The Stars Group Sets Sights on Expansion and Revenue Mix Diversification

A few years ago, The Stars Group (then Amaya Inc.) was deep into a heavy debt situation, was shaken by an insider trading scandal involving its founder and then-CEO, Canadian businessman David Baazov, and was having difficulties in growing its key online poker product.
After paying down its debt, which was created as a result from The Stars’ acquisition of the owner of the PokerStars and Full Tilt Poker brands in 2014 for nearly $5 billion, the Canadian gambling company has shown that it is ready for some risk-taking and some geographical expansion and diversification of its core operations.
Over the past several months, The Stars announced two major acquisitions, revealed increased focus on sports betting across regulated markets, and once again indicated that it was ready to return to the United States after being shamefully banished from the nation in the aftermath of April 11, 2011, a day that has been commonly known as the Black Friday of online poker.
The Canadian gambling group is on its way of becoming the largest publicly traded online gambling company, but here is how it plans this to happen.
Two Major Acquisitions
The Stars and its PokerStars brand had to leave the Australian gaming market last summer, when the nation’s federal government amended existing gambling laws in a manner that prohibited the provision of online gaming and poker operations.
Early this year, the company announced that it would return to the Australian gambling scene by purchasing a major local bookmaker. The Stars originally planned to buy 61% in CrownBet, an online gambling website previously owned by Australian casino operator Crown Resorts. However, in a separate move, CrownBet announced that it had been selected as the winning bidder for William Hill’s ailing Australian business. As a result from that latter acquisition deal, The Stars decided to increase its interest in CrownBet to 80% and thus participate in funding the William Hill Australia transaction.
The Canadian gambling group paid $315 million in cash and newly issued common shares for its newly acquired Australian business. The two related acquisition deals created Australia’s third largest corporate bookmaker, with Tabcorp and Paddy Power’s local brand Sportsbet being the largest ones.
The Stars Group broke the news in April that it has entered into an agreement to buy major UK online gambling operator Sky Betting & Gaming for the total amount of $4.7 billion. The move would create the largest publicly traded online gambling company.
The deal is expected to generate annual cost synergies of at least $70 million, to expand SkyBet’s presence across multiple regulated jurisdictions (the company currently serves only the UK, Italian, and German markets), and to help The Stars to leverage SkyBet’s huge customer base in the UK and massive experience in the provision of online sports betting services.
The deal was finalized in mid-July. However, the UK Competition and Markets Authority opened an investigation into the takeover on the very next day after its finalization, thus blocking the transfer of ownership and the integration of the two businesses. The UK competition watchdog is expected to release the results from its probe in October.
Focus on Sports Betting
While online poker still is The Stars Group’s main product, the company has gradually been trying to expand into the online casino and mainly into the online sports betting sectors. And the above-discussed two acquisitions are one of the manifestations of its efforts to diversify its offering and revenue sources.
According to company estimates, on a pro forma basis including the acquisitions of SkyBet, CrownBet, and William Hill Australia, its 2017 revenue mix by product would have been 37% poker, 34% sports betting, and 26% casino. As it can be seen, online poker would still have been the leading product, but sports betting would have trailed not far behind. And with the company’s increased and growing interest in the sports betting vertical as well as the addition of companies specializing namely in online sports betting, this particular product could very soon become the main driver of growth for the gambling giant.
The US Betting Market
The Stars Group has been quite clear in its intentions to return to the United States after the April 2011 incident. Its PokerStars brand debuted in the New Jersey Internet gambling market in the spring of 2016, but besides that market, the company has not been able to enter the other states where iGaming is legal, with those being Nevada and Delaware.
However, the mid-May ruling of the US Supreme Court, allowing individual states to legalize sports betting, came as extremely good news not only to The Stars but also to the rest of the sports betting world.
Taking advantage of its existing New Jersey operation, the Canadian company struck a partnership with Atlantic City’s Resorts Casino Hotel to extend their collaboration and jointly offer online sports betting services. The Stars’ BetStars online sportsbook went live in the state in mid-September, initially allowing bettors to place their wagers via mobile devices.
Back in August, the Canadian gambling giant announced a partnership that would allow it to enter Pennsylvania’s online sports betting and gaming market. The Stars has joined forces with Mount Airy Casino Resort. The two companies are yet to submit their sports betting license application to the state Gaming Control Board, but this is expected to happen anytime now as the local regulator is set to review applications from other businesses during its October 3 meeting.
The Stars Group is clearly showing that it is ready to leave the insider trading incident and its debt difficulties behind and take some risk as well as focus on diversifying its gambling revenue mix. And as it can be seen, sports betting is playing and will play an important role in its current and future efforts to expand its presence and establish itself in key regulated markets, including the US which many expect to become a behemoth regulated sports gambling field in the next few years.
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