Paddy Power owner Flutter (FLTR) said the cancellation and postponement of multiple sporting events due to coronavirus would have a 25% impact on its profits, sending the shares 10% lower to £56.40.
The top two flights of English football have postponed games until early April while Champions League fixtures have been suspended indefinitely. Meanwhile the European championships tournament (Euro 2020) may now take place next year.
This follows government and sports authorities deciding to ban large gatherings to stop the spread of coronavirus.
Elsewhere, the National Basketball Association (NBA), Major League Baseball, National Hockey League and Major League Soccer have been suspended in the US. Tennis, Cricket and Formula One have also cancelled scheduled events.
POTENTIALLY BIGGER IMPACT
Chief executive Peter Jackson commented, ‘the challenge currently facing our business and the industry more widely is unprecedented in modern times. Our focus, first and foremost, is on protecting the welfare of our employees and our customers and we will leave nothing to chance in this regard.’
Given the lack of visibility on the duration of suspensions, the company has made a calculation based on a scenario where restrictions remain in place until the end of August.
Under these conditions earnings before interest, tax, depreciation and amortisation (EBITDA) would be reduced by between £90m and £110m.
The firm's UK and Irish shops are expected to remain open and scheduled UK, Irish and Australian horse racing fixtures are assumed to be run behind closed doors. Should these events not go ahead as assumed, and shops are closed, there will be an additional £30m per month reduction or £150m of annual EBITDA.
Last year the firm generated £385m of EBITDA, so the maximum impact is potentially very large. According to broker Shore Capital, Flutter is more exposed due to the prevalence of its betting brands relative to other digital peers, like GVC (GVC), where half of online revenues come from gaming.
The balance sheet is currently strong and the company points to its net debt to EBITDA ratio of 0.7 times at 31 December 2019. Shore Capital estimates that completing the Stars acquisition would take the ratio to over three times, before the impacts from current events are taken into consideration.
