Casino’s competitive edge

The online casino vertical continues to grow but the major bookies are not cashing in on it. Could this lack of focus and specialisation lead to further M&A?    

By Scott Longley

There was almost a hint of effrontery on the part of Paddy Power Betfair’s chief executive Breon Corcoran when he described in the earnings call for the company’s most recent first-quarter trading statement how the company was failing to garner the same revenue growth in gaming as it was enjoying in sports betting.

It obviously wasn’t meant to be like this for one of the biggest beasts in the jungle. M&A is, by definition, anti-competitive and as the operators at the top of the heap get bigger, the assumption was that their share of the future growth would move in lockstep.

Yet this is clearly not happening in one of the largest segments of the market, or at least not yet.

In Paddy Power Betfair’s most recent first-quarter trading statement online sports betting net revenue was up an impressive 33%, but gaming trailed with a meagre 2% rise, and this after the company had said at the time of its year-end results that it was unhappy with its performance in this vertical.

At the time of the finals the company blamed what it termed as a “slowdown” in gaming growth in the fourth quarter of 2016, which it ascribed to lower direct activations via Paddy Power, reduced cross-sell via Betfair and a falling away of VIP activity across both brands.

Corcoran told the analysts on the first quarter earnings call that the company had identified a number of issues with its offer and was making progress in fixing elements of the UX and other areas where it felt it was falling down.

But he added that though he was pleased the company was heading in the right direction, he was “not happy with the speed of progress”.

Paddy Power Betfair is not alone in witnessing a disconnect between decent sports betting revenues and lagging gaming revenues.

Ladbrokes Coral said in its own trading update for the first three months of the year that while enjoying a 32% rise in online sports betting revenues in constant currency terms, its gaming operations came in with 6% year-on-year growth.

Meanwhile, over at William Hill – where remedial action has been the name of the game for the past year or more – an online gaming revenue rise of 8% was significantly behind the 26% rise in sports betting revenues.

Monolithic and proud
While the respective chief executives at the latter firms, Jim Mullen at Ladbrokes Coral and Philip Bowcock at William Hill, both side-stepped questions regarding the competitive environment, others have been more willing to suggest the larger sports betting-led brands are definitely losing market share in gaming.

Simon Collins, co-founder and chief marketing officer at Gaming Realms – which runs the Slingo offering – certainly thinks as much, suggesting the Gaming Realms brand and the largely Scandinavian-focused operators such as Casumo, LeoVegas and the Gaming Innovation Group brand’s such as Thrills.com, Guts.com and Superlenny.com are competing because of a concentration of energy on gaming.

To illustrate the argument, we can view Gaming Realms’ results for 2016, which showed real money gaming revenues doubling to £21.5m. Or LeoVegas, where UK-derived revenues in the first quarter were up 19.4 % (albeit with an element of sportsbook involved). 

Or we have the evidence from gaming and casino stalwart 888 – which still derives just under half its total revenues from the UK – where full-year casino revenues rose 26%.

“We’re catering for an audience that the big sports betting operators don’t really have a brand for,” adds Collins.

“It’s very difficult for the likes of Ladbrokes Coral and William Hill to have that level of engagement because of the multiple account balances. Take the bet365 offering – a customer can have four or five account balances across all products. There is certainly an impact from the breadth of offering.”

The problem with the all-things-to-all-men product array is that there will always be a first-among-equals issue around sports betting, for the very obvious reason that with the UK-facing major brands in particular sport is very much the number one focus of their marketing.

Focused energies
The sports betting operators are, according to Helen Walton, co-founder and marketing chief at supplier Gamevy, buying in sports betting customers and then “trying to stuff them into the casino environment and then wonder why they aren’t seeing the expected growth”.

She adds that though there might be areas of overlap between UK sports punters and the gaming audience, the context of the offer being made is vital.

“There is a clear argument for offering products that are aimed at the sports customer, or the lottery customer or the casino customer,” she says. “Small things that can be done with the offer, the marketing, the UX. All little things that you can experiment with and that can ensure you have contextually-appropriate products.”

There is a master-of-all-trades element to this argument. Ed Ihre, chief executive and founder of live-casino specialist operator Codeta points out that a full multi-product offering “makes you vulnerable in the sense that you will never champion/become best in class in either of them”.

“Given the offering out there now and where consumers are becoming increasingly demanding, offering only a satisfying/gets the job-done product is not enough,” he adds. “You need to offer the best one, so I would expect product specialists taking more and more market share from multi-product ones.”

For the larger sports-led brands, however, the problems they might be having with the gaming offer are merely a reflection of the underlying structural issues at their respective organisations.

The operators tend to work in silos determined by the product verticals and the level of communication between those silos is sometimes non-existent.

“These silos get worse the lower down the rung you go,” says Walton. “It is why you are starting to see titles at some of these organisations such as director of innovation and director of collaboration.”

Softly, softly
Both Gaming Realms and Gamevy – the first in consumer-facing and the second as a supplier – work in what might be terms the soft gaming sphere, an area which Corcoran specifically identified as being one where he feels that his brands are missing out.

Walton argues, however, that there is a danger in confusing a loss of market share in online casino with competition from the soft gaming end of the market. “Our games are finding the people that are not happy playing slots,” he says. “That is a huge, broad demographic.”

The lower-staking customer base has been successfully attacked by the Gaming Realms brands, which includes such tie-in sites as Britain’s Got Talent and Deal or No Deal as well as its own Slingo brand.

Like Walton, Collins believes these offers have tapped into a new audience, albeit that the company is yet to find out exactly how “reliable a cohort” it will turn out to be. But he is convinced that the major operators will be looking at multiple brand strategies for the future.

“The Scandinavian operators are already far down this road,” he says. “Betsson and Unibet/Kindred have multiple brands.”

Ihre unsurprisingly agrees. “I believe (the likes of Paddy Power Betfair and Ladbrokes Coral) will buy product-specialist brands, but also be looking to buy brands/companies that have an online history only,” he says.

It all suggests a new era for online M&A is likely upon us with the larger operators focusing on casino and games opportunities, such as Kindred’s recent deal for 32Red. The phrase for this year might yet be bolt-on acquisition.