Blackstone and Apollo lead PE’s record $6.3bn bet on the gambling market

Private equity and venture capital managers are betting big on the global gambling market.

From casinos to sports betting apps, the buyout industry is hoping to strike lucky with a record flurry of recent investments into the sector.

Blackstone struck what is set to become the largest ever industry deal last month, buying Australia-based casino operator Crown Resorts in a $6.3bn takeover after a year-long pursuit of the company.

But it’s not just Down Under where investors are getting in on the action. Thawing regulation in the US and hopes of a global post-pandemic recovery are sparking a wider gambling gold rush.

Spinning the wheel

Casinos are at the forefront of the boom, with buyout shops betting that customers will flock back to the roulette, poker and blackjack tables as lockdown restrictions ease.

The Crown acquisition comes off the back of a record 2021, according to Pitchbook data shared with Financial News sister title Private Equity News. Private equity deal flow into global casino, gambling and betting reached $6.3bn last year, up from $1.2bn in the previous 12 months. Venture capital deal activity also soared from $256.5m in 2020 to $919m last year.

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US buyout giant Apollo struck several mega-deals last year, acquiring Toronto-based casino operator Great Canadian Gaming for almost $2.6bn and paying $2.25bn for the operating company of The Venetian, one of the best known hotel and casino resorts in Las Vegas.

Apollo partner Alex van Hoek said last year that the investment in The Venetian “underscores our conviction in a strong recovery for Las Vegas as vaccines usher in a reopening of leisure and travel in the United States and across the world”.

Although the anticipated economic recovery is helping to drive deals, lead private equity analyst at PitchBook, Wylie Fernyhough, also says the rising demand for casinos is based on the growing income streams they offer: “These are, on average, cash flowing assets when it comes to gambling revenues, but in the last 20 years casinos have also completely changed the way they operate.”

He explains: “They’re not just the casinos. They’re also typical hospitality companies as well that rely on other types of entertainment and room revenue, so we’ve seen Blackstone and a few other firms really bet on the reopening of the global economy and travel and hospitality, and a lot of that has carried over into investments in casinos as well.”

Vegas is not the only place where PE shops are scouring the market. In the UK, Paul Breen, who works in the licensed leisure team at real estate agency Savills, says he has noticed that “interest from private equity groups in the casino sector has certainly been increasing in recent months”.

“The sector has understandably been hit hard by the pandemic but there is a real sense of optimism that we have seen the worst of any disruption.”

Away from the casino tables, UK high street betting chains have also caught the attention of PE firms. Last year William Hill, which has more than 1,400 betting shops in the UK, was put up for sale by its US owner Caesars Entertainment.

Both Apollo and CVC-owned German bookmaker Tipico were reportedly in the race to buy the high street betting chain, although it was eventually acquired by online casino company 888 Holdings for £2.2bn.

Sporting ambitions

While some large PE firms are showing interest in bricks-and-mortar casinos and betting shops, among venture capital investors it is the online sports betting industry which is seeing a flurry of interest, particularly in the US.

The Supreme Court ruled in 2018 to strike down the Professional and Amateur Sports Protection Act, which barred state-authorised sports gambling with some exceptions.

That ruling paved the way for states to legalise betting on sports such as football, basketball and baseball, opening up a nascent industry to investors on the hunt for fast-growing opportunities.

“The opportunity in sports betting is just getting started,” says Wayne Kimmel, whose firm SeventySix Capital invests in startup sports betting, e-sports, and sports tech companies.

He explains: “It was not an opportunity until May 14, 2018, when there was only sports betting in one state — the state of Nevada, and more specifically, Las Vegas. Now you have 30 states plus the District of Columbia that now have legalised sports betting in their states.”

SeventySix Capital has invested in a range of betting-focused sports companies: in January, it backed Odds On Compliance, a tech and consultancy firm specialising in sports betting, iGaming, and gambling regulatory compliance in the US and abroad.

Kimmel predicts more growth in the sector as an increasing number of states legalise sports betting: “We’ll add another 8 to 10 states in 2022. We’re going to get very close to 50 states in the next couple of years. Again, from that perspective, the market just continues to get bigger and bigger.”

PitchBook’s Fernyhough says: “Especially in the VC area and some other areas of PE, we’re seeing online gambling really start to open up in the US in lots of different states and there’s a path to broad adoption and legalisation. That opens up a pretty massive opportunity set for certain companies that are able to win market share.”

He adds: “That power law dynamic is at play where there might be one or two winners in each state or region and the spoils will go to those few, so there is a lot of investment activity to try to help bolster some of these players.”

Risky business

While the US relaxation of bans has opened up opportunities, looming UK regulations and concerns over addiction problems also show the risks. Betting companies have come under growing criticism from campaigners who warn that the industry does not spend enough money on protecting those struggling with addiction.

The UK’s Gambling Commission recently announced that the online slot machine industry must introduce a series of strict new measures to protect players, and further curbs are expected in the spring.

Similar crackdowns have been emerging across Europe: the Dutch government has recently sought to tighten the rules against unlicensed online betting operators, for example.

Those risks are not likely to fade in the coming months, yet despite the controversies surrounding the gambling industry, the record levels of PE investment show that many buyout shops seem to think that the odds are still in their favour.

Source: Honest Columnist 

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