Entain’s plight on the stock market got a little glummer today, as reports confirmed that one of its largest shareholders, Eminence Capital, is shutting down after 27 years.
At around 12:20 GMT, LSE-listed Entain’s stock was down 7.04% to 557.4p, as the market reacted to the potential overhang created by the hedge fund’s planned exit.
Eminence, founded by Ricky Sandler, is understood to hold roughly 6.5% of Entain, making it the company’s third-largest shareholder behind Capital Group and Dodge & Cox.
The concern for investors is that, as Eminence winds down and returns capital, it will need to unwind positions, raising the prospect of sustained selling pressure on Entain shares in the near term.
Sandler confirmed in a letter to clients that he is closing the New York-based fund he founded back in the late 1990s, citing underperformance, rising costs and increasingly challenging market conditions.
The firm is said to manage around $6bn (£4.42m) and is expected to return at least 75% of investor capital by mid-to-late June as part of an orderly wind-down.
“Over the last few years, it has become increasingly difficult to apply our rigorous bottom-up investment process to rapidly shifting market conditions and an evolving market structure,” Sandler wrote in a letter seen by Bloomberg.
“We believe that in recent years we have fallen short of our very high standard and your expectations.
“I am tremendously proud of the Eminence team for the business and culture we built and the quality of our investor base.
“The firm has been far more than a professional endeavor to me. It has been a defining part of my life.”
Eminence has been underperforming for a long period of time despite some household names, including Amazon and Salesforce, making up a decent portion (10%) of its reported portfolio.
Entain may not be the only victim of Eminence’s closure
Reports also suggest that the company holds a small position in Flutter Entertainment, as well as around 8.43 million shares – equating to around $290m – in another of the US’s household gambling brands, DraftKings.
The closure of Eminence has not had a negative impact on Flutter’s share price, or at least it hasn’t for its London listing, where shares are up by 1.5% so far today to 8,244p. However, many will be wary of what impact this will have on DraftKings, given Entain’s stock has plummeted.
DraftKings is listed on the NYSE and holds a share price of $23.18. One analyst has recently rated it as a ‘Strong Sell’, while others are keeping faith that the prediction market hype will be beneficial for the business, after it entered the fray through the launch of DraftKings Predictions.
The firm was the second major US betting player to launch a predictions platform, following Fanatics, and beat its main rival FanDuel – owned by Flutter – to the proverbial predictions punch.
Predictions markets aside, all three operators discussed have had a tough time in the last year on their respective markets. Entain is down by over 10% in London over the last 12 months, whilst Flutter shares have dropped by over 50% in that time on the NYSE and DraftKings is down by 30% on the NASDAQ Global Select Market (New York).
Entain has also had to deal with an increasingly challenging market in its home of the UK, with tax on the up and a burgeoning black market causing concern for both the regulated industry and the government..
The voluntary front-of-shirt ban is set to come into place from next year in the English Premier League and Stella David, the company’s Chief Executive Officer, has called for a complete sponsorship ban on unlicensed operators, whose names can be seen all over shirts and stadiums in the league.
Continuing decline in British and Irish retail activity has also harmed the company, which has announced that it will shut a large portion of its Irish Ladbrokes shops as part of cost-cutting measures.
Despite this, its Q1 revenue was up by 3%, with online revenue in the UK and Ireland being ahead of expectations at 13% growth, showing signs of hope for the FTSE 100 constituent which has a market cap of around £3.6bn.
But the closure of Eminence has already dealt yet another blow to Entain, and it will be interesting to see what impact it will have on DraftKings in a time where gambling PLCs have been on the back foot all over the world.