Quote:
Originally Posted by Lemon93PCTSure
They are building a monopoly Sagedonkey, how do you not see how that's good for them and bad for the market
They already have it with poker in a lot of regional markets
Getting oddschecker especially is really big too a lot of people use it and they will "subtly " divert traffic v to their groups brands
It is going to be very hard to build a monopoly when there are so many other on line bookmakers and casinos already in and with access to multiple geographical markets. It is also easy for new companies to enter the market.
On line bookmakers are also competing with betting exchanges (Betfair and Betdaq etc), and with Spread Betting companies (Sporting Index and Spreadex), most of which also offer casino games.
Plus people's gambling bucks have more choice than ever in the field of betting and speculation with Fantasy Sports, Stock and Financial Products trading and Crypto Trading now freely available.
I think Stars Group have vastly over estimated potential growth in on line sports betting and casino. Indeed some on line operators in recent times such as Coral and Ladbrokes (those two have now merged), William Hill and Paddy Power have had bad spells of very low profits from on line sports betting, and in their off line high street shops would make no money at all were it not for video roulette, slots and casino machines in their shops.
This is why I believe there has been a consolidation in the UK betting industry, which is logical when times are tougher. However, consolidating where one side exits at a PE ratio of ~20 feels like Stars Group getting totally carried away with misguided growth optimism.
Monopolising on line poker is a completely different animal, because in poker you clearly need a player pool to create liquidity but in on line betting no player pool is required, therefore you can never create a monopoly or near monopoly because there is no real limit on the number of competitors you can have. You could buy up every other existing on line betting and casino operation and 10 or 50 new ones could easily pop up within weeks.
Would be interesting to know what the non-compete clauses are in the deal. Because what is to stop Sky Plc from waiting a year and then starting an on line betting, casino and poker operation from scratch. I mean how much of $4.5Bn would it cost for them to do this. $1M, $5M even $20M is a tiny percentage of the massive price they sold what is effectively a list of customers to Stars Group.
Similarly, how much would it have cost Stars Group to build something way better than Oddschecker from scratch,a couple of million? (probably much less)
Quote:
Originally Posted by Loctus
Financing acquisitions (or anything) with debt is not more expensive than alternatives. If anything it's cheaper due to tax reasons. Yes, that sounds like it doesn't make sense but it's the reality of corporate finance. The price paid is what matters, not that it's debt financed. Although too much debt can matter when it increases risk of insolvency (I have no clue of pokerstars cash flow)
Sure, loan payments may be tax deductable but the net cost compared to an acquisition with cash is still likely to be higher as I believe that the difference between what one can earn with cash on deposit compared to the finance borrowing rate will be bigger than the tax relief gained.
But where we agree is regarding cash flow.
Clearly if you borrow to acquire a company then you are fully "mortgaged up" from day 1 so won't be able to borrow more against the value of the company, unless the value of the company goes up and lenders are confident in the new paper value.
Also it is difficult to raise more money with a (stock) rights issue when you are carrying so much debt because investors are going to be nervous. A rights issue would also likely reduce share holder dividends because their equity in the company is being diluted.
Putting all of the above aside, because yes it is manageable although risky, the biggest problem in my opinion is that two things tend to happen when massive borrowing takes place for a takeover.
i) The buyer is likely to be paying an inflated price, because they are buying with someone else's money. If you are paying for something with your own cash you are likely to be more careful about paying fair value and about calculating future downsides of the business and its general risk v reward ratio. But when it's with someone else's money, far less so.
ii) By financing an acquisition with debt you are under pressure from day 1 to make short term business decisions that are primarily motivated by getting the business to be profitable, show growth and generally look good on the balance sheet. But in many cases these short term decisions are the wrong ones for medium and long term growth and stability.
If you takeover a company with your own surplus cash then of course every business decision can be a balanced one that takes into consideration the short, medium and long term and isn't purely looking at the next quarter or the end of year results.
What will often happen in these scenarios is the company will have a great 3 or 4 years, because they took every single measure possible to increase profits and growth, but then things will gradually start to fall apart after that because the strategy was not a good one for the long term.
This is pretty much what (Amaya/Stars Group) have done with Pokerstars. So far it has worked, probably because they bought a more niche gaming operator with not many major competitors, but on line betting and casino is different, there are so many other competitors and I don't think it will be easy for Stars Group to achieve the kind of growth they expected when they paid a very toppy price in the takeover.
Last edited by SageDonkey; 04-22-2018 at 08:12 PM.
