LatAm opportunity comes into focus for Codere Online

Amid the root-and-branch restructuring endured by Codere in 2021 its digital business prepared for life as a separate entity. A combination with special purpose acquisition company (SPAC) DD3 Acquisition Corp led to a Nasdaq listing and a new future as a standalone operation.

As an entity targeting the regulated Latin American igaming market, Codere Online’s options were limited. 

Aside from Colombia, where it faces fierce competition, prospects were sparse. Hopes for sports betting regulation in Brazil were fading, Argentina’s province by province model was moving slowly, while Peru and Chile were talking, rather than acting, on regulation plans. 

Now, the picture is very different. Brazil may add igaming to online sports betting, while regulation in both Peru and Chile is edging closer. 

Early investment shields Codere Online from Spanish ad ban

That left Spain and Mexico as key markets. That left the operator facing up to operations in a European market where restrictions tantamount to a ban on advertising constricted its marketing muscle. 

However chief executive Aviv Sher argues Codere Online’s prior activity in Spain provided a foothold. “We were already operating there for five years, heavily investing before the advertising ban,” he explains. “While the advertising ban pushed medium to small companies out of the market, I think we successfully positioned ourselves to get the market share we need in order to go into this new regulatory era.”

Codere Online invested heavily in brand-building, sponsoring Real Madrid, meaning it can maintain market share and retain players acquired during the years of investment Sher says. Even today he believes the Madrid deal contributes to Codere’s brand awareness. 

The Codere retail operation in Spain means the brand remains visible on the high street, further shoring up its brand awareness. “In Spain we feel comfortable,” Sher says. 

Momentum building in Mexico

So comfortable Codere Online is diverting investment into Mexico. It’s a “younger” market for the operator, Sher points out, but one where it’s enjoying a rapid return on investment. The country even outstripped Spain as its largest single territory, with €21.0m of revenue representing 49% of the group total in Q3.

“We are focusing on Mexico and moving funds in order to grow our exposure and compete with our main rivals,” says Sher.

He draws parallels with Spain, arguing Codere Online’s early investment came before major operators began circling. “A lot of big companies” are looking into Mexico launches next year, ramping up media pricing and the barriers to entry for new competitors. 

And Mexico’s importance isn’t the result of a particularly strong 2023 performance. “We think it’s a trend,” Sher adds. “The advertising ban [in Spain] made it clearer this was where we needed to invest. We see our future there.”

Where else is on Codere Online’s radar?

Mexican igaming is now one of a range of opportunities for igaming in Latin America and it’s firmly in the industry’s sights. Codere Online will face rising competition as the likes of Peru, Chile and even Brazil regulate. 

Sher is mindful his business is effectively a startup, and cost discipline is key. He is only considering fully regulated markets, for the legal certainty that provides as well as an indication of costs the operator will incur.

“We are only operating where we know the tax regime, how much money we are going to make, how the business plan looks,” he says. “This is mitigation, so we are not working in any grey market showing great results without paying taxes. [In those territories] your 25% pre-regulation margin can quickly fall to 5%.

“The other mitigation is of course regulated markets with lower tax rates.” 

Peru’s lower tax rate makes that more attractive, as does Panama’s. The operator is yet to enter Argentina’s Buenos Aires province but Sher believes it could rival Mexico as Codere Online’s biggest market. 

“It’s really not as big but in terms of player values, from a retail point of view, a customer is worth more in Buenos Aires than Mexico.” The city and province cover 80% of Argentina’s wealth meaning igaming’s slow province-by-province march barely matters. 

What needs to happen to bring Codere Online to Brazil?

But Brazil sports betting and igaming, considered LatAm’s biggest opportunity by the industry, does not fit into Codere Online’s plans currently. 

“Our current structure, our current plans, and the way we operate, we are not entering Brazil,” he says. “It’s not a Spanish-speaking country. It’s a different culture, it’s sports-only, and we have huge players advertising for years as they build their brands in the unregulated environment.”

While it won’t be among the first wave the business certainly wants to ultimately find a way in “and we want to do it the same way we did it in Mexico,” Sher explains. “In order to do that we need a lot of money, a lot of capital, so we are looking for a JV, or to raise more debt or capital for Brazil, or even a spinoff focused on Brazil with separate financing. 

“With the current structure that we have, we will not be able to penetrate Brazil and make good investments and give our investors a good deal there.”

Profitability unlocks new opportunities

All of this ultimately hinges on Codere Online’s profitability, with Q3 2023 its first EBITDA-positive quarter. The business simply can’t raise more debt in the current economic climate, so posting positive EBITDA is crucial. “When the macroeconomics change and we show profitability it will be easier to raise debt. That’s why we’re super focused on delivering positive earnings by the end of next year.”

It’s not that the business lacks ambition but more a realistic focus on growing sustainably. That doesn’t mean Codere Online isn’t ambitious, Sher adds. 

“In South America we look at Brazil, Chile and Peru like a second stage. But we are always looking north, to North America. 

“There is a large Hispanic population here, Spanish speaking people that we appeal to with our brand. Brazil and North America are two strategic moves we want to make, but we need to see how to build a new structure around them to do it properly.

“I think whoever will take us to the North America and use our brand for Spanish speaking people, I think we can do a very nice job with that.”

How could operators target the Spanish-speaking US?

While it’s in Codere Online’s medium- to long-term plans a push to the Spanish-speaking US population hinges on Florida Sher continues. 

“The key is Florida,” he explains. “We are waiting to see how it’ll develop there with Hard Rock.”

The Seminole tribe-owned Hard Rock Bet is only recently back in action although the ongoing legal dispute over its de facto monopoly in the state threatens to throw up further surprises. Whether or not the highest court will take the case will be decided in December, most likely. 

“Hopefully we’ll be able to cooperate [with Hard Rock], but Florida is very interesting for us and our brand. Of course Texas could be interesting.”

California – despite the current regulatory impasse – is also of interest, as are New Jersey and New York. But for Codere to realise these ambitions Sher believes new investment is vital. 

“We think a joint venture with a large American casino makes sense; the same goes for a joint venture with a technology company that wants to go into B2C.” Even a private equity investment, or a reverse takeover, could be on the cards. 

“There are a lot of moving parts but nothing concrete. So it’s not in the short term, maybe medium long term we’ll see something around those areas.”

Bringing the business to a strong valuation

But for now, the focus remains Spanish-speaking markets where it can grow sustainably and efficiently. “[That] should be big enough to bring the company to a nice valuation,” Sher says. 

Those opportunities are developing. Considering it listed at a time when addressable regulated markets were limited to Colombia, Mexico and Spain, Codere Online’s options have developed rapidly as Peru and Chile regulate. 

The business is in the early stages of its expansion plans, but the conditions may be developing for Codere Online to become a force in Latin American igaming.