The British high street has had a tough time lately, and the latest blow has come from William Hill (LON:WMH), who have announced plans to close roughly 700 betting shops, which would put approximately 4,500 jobs at risk. The gaming group cited the UK government’s decision to limit the cap on fixed odds betting terminals (FOBT) from £100 to £2 as the reason the decision, and William Hill described the fall in gaming machine revenue as ‘significant’.
In March, the group posted a full-year statutory loss before tax of £721 million ,and that compared with a profit of £146 million in the same period last year ,and the loss included a non-cash write-down of over £880 million in relation to the UK retail business in the wake of the changes to fixed odds betting.
The gaming sector is changing, online revenues are becoming a larger competent of the sector’s total revenue, and changes to regulation is a factor too. No doubt the stricter regulations in the UK hurt William Hill, but it is possible that there are other issues which prompted the drastic move.
In the last set of full-year figures, the firm highlighted that 39% of group revenue came from the online unit, and given the rate it is growing at, it will probably account for the majority of revenue in the next few years. Betting shops are expensive to run, and management possibly see the future in e-commerce anyways, so the FOBT ruling probably just sped up the decision to retreat from the high street.
When regulations change it isn’t always bad for companies. Last year, the US Supreme Court paved the way for sports gaming to legalised in many states, and firms around the world were quick to try and expand into the potentially very lucrative US market. Revenues from William Hill’s US operation are small at 6%, but they are growing. The firm currently operates in six states, and it aims to nearly triple that. Expansion is cash intensive, and it is likely that cash from the UK high street division will be diverted to the US.
The share price has been in a strong downtrend for nearly six years, but if the company can roll out the success it once had in the UK in the US, it is likely to shake-off the bearish move.
DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.