British bookmaker 888 Holdings has been rocked by a money laundering scandal involving its Middle Eastern operations that have forced CEO Itai Pazner to resign, effective immediately.
Pazner rose through the ranks at 888 over the course of 20 years at the company and was appointed CEO in January 2019. He soon put his imprimatur on 888 by engineering the William Hill deal and spearheading 888's expansion into the North American legal sports betting market.
In a statement released by 888 on Monday, the British gaming outfit revealed that it had suspended VIP customer accounts in the region after an internal probe discovered that "know your client" best practices for high net worth gamblers had been violated.
According to the gaming operator, which owns online sports betting and retail brands 888sport, William Hill, Mr. Green, and SI Sportsbook, these "process deficiencies" are confined to its Middle East market, and the interim shutdown of VIP gaming will impact overall revenue by less than 3%.
Shares Plummet
The news sent shares of 888 Holdings Plc plummeting on Monday, closing down by more than 27% to finish at 74.85 GBX at the end of the trading session on the London Stock Exchange.
This was the lowest level the company's shares had traded at since 2011, and also reflects underlying concerns over 888's massive £1.8 billion ($2.2 billion) debt load that has become increasingly difficult to finance in the wake of sharply higher interest rates.
Most of that debt is the result of the British bookmaker's £1.95 billion ($2.3 billion) acquisition of William Hill's non-U.S. assets from Caesars which was first announced in September 2021 and completed in July of last year.
Interim CEO in place
Non-Executive Chair Jonathan Mendelsohn — a member of the British House of Lords — has been placed in temporary charge of 888 while the board of directors conducts a search for a new CEO.
"On behalf of the board I would like to thank Itai for his significant contributions to the business over more than 20 years, including the last four as CEO," said Mendelsohn in a statement accompanying the announcement of Pazner's unexpected exit.
"Itai has played a very important role in building a business with powerful proprietary technology and has overseen successful early stages of the William Hill integration process. We wish him well in his future endeavors."
Pazner's departure will likely weigh negatively on 888 share prices in the near term as the company struggles with increased debt financing costs and deteriorating economic conditions in the UK.
Ever since it took on the massive debt to finance the purchase of William Hill's UK and European bookmaking operations, 888 has been focusing its attention on restructuring its operations to create a more streamlined, integrated gaming unit.
North American expansion in jeopardy?
Last year, Pazner was upbeat about the growth prospects of 888 in North America, particularly in regard to its presence in Ontario's legal sports betting market where the company launched its 888Sports mobile app.
But with the departure of Pazner, the 888 board of directors may decide to review his expansion strategy in North America given the high costs of customer acquisition and unshakeable dominance by the top four sports betting sites — FanDuel, DraftKings, BetMGM, and Caesars which collectively control an estimated 90% of the legal U.S. sports betting market.
Meanwhile, Wall Street investment bank Goldman Sachs has forecast the British economy will contract by 1.2% in real GDP in 2023 — a decline that is worse than that predicted for any other G-10 country.
This could impact 888 earnings this year, which were already facing declines in all sectors.
In October, 888 Holdings reported a 7% decline year-over-year decline in Q3 2022 revenue to £449 million ($509.4 million) as compared to the same period last year — with total Q3 online revenue suffering a steeper 10% decline to £325 million ($367 million).
The gaming operator was hit by falling UK Q3 online YoY revenue of £171 million ($193 million), a 13% drop that the company attributed to the impact of more stringent UK player safety measures and the closure of its Netherlands operations.
Scrutiny will follow
888 may also be facing further regulatory scrutiny from the British Gaming Commission, which last year imposed a massive fine of £9.4 million ($12.6 million) on the bookmaker over severe failure to monitor money laundering and apply social responsibility controls.
"If there is a repeat of the failures at 888 then we have to seriously consider the suitability of the operator to uphold the licensing objectives and keep gambling safe and crime-free," said Gambling Commission CEO Andrew Rhodes last March in a statement accompanying the issuance of the fine.
The company had previously been forced to pay a £7.8 million ($10 million) penalty in 2017.
Interim CEO Lord Mendelsohn tried to assuage concerns from its UK watchdog and investors alike in his Monday statement:
"The board and I take the group’s compliance responsibilities incredibly seriously. When we were alerted to issues with some of 888’s VIP customers, the board took decisive actions," said Lord Mendelsohn. "We will be uncompromising in our approach to compliance as we build a strong and sustainable business.
Nevertheless, a late Monday news report by Bloomberg cited a note sent out to clients by Goodbody gaming industry analyst David Brohan which stated that 888's suspension of its Middle East VIP gaming accounts could reduce full-year earnings by as much as £40 million ($49.6 million) if those customers switch to other rival operators.
