Ladbrokes, Coral and Entain - Punters Must Be Losing A Lot Of Money

Wow!

If you owned shares in Ladbrokes a while back, you would have been bemoaning the total underperformance.

Fast forward a few years and the original investment has rocketed. It’s becoming difficult to tell who owns what any more as the takeovers come thick and fast, but the latest offering is from DraftKings who recently bid £16.4 bn for Entain, the now owner of Ladbrokes and Coral.

The shares currently trade at around £24 each, valuing the company at just over £14 bn. In March 2020, at the start of the first UK lockdown, the price hit a low of around £3.50 placing a valuation at closer to £2bn with the prospect of shrinking business.

Not long after that came the realisation that lockdown meant people needed to stay indoors. What could you do at home to pass the time? It appears that gambling was high on many a list and the share price kept rising and rising.

The last estimate I saw for this year was that earnings could be between £850m and £900m.

DraftKings are looking to buy at a 46% premium to what the price was prior to the offer, so they must be seeing something appealing.

My thought process goes like this. Gambling is a massive boom industry and people can’t get enough of it. The full potential is nowhere near reached yet, hence the willingness to pay so much.

Time to put my trickybets hat on. If Entain hit earnings of £900m for the year, that is coming in shy of an outrageous £1bn earnings figure. That could be more than Bet365 whose last figures I saw had £758m operating profit (it would have been £87m higher but for subsidising Stoke City).

Where does all the profit come from? The punters, plain and simple. You know, the situation. How’s your betting going? Oh, not too bad, about breaking even.

If we’re all breaking even, where do the billions of pounds of bookmaker profits come from? I’m certainly not in the camp of ban the bookies but I do like the thought of the playfield being levelled up a bit.

I regularly ask what other pastimes or hobbies there are where somebody wants you to be as bad as possible at it. This is one. The worse you are, the bigger the bets you will be able to place. The bookies might contend this but, for sure, the better you are, the smaller the bets you will be allowed to place.

Think what it is the bookies would like you to do and don’t do it. Look at the bets they are promoting and steer clear of them. Even if they win that doesn’t make them value. A 6/1 shot that should be 10/1 can still win but won’t pay the fair value. Their profits come from the margins they are making. If they can get the turnover, the bigger the margin, the bigger the profit.

It’s about being able to step back and not have a bet for the sake of having a bet. Avoiding a bunch of losers can hold as much value as finding a winner and training yourself not to berate yourself when a winner passes you by is important. We’ve all done it. Even a winner can be a curse as it immediately begs the question of why I didn’t have a bigger bet but that’s where discipline comes in and knowing why you placed the bet.

If the bookies make so much money and the punters lose so much, then maybe the stock market is the place to be investing instead. I'm sure it is and I own some shares, but analysing sport and outgunning the bookies still appeals to me that little bit more.