Reviews

Chief Executive’s Review

3 March 2022

A global leader for our industry

Entain is a consumer-focused growth business delivering profitable and sustainable returns for our stakeholders. We continue to make progress on our ambition as a global leader in betting, gaming and interactive entertainment.

Having substantially increased our online revenues year-on-year for the last nine years and grown at a compound annual rate of 20%cc over the last two years, we are clearly a business delivering growth. Our customer base has 25% more actives than in 2020. Our operations now span 31 regulated or regulating territories and we have established leading positions in each of our key markets. We also have further significant growth opportunities ahead of us with our addressable markets set to grow to more than $160bn over the medium term  - providing us with the opportunity to treble the size of our business. Entain is a business with growth built into our model, driven by our industry leading platform comprising our unique technology, people and capabilities. It is this platform that enables us to deliver an ever-better customer experience, evolve into emerging customer trends and grow into new markets and products. We continue to evolve as a business and position ourselves as a leader in our industry across growth, innovation, capabilities, player protection and customer centricity.

By expanding content, products and experiences to broaden our customer appeal, creating moments of excitement across betting, gaming and interactive entertainment, we are rapidly laying the foundations to drive customer centric growth into new markets and products. This will further broaden our customer base, increase loyalty, drive greater diversification in our revenue streams and reduce acquisition costs.

We have established ourselves at the forefront of sustainability in our industry with recognition across a number of indices as well as earning numerous awards. Importantly we are delivering groundbreaking improvements in player protection through our Advanced Responsibility and Care™ programme (“ARC™”).

We delivered a strong performance in 2021 with Group NGR up +8%cc (up +15%cc including our 50% share of BetMGM) and EBITDA up +5%. Online NGR was up +13%cc with signs of the new normal emerging during the final quarter.

We have made great progress in 2021 and I am delighted all my colleagues hard work has been recognised externally, especially in being awarded Operator of the year by EGR and being recognised as one of the most admired companies in 2021 by Management Today. These great achievements are testament to the high quality and talented team we have at Entain. I would like to thank each and everyone of them for the dedication and the commitment they have demonstrated throughout the year.

Entain is a consumer-focused growth business, and we continue to make progress on our ambition as a global leader in betting, gaming and interactive entertainment.

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We have a clear strategy that levers this platform to deliver on our core pillars of growth and sustainability. Our ambition is to be the world’s leading betting, gaming and entertainment company with our customers at the core of everything we do. It is through this strategy that we will continue to drive significant value for our stakeholders.

Customer centric Entain platform

Our Entain platform distinguishes us from competitors, powering our growth, supporting our customer centric focus and driving value creation. It comprises our unique in-house technology, our industry leading talent and our customer focused capabilities. It enables us to act differently, be flexible and agile and deliver on being a responsible entertainment company whilst also driving significant competitive advantages in five key strategic areas:

Customer centric continuous improvement – customer centricity is the backbone of our growth across the Group. Ensuring our customers’ experience is engaging, exciting, relevant and always improving means a continuous refreshment and evolution of our content, our offering and the way we support our customers. By focusing on what makes a better customer experience and creating those little moments of excitement, we have grown our active base 25% in 2021 and improved customer loyalty.

Driving growth – with flexibility, agility and scalability built in, we are able to expand internationally, integrate new acquisitions, support growth in existing markets, including the US, understand and evolve into changing customer behaviours and grow into new products as demonstrated by our successful M&A and integration delivery to date.

Player protection and Advanced Responsibility and Care™ – ARC™ is Entain’s industry-leading approach to customer protection. It is a proactive player programme that navigates each customer journey in real-time, using advanced analytics to monitor markers of protection and behavioural triggers to identify risks specific to that customer. Early trials have delivered encouraging results, with a 30% overall reduction in customers increasing their risk levels, and we are now starting to roll out the programme internationally.

Innovation engine – continuous product evolution keeps the customer experience fresh and engaging. With the launch of Ennovate, our innovation hub in London, supported by a £100m investment, we are exploring new technologies. These include AI and both virtual and augmented reality to create new moments of excitement for our customers.

Driving efficiencies – maximising cost and revenue synergies from both acquisitions and efficiencies across the Group. Operating our own platform enables us to operate at a lower cost than our competitors. Having launched our Evolve programme in 2021, we are on track to deliver £100m of efficiencies over three years.

As Entain continues to grow, we are evolving our operational structures, processes and capabilities around the Entain Platform. This will enable us to drive an even better customer experience and ensure that we are able to deliver on the significant growth opportunities open to us as a leading global sports betting, gaming and interactive entertainment company. We have a clear strategy that levers our platform to deliver on our core pillars of growth and sustainability. Our ambition is to be the world’s leading betting, gaming and interactive entertainment company with our customers at the core of everything we do. It is through this strategy that we will continue to drive significant value for our stakeholders.

Growth

Entain is a growth business. We have grown Online revenues at a compound annual growth rate of 20%cc over the last two years. We operate in 31 regulated territories across betting and gaming and we have ambitious plans to expand into new markets and new products as we lean into interactive entertainment opportunities.

Our growth strategy has four pillars that will enable us to continue to drive the Group’s performance and increase our scale. These include delivering on our clear ambition to be the leading operator in the US through BetMGM, growing in our core markets, entering new regulated markets – both organically and via M&A – and expanding to reach new audiences.

Leadership in North America

BetMGM is firmly established as a leading operator in the US market built on the strength of the technology and capabilities of the Entain platform as well as the brand strength of our joint venture partner, MGM Resorts International. The North American market is expected to be worth around $32bn over the long term. Throughout  2021, BetMGM has gone from  strength-to- strength and, in the three months to December 2021, delivered a market share across sports betting and iGaming of 23% in the markets in which it operated. This is in line with our longterm objective of 20% to 25%, and while that secured BetMGM as the number two operator, we are ready to challenge for the number one position in these markets.

BetMGM continues to lead in iGaming with a 29% market share in Q4, and in Sports betting BetMGM further built its position across its markets with an 18% share in Q4. The unique range of bespoke and exclusive products provided through the Entain platform differentiate BetMGM’s offer, provide a competitive advantage and supports growth with over 70% of BetMGM customers engaging with these exclusive products.

During the year BetMGM went live in nine markets. In the first two months of 2022 we added a further four jurisdictions taking the total to 21. BetMGM is live with 11 retail, 15 online sports betting and four iGaming markets, reaching approximately 37% of the US adult population. In addition, it has launched its horse racing product in three further markets leveraging our global expertise in this category. With Ontario opening up to regulation, we look forward to taking the BetMGM brand into that market as well as launching in Illinois during the first half.

In 2021, we launched our first national advertising campaign featuring Jamie Foxx which resonated strongly with customers as a differentiated approach in the emergent betting and gaming market. This was followed by a further campaign and a refreshed advert ahead of the 2022 NFL Superbowl.

BetMGM benefits from the powerful Entain platform that provides best in class digital marketing tools, deep database analytics and bespoke in-house products. BetMGM also benefits from MGM Resorts omni-channel presence and loyalty programme with around 14% of new sign-ups having a pre-existing relationship through one of these channels. During the year we leveraged Entain’s global leadership in bingo and horse racing to launch several ground-breaking products such as Borgata Bingo in New Jersey and a horse racing app in three states where we did not have preexisting operations.

As a result, BetMGM has grown its leadership position rapidly while maintaining financial discipline. Same state revenues were up around 140% year-on-year and overall revenues were up nearly five times to $850m in the full year. Costs per acquisition were in line with forecasts which reaffirms our expectation of achieving a long-term cost per acquisition of $250. We are already achieving positive contribution in several markets, some within 12 months of opening. We anticipate that we will deliver revenues of over $1.3bn in 2022 and reach positive EBITDA in 2023.

In summary, BetMGM is firmly on track to realising its ambition of being a leader in the US sports-betting and iGaming market and expects to achieve a 20-25% market share.

Grow core markets

Our operations now span 31 regulated or regulating territories and we have established leading positions in each of our key markets. Our combination of customer focus, strong brands, great products and digital marketing expertise has enabled us to grow across all our major online markets. Our current markets are expected to grow by a compound annual growth rate of over 8% and are expected to be worth around $60bn (up from around $40bn today) over the medium term.

The Entain platform enables us to deliver a great experience for our customers with ease of use, stability, great service, and protection enhanced by fresh, unique and exciting content. We continue to evolve our offering and appeal to create moments of excitement for a broader, more recreational customer base. Not only will this grow and deepen our presence in our markets, but it will deliver earnings with greater stability and of a higher quality.

In the UK, our brands continue to resonate with, and be enjoyed by, a growing number of customers with online actives growing by 15% in 2021. We have made significant progress in re-positioning the UK brands, particularly Ladbrokes and Coral, to maximise their appeal to a broader audience. Our new advertising saw us launch the industry’s first brandled marketing campaigns with both our “Drummers” and “Balloon” adverts captivating and exciting audiences, whilst our new range of TV adverts for Foxy and sponsorship of First Dates also landed well. We also further enhanced our offering and user experience, engaging customers with new games, products and content. We are creating free-to-play games in sports and gaming to provide more options for customers. Our partnership with ITV to create documentaries around inspiring stories in sports has reached an average 800k viewers plus five million on social channels.

Our digital businesses in Italy and Belgium both performed strongly, despite the retail environment across Europe facing challenges due to Covid restrictions. The online winners during 2021 were those operators with the largest retail network, with omnichannel operations seeing a significant advantage. In Italy actives and NGR both saw strong growth, +18% and +31%cc respectively, as our offering benefited from product and feature enhancements as well as user experience improvements. We also introduced new NBA game footage, new pre-match football player markets and in-house Eurobet games across bwin and Gioco Digitale. Eurobet continued to bring new and exciting content to customers with the release of over 300 new casino games as well as adding esports streaming to bwin. tv. The relaunch of Ladbrokes.be in Belgium drove almost 72% growth in actives, with the digital offering also benefiting from refreshed advertising campaigns and bwin’s sponsorship of Jupiler Pro League enabling live streaming of football matches both online and mobile.

During 2021, the German market further digested the new regulatory regime including both the Interstate Treaty and the new Turnover Tax. This structure brought welcome clarity to the German online betting and gaming market, however, challenges remain. We look forward to full licensing and regulatory oversight, creating an orderly market that delivers a properly regulated environment and protects customers from unregulated operators. We have continued to differentiate bwin’s offer with a number of products and enhancements. During the year bwin entered into a sponsorship agreement with UEFA that provides significant brand exposure through stadia and media backdrops, not just in Germany, but also in many other countries around the world that follow the Europa League and the Europa Conference League. In addition, bwin’s exclusive free to play product partnership with football focused content platform, 433, has helped to drive a 40% increase in bwin Instagram followers.

Our Australian business continues to go from strength to strength with excellent performances from both Ladbrokes and Neds brands with actives +9%, versus strong 2020 comparators, and NGR +20% (+18%cc) year-on-year. Its refreshed approach has engaged with new and lapsed customers delivering exciting content, engaging material, eye-catching adverts, and an unwavering focus on customer experience. Since kicking off our content-led growth strategy, we have produced over 250 content pieces with Ladbrokes Deep Dives for both the Melbourne Cup and the Ladbrokes Cox Plate, as well as our ‘Moody on the Mic’ podcast. To date, this content has had more than 440m impressions, with Peter Moody’s podcast reaching an average of 2.5m people per episode. We launched free-to play games and a new quiz-based game to coincide with the launch of the domestic 20/20 cricket season.

Enlabs in the Baltics continues to perform ahead of our expectations with Entain’s core products now fully integrated in the Optibet offering helping to drive actives up +38% on a proforma basis. During H2 2021, Optibet rolled out a new esports betting product in Latvia and Estonia, with customers now able to bet and watch gaming such as eFIFA, eNBA, Fortnite, and Call Of Duty.

Our acquisition of Bet.pt saw Entain enter Portugal, one of Europe’s fastest growing markets. Since its platform migration and brand alignment to bwin.pt the business now benefits from a larger and broader range of products with greater availability of live games whilst also leveraging our existing sportsbook strength alongside bwin’s partnership with Liga Portugal.

Crystalbet continues to deliver strong growth with a leading market share of 32% and retaining its position as number one operator in the Georgian market.

We opened our ‘shop of the future’ in the UK that better connects with the retail environment.

Our business in Brazil continues to be the market leader, delivering exceptional growth with actives +156% and NGR +111%cc in 2021. Performance remains very strong and despite the heightened competition ahead of regulation of sports betting expected during 2022 (and gaming in 2023), the strength of our Sportingbet brands and operational expertise ensure we continued to outperform other operators, as there is clear demand for the high quality experience and breadth of product offering which Entain provides.

PartyCasino and partypoker brands were consolidated to become One Party. The business performance was in-line with expectations, with pleasing growth in casino actives in particular. One Party continues its renewed focus on recreational players and their entertainment experience.

The impact of Covid restrictions and associated disruptions impacted all our Retail operations throughout 2021, but to varying degrees. However, we were encouraged by the resilience of our Retail operations as customers demonstrated that they enjoy the in-store experience with volumes growing quickly as restrictions eased.

Our shops in Europe were a step behind the UK on the recovery path due to the later easing of restrictions. Early reopening activity was machine-led with sports volumes returning with the football season and broader sporting calendar.

Evolving the customer experience across Retail, leveraging digitalisation and improving the omni-channel journey is a key driver across our retail business in the UK with customers highly engaged with the range and depth of our offering. As part of our brand reinvigoration we leveraged the media value of our store windows through digitalisation of displays. Omnia, our proprietary EPOS system, is now fully rolled out in Great Britain and our inhouse Betstation terminals, being enjoyed by customers in over 200 shops, have supercharged our machine-led growth for both sports and gaming. Positive feedback and encouraging data suggests customers are enjoying our Digital Hubs in the current 30 locations.

Expanding into new markets

There are significant growth opportunities across the globe with around $40 billion in long-term gross gaming revenues in over 50 regulated markets in Central & Eastern Europe, Latin America and Africa where we do not currently operate today.

We have a strong track record of integration and value creation through M&A and completed four acquisitions during 2021 including Enlabs across the Baltics, Bet.pt in Portugal, Impala to drive access across Africa and Unikrn to take us into the esports wagering market. We have already been active in 2022 with three transactions to date.

In February 2022, we acquired Avid Gaming which, through Sports Interaction, provides access to the highly attractive, fast growing and regulating sports betting and gaming market in Canada. Sports Interaction’s sports-led offering is highly complementary to Entain’s existing business, and the combination will provide customers with a broader offering of engaging products and services for customers in the Canadian market.

With a portfolio of strong brands across the Group, some with global recognition such as bwin and Party, we are able to grow into new markets organically. We were one of the first operators to launch in Colombia as that market regulated and having acquired the enabling tools in Impala we will launch organically across Africa through 2022 and beyond.

New market entries, both through M&A and organic expansion, collectively contributed 3% of Online NGR during the year.

We continue to look for further opportunities to enter new, growing and regulated or regulating markets where we can drive greater value for shareholders.

Engaging and attracting new audiences

Technology is changing consumer behaviour with new trends and ecosystems creating exciting opportunities. We are listening to the customers, we understand these changes, and we adapt and innovate to drive further growth across new audiences.

Customers are seeking more content, more engagement, more interactive and social experiences, more video, more audio and more free-to-play entertainment. Simply put, interactive entertainment and media are converging with our traditional markets of betting and gaming.

Entain sits at the heart of this convergence and provides us with a tremendous opportunity to leverage our platform to meet customers’ needs whilst attracting more customers into our network. This not only increases engagement and stickiness, but also starts creating powerful flywheel effects that enhance product cross-sell and reduce acquisition costs.

During the year, we laid some of the foundations to grow into these markets and start to benefit from those flywheel effects. As discussed above, in markets like the UK, Australia and Germany we have created rich content and media to engage customers around sports. These have already shown significant success in broadening our actives base. We have created new products across both our free-to-play and real money offering that broadens engagement with customers.

In August, we acquired Unikrn to provide access to the esports wagering market that we expect to be worth c$12bn over the medium term. Since the acquisition we have been re-setting the product suite and working with partners and regulators to develop a product that we will launch later this year.

The casual mobile gaming market has grown rapidly in recent years and our technology, data analytics and other capabilities align with how this market operates. To fully benefit from this market we will likely acquire or partner with an existing operator. We believe that this market aligns closely with the evolving demands of our customers and will help drive flywheel effects of reducing costs, increasing stickiness and diversifying our revenue base.

As we evolve Entain to address these changing customer needs and broaden our product markets, we will increasingly look to partnerships to expand our growth. For example, our partnership with McLaren provides richer and more engaging experiences for Formula 1 fans that are not available anywhere else. Our partnerships with BT & Verizon will help us benefit from innovative new experiences for customers.

Technology continues to evolve and the Entain platform puts us in a unique position to be able to explore and innovate to create exciting new unique products and experiences for our customers. In order to accelerate that we have created the Ennovate hub supported by a £100m investment over three years. The Ennovate hub will develop new products around augmented reality (“AR”), virtual reality (“VR”), 5G and edge computing technology both directly and through funding for incubators and accelerators. We recently acquired an interest in Draw & Code, a leading immersive experience studio to develop VR products. We will also work with a number of partners such as Verizon, BT and Theta Labs in developing the technology and products that drive the emerging ecosystems within the metaverse. In addition, it will support initiatives in Entain’s Sustainability Charter around environmental and social issues as well as supporting EnTrain the Group’s global D&I initiative to provide more opportunities in technology and technology-related careers.

We positively promote an inclusive culture as we believe that the more diverse your colleague group the better the business.

Sustainability

Sustainability is at the heart of everything we do, and we firmly believe that the most sustainable business will be the most successful business in our industry. Our Sustainability Charter underpins this approach and is built around four core principles: an exclusive focus on regulated markets; continuing to take the lead on responsible betting and gaming; best in class corporate governance; and investing in our people and local communities.

We made significant progress across all four of these during the year, many of which we highlighted at our first Entain Sustain event in November. Globally, we lead the industry on responsibility, with revolutionising player protection at the core of our approach. We continue to make great progress with ARC™ with both the real-time customer interaction trials and the international rollout well underway.

It is pleasing to see our efforts being recognised externally with Entain being awarded Operator of the Year by EGR, and Socially Responsible Operator of the Year at the SBC Awards North America, our continued participation in the FTSE4Good index and the Dow Jones sustainability index as well as being recognised as a most admired company in Management Today’s annual awards.

Focus on regulated markets

We continue to make progress towards our commitment that all our revenues will come from regulated markets by the end of 2023. As at end of 2021, almost 100% of our NGR was from regulated or regulating markets, with Brazil, Canada and Netherlands being the most significant in the process of regulating within this.

Being a trusted entertainment provider, protection of our customers is fundamental to our customer centric strategy. Operating in a well-structured regulatory regime ensures revenues have greater clarity and certainty and are ultimately more sustainable and therefore are of higher quality than earnings from non-regulated markets.

Having withdrawn from a number of markets since November 2020, we continue to monitor the regulatory timetable for other countries, working closely with the relevant authorities to help develop a robust framework that protects players and maintains the highest regulatory standards. In October 2021, we ceased trading in the Netherlands whilst we await the licensing process to complete.

We actively engage with regulators in order to help support a well-structured regulatory environment that balances a fair and open recreational market with the need to provide protections for the small minority of customers who may run into problems. In the UK, the 2005 Gambling Act is currently under a much-needed review that will set out the regulatory framework for years to come. We are contributing to this process both directly and with our industry peers through the Betting & Gaming Council to help find the right balance for a well-regulated market that protects the minority at risk, polices the fringes of the industry such as the black market and preserves the market as entertainment for the vast majority of customers who enjoy betting and gaming as part of their recreational activity.

We are also engaging with regulators around the world to support emerging regulation around esports skill-based wagering as this market opens up across the world.

As a reflection of the importance of this across our business, last year we introduced a responsible betting and gaming metric to our Group-wide remuneration policy.

Lead on Responsibility

We continue to lead the market in the critically important area of responsible betting and gaming. As a reflection of the importance of this across our business, in 2021 we introduced a responsible betting and gaming metric to our Group wide remuneration policy which, in 2022, will expand its measurement and accountability further into our international markets.

Through our award-winning Changing for the Bettor safer betting and gaming programme, we take a holistic approach to protecting customers, investing millions into research, education and treatment. In 2021, we introduced ARC™ which, using revolutionary AI technology, operates in real-time, and, crucially, is individually tailored for each customer. It is built on a foundation of academic research and is designed to work invisibly in the background stepping in when needed.

ARC™ employs sophisticated algorithms, using 26 different markers of protection to identify signs of risk and, when needed, steps in to interact with the customer, modify the operation of games such as limiting stakes or slowing down play and suppressing marketing activity. Our initial trials have been very encouraging, with results showing a risk assessment accuracy of over 80%, a 120% uplift in the use of safer gambling tools by those most at risk and a 30% overall reduction in customers increasing their risk levels.

We continue to refine ARC™, as the programme continuously improves through machine-learning. Having been initially trialled in the UK, the programme is now being rolled-out internationally.

During the Covid-19 lockdowns, mindful of the impact of restrictions on customers, we expanded our monitoring and markers of protection and increased communication and messaging to all customers on the importance of safer betting and gaming.

Best in class corporate governance

As a world-leading company we are committed to the highest standards of governance in all areas of our operations and our Board has been strengthened and revitalised during the year. In March 2021, Mark Gregory was appointed to the Board as an independent Non-Executive Director and as the Chair of the Remuneration Committee. The Board is now made-up of a Chairman, three Executive Directors and seven independent Non-Executive Directors, with a 64%:36% male to female gender split.

In line with our objective to operate best in class corporate governance, we commissioned Alvarez & Marsal (“A&M”), an independent professional firm to conduct a comprehensive review of the Group’s governance and compliance practices. Having completed their review, A&M concluded the Group had “put in place all the key components of a compliance framework to enable it to identify and manage its general compliance and regulatory risks”. While welcoming this positive assessment, the Group is taking on a number of specific recommendations within A&M’s report to further strengthen our processes.

Best place to work and investing in  our communities

We want Entain to be a great place for our people to thrive, develop careers and feel empowered to do what’s right for our customers, our colleagues and our communities.

We positively promote an inclusive culture as we believe that the more diverse your colleague group the better the business will be and, as importantly, will be better representative of our customer base.

We have always had a flexible approach to office-based working and with the evolution taking place as a result of the Covid pandemic, we are further evolving that flexibility recognising the needs of different teams and different global offices will vary. We want to provide the right environment to continue to attract the best talent and to enable them to thrive. However, the power of collective thought and idea creation, particularly in face-to-face environments will remain a core part of how we do business and so we are evolving our workspaces to enable that flexible coordination to evolve. We have completely refurbished our offices in Stratford, London to create the right sort of collaborative environment for our people. We will be testing and reviewing our findings from this and take those into development of our other offices.

We are committed to lightening our footprint on the planet and have already reduced our greenhouse gas emissions by 15% from 2018 to 2021. Last year, we committed to Net Zero carbon emissions by 2035 – 15 years ahead of the target set by the Paris Agreement on climate change. In doing so we have formally joined the Science Based Target initiative and are seeking to demonstrate leadership within our sector.

Our two Foundations – the Entain Foundation and the Entain Foundation US, continue to support research into problem gambling, education initiatives that align with our sustainability ambitions as well as investing into local communities and grass roots sports across our key markets. In November we launched EnTrain, an initiative to provide access, education and technology for groups underrepresented across all sectors. EnTrain set the ambitious target to positively impact one million people through increased diversity in technology by the end of the decade. This builds on our partnerships with organisations such as Girls Who Code, the international non-profit body working to close the gender gap in technology and redefine the image of what a programmer does; and The Tech Girls Movement Foundation, the Australian based foundation which is challenging gender stereotypes to increase female participation in STEM industries. The Entain Foundation is looking to build on these partnerships throughout 2022.

The Entain Foundation has also continued to invest in grassroots sports through its Pitching In programme and partnered with the Pitching In Trident Leagues containing 245 clubs and over 15,000 community based non-league football players. In addition to funding the running of the leagues, the Foundation is also the Founding partner in the Trident Community Fund, which enables clubs to run community engagement projects. In 2021 we also extended our long-term collaboration with SportsAid, the UK based sports charity, through which we sponsor and provide personal development coaching to 50 young athletes each year. We are also internationalising our investment in grassroots sport and are backing projects in Italy, Greece and Colombia.

In Canada, since our recent acquisition of Avid Gaming and its Sports Interaction brand, Entain are delighted that our new unique relationship allows us to support the socioeconomic efforts of the Mohawks of Kahnawà:ke through our Mohawk Online agreement.

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