale of its Latvian business to a subsidiary of Paf, the Åland Island-based operator of retail and online gambling.

Details of the acquisition

Paf subsidiary Paf Consulting Abp, which operates online gambling internationally including in Latvia, has agreed to buy 888’s locally licensed Latvian business, which operates under the Mr Green and William Hill brands.

The sale will take place on a cash free, debt free basis, and will consist of initial consideration of €24m, to be followed by a further potential earn-out of up to €4.25m payable in 2024 upon completion of the subsidiary’s 2023 audited financial results.

888 said it intends to use the proceeds for general corporate purposes.

Under the agreement, 888 will provide Paf with a brand licence for the continued usage of the Mr Green and William Hill brands, for a limited period.

The Latvian business already operates largely as an independent entity, 888 said, with its own management team and a separate technology platform from the rest of the group.

As such, the transaction is expected to have no impact on 888’s ongoing operations and synergy programme, and is consistent with its strategy to focus on core and growth market plans, it added.

Completion of the transaction is expected to occur “in the coming weeks,” but is conditional upon the carve-out of the Latvian subsidiary from 888’s existing supplier contracts and its incorporation into Paf’s contracts, as well as certain change of control consents and the payment of a dividend by the Latvian business.

In 2022, 888’s Latvian business generated net revenue of £9.1m and EBITDA of £2.5m. On the company’s 31 December 2022 balance sheet, the value of the gross assets subject to the transaction was determined to be approximately £9.3m.

Management commentary

“We continually review our asset base to ensure that we are only holding assets that both contribute to our long-term strategy and will maximise value for our shareholders,” said 888 executive chair Lord Mendelsohn.

“As a business, our relatively limited exposure in the Baltic region means that the region is not one of our core or growth markets where we prioritise our investments.

“The Latvian business is a high-quality, locally regulated business, with an excellent team that has built a strong market position. I would like to express my sincere thanks to the team for their dedication during their time with the group and I am highly confident that under new ownership with Paf, the business will continue to flourish.”

Co-founder of the Latvian subsidiary and head of its board, Janis Tregers, added: “We launched in 2012 as 11.lv, and in 10 years, have built a market-leading position in Latvia, with over 10% market share. 

“In 2018, we sold 75% of the business to Mr Green at an enterprise value of €3.7m, and this transaction to sell the entire business for a valuation of up to €28m reflects the hard work of our team across the business resulting in significant value creation. 

“Under the new ownership with Paf, I am confident that the business will continue to go from strength to strength, delivering great products and experiences for our customers.”

Finally, Paf CEO Christer Fahlstedt said: “We are thrilled to get the opportunity to continue to build on a great Latvian success story. With a long-term perspective, we are convinced that the Latvian market is moving in the direction of increased player protection and thereby a great strategic fit for Paf.”

888 CFO Yariv Dafna insists the operator is well positioned to deal with a potential clampdown on online casino stakes as part of the UK Gambling Act review.

The stakes have never been lower

Speaking during an 888 event for retail investors on 17 April, Dafna said a £2 stake limit for the under 25 cohort is likely to be introduced, although it was currently unclear whether restrictions would come into force for individuals over the age of 25.

888 has taken pre-emptive steps to soften the impact of forthcoming restrictions for UK operators, including stake limits for online slots of between £5 and £10 per spin, and enhanced affordability checks when a customer deposits £500 or more.

“We believe we are positioned well to absorb significant parts of what’s to come,” said Dafna.

The UK government’s review of the 2005 Gambling Act is expected to bring about wide-ranging legislative changes for UK-licensed gambling operators.

The review was initially launched via consultation in 2020 and has been delayed on multiple occasions due to government upheaval and more pressing national priorities.

It was widely expected to be published today (17 April), although there is still no sign of the white paper at the time of writing.

When asked about knock-on effects of the review’s recommendations, Dafna said 888 was in a better position to swallow the rule changes than several of its competitors.

888 CFO Yariv Dafna: “A £5 [limit] to our understanding is the lowest level that you can find today in the market.”

“A £5 [limit] to our understanding is the lowest level that you can find today in the market,” he told investors. “There are still operators in the market with £10, £20 and £50, and some of them even above £100.

“We are expected to have lower impact compared to others which are still running on a higher number,” he added.

Dafna believes the concrete restrictions as set out in the review (when it does eventually get published) will have a greater impact on the firm’s 2024 financials than in 2023.

However, enhanced safer gambling measures have already come at a cost for the company.

For example, UK online revenue fell by 9% year-on-year between Q1 2022 and Q1 2023 to £167m. This drop-off was attributed to reduced revenue from higher-spending players as the digital division continues to decline due to the ongoing impact of safer gambling changes.

Dafna refused to provide a concrete figure for Gambling Act review impact for two reasons. He said: “You never can expect exactly the behaviour of the customer after such a reduction and we also don’t know where it [the review] will land.”

No easy ride for new CEO

Elsewhere, 888 executive chair Lord Jonathan Mendelsohn provided an update on the company’s search for a new CEO following the dramatic departure of Itai Pazner in January.

He told investors that appointing a new permanent CEO was the board’s main priority and that an announcement would be forthcoming in the coming months.

“We have been pleased with the depth and calibre of the candidates that we are engaging with and are making good progress with our search and our interviews,” said Mendelsohn.

888’s new leader will be judged on several key strategic targets, including delivering cost synergies of £150m following the firm’s acquisition of William Hill and Mr Green.

Key financial targets have also been set with a deadline of 2025, including revenue of more than £2bn, an adjusted EBITDA margin above 23% and crucially, a debt leverage ratio of less than 3.5x.

“I might think more ambitiously about tasking the new chief executive officer with even bigger goals than that,” said Mendelsohn.

“But I think it’s important to say our focus has to be on ensuring that we deliver effectively, we continue to grow EBITDA, and we continue to run an efficient business,” he added.

The Gambling Commission has ordered 888-owned William Hill to pay a record £19.2m settlement for multiple social responsibility and anti-money laundering failures.

Three gambling businesses operated by Hills will pay the penalty for the “widespread and alarming” breaches.

WHG (International) Limited, which runs williamhill.com, will pay £12.5m, while Mr Green Limited, which runs mrgreen.com, will pay £3.7m.

Finally, William Hill Organisation Limited, which operates 1,344 gambling premises across Britain, will pay £3m.

“When we launched this investigation the failings we uncovered were so widespread and alarming that serious consideration was given to licence suspension,” said Gambling Commission CEO Andrew Rhodes.

“However, because the operator immediately recognised its failings and worked with us to swiftly implement improvements, we instead opted for the largest enforcement payment in our history.”

A long list of failures

Failures identified by the regulator included allowing one customer to open a new account and spend £23,000 in 20 minutes, all without any checks.

Another social responsibility failure saw the operator fail to conduct any checks while allowing a different customer to open an account and spend £18,000 in 24 hours.

At Mr Green, a customer was able to open a new account and spend £32,500 over two days, also without any checks.

Moreover, 331 customers were allowed to gamble on William Hill’s flagship site despite having already self-excluded from Mr Green.

The UKGC also found several AML failures, including cases where customers were allowed to deposit large amounts without the business conducting the appropriate checks.

UKGC CEO Andrew Rhodes: “When we launched this investigation the failings we uncovered were so widespread and alarming that serious consideration was given to licence suspension.”

The UKGC said one customer was able to spend and lose £70,134 in a month, while another deposited £73,535 and lost £14,068 in four months.

The Commission also criticised that customers were able to stake large amounts of money without being monitored or scrutinised to a “high enough standard”.

The operator failed to request Source of Funds (SoF) evidence when one customer staked £19,000 in a single bet, did not obtain documentation from a customer who staked £39,324 and lost £20,360 in 12 days, and did not obtain SoF evidence from a customer who staked £276,942 and lost £24,395 over two months.

The William Hill companies also failed to provide sufficient AML training to staff in the eyes of the regulator, while policies, procedures and controls lacked guidance on appropriate action to take following the results of customer profiling.

William Hill reaction

An 888 spokesperson referred to the historical nature of the failings and commented: “The settlement relates to the period when William Hill was under the previous ownership and management.

“After William Hill was acquired, the company quickly addressed the identified issues with the implementation of a rigorous action plan.

“The entire group shares the Gambling Commission’s commitment to improve compliance standards across the industry and we will continue to work collaboratively with the regulator and other stakeholders to achieve this.”

888 spokesperson: “After William Hill was acquired, the company quickly addressed the identified issues with the implementation of a rigorous action plan.”

Under the settlement, the business will also need to adhere to additional licence conditions to ensure a board member oversees an improvement plan and undergoes a third-party audit to assess that it is effectively implementing its AML and safer gambling policies, procedures and controls.

Indeed, the UKGC’s review was conducted into William Hill while it was under previous ownership at US casino giant Caesars Entertainment.

When 888 bought Hills from Caesars, a clause was included in the deal that saw it indemnified against the outcome of the review.

Caesars agreed to accept liability for any licence suspension imposed by the Gambling Commission, or for any licence conditions up to a limit of £78m.

William Hill had also set aside £15m towards the penalty from its own accounts before being bought by 888.

Unprecedented action

Today’s action comes just a week after the UKGC fined two operators owned by Kindred Group a combined £7.2m and is the largest enforcement case taken on by the regulator.

The previous record was a £17m settlement paid by Entain in August last year.

Since the start of 2022 the UKGC has concluded 26 enforcement cases, with operators paying over £76m due to regulatory failures.

Rhodes said: “In the last 15 months we have taken unprecedented action against gambling operators, but we are now starting to see signs of improvement.

“There are indications that the industry is doing more to make gambling safer and reducing the possibility of criminal funds entering their businesses.

“Operators are using algorithms to spot gambling harms or criminal risk more quickly, interacting with consumers sooner, and generally having more effective policies and procedures in place.”

*This article has been amended as our initial coverage mistakenly described the £19.2m regulatory settlement as a fine.

888’s share price has plummeted more than 20% after the operator revealed that CEO and executive director Itai Pazner has left office with immediate effect.

While the reason for Pazner’s departure from 888 has not been officially stated, iGaming NEXT understands it is related to an internal compliance investigation that found the company failed to adhere to KYC and AML protocols for VIP customers in the Middle East.

The non-executive chair of the group, Lord Mendelsohn, will be stepping in as the executive chair on an interim basis while the board searches for a permanent CEO.

Lord Mendelsohn thanked Pazner for his contributions to the company over the past 20 years, including the last four as CEO.

“Itai has played a very important role in building a business with powerful proprietary technology, and has overseen successful early stages to the William Hill integration process. We wish him well in his future endeavours,” he said in a brief statement.

Under Pazner’s leadership, 888 acquired William Hill’s European operations for a sum of approximately £1.9bn.

However, the company incurred a substantial debt of £1.76bn to finance the acquisition.

Pazner joined 888 Holdings in 2001 as marketing manager and held various senior positions before being appointed COO in 2017 and CEO in 2019.

On LinkedIn, Pazner described working for 888 for more than two decades as a “great honour”.

In a social media post, he said: “The main achievement that stands out for me is my role in creating the 888casino into a leading online casino brand globally.

“Working with a great team of colleagues, we built 888 into a top-tier player in sportsbook and 888poker to be one of the leading poker networks globally,” he added.

Compliance investigation

In a separate statement, 888 revealed that it has suspended VIP activities in some of its .com markets due to an internal compliance investigation.

The review has revealed that best practices regarding Know Your Client (KYC) and Anti-Money Laundering (AML) processes have not been followed for VIP customers in the Middle East region.

To rectify the situation, the board has decided to suspend the VIP customer accounts in the region, which is estimated to impact less than 3% of the operator’s revenues.

Lord Mendelsohn commented: “The board and I take the group’s compliance responsibilities incredibly seriously. When we were alerted to issues with some of 888’s VIP customers, the board took decisive actions.

“We will be uncompromising in our approach to compliance as we build a strong and sustainable business,” he added.

iGaming NEXT has reached out to 888 for comment.

The trouble with .com

Advisory firm Regulus Partners linked Panzer’s departure to the “dangerous” nature of “grey-market operating practices”.

The firm also pointed out that 888 made redundancies at its Israel office a few days ago.

“The Middle East contains a full house of ample VIPs, complex gambling law, extreme AML risk, and ‘creative’ payment processing, to the extent where the act of doing business is potentially as a big a problem as the amount from a legal risk standpoint,” said Regulus Partners analyst Paul Leyland.

“As regulatory scrutiny increases, it is likely to become increasingly difficult to hide systemic AML failings in plain sight, in our view; indeed we are surprised that it has taken this long for a blow-up of this nature to happen,” the firm added.

Regulus predicts that Pazner won’t be the last senior executive to face consequences for questionable .com practices of publicly listed and domestically regulated operators.

The question remains, Leyland concluded, whether a senior scalp will be enough to appease inquisitive regulators.

CFO stays on

Meanwhile, 888 said CFO Yariv Dafna has now agreed to stay on until end of 2023.

Earlier in January, it was announced that Dafna would leave 888 after publication of the firm’s full-year 2022 financial results in March.

According to a recently issued trading update, overall revenue for Q4 2022 slipped by 2.6% year-on-year to £458m.

Moreover, 888 ended the year with £1.8bn in equivalent debt, it said, with some 70% of its interest costs fixed for at least three years.

Headquartered in Gibraltar, and listed in London, 888 operates from 15 offices around the world and employs over 12,000 people globally.

London-based brokerage Peel Hunt admitted its Buy rating for the stock was less credible following today’s news. It lowered its target price to 150p per share, down from 210p.

“The share price decline implies investor concern that we are not being told what is really going on,” said Peel Hunt analyst Ivor Jones.

“The board has a lot to do to reassure that there are no more problems to be revealed,” he added.

LeoVegas has appointed Viktor Hoffmann to the newly created role of head of business development.

Hoffmann will spend the rest of January finishing up some consultancy work before starting with LeoVegas officially in February.

Hoffmann has been tasked with embedding a business development approach to the gaming and tech divisions and ensuring that product is connected to complementary work areas, such as commercial, data, marketing and operations.

He will also be involved with M&A related activities.

Hoffmann will report directly into LeoVegas Group gaming director James Ford and will work remotely from the UK in his new role.

Hoffmann has spent the last few years working in consultancy and advisory roles in both the gaming and lottery industries via VHM Strategy and Gameworx.

He also boasts extensive C-level experience at operator level. He worked as a global marketing director for BetConstruct until March 2020 and before that, was CMO for the now defunct Addison Global business and its MoPlay brand.

Hoffmann counts bwin and William Hill as former employers on his CV, having also worked as both chief executive and CPO of Marathonbet.

US casino giant MGM Resorts completed the acquisition of LeoVegas in September 2022.

Hoffmann told iGaming NEXT: “I found this opportunity very compelling, not just because it came at a very pivotal juncture in LeoVegas’ continued success story, with the recent acquisition by entertainment giant MGM Resorts International providing fresh momentum, but also because of the highly talented people I’ll have the opportunity to work alongside and learn from here.”