Stars Group, the operator of the largest online poker cardroom, declared its intentions to be a major part of the global sports betting market. The $4.7Bn acquisition of Sky Bet, a leading British sports betting platform, catapulted the Stars Group to world’s largest online betting site overnight, positioning it better than most to seize opportunities from easing regulatory pressure on the gambling industry worldwide. Sky Bet’s integration will complement Stars Group’s core poker business by providing an additional low-cost customer acquisition channel and enabling more effective cross-selling to players across multiple verticals.
The timing is also important – ahead of the 2018 football World Cup and the pending decision of the U.S. Supreme Court on sports betting. The Stars Group’s dominant geography is the EU, where betting volumes on the most anticipated tournament this year are expected to grow exponentially, driven by the shift from high street to online platforms. The event will provide an excellent cross-selling opportunity. Another major opportunity lies in the probable legalisation of sports betting in the United States: currently sports wagers are only allowed in Nevada, but this could change if New Jersey is successful in overturning the Professional and Amateur Sports Protection Act (PASPA).
SORTIS View: The Stars Group’s debt-fuelled expansion is adding further pressure on its overleveraged balance sheet. Given the new capital structure, we believe company’s ability to take advantage of emerging investment opportunities becomes limited, while the probability of the group being taken over by William Hill or Hong Kong investors, interested in the past, decreases materially. Despite the attractive interest rates, excessive debt could be burdensome even to the most coherent business models.
