Upgrade Of Entain Considers Substantial Changes To BetMGM

More than a week has passed since former Entain CEO Jette Nygaard-Andersen tendered her resignation amid the fallout of a Turkey bribery scandal.

The departure triggered wholesale board changes at one of the largest online gaming operators in Europe. It also led an activist hedge fund to snap up approximately 28 million shares in Entain, joining a group of institutional investors that have called for widespread change at the company. Entain owns a 50% stake in BetMGM, a U.S. joint venture with MGM Resorts.

When Corvex Management LP made the purchase last week, the fund acquired approximately 4.4% of the total shares outstanding in Entain. Entain shares jumped in value this week after the company received an upgrade from Jeffries.

“We believe Entain is at a critical juncture and can benefit from the constructive engagement of a well-informed shareholder with substantial industry and company-specific experience and expertise,” Corvex officials said in a press release.

Jeffries upgraded Entain to a “buy” from a “hold” on the heels of the board changes and the Corvex purchase. Entain shares traded on Thursday around 1,000 pence, up more than 20% from levels last week prior to Nygaard-Andersen’s resignation.

The management upheaval may prompt Entain to resume negotiations with MGM Resorts on a major transaction. Options include the sale of Entain’s stake in BetMGM to MGM Resorts, according to Jeffries analyst James Wheatcroft, or even a full acquisition of Entain by the Las Vegas-based casino conglomerate. Entain rejected MGM Resorts’ $11 billion takeover attempt in 2021 on the basis that the bid substantially undervalued the company and its prospects.

BetMGM is one of the largest online casino and sports betting apps in the nation, occupying a top-five ranking in more than a dozen states.

Activist investors

Corvex is the latest activist investor to take a stake in Entain, joining the likes of Sachem Head Capital Management, Dendur Capital, P Schoenfeld Asset Management, and Eminence Capital.

In June, Eminence excoriated Entain for aspects of its M&A strategy while questioning a £750 million offer for Polish sportsbook operator STS. Eminence took exception with Entain’s decision to conduct a share issuance that represented approximately 8% of the company’s market capitalization in order to fund the purchase.

“While we can support the company pursuing seemingly rational acquisitions, funding them with highly undervalued equity is an ’empire building, shareholder value-destroying strategy,’” Eminence Capital wrote in an open letter.

Nygaard-Andersen announced her departure several days after the U.K.’s Crown Prosecution Service entered into a Deferred Prosecution Agreement with Entain to settle an investigation into alleged bribery violations in Turkey by the company formerly known as GVC Holdings. The company’s Turkish unit represented a significant portion of GVC’s revenues in 2016, generating approximately €100 million ($110 million) on the year.

“While Entain’s “recent management change was a necessary first step, further change is required… Simply put, Entain’s recent performance has been unacceptable and all options…”

US fund Corvex urges Entain to turn around ‘unacceptable’ performance https://t.co/QfcLAUBweI

— Alfonso Straffon 🇨🇷🇺🇸🇲🇽 (@astraffon) December 14, 2023

Following the ban of non-state gaming activities in 2006, Turkey’s black market for gambling has flourished. Entain, which agreed to pay a fine of £585 million ($732.4 million) to settle the charges, pulled out of Turkey before Nygaard-Andersen joined the company.

Upon her resignation, which took effect immediately, the Entain board named Stella David as interim CEO. In addition, Entain appointed Pierre Bouchut as a senior independent director to replace David. Entain also appointed Virginia McDowell as chair of its Remuneration Committee, Barry Gibson as chair of its People and Governance Committee, and Rahul Welde as a member of the People and Governance Committee.

In-game wagering to grow

Also this week, BetMGM published an expansive list of this year’s sports betting trends in the operator’s 2023 year in review.

BetMGM reported it produced record handle on the year and capitalized favorably from UConn’s triumph in March Madness and the Denver Nuggets’ first NBA championship in franchise history. On the customer side, Deion Sanders’ hot start at Colorado produced wins for the gambling public in the opening weeks of the college football season.

Moving forward, Matt Cosgriff, BetMGM’s director of retail trading, expects the next 12 months to continue the evolution of modern sports betting through increased in-play wagering.

“The trading team expects in-play wagering and player-prop betting to grow,” Cosgriff wrote in the annual review. “Live betting continues to increase in the overall percentage of handle, as more people enjoy ‘trading the games’ than just a pre-game wager.”

He continued, “BetMGM experienced a record 2023 and we expect to continue that momentum into 2024. The future is exciting for our business, and we plan to break even more records in 2024.”

A productive start to the new year may persuade activist investors to exert further pressure on Entain to consider a sale. According to the Financial Times, there is growing sentiment among activists for Eminence Capital’s Ricky Sandler to gain a seat on Entain’s board. Over the summer, Sandler urged the Entain board to consider divesting a portion or all of its stake in BetMGM as a value creation mechanism.

Corvex, meanwhile, signaled that it will engage with David to push for change.

“While the Company’s recent management change was a necessary first step, further change is required,” Corvex wrote in the letter. “Simply put, Entain’s recent performance has been unacceptable and all options must be considered to drive value.”