M&A, the hunt for data and in-play — insider views
iGB talks to GVC's Kenny Alexander, Paysafe's Lee-Ann Johnstone, H2 Gambling Capital's Simon Holliday and Sportradar's Neale Deeley about some of the igaming sector's hottest topics.
The art of M&A
The rise of GVC has been one of the more surprising stories in a sector which has been full of unexpected developments in the last three or four years.
The leap from (relative) listed obscurity – at least as far as most analysts were concerned – to big-time player in the ongoing rounds of M&A has been one of the stories of the sector, and at the heart of it has been what most now acknowledge as one of the most driven and operationally and strategically adept executives in the space, Kenny Alexander.
Here iGB talks to Alexander about what it takes to make M&A work.
Q&A: Kenny Alexander, CEO, GVC Holdings
iGB: To what extent do you think that the current spate of mergers within the online gambling sector has been a long time coming?
Kenny Alexander: To my mind the gaming sector has been heading this way for a while. It’ s all about scale in the online gaming sector. The industry has matured a lot and increased costs relating to technology and regulation have driven the need to seek synergies at the cost base in order to acquire profitable scale. Recent mergers have been driven by the realisation of the enormous synergy benefits which will drive shareholder value.
iGB: What do you think is the key to successful M&A?
KA: The key point is embracing the stakeholders, particularly the shareholders of all parties involved. You can have the best rationale in the world for a merger but if no one is listening then it will fall on deaf ears. Shareholders must be able to see the benefits of a combined offer — which means a well-thought-through plan that appropriately reflects the acquisition valuation. It’s not about swooping in and telling everyone how good you are at making money. I also think that M&A experience holds significant weight. One must remember that a merger doesn’t stop once a deal is signed; rather, there is a much longer process of integration which requires clear steer and direction from the management team.
iGB: Mergers of equals are very hard to execute — do you think there always needs to be a lead acquirer?
KA: A lead acquirer is often helpful, but equal mergers have been pulled off historically too. Hats off to the guys at Paddy Power Betfair and also Ladbrokes and Coral, who are creating significant shareholder value.
iGB: How difficult is merging technology platforms?
KA: Merging technology platforms is of course a challenging process, but with the right expertise, it also presents an enormous opportunity. Different platforms have different strengths and weaknesses, and therefore a merger presents the opportunity to select the best elements and develop a much stronger technology.
iGB: What is the key to maintaining a motivated workforce?
KA: In my opinion people are key in this industry. Good people can create extraordinary value and bad people can do a lot of damage. I like to think that GVC is well known for having an entrepreneurial culture and we reward people who deliver with responsibility and also remuneration. I think it is essential for employees to believe in the company’s direction and aims, as well as understanding their personal progression opportunities.
Affiliates and the corporate shift
The acquisition of Income Access by Paysafe set the seal on an interesting year in the affiliate space. The M&A affecting the rest of the sector has been on display here as much as anywhere.
Also at the start of September, affiliate site operator Catena Media announced it is looking at a €50m bond issue to raise money for further acquisitions, adding to the €15m AskGamblers buyout from April and other deals since in relation to one Germany-facing affiliate and Swedish sports betting affiliate Spelbloggare.se.
Gaming Innovation Group, meanwhile, back in March acquired the assets of Magenti Media for SEK47.5m, which GIG said would further strengthen the company’s position as a top lead-generation company in online casino in Sweden.
Finally, in August Cherry Gaming’s affiliate operator Game Lounge expanded its operations with the acquisition of Interclick for €1.5m.
We spoke to Lee-Ann Johnstone from Paysafe, herself thoroughly versed in the ways of the affiliate space, about the recent spate of corporate moves in the area and what this might mean for the future.
Q&A: Lee-Ann Johnstone, Paysafe Group
iGB: Would you agree that the affiliate space is now a more corporate business than previously?
Lee-Ann Johnstone: As affiliates have become larger businesses they logically operate as small companies, not just individuals, and their businesses take on a more formalised corporate approach to meet constantly changing regulation and digital advancements. The benefit of the corporatisation of the affiliate industry is that it has improved the trust factor and formalised partnership agreements on both sides of the fence, so that services and deliverables now match exact business requirements.
iGB: How do you think rising marketing costs change the affiliate space?
LAJ: The lines between traditional paid media and advertising and what affiliates do on differentiated commercial terms are blurring. Affiliates don't just run one site — they are building performance networks and acquiring smaller sites to diversify and increase their traffic inventory rapidly. I actually think the term ‘affiliate’ is outdated. It doesn't represent what these businesses have now become: essentially brand ambassadors who help drive your brand across all the steps of a customer's touch points or consideration journey to complete a sale. In the future we will see pricing formats and the role their efforts contribute in our global acquisition strategies evolve.
iGB: How do you see the online gambling marketing space developing in the years to come?
LAJ: The online gambling space may well continue to grow and diversify into smaller niches that will continue to expand. For example, the use of social media in gambling is not yet fully exploited for traffic growth opportunities. Or we’ll see increased traffic to certain operator brands from investment in mobile. As the realm of digital increases, affiliates are evolving in turn, and their business models are too.
Tracking the sector
Data within the online gambling sector has always been a tricky subject. Until very recently, there has been scant trustworthy reporting with very few jurisdictions issuing full updates and revenue figures and with much of the guesswork having to circle around less-than-complete figures from listed operators.
Securing a pathway through the murk over many years has been Simon Holliday, the founder behind one of the most recognisable data names in the business, H2 Gambling Capital.
Talking to iGB for the magazine's 100th issue, Holliday addresses what he views as the most important developments in the sector and how data can help a greater understanding of the ebbs and flows of an industry where revenue and profit visibility is on the increase.
Q&A: Simon Holliday, founder at H2 Gambling Capital
iGB: What do you feel has been the most important development in your time following the industry?
Simon Holliday: It is 15 years since we first published. Back then the interactive channel accounted for less than 2% of a €180bn gross win global sector. Fast forward to today and we collect and model data from most major markets and listed operators on a quarterly and in many cases a monthly basis. With 1,500 updates a year our global summary data is constantly evolving. This year we expect interactive to account for c11% of the €357bn global market, meaning global interactive gambling has grown at an average of c17% per annum during this period.
iGB: Do you think a greater understanding of the data picture can help operators and suppliers better understand developments in the online gambling space?
SH: More and more consistent data can never be a bad thing but with it comes the need for a greater understanding of how to use and articulate it. As with any information there is a danger that data may be spun to support any narrative. Better, more uniform, historical datasets and more detailed reporting would make this task more straightforward and would drive benefits across the sector.
iGB: Do you consider the level of disclosure by both companies and regulators sufficient?
SH: There is definitely a broad range in the levels of reporting. Many companies disclose only what they have to whilst there are some that provide significant amounts of data. One of the current challenges has been the addition of regulators to corporate data. Whether reporting periods are different, there are subtle differences between the datasets. We view balance and consistency as the key.
iGB: Do you think the industry is at all prepared to consider benchmark surveys to help foster better understanding of the sector?
SH: Harmonisation of reporting and KPIs has been frequently raised and specifically discussed within the sector a couple of times notably as early as 2006. However, the industry remains so competitive and there are so many developments in specific markets that are game-changers that we still may be some way off. It is difficult to see any major operator or supplier wanting to provide enough disaggregated information on a regular basis to make this a meaningful exercise. The only way this would work is if there was anonymous aggregation process managed by an independent third party. If this effort is to be revisited then regulators should be involved in order that the data published can be triangulated.
In-play, mobile and the instants fix
While there has never quite been that seminal moment that put in-play or mobile on the map in the same way that other developments have announced their presence, there can be no doubt that the two combined have transformed the way that punters consume sports betting.
The mix of product and channel has substantially driven the earnings within the sports betting sector in the past five years or more. So where do we go from here? The sports betting market isn’t slowing down, that’s for sure.
If there is one trend that points to the future of in-play it is the variants on instant markets that are only just now starting to hit the scene.
Products such as Commologic’s BetUp (now live with both Unibet and the Football Pools), Betsson’s Emperor game, Sportradar’s GoalFlash product and start-up Fenway Games’ SnapBet are all products which, as Neale Deeley, managing director of gaming at Sportradar suggests, do more than make up instants markets that “could be designed by railway timetable administrators”.
“There is nothing instinctive about them as they are,” he adds. Neale says their product has been built to look at the game the same way as a punter. “It feeds off that sense of momentum as a match develops.”
A similar process informs Commologic's BetUp, which looks to engage with a more recreational and younger sports consumer, with those taking part asked a series of questions related to what will happen with the game in the next few minutes. “The whole concept is quite new,” suggests founder Tamla Berler.
In-play is destined to get ever more immersive if we look at the potential for both augmented realty and virtual reality. Viable products are likely some way off coming to market, so we should beware of making predictions.
Yet with technology moving towards a wearable future, the likelihood that how we bet and when we bet could be transformed again very soon. The industry will face the usual hurdles of how to overcome the regulatory blocks to faster innovation and adoption.
But change is coming. “I think the industry is still in the early stages of understanding how in-play might interact with the mass market,” says Deeley from Sportradar. “What the Millennials audience want from their betting products is different again – just look at how eSports has developed. The operators will need to up their game; they need products that will engage with that audience.”