Bwin.party Looks To Cut Losses After Weak 2014 Earnings

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Monday, January 5th, 2015 | Written by Lucy Brown

Following Bwin.party’s disappointing 2014 financial results forecast, which were accompanied by a year-end profit warning, the company has announced that it is selling its two year old social casino games division, Win.com as it seeks to restructure its business. The loss cutting measure has subsequently fueled speculation that the UK-listed gambling operator’s online poker business could be next on the chopping board.

2014 Financial Results

In 2011, PartyGaming plc and Bwin Interactive Entertainment AG merged to form Bwin.Party Digital Entertainment, at the time the biggest publicly traded online gambling firm in the world with a market capitalization currently valued at £963.88 million ($1.477bn). Since then Canadian company Amaya Gaming has taken over that mantle after acquiring PokerStars for $4.9 billion, and the company now has a market capitalization of $3.76 billion.

Bwin.party is most noted for its popular sports wagering brand Bwin, and its internet poker room PartyPoker, but this week the firm announced “exceptionally weak gross win margin in sports betting,” and warned investors to expect lower overall revenues in 2014 of between €608m and €612m ($730m to $73m), lower from the previous stated estimates of €618m to €630m ($742m to $756m). Following announcement of the forecast, shares in Bwin.party dropped by 4.16% to €112.90 ($135.57), down from a 52 week high of €134, and commenting on the situation gaming analyst and US activist investor Jason Ader, said:

“[Bwin.party] should be embarrassed by these results given the strong performance of Bwin’s peers. The board as a collective, and its chairman are not holding management accountable for loss of market share, poor expense management and business under-performance. The time for change at Bwin is long overdue.”

Weakness In Social Games Platform

Weighing heavily on Bwin.party’s 2014 results is the weakness experienced in its social games studio Win.com. When the firm initially created Win.com, the goal was to establish a platform capable of boosting internet operations by converting free-money social gamers into gamblers staking real-money on casino games. However, Bwin.party’s has found that its social games did not prove an effective tool in this regard, mirroring the experiences of other gambling operators such as Gamesys, 888Holdings and Ladbrokes who have also failed to monetize their social games effectively. Consequently, Bwin.party has announced it expects to make a €7 million ($8.5m) loss by the year end from its social casino gaming division.

Selling Off Parts Of Its Business

In November 2014, Bwin.party said it was discussing several “potential business combinations” with “a number of interested parties”, which at the time was thought to include a £1.2 billion takeover bid by Amaya Gaming. Those discussions have continued with a view to “creating additional value for bwin.party”, with other interested parties also including Playtech, and US gaming startup company RisingTideGames. As previously stated, however, there is no certainty whether such discussions will actually result in a positive offer being made for Bwin.party.

Is Poker Next?

Despite being the dominant force in New Jersey’s regulated online poker industry with an average of 160 cash game players over a seven-day period, Bwin.party’s is expected to incur losses of around €10 million from its New Jersey combined online poker and casino gaming operations. Needless to say, the firm’s return to the USA’s online poker market has done little to halt the decline in its overall poker division, and even in September after revealing lackluster H1 results down by 7%, a company statement, said:

“Operations in New Jersey are attributed to a good deal of the losses in bwin’s financial statement, yet poker is the most under performing aspect for the company. The number of active players and daily average players are down 11 percent. New player sign-ups are also down by 4 percent. bwin’s other operations, such as sports betting, bingo and casino games, took less of a hit.”

Unfortunately, the situation has deteriorated further since then, especially with New Jersey’s iPoker market hitting a new low in November generating just $1.87 million in revenues from poker, and a further $6.87 million from casino games. Nevertheless, while online poker was blamed in H1 as the main culprit in Bwin.party’s poor results, the product has featured much less prominently this time around, with favorable results enjoyed by sports punters on its bookmaking division receiving much of the blame.