Acquired assets boost The Stars Group revenue in 2018

6 March 2019

The Stars Group has reported a 54.6% increase in revenue for 2018, with the strong organic growth of the PokerStars operator complemented by contributions from the newly acquired Sky Betting & Gaming and BetEasy businesses.

However the company posted a loss for the year, due to soaring administrative costs, increased investment in sales and marketing and finance-related expenses.

Revenue for the year amounted to $2.0bn (£1.52bn/€1.77bn), with its legacy international business, comprising the PokerStars, PokerStars Casino and BetStars brands, contributing $1.3bn of this total, up 9.7% year-on-year.

This was driven largely by growth in the betting and gaming verticals, with the contribution from sports betting up 60.7% to $79.1m and gaming revenue rising 28.0% to $428.4m. This helped offset slower growth from the larger poker vertical, which reported a 1.1% increase in revenue for 2018, to $886.6m.

The UK division, comprising the Sky Bet assets, generated revenue of $394.1m for the year. The majority of revenue came from sports betting ($215.9m of the total), with an additional $157.5m coming from the gaming vertical. Poker, meanwhile, contributed just $5.9m.

The Australian business, made up of BetEasy, the business formerly known as CrownBet, contributed an additional $196.3m, almost entirely from sports betting.

This growth resulted in adjusted earnings before interest, tax, depreciation and amortisation rising 30.1% to $780.9m.

"2018 was a landmark year for the company," The Stars Group chief executive Rafi Ashkenazi commented. "We completed the acquisitions of Sky Betting & Gaming in the UK and BetEasy in Australia, extended our licensed footprint to 21 jurisdictions around the world and began laying the foundations to grow our presence in the US.”

"Our International business saw strong organic growth in the year despite restrictions in certain markets and lapping the initial roll-out of our Stars Rewards program,” He continued. “Our United Kingdom and Australia segments both performed in-line with our expectations during the fourth quarter, and we believe they are currently well-positioned to continue gaining market share in 2019.”

However the company’s rapid expansion led to a significant increase in costs for the year. Cost of revenue (cost of sales) were up 85.5% to $459.2m, with general and administrative expenses more than doubling to $984.2m. Marketing expenditure rose 89.8% to $293.0m, with research and development costs up at $40.0m.

This resulted in full-year operating profit falling 43.5% to $252.9m. The Stars Group fully repaid the $100m outstanding on its revolving credit facility in the fourth quarter of the year and ended 2018 with $393m in operational cash and net debt of $5.05bn.

Finance-related costs for the year soared 129.8% to $363.9m, resulting in a pre-tax loss of $109.9m. This was reduced slightly by a $988,000 income tax recovery, though the operator still posted a loss of $108.9m for the year, down from a $259.3m profit in 2017.

For the fourth quarter of 2018, group revenue grew 81.2% to $652.9m, with the business making a net loss of $38.2m.

"As we look at 2019 and beyond, we are excited to take advantage of the opportunities ahead of us by leveraging our leading positions in attractive markets, strong brands, technology and operating expertise,” Ashkenazi said of the year ahead.

“We are pleased with our performance in the first two months of the year, underpinning our confidence in our financial guidance for 2019, and we are currently on track to deliver the full $70 million in cost synergies from the acquisition of Sky Betting & Gaming within the current year alone, with potential opportunities for incremental synergies under review,” he added.