New York-based hedge fund, Corvex Management, has announced its entry into the ongoing drama surrounding FTSE 100 gambling giant, Entain, as it has acquired a significant 4.4% stake in the Ladbrokes owner. 

Corvex Spearheads Activist Onslaught, Deeming Current State ‘Unacceptable’

Corvex, led by former Carl Icahn lieutenant Keith Meister, has become the latest activist investor to assert itself in Entain’s affairs, labeling the current state of the company’s performance as “unacceptable.” The hedge fund emphasizes the need for a more radical overhaul, asserting that the recent management change is merely a preliminary step.

The announcement from Corvex came less than 24 hours after Nygaard-Andersen resigned, adding to the tumult surrounding Entain. The Ladbrokes owner has been grappling with a slump in its share price throughout the year, coupled with a series of unsuccessful acquisitions totaling over £2 billion ($2.6 billion).

Entain‘s joint venture with MGM Resorts International in the United States, particularly in the rapidly growing sports betting market, has been a focal point for the activist hedge fund. Corvex, already holding a stake in MGM where Meister sits on the board, aims to wield its influence to drive transformative change at Entain.

The hedge fund has expressed its intention to engage with Entain’s chairman, Barry Gibson, and interim CEO, Stella David, to actively contribute to positive changes within the organization.

Entain’s Shares Rally 7% Amidst Activist Calls for Industry-Expert Leadership

Entain’s shares experienced a nearly 7% surge, reaching slightly above £9 ($11.5) in morning trading following Corvex’s announcement. The gambling group now finds itself at a “critical juncture,” according to Corvex, suggesting that a shareholder with substantial industry and company-specific experience is necessary for the company’s revival.

Last month, Entain faced increased pressure as two US activist hedge funds, Dendur Capital and Sachem Head Capital Management, joined Eminence Capital in expressing concerns over the company’s stagnant share price and CEO Jette Nygaard-Andersen’s leadership. 

The activists cited regulatory challenges and management missteps, prompting Entain to pledge the appointment of four new non-executive directors. Activists, led by Ricky Sandler, also pushed for more inclusion on the board. Entain, in response to the increasing activist pressure, asserts its commitment to addressing shareholder concerns. The company remains confident in its ability to capitalize on significant growth opportunities, but the looming question remains whether the board will succumb to external pressures and consider a sale of the company or some of its assets.

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Prominent social casino operator Virtual Gaming Worlds (VGW) has announced its decision to pull out of the Michigan market. The move follows a series of regulatory crackdowns on unlicensed gambling operations, ultimately forcing VGW to discontinue its popular social gaming brands, including Chumba Casino, Global Poker, and Luckyland Slots, in Michigan.

Social Casinos Thrive Despite Regulatory Challenges

Social casinos, a growing trend in states where real-money online casinos are not yet legalized, offer players a similar gaming experience without dealing in actual US dollars. Instead, these platforms use their own digital currencies, providing players with the opportunity to win genuine prizes. Despite the absence of real money transactions, the allure of tangible rewards has attracted a substantial user base to these platforms.

VGW’s official statement regarding its withdrawal from Michigan read: “VGW continually evaluates their business operations in the interests of all their stakeholders, and after careful consideration, they have decided to take this course of action.”

VGW’s decision comes in the wake of an order by Michigan Attorney General Dana Nessel, who directed Golden Hearts Games to halt its operations in the state after a thorough two-year investigation. The move reflects the state’s commitment to cracking down on unlicensed gambling establishments, emphasizing the importance of consumer protection and adherence to gaming laws.

Michigan Players Race Against Clock as VGW Ends Social Casino Funding Options

Players in Michigan have until November 1 to purchase digital currencies on VGW’s platforms. After this date, funding options will cease, leaving players with existing balances the opportunity to utilize them until December 1. Furthermore, players have until February 1, 2024, to redeem any available prizes on the sites. VGW has assured players that their personal data will be handled in accordance with the company’s privacy policy, emphasizing their commitment to data protection and privacy.

This unexpected exit from the Michigan market highlights the rapidly changing landscape of online gambling in the United States. While social casinos have provided a viable alternative in states without legalized online gambling, the growing trend toward regulation and legalization of real-money online casinos raises concerns about the future of these platforms.

As more states consider legalizing online gambling, social casinos, once considered a secure option, face increasing uncertainty. Meanwhile, in June, Michigan’s licensed iGaming and online sports betting operators generated a total revenue of $169.3 million, experiencing an 8.9% decrease due to a significant drop in sports betting caused by the absence of major sporting events, leading to a 21% decrease in handle.

Despite the decline, online casinos earned $151 million, and online sports betting brought in $18.3 million. Michigan has 15 legal online gambling and sports betting operators, and the Michigan Gaming Control Board anticipates receiving nearly $51 million in funding for 2024 to support its regulatory efforts.

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In December, the EC updated its rules regarding high-risk third countries. The nations included in the ignoble list face systemic anti-money laundering (AML) or countering the financing of terrorism (CFT) failings. The recent inclusion of Gibraltar deserves special mention, as the territory is one of the largest online gambling hubs. Tightening regulations may significantly hamper the day-to-day operations of operators stationed there, forcing them to search for alternatives.

An EC Listing Is Bad News for Everyone Involved

The EC is one of the founding members of the Financial Action Task Force (FATF). The international organization focuses on preserving the financial system’s integrity by combating money laundering, the financing of terrorism, and other such threats. As such, the Commission’s list of high-risk third countries carries significant negative implications for all nations unfortunate enough to be included.

A recent warning by the EU may significantly impact businesses involved with such countries. Regulators now face increased pressure to ensure due diligence and will likely crack down on all related parties. Such updated rules may significantly impact many gambling operators, especially those operating out of Gibraltar. The accompanying loss of face can also have severe long-term consequences.

Gibraltar-Licensed Operators Will Face Rising Difficulties

The FATF greylisted the territory in June 2021, followed by an EC listing as a high-risk third country. The implications of such measures for a thriving financial hub like Gibraltar are not pleasant, as all transactions in and out of the country will face increased scrutiny and potential delays. 

The gambling industry, in particular, will bear the brunt of the impact. As of May 2022, the territory hosts 45 licensed online gaming operators employing over 2000 people. The EU demanded enhanced due diligence measures from all businesses and individuals involved with listed nations. 

Such measures aim to combat money laundering and terrorist financing, maintaining the financial system’s integrity. Despite the EC’s attempts to cooperate with local governments and address the issues behind the listing, implementing an action plan can sometimes take years. Meanwhile, bureaucratic pressures can drive current licensees away and dissuade operators from considering a Gibraltar registration.

The Government Aims to Preserve Gibraltar’s Reputation

The EC listing is a significant black mark in Gibraltar’s ongoing efforts to prove its regime robust and effective. Andrew Lyman, the territory’s chief commissioner for gambling, denied any AML/CTF deficiencies, insisting that the local regulator was doing an adequate job. However, the EC did not share the sentiment, leading to this unfavorable situation.

A FATF greylisting can significantly hamper a nation’s international prospects, disincentivizing foreign investments. Despite ongoing uncertainty, Gibraltar’s economic attractiveness and favorable licensing conditions helped it secure several new high-profile licenses. However, the subsequent EC listing may significantly degrade the country’s reputation, meaning the government is hard-pressed to address its ongoing issues.

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