The Gibraltar-based gaming company, 888 Holdings PLC, reported its pre-tax profit dropped 63% in the first six months of the year, and cut its dividend by 29%. And that may have been the good news.

888 Holdings CEO Itai Pazner
CEO Itai Pazner’s rosy comments can’t mask 888 Holdings’ dismal results. (Image: 888 Holdings)

Reading 888 Holdings’ CEO’s Sept 10 comments, one might think the company hit one out of the park in the first half of this year. Itai Panzer said,

“888 has delivered a solid performance in the first half of 2019. The Group’s business in the UK has continued its recovery, which was underpinned by exciting product innovation, as well as 888’s successful casual customer focus, and further expanded across several regulated European markets, including launching its offering in Sweden and Portugal. The Board continues to believe that 888 is very well positioned for the future…”

To be fair, there were some bright spots. Overall, the company’s revenues rose roughly 2% (before VAT accrual release) compared to the same period last year. And 888 Holdings’ work to fix its issues in the UK are starting to bear fruit. Revenues generated from the UK rose 24% year-over-year.

Still, 888 Holdings’ pre-tax profits cratered 63%. As a result, its stock dropped more than 8% on the London Stock Exchange immediately following its earnings announcement.

888 Holdings’ Shopping Bender

888 Holdings has been on a buying spree. In December, the company acquired All American Poker Network (AAPN) for $28 million. In February, 888 Holdings snapped up a number of UK bingo and online casino properties for $23 million. A month later, it bought Dublin-based sports betting platform BetBright for $19.8 million.

In general, 888 Holdings burns through more cash than it generates. So, it borrowed a lot of the money used to buy these companies. 888 Holdings entered into a new revolving credit facility with Barclays in February, specifically to fund its acquisition activity.

Between the acquisitions and its new credit facility, 888 Holdings’ expenses were 24% higher than they were for first half of last year. 888 Holdings’ profits paid the price.

The company also spent a lot of money on legal fees. Some of those fees were spent navigating the complex regulatory world of gaming. Some of those fees were spent trying to understand and plan for Brexit — the scheduled withdrawal of the UK from the European Union.

888’s Brexit Warning

888 Holdings operates in a number of European countries, many of which are in the European Union. Gibraltar is part of the UK. So, once the UK leaves the European Union, scheduled for October 31, 888 Holdings will leave with it.

The UK economy could suffer once it’s on its own. That could undo 888 Holdings’ recent work nurturing its British market. 888 Holdings could also be subject to higher fees and taxes in the European Union. Or worse. This week, the company stated that it

“may become ineligible to continue to hold regulatory licenses in certain European Union jurisdictions.”

888 Holdings is not the only UK venture dealing with Brexit’s uncertainties. For instance, the Football Association wants to limit the number of foreign players on a Premier League team to 12 — down from 17. That would reduce its risk should players from the European Union become ineligible to play in the UK.

To reduce some of its own Brexit risk, 888 Holdings established a server farm in Ireland and relocated some of its business properties to Malta. Meanwhile, 888 Holdings believes it will still meet its full year profit expectations. That, however, seems like a difficult prediction given Brexit’s many uncertainties.

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