888 Poker is the second largest and second most popular online poker network in the world. The company entered the US internet gambling market in late 2013, helping to expand its global reach, but ultimately resulting in a heavy hit to the company wallet. 888 has reported a profit decline of 5.3%, blaming a slow start in the US and relative marketing costs. While the operator’s outlook is still positive, it won’t help matters that the UK is invoking a new tax levy on iGaming operators come December.
While reporting the first-half earnings for 2014, 888 Holdings Plc also communicated a change in the staffing department. It was announced that the current non-executive chairman, Richard Kilsby, will be stepping down from his position in the 2015 shareholder’s meeting, said to be replaced by Chief Executive Officer Brian Mattingly. The CEO position will be omitted altogether as the new chairman position will be declared an executive one.
Mattingly explained the managerial transition during a phone conference. “The management is unchanged and the continuity of responsibilities is there,” he said. “At this moment, there is no need to have an executive CEO because we have an executive chairman.” It was also revealed that Itai Frieberger will join the ranks as Chief Operating Officer in January.
Operational costs for the Gibraltar-based online gambling company increased to £39.2 million, a 19% rise from last year. 888’s joint venture with Avenue Capital Group in the US online gambling market suffered an overall loss of $4.4 million (£2.65 million). The company blamed slower than expecting trading on technical difficulties surrounding the effectiveness of geo-location systems and electronic payment services in the region, as well as lack of awareness towards legalized iGaming in New Jersey.
888 performed better in the UK online poker, casino and bingo market, recording a 12% rise in revenue to £135.77 million in the first half of 2014, despite a drop in net income amounting to £18.3 million. More alarming is the condition of the operator’s stock, which has fallen a staggering 25% this year on the LSE, resulting in a current net worth of £453 million.
Peel Hunt analyst Nicholas Batram believes that the stock will be on the rise in the second half of the year as the US market blooms, particularly in New Jersey where 888 Poker’s marketing efforts have intensified. The 888 brand is well known throughout the global online poker and casino community, thus a strengthened marketing campaign could have immediate positive results. However, the expected increase in profits from the US iGaming industry could be offset by the impending tax levy set to hit the UK online poker industry before the year is out.
The UK Gambling Commission will invoke a new tax levy on iGaming operators starting December 1st. Any online poker, casino, bingo or sports betting company that is licensed outside of the UK in a White List jurisdiction (such as Gibraltar) will be subject to a 15% tax on all wagers orienting from within the borders of the United Kingdom. The majority of 888’s online poker community is made up of UK players. Up until now, Gibraltar has been a tax haven for 888 Poker, but once the new tax levy comes into play, it will inevitably bite a large chunk out of the company’s profit margin.