Jake Pollard examines how market and political uncertainty and investor pressures are leading to questions around benefits of public status.
Bally Corporation’s sale to Chairman Soo Kim’s hedge fund Standard General last month has removed another gaming icon from the public markets, with Soo’s parting comment leaving no doubts as to his feelings about taking the company back into private ownership. “It’s nice not having to listen to shareholders. Shareholders make you do dumb things,” he told delegates at the Next Summit New York earlier this month.
Coming soon
While Soo didn’t seem to enjoy his interactions with investors, general business and political uncertainty in both the US and Europe is also leading to IPO delays. Still, Blackstone’s Spanish brand CIRSA is expected to list next month, while Playtech’s Caliente Interactive could also be heading for a US IPO after the B2B giant Playtech swapped its profit share agreement with Mexican operator Caliente for equity in a new US holding company.
These would be the first significant gaming industry IPOs since Lottomatica’s €2.67bn listing in April 2023. But are shareholders worth the hassle?
“Public companies sometimes find shareholders have very different ideas from each other, which can be a bit trying,” says Peel Hunt analyst Ivor Jones. “Some funds have long term objectives, some are activists trying to create value through encouraging change, some are income funds that need a dividend, etc etc ad infinitum.”
For Davis Catlin, Managing Partner at Discerning Capital, “public markets investors have loud voices, strong opinions, and they ‘vote with their feet’ is a phrase you hear often. And so you can have massive swings in the value of a stock that are unrelated to the current earnings and the value of future earnings.”
Public disclosure
Evolution’s status as a publicly-listed company meant it had to announce that the UK Gambling Commission was reviewing its license at the end of last year, something many of its privately-owned competitors would not be required to do if they were under review.
Returning to Bally’s, the company had a grey market discount applied to its valuation, believes Catlin, due to its presence in online markets such as Japan. After Standard General announced its take-private bid, major shareholder K&F Growth Capital told Soo that Bally’s needed to get out of Japan.
“It is not surprising if Soo Kim thinks he knows better than a 32-year-old hedge fund manager who covers 150 companies and just 5% of them are gambling companies,” says Catlin, admitting that he was one of them.
However, as part of the deal, Bally’s spun out its Asian-facing business via a management buy-out. Was this the “dumb thing” that Soo was referring to?
White is right, or is it?
Catlin says he used to think regulated markets are better, because of the accepted wisdom that it is higher quality revenue, but he doesn’t necessarily think that is true anymore. “Oftentimes a market like Japan, which is sort of grey by design, might arguably be a more attractive market than a highly regulated business in a market where the cost of regulations are going up. The concept that cleanly-regulated markets are always more valuable than less regulated markets is incorrect.”
In addition, listed companies, operators in particular, are always under pressure to work in regulated markets. But regulation also often leads to high concentrations of market share, leaving those further down the pecking order with few options to make up the slack, by working in unregulated or grey markets.
Clearly the pressures are different for providers, but for one industry contact, there is little benefit to going public. They told Gaming&Co: “Why bother having to deal with investors and shareholders and operate in highly taxed and costly regulated markets when you can target major markets without any of those constraints if you stay in private hands?”
Furthermore, accepted market wisdom prices grey markets down, due to their risk of going black or of regulatory clampdowns. But more often than not, they go white – such as Brazil recently and most of Europe over the past 15 years.
