I hope you all are enjoying a wonderful summer and what a wonderful summer it is turning out to be.
Energy prices are spiking in Europe, because Russia is restricting the supply of natural gas. And since energy is a major input cost for nearly all industries, inflation is rising dramatically. The “normal” price for UK wholesale natural gas is about $5 per Metric Million British Thermal Unit (MMBTU). It is now trading at almost $90 per MMBTU, 18 times the normal level.
While some pundits believe that gambling-industry revenues will hold up during this inflationary period, I am less optimistic. Energy for most people is not a discretionary spend and the increased cost of energy and other goods and services will inevitably eat into household budgets, leaving less available for gambling.
The Chinese government, meanwhile, is continuing to impose lockdowns to control the spread of COVID, resulting in shortages of components necessary for making gambling equipment. Containers for shipping are still in the “wrong” places and both of these factors are leading to major supply-chain delays.
Moreover, we have continuing labour shortages in many industries, in the UK exacerbated by Brexit and strikes in many sectors of the economy.
All in all, this makes operating a public-facing leisure business extremely difficult and is jeopardising profitability, even though demand for gambling is back to 2019 levels (I prefer not to use the term “pre-COVID”, because Covid is still very much with us).
Against this backdrop, Melco announced it is delaying the opening of its resort in Cyprus until mid-2023, due to the main contractor being unable to resource the project. The resort was originally scheduled to open in the summer of 2021.
Regulators are tightening up the industry´s ability to advertise in Belgium. Taxes are being increased in Romania, the number of licences is being reduced, and regulations are becoming more restrictive.
The UK Gambling Commission continues to hand out fines, most recently to Entain, due to failings in its social responsibility and anti-money-laundering processes at both the online and land-based retail betting businesses; Entain also owns Ladbrokes retail betting business. Some operators don’t know they have run afoul of the UK regulator until after a visit from the Commission´s enforcement division — one of the problems with a “risk-based approach” versus prescriptive regulations.
Entain has teamed up with Czech-based private-equity group Emma Capital to aid its expansion into Central and Eastern Europe. Emma Capital injected SuperSport Group into the joint venture; SuperSport is a retail and online-betting business based in Croatia.
Hard Rock International finalised a deal to build and operate a €1 billion integrated resort in Athens. Regency Entertainment, the company that operates the Mont Parnes casino on the outskirts of Athens, as well as a casino in Thessaloniki, is rumoured close to being sold. Regency has permission to move the Mont Parnes casino to Marousi, a wealthy suburb in northeastern Athens.
The ever-patient Hard Rock appear to have smoothed away all the obstacles and are poised to take their Spanish project, adjacent to Port Aventura, to the market for financing. The financial markets are difficult at the moment, unfortunately, with quite a few deals facing obstacles getting financing.
Originally slated to get into the ground in 2018, the project has been delayed due to the politics of Catalunya and the difficult three-way negotiations among the landowner La Caixa, the Catalan government, and Hard Rock. On top of this, the Port Aventura land straddles two municipalities and the mayor of one is vigorously opposed to the project.
Allwyn, the international lottery operator, has received approval from the SEC to reverse into a SPAC. Allwyn is currently sitting on the sidelines, while Camelot brings a case against the UK Gambling Commission´s decision to award the fourth national lottery license to Allwyn, thereby stripping Camelot of its only revenue stream. The handover has been delayed whilst the case moves forward, though only after Camelot pledged to repay the Commission and Allwyn should they lose the case.
London´s high-end Clermont Casino closed after six short weeks of operation; the current owner, Vanthan Huot, shuttered the casino after ballooning losses. The previous owner, Tan Sri Quek Leng Chan, closed the casino in 2018 due to year-after-year losses and no path to profitability. The Clermont has only about nine table games, making the casino highly volatile and not for faint-hearted owners.
Mr Huot purchased the closed casino in 2019 and had planned to open it immediately after its refurbishing. However, the pandemic forced the casino to remain closed. The decision to open was obviously taken in the hope that sufficient high-end play had returned to London, but obviously that was not the case. Given the current AML requirements for casinos, it is unlikely that it will ever return to the levels of four years ago.
My view is that the European economies will face some major challenges in the next few years, including relatively high inflation, supply-chain delays, and labour shortages, and all will not be plain sailing for its gambling industries. If I were a buyer, I would wait a year or two to see the results of the inevitable shakeout.