Details of which assets Hard Rock Digital will purchase have not been disclosed, nor has any information regarding financial terms. However, 888 did state that it expects to the deal to complete in phases.
Subject to relevant regulatory approvals, 888 said the sale will be finalised by the fourth quarter of this year.
The sale agreement comes just a matter of weeks after 888 launched the strategic review. This process began in early March, with 888 at the time saying it would consider “potential alternatives” to deliver value for the group.
A partial or full sale of US B2C operations were some of the alternatives looked at during the review. The group noted this action will not impact its existing B2B arrangements in the US.
888 said gross profit margin in the US was lower than the group level. This, it added, reflects “significant” direct costs of operating in the market including duties, market access fees and licence fees, in addition to competition from “well-capitalised incumbent participants”.
As such, 888 determined its current structure will not optimise returns.
Controlled exit from the US
When the review launched, 888 said that it would also consider a controlled exit of US B2C operations. With only some assets being sold to Hard Rock Digital, this will now be the case for 888.
For the remaining US B2C operations, 888 has now commenced a controlled exit from these assets. The group intended to fully cease such operations by the end of the current calendar year. Again, this is subject to regulatory approvals and process.
888 said exiting US B2C operations will realise a recurring annualised benefit to adjusted EBITDA of approximately £25.0m (€29.2m/$31.6m). This will be seen from 2025 onwards, with 888 planning to reinvest £10.0m into growth and value creation initiatives.
The operator expects to incur net one-off cash costs of approximately £40.0m in relation to the US exit. This, it said, is inclusive of a brand licence termination fee already announced, with such payments occurring from 2024 until 2029.
Stepping away from Sports Illustrated
888 exits the US with the operator currently active in four states: Colorado, Michigan, New Jersey and Virginia. However, only one state features the actual 888 brand, with the 888casino live in New Jersey.
As for other operations, these are run in partnership with Authentic Brands Group and its Sports Illustrated brand. These include the SI Sportsbook and SI Casino in Michigan, as well as the SI Sportsbook in Colorado and Virginia.
In line with the strategic review, 888 mutually agreed to end this partnership. 888 will pay $25.0m in cash from available resources, plus an extra $25.0m between 2027 and 2029.
888 set for major rebrand
The combined net impact of the sale and exit of US B2C were already incorporated into the financial targets that the group announced this week.
These were set out as 888 also published full-year results for 2023. Revenue improved from £1.24bn to £1.70bn, with adjusted EBITDA also rising from £217.9m to £308.3m. Net loss was also cut from £120.5m to £56.4m.
In an earnings call discussing the results, chief financial officer Sean Wilkins admitted the performance had been “disappointing”. However, CEO Per Widerström lauded “a new chapter” in the proposal for a rebrand of the business.
In an unexpected move, 888 said that it will rebrand to Evoke, depending on shareholder approval at 888’s next AGM. 888 says this will “better reflect the strength of the group’s multi-brand operating model”.
The proposed rebrand represents a new dawn for the business, according to Widerström. He said while 888 has “great customer facing brands”, Evoke would create a definitive direction for the company.
“Reset” for 888 with Value Creation Plan
Also announced this week was a new Value Creation Plan (VCP). Widerström and the senior leadership team will deploy this plan to deliver a long-term “strategy for success”.
Key points include a “reset” of the group’s operating model, with the aim of making £30.0m of additional annual cost savings annually. 888 will soon unveil six strategic initiatives to support it with its efforts.
There will also be a simplified market approach, with two categories. The first covers core markets (UK, Italy, Spain and Denmark), and the second optimise markets, with a greater focus of investment where the group will “generate strong returns while maximising cash-flow from all markets”.
888 will also aim to improve efficiency with an adjusted EBITDA margin expansion of c100 basis points per year. The group will also target more disciplined capital allocation, with leverage of below 3.5x by the end of 2026.
Original article: https://igamingbusiness.com/strategy/ma/hard-rock-digital-to-acquire-888-us-b2c-assets/
