So much for the idea that GVC, owner of Ladbrokes and Coral, would become dull and predictable after last week’s sudden exit of Kenny Alexander, the deal-doing chief executive who built the firm at a pace few rivals could match. Alexander left only a few days ago but HM Revenue & Customs is now banging on GVC’s door wanting to know more about the company’s past adventures in Turkey.
GVC’s shares fell 12%, removing about £500m of stock market value, and one can understand why. The HMRC investigation had previously been seen as a tame affair – an inquiry into third-party payment processors used by GVC in Turkey. The new and expanded version of the taxman’s investigation is very different. It is examining “potential corporate offending by an entity (or entities) within the GVC group”, said the company.
Mention of Turkey brings GVC’s recent history into the spotlight again. The country was an unregulated or “grey” market, where betting is largely illegal. More daring operators were still prepared to go – or, rather, were happy to allow locals to access servers located in Gibraltar.
Alexander’s strategy, brilliant in a way, was to use earnings from those territories to buy up gambling’s more cautious old guard. The crowning achievement was the purchase of Ladbrokes Coral in 2018. To get the deal across the line, though, GVC had to ditch its Turkish-facing business on the insistence of Ladbrokes’ board. Indeed, GVC even waved goodbye to potential earn-out fees of €150m; a clean break with Turkey was deemed essential.
The Ladbrokes trade completed GVC’s transformation into a mainstream FTSE 100 operator with about 94% of its revenues regulated, the right sort of ratio to win a licence in the newly liberalising US market, the next big prize.
Therein lies the real worry for GVC shareholders. The company has a temporary two-year licence from Nevada Gaming Commission that expires next May. The HMRC probe may yet come to nothing but, as matters now stand, it’s a serious complication when it comes to seeking a permanent US licence.
GVC grumbled about HMRC’s “lack of clarity” over what is being investigated. Its shareholders will feel similarly: the aim of corporate blandness remains a work in progress.
The democratisation of share-dealing must wait a bit longer
Was Robinhood, the controversial US investment app whose backers want to “democratise finance”, really seen as a threat to Hargreaves Lansdown? Clearly it was: Hargreaves’ shares rose 10% as the Robinhood band said it won’t be storming Nottingham, or anywhere else in the UK.
A UK launch has been abandoned, presumably so the US outfit can deal with complaints that its version of democratised share-dealing requires more checks and balances. A 20-year-old user killed himself last month, apparently in the mistaken belief he had lost $730,000 (£575,000) via financial punting.
Robinhood’s style is to offer commission-free trading on financial products for the masses and there’s no doubt the firm has disrupted the US retail market. It sparked a price war, even forcing stockbroking giants such as Charles Schwab to cancel commissions.
So, yes, there probably was a threat to a portion of Hargreaves’ fees. The investment platform, even when it is humiliated by its cheerleading for fallen fund manager Neil Woodford, enjoys a privileged life of 64% profit margins. It won’t be Robinhood, but somebody ought to take a pop at those margins and save the punters a few quid.
Turnover-based rents are the future
Covid-19 is accelerating trends, and here’s another to add to the list: the growth of turnover-related rents. The landlord that owns Covent Garden in central London is offering turnover-based leases to some tenants until the end of year, and the move looks sensible for both sides.
Capital & Counties, the owner, may keep a few more cafes and shops open; the tenants will be incentivised to keep trading. Thus the rate of rent collection should improve from the lowly 27% seen in the last quarter.
Yet turnover-related rents, which are widely used in continental Europe, deserve to be more than a temporary sticking plaster. If shopping and eating-out habits have changed permanently, something has to give on rents. A turnover-based system is one of the less painful ways to adjust. It wouldn’t suit everyone, but it’s time has come.