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Short Sellers Exploit UK Betting Regulations

February 28, 2020

- Grant Whittington

Several hedge funds and related investment vehicles are targeting big United Kingdom sportsbooks by short-selling the betting operators’ shares. Their analysts believe the share prices will devalue as the British gambling industry faces regulatory disruptions in 2020.

Short-selling is the process of investors borrowing shares from banks, selling them and then buying them back when their prices drop. The difference in price is pocketed as profit, and the practice is generally regarded as high-risk. However, with reliable insights into listed companies it can be equally rewarding. Certain financial bodies seem very confident that they have these insights into UK bookmakers right now.

The Short-Sell List

Renowned hedge fund Citadel Advisors, helmed by activist investor Ken Griffin, is among this group. Sources report that the Chicago-based firm has placed an £80 million bet against Ladbrokes owner GVC Holdings, believing the FTSE250 group’s stock value will nosedive within the next few weeks.

Recently The Sunday Times, citing information from London-based markets analyst HIS Markit, labelled GVC Holdings as the most bet-against company in the United Kingdom right now. A staggering £180 million of GVC Holding’s shares, amounting to 3.6% have been taken up by would-be short sellers.

Other FTSE-listed betting firms that find themselves in the same boat as GVC Holdings include Flutter Entertainment, owner of Paddy Power and Betfair, and industry behemoth William Hill. Flutter Entertainment has 7.5% of its shares currently out on loan to investors; William Hill appears stronger with just 0.5% out.

Gambling Industry Crackdowns

The stricter regulations that are about to be imposed on UK gambling incumbents are the main reason for the speculative short-selling, and analysts are waiting for full year results publications from FTSE-listed UK bookmakers to see if they’ve made the right call in betting against the operators. William Hill will report its figures on the 26th of February, followed by Stars Group Inc and Flutter Entertainment on the 28th of February and then the beleaguered GVC Holdings on the 5th of March.

The British government’s industry-wide ban on the use of credit cards in gambling will come into effect on the 14th of April, fixed-odds betting terminals’ stakes are to be slashed from £100 to £2. The Gambling Act of is also under review and while the scope and criteria of the review are still to be confirmed, they could certainly lead to even stricter regulations being enforced. Ultimately, this may lead to a drop in gamblers’ activity and a curtailing of profits, which is what is making investors a little nervous and what is leading to analysts’ bearish shoring.

GVC Holdings a Particular Concern

Experts are especially doubtful of GVC Holdings, in spite of its 800% share growth under the stewardship of current Chief Executive Officer Kenneth Alexander. A series of mishaps have shaken their confidence, including Alexander and Chairman Lee Feldman’s sale of £20 million in shares in a single day in March 2019.

The single-day selling drove the stock price down by almost 20%, and GVC Holding’s Turkish business is also reported to have been sold to three men, one of whom is an acquaintance of Alexander. In the face of all this uncertainty, GVC’s official line remains that they are in a strong position as a company.

A spokesperson said that numerous other enterprises in their sector have bigger short positions, adding that the Ladbrokes owner’s short positions level was unremarkable and that it had not changed substantially over at least a month. Whether they or the short-sellers looking to profit on a drop in share price are proven right, remains to be seen.

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