888 Holdings Internal Investigation Sparks Shareholder Panic, Leadership Change

888 Holdings is facing a crisis sparked by an internal investigation into suspected gray market compliance failures. The CEO, Itai Pazner, has stepped down. The company’s share values plummeted 29% in early trading on Jan 30.

That morning, the company released a regulatory announcement stating it had suspended VIP accounts in the Middle East region. The internal investigation revealed that the company had not followed “certain best practices” related to those accounts.

The announcement specifies that the compliance failures involved anti-money laundering (AML) and know-your-customer (KYC) policies. Contrary to some reports, this doesn’t necessarily imply that the company suspects money laundering occurred. It does, however, mean it found that it had not taken adequate steps to ensure it didn’t.

888 is a major international online gambling operator. It has a more limited presence in the US market, however. It operates under its own brand only in the New Jersey online casino and sports betting market. Gamblers in other states probably know it better as the technology supplier for SI Sportsbook, WSOP.com and Delaware’s lottery-operated online casinos.

A String of Compliance Failures

888 has struggled with compliance in recent years. The internal investigation followed two massive fines from the United Kingdom Gambling Commission (UKGC).

The first of these, in August 2017, was for £7.8 million ($9.7 million at today’s exchange rate) due to responsible gambling failures. These included allowing over 7,000 self-excluded customers to access the company’s real-money bingo platform.

That 2017 fine was, at the time, the largest the UKGC had ever issued. However, in March 2022, it received an even larger one: £9.4 million ($12 million) for social responsibility and AML failings. Here, the issue was an accumulation of individual incidents. Many of these involved the company allowing customers to deposit or lose five-figure sums without conducting appropriate checks or interactions with the customer.

On that second occasion, the UKGC also issued an official warning to the company and announced an independent audit of its practices. That may have been part of the reason 888 decided to conduct its own internal investigation.

What Are KYC and AML?

Know-Your-Customer and Anti-Money Laundering protocols are two related cornerstones of regulated gambling.

In a nutshell, KYC means verifying new signups and that they are who they say they are. It also means ongoing practices to ensure that no one is using accounts that don’t belong to them.

AML means monitoring deposits, withdrawals and betting for signs of suspicious activity. Companies need to be sure that customers are gambling for recreational purposes and that they aren’t simply using online gambling sites as a middleman to move money from one account to another.

Criminal organizations look for ways to hide the paper trail as they move money around. Unregulated gambling sites provide one way to do this. AML policies aim to stamp this out on regulated sites, but they require the operators to be diligent.

According to 888’s announcement, it found failings specifically surrounding VIP customers in the Middle East.

VIPs are high-spending customers, important to all gambling businesses. By the same token, they’re a common source of compliance failures. Employees trying to hit performance targets can feel pressured not to interfere with such accounts. That can mean overlooking signs of problem gambling or failing to conduct appropriate AML checks.

888’s board claims the problems it has identified are isolated to the Middle East. It says the accounts in question account for “less than 3%” of total company revenue.

Stock Market Woes and Leadership Changes at 888

Pazner has been with 888 for over two decades. He became CEO in January 2019, replacing Itai Frieberger.

That change, too, followed a period of tumbling share values. In 2018, 888 saw its shares slide from over £300 in May to around £170 to end the year.

Like many online gambling companies, 888 enjoyed a hot streak in 2020 and early 2021. The pandemic introduced a large number of retail gamblers to online play. Revenue soared and share values with it.

Most of those companies saw the other shoe drop in 2022. However, the backslide was worse for 888 than others. That may be partly due to the debt it incurred by acquiring the non-US portion of William Hill from Caesars in a deal that closed in July 2022.

Even before this latest bit of bad news, 888 shares were trading just above £100. They had dipped as low as £82 in December 2022, their lowest value since the brief market crash of April 2020 when the world went into lockdown.

Now below £75, they’re at their lowest in over a decade.

Pazner’s removal is effective immediately. His temporary replacement will be Lord Jonathan Mendelsohn, the company’s non-executive chair. It’s unknown when the company will announce a new permanent CEO.

888’s executive director and chief financial officer Yariv Dafna also announced on Jan 13 that he would be stepping down. Originally scheduled to take effect on March 31, that change has been pushed back to the end of the year to provide some stability for the company.

Will 888’s Troubles Impact the US Market?

888 is not a big player in the US at the moment. Moreover, if the compliance failures are truly limited to the Middle East, it may be business as usual in the US.

Regulators are sure to take note of what’s going on. However, 888’s proactive approach may be a mark in its favor. A spokesperson for the Gibraltar Regulatory Authority, which licenses 888’s international operations, told the Financial Times that “because of the level of commitment to resolution,” it’s unlikely that the company’s license will be in jeopardy.

Even if there are no regulatory concerns, however, the company’s financial difficulties could impact its US plans. 888 told investors last year it planned on de-emphasizing sports betting-only states in favor of those that also allow online casinos. In all likelihood, that suggested an intent to launch an online casino product to accompany SI Sportsbook in Michigan. With new leadership and disgruntled shareholders, that sort of plan could easily fall by the wayside.

There is also the fact that the Delaware Lottery’s online gaming supplier contract is up for renewal this year. Could 888’s admitted compliance failures factor into the lottery’s decision-making? It’s possible.

Losing Delaware would be only a drop in the bucket for 888’s global operations. However, it would be a more meaningful change for Delaware poker players. For one thing, it would mean losing access to WSOP’s online poker network. By the same token, it could, hypothetically, mean gaining access to PokerStars or BetMGM Poker instead, depending on the lottery’s choice of partner.


About the Author

Alex Weldon

Alex Weldon

Alex Weldon is an online gambling industry analyst with nearly ten years of experience. He currently serves as Casino News Managing Editor for Bonus.com, part of the Catena Media Network. Other gambling news sites he has contributed to include PlayUSA and Online Poker Report, and his writing has been cited in The Atlantic.
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