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GVC deal with MGM Resorts looks set to be the first of many for bookmakers

The deal looks to be exceptionally lucrative for the FTSE 100 bookmaker and has sent its shares jumping, with fellow major gambling companies poised to follow its lead

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The dash toward the US market began in May after a US Supreme Court decision struck down a federal ban on sports betting

The joint venture confirmed on Monday between UK gambling company GVC Holdings PLC (LON:GVC) and Las Vegas casino operator MGM Resorts International (NYSE:MGM) looks set to be the first of many as bookmakers make a dash for a slice of the newly-opened US sport betting market.

After a US Supreme Court decision on 14 May struck down a 1992 federal law that prohibited most states from legalising sports betting, companies have been quick to try and capitalise on the sudden appearance of a large and lucrative market.

READ: GVC confirms US$200mln joint venture with MGM Resorts

With regards to GVC and MGM, both companies have agreed to inject US$100mln each, as part of the 50/50 joint venture which is expected to be formed ahead of the professional American football season (provided it clears gaming regulation hurdles).

The deal has already sent investors clamouring for a piece of GVC’s stock, with the firm’s shares jumping to an all-time high of 1,178p in morning trading before dropping back slightly.

The City’s brokers also seemed to share the market’s positivity, with analysts at Shore Capital saying the company had “struck gold” with the venture, adding that the opening of the US sports betting market would favour “incumbent land based operators”.

The broker’s numbers also estimated that the market could eventually be worth around US$20bn, with the deal with MGM “significantly” increasing the chances of GVC securing as much as a 10% market share.

Aside from GVC, fellow FTSE 100 betting behemoth Paddy Power Betfair PLC (LON:PPB) is also positioning itself to leverage the new market, although it was slightly faster off the blocks with a deal to merge its US operations with US fantasy sports firm FanDuel Inc in May shortly after the Supreme Court decision was delivered.

READ: Paddy Power Betfair agrees deal to merge its US operations with fantasy sports firm FanDuel

Under the agreement, Paddy Power has a 61% ownership stake in the newly-merged entity, although it retains an option to expand this to 80% after 3 years and to 100% after 5 years, potentially establishing itself as a US heavyweight in sports betting.

Meanwhile, FTSE 250 bookmaker William Hill PLC (LON:WMH) may also start sniffing around for a potential deal, especially after it offloaded its Australian business in March due to profitability pressures from a credit betting ban in the country.

Another issue that may drive the betting heavyweights towards the US is the recent UK crackdown on fixed-odds betting terminals, in which the government confirmed that it would cut the maximum stake to £2 from £100 in a push to curb problem gambling.

READ: Bookies recover poise as UK government's worst case cut in FOBTs maximum stake was expected

In lunchtime trading Monday, GVC shares were up 4.9% at 1,149p, Paddy Power Betfair was down 0.6% at 8,205p, and William Hill was up 0.2% at 298.6p.

Quick facts: GVC Holdings

Price: 831.2 GBX

AIM:GVC
Market: AIM
Market Cap: £4.84 billion
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