GIQ - Gaming Intelligence Quarterly Oct-Dec 2016 by Gaming Intelligence Quarterly

• OCT–DEC 2016 • ISSUE 27

AN BUYEiLOTTERY R’S G UIDE FEAT

URING IGT NEOP, INTRALO T, OLL SCIGAARD AND MES G A M I N G

I N T E L L I G E N C E

Q U A R T E R L Y

Oct–Dec 2016

Q3 REVIEW

HOT SPOTS How to stay out of trouble in emerging markets Feat. Colombia, Brazil, Mexico, Russia, Philippines and more

A GAMING INTELLIGENCE PUBLICATION

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CONTENTS

LEADER Q3 REVIEW

FEATURES 30 888 interview CEO Itai Frieberger introduces us to the 888 executive team

Steve Hoare

36 An iLottery buyer’s guide IGT, Intralot, NeoPollard and SciGames display their North American iLottery products 42 Emerging markets special report A guide to getting in or staying out of Brazil, Mexico, Russia, the Philippines and more

ANALYSIS & OPINION 4 Snapshot Top stories, top quotes, top deals and deal of the quarter 7 Thought leadership Jonathan Alexander of Greentube and Adi Dagan of Beehive 10 People New Scientific Games CEO Kevin Sheehan speaks exclusively to GIQ; plus new executives at BetStars, Playtech and more 14 Technology & new products BCLC reveals omni-channel agenda; plus new products from Golden Nugget, Fortuna, WPT and more 18 Marketing Football crazy; Q&A with Louise Nylen of LeoVegas 74 And another thing... Joe Brennan on when to turn down lucrative business

FINANCE Q3 2016

53 The GIQ 20 Listed operators’ online results 67 The Fantini 15 US casinos’ H1 results 72 The GI Stock Index Q3 2016

E D I TO R

WHAT MAKES A GOOD CEO? ne answer to the question above is: “Gavin Isaacs”. Which is why it was such a surprise when he stepped aside at Scientific Games to make way for newcomer Kevin Sheehan (see interview, p10). However, the more nuanced answer might be that it depends on the nature of the company and the situation it finds itself in. Andrew Bulloss of executive search agency Odgers Berndtson tells me there are five types of CEO. There is the ultra-commercial CEO, focused on managing KPIs and boosting revenue. There is the financially-minded CEO, who is city-led, focusing on earnings and share price. You have entrepreneurial CEOs, who are creative and innovative. Another category is the corporate CEO, who is a figurehead, good at working with government and regulators. Finally, you have the people-focussed CEO, who is inspirational and will drive his workforce to higher heights. “Of course, a truly great CEO should be all of those,” says Bulloss. Isaacs was was one of few who could be all those things, but one can understand him not being thrilled by the prospect of focussing on debt reduction. He’s taking on the role of vice-chairman and one should not disregard the prospect of his return

to the hot seat in a couple of years much like one of his predecessors, Lorne Weil, did. He was SciGames’ chairman between two spells as CEO. (Check out what he is up to now on p5.) In this industry it pays to have a grasp of operations. Like Isaacs, three of the industry’s current crop of superstar CEOs are former COOs. Breon Corcoran of Paddy Power Betfair is possibly the most well respected CEO in the game. Nobody would describe him as a public face but behind the scenes he is second-to-none. Jim Mullen at Ladbrokes is another former COO impressing at the top of the tree. 888 CEO Itai Frieberger dragged his company back from the brink during his time as COO and has been rewarded with the CEO job. When Frieberger was appointed COO, Brian Mattingley became CEO and he was the perfect horse for the course. Mattingley is brutally honest, strategically smart and plays well in the City. And, of course, there is one CEO role currently up for grabs. William Hill needs somebody who will hit KPIs while inspiring the workforce and shareholders. It’s a big ask, but William Hill chair Gareth Davis might be wise to check candidates’ CVs for a decent stint as COO. sah@gamingintelligence.com

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GIQ Q3 REVIEW

Michelle Barber m.barber@gamingintelligence.com CONTRIBUTORS Joe Brennan, Caroline Parry, Adi Dagan, Jonathan Alexander, Martyn Hannah

Published by Gaming Intelligence Services Ltd Studio 36, Riverside Building 55 Trinity Buoy Wharf London E14 0FP support@gamingintelligence.com T. +44 (0)845 052 3816

GIQ Q3 2016

Snapshot most popular news stories on GamingIntelligence.com Rank and 888 form consortium to acquire William Hill Marathonbet warned by ASA over misleading free bet promotion Betsson strengthens Baltic business with €6m TonyBet deal Matchbook promotion banned over ‘risk-free’ mobile bet claim Paysafe buys affiliate marketing specialist Income Access Vitruvian sells Inspired to Lorne Weil’s Hydra Industries for £200m Playtech strengthens betting proposition with €138m acquisition Henderson steps down as William Hill CEO Coral warned after expired free bet promotion to customers 888-Rank-William Hill: superpower or an investment bank’s dream?

Quote of the Quarter We have made mistakes. I always make mistakes. It is my number one characteristic, but you need to learn from your mistakes” 888 CEO Itai Frieberger, p30

Sports newbies challenge elite IT HAS LONG been presumed that it is madness to compete with the sports betting leviathans of the UK market, but the sudden rush of new entrants suggests otherwise. The third quarter of 2016 saw the UK’s most popular newspaper, The Sun, launch its Sun Bets brand, while daily fantasy sports operator FanDuel launched its service in the UK. The pair will compete with market leaders such as bet365, Gala Coral, Ladbrokes and William Hill but also with other relatively new entrants such as Amaya’s BetStars and 888sport. After several years scoping out the market and a failed attempt to hook up with BetVictor, The Sun cut a surprise deal with Australian operator Tabcorp to run its UK sportsbook. It was a deal that was almost certainly born in Australia. “Murdoch does not do bad deals,” says consultant Paul Beattie of Soko Advisors, before adding the necessary addendum, “except for Myspace.” While The Sun might seem like a newcomer to sports betting, it has run a successful bingo online for several years with Gamesys and now Playtech. Its owner News International has also been down this road before with Orbis (now NYX-owned OpenBet) and SkyBet. “People don’t think of them as one of the most successful companies in online gaming but that’s what they are. There is a body of knowledge right at the very top. James Murdoch has been involved in the industry since they bought Orbis in 1998. They helped form this market,” says a former executive. Others are not so sure and see Tabcorp struggling to compete. Tabcorp chief executive David Attenborough talked at launch of

needing five years to turn a profit but some observers doubt the Murdochs will give it that long. However, just because Tabcorp is not making money, it does not mean that News International is not. Tabcorp will be operating an in-play sportsbook for the first time, as in-play is not legal back home. However, it has recruited a good man in the shape of William Hill veteran Jamie Hart to lead the project. He will have a few fresh ideas about how to kickstart the venture. Amaya’s BetStars also has a new boss in the shape of newly-recruited Zeno Ossko, who joins from Germany’s MyBet. He joins a team on a steep growth curve. Amaya does not split casino from sportsbook revenue but the combined products almost doubled from one year to the next, with revenue reaching $119.7m at the end of H1. The company has partnered well in the shape of Amelco, launched in a low-key manner but across as many jurisdictions as possible and has a huge database to mine. FanDuel is the complete unknown among the trio of new arrivals. Few give the daily fantasy sports provider much chance in a market where sports betting is legal (as opposed to in the US, where it is not). n For a more in-depth look at these operators’ prospects see GamingIntelligence.com

GIQ Q3 2016

Get the latest news from our website

GamingIntelligence.com

Vitruvian sells Inspired to Lorne Weil’s Hydra LORNE WEIL’S HYDRA Industries acquired Inspired Gaming Group from private equity firm Vitruvian Partners in a deal that values the virtual sports and server-based gaming specialist at £200m. Hydra is the acquisition vehicle of Lorne Weil and the former Scientific Games chief executive officer immediately OF THE vowed to increase Inspired’s busiQUARTER ness in North America. “Until now, Inspired has not done much business in North AmerCEO Luke Alvarez. “I am optimistic ica. I have basically spent my entire that with the Nasdaq listing – together career building gaming businesses in North with Lorne – we will be able to grow the comAmerica,” Weil told Gaming Intelligence. pany through M&A, which we have not been Vitruvian acquired Inspired in May 2010 able to do under private equity ownership.” for £74.4m and during that time it has grown Weil and Alvarez’s shared vision is to use from a supplier of server-based gaming in the Inspired as a platform to build out a full-serUK to the UK’s market leader in server-based vice, digital-only market leader that operates gaming and virtual sports. It is also the marsolely in regulated markets. ket leader in Italy and Greece and it has signed Inspired will change its name to Inspired its first virtual sports contracts in the US and Entertainment and will trade on the Nasdaq in China. Stock Exchange under the INSE ticker. Vitru“Under their ownership we have gone from vian is retaining a stake of around 35 per cent. a UK-only company to become a very interSee GamingIntelligence.com for a full international company,” said Inspired founder and view with Lorne Weil and Luke Alvarez. n

DEAL

THE QUARTER’S DEALS IN 60 SECONDS The biggest deal of the quarter was Caesars’ sale of its social gaming division Playtika for an astonishing $4.4bn to a Chinese consortium, which comprises Giant Investment (HK), an affiliate of leading games developer Shanghai Giant Network Technology; Yunfeng Capital, a private equity firm founded by Alibaba Group; China Oceanwide Holdings Group; China Minsheng Trust; CDH China HF Holdings Company and Hony Capital Fund. Penn National might feel it got a bargain in the shape of $60m Viva Slots Las Vegas developer Rocket Gaming. Playtech spent €138m on Austria-based Best Gaming Technology (BGT), which is known for its software for self-service betting terminals but also sells ePOS and till systems for betting operators and has an omni-channel web and mobile betting platform. The Israeli supplier hopes it will enhance its own omnichannel offering and bolster its digitisation of the retail sector. BGT clients include Betfred, Codere, Coral, Ladbrokes, Paddy Power Betfair and William Hill. GIQ Q3 REVIEW

Stockholm-listed operator Betsson acquired licensed Lithuanian online gaming operator TonyBet for €4m, plus another €2m for the owners if things work out by 2017. It now has a total of 22 brands. Cherry seems hell bent on emulating the portfolio of its former owner Betsson with a series of deals this quarter. It spent €80m for 49 per cent of online casino ComeOn, with an option to acquire the remaining 51 per cent for a maximum of €280m. It also spent SEK3.9m on Betman, a company supplying casino equipment for restaurants, nightclubs, hotels and pubs. And to complete the quarter, its affiliate marketing subsidiary Game Lounge acquired the assets of German and UK-facing affiliate business Interclick Limited for $1.5m. Affiliate marketing specialist Income Access sold out to London-listed payment solutions provider Paysafe for CAD$40m (€27.4m). Paysafe, formerly Optimal Payments, is building quite a portfolio of fringe services following acquisitions of Skrill and Neteller. n

The quarter in numbers FINANCE

-70%

PhilWeb share price decline in Q3

£448.3m

bet365’s operating profit in FY2015/16

41%

Ladbrokes H1 digital revenue growth

€390.6m

GVC net gaming revenue in H1 REGULATORY

iGaming operator licences awarded in Portugal so far

$500bn

Estimate of US sports betting black market by AGA PRODUCTS

€7.97m

Record Microgaming mobile jackpot payout on Zodiac Casino M&A

$60m

Value of Penn National Gaming’s acquisition of Rocket Gaming

£200m

Sale of Inspired to Hydra Industries

CAD$40m

Paysafe’s purchase of Income Access BUSINESS

US casino clients for GAN’s social gaming platform by end of Q3 5

S P O N S O RE D E D I TO RI A L GREENTUBE

THE 7 PS:

Powerful payments provide perfectly pleasing platforms to punters Jonathan Alexander of Greentube introduces the company’s payment solution for the ever-changing online regulatory landscape under international compliance guidelines GREENTUBE RECOGNISES THAT the purchase and payout process, far from being a mere afterthought, forms an integral part of the online gaming experience. If customers are not satisfied with the security, simplicity and convenience of the purchase process, they simply will not deposit. Similarly, the payout process merits close attention, as any obstacle that stands between a customer and payout of their hard-earned winnings is sure to attract the ire of the user. This can be in the form not only of increased friction with support agents but also in unfavourable reviews on influential forums, placing the value of the brand at risk. It is also wellknown that keeping pace with new developments in the payments industry is a significant drain on resources – everything from incremental updates of provider solutions to integrations of must-have methods for newly-regulated markets has an impact on time-to-market. To this end, Greentube has invested considerable resources in building up a portfolio of trusted and convenient payment methods meeting all legal requirements, allowing gamers in regulated markets across Europe to take part in the thrill of real-money gaming with their favourite Novomatic games from the comfort of their homes. While other operators struggle to maintain technical and legal connections with a myriad of providers in a multitude of markets, Novomatic clients, through a single integration with Greentube, have access to over 30 of Europe’s most popular payment methods. This ranges from instant bank transfers to credit/debit card payments (protected by Greentube’s in-house PCI-certified hosted-payment platform) to carrier billing and Bitcoin gateways – customers can find their preferred and trusted channel for payments on Greentube-powered sites. This custom-built payments solution, tightly integrated with the Novomatic NRGS platform, enables casino operators to focus on the core business of generating revenue and delivering a best-in-class gaming experience while reaping the benefits of a payment process designed from the ground up as an integral GIQ Q3 REVIEW

part of a comprehensive gaming offer. There is no need to coordinate the look and feel of the payment solution across multiple providers, as the Greentube payment platform is designed to provide a flawlessly consistent experience for clients, every time. No reward comes without exposure to risk, and Greentube has accordingly developed a top-tier fraudprevention system based on the principle of striking the ideal balance between security and flexibility. Greentube devotes considerable attention to identify, evaluate and integrate market-leading service providers in the risk management industry, harmonising automated checks with the experience and insight that a dedicated team of risk management experts can bring. Licensed operators benefit not only in terms of reduced losses directly due to fraud but also in terms of added value to other features: express payouts, streamlined know your customer (KYC) processes, intelligent limits management and effective customer profiling are just a few of the advantages wrought from Greentube’s holistic approach to risk management. Operators also benefit from the ongoing development of this multi-tenant payments and risk management platform. As a market leader, Greentube is constantly enhancing the payments platform to account for new technologies, markets and channels, whether it be in-app payments, dynamic 3D Secure, blockchain solutions or emerging local payment providers. Besides this, Greentube ensures that operators within a regulatory environment are always working with the latest and most effective versions of every payment solution, taking care to maintain payments on the cutting-edge, so that operators can focus on what they do best. n

Greentube ensures that operators within a regulatory environment are always working with the latest and most effective versions of every payment solution

Jonathan Alexander is head of payments and treasury at Greentube, part of Novomatic Interactive 7

S P O N S O RE D E D I TO RI A L BEEHIVE

Designs on data Adi Dagan, CEO of gaming marketing optimisation specialist provider Beehive, on why the gaming sector will only benefit from the big data revolution with a more tailored approach

GIQ Q3 REVIEW

TALKING ABOUT THE importance of a data-centric and automated approach to marketing is nothing new in the gaming industry. For a few years now, we have been told that big data can supercharge ROI, reduce costs and boost retention. However, our industry is yet to tap into the full potential of big data because it is failing to understand how best to convert insights into actions. Marketing teams are overwhelmed by vast quantities of data that is doing very little to improve the bottom line. The key to a successful data-led marketing strategy is not to bury yourself in data, but to identify the numbers that really matter, simplify them and draw up a set of actions that will boost your business as a result. It is easy to talk a big game when it comes to big data, but all operators need to honestly answer one simple question: how are you turning your data insights into actions?

There is no use segmenting upon broad parameters that do not directly link to activity; this is why Beehiveâ&#x20AC;&#x2122;s marketing automation and business intelligence tools allows the user to segment players based on more than 200 different, gamingspecific attributes. Equally, when a marketing manager is drowning in too much non-pertinent information, it can cloud the precise 360-degree player view we are trying to create. For this reason, there is no upside to making false promises, like being able to perfectly predict the life-time value of a player the second they log on to your site. Big data needs to reach a level of maturity within the gaming space where it can acknowledge its limits and work within broader marketing strategies. This is not to say we are not making great strides to improve what we can do with the data we know have available. But it does Identifying the right insights mean that promising the world to If you donâ&#x20AC;&#x2122;t have a clear answer to operators is not helpful to anyone, this question, it might be time to and can often end up limiting the take a look at exactly what informamaterial impact we can have in Data must also tion you are gathering from players. the present. be used to The gaming industry has Data must also be used to empower marketing lagged behind other e-commerce empower marketing teams within teams within sectors, particularly retail, on gaming companies. There are harnessing the power of big data. huge opportunities to optimise gaming companies. While there are certainly lessons and automate marketing to boost There are huge we can learn from the likes of ROI. But if marketers are going to opportunities to Amazon and the travel industry, get increased budgets signed off boost ROI it is not enough to lift big data by CEOs and COOs, they need the solutions directly from these sectools at hand to present a compeltors and expect them to work seamling case that is clearly understood less across the gaming verticals. by the rest of the company. For big data to truly transform our industry, we There is no question that to succeed in the need to more accurately pick out the signal from modern gaming landscape, very much like any the noise and convert the troves of information into other landscape, data must be at the heart of your measurable and actionable metrics. business. Just make sure you see the trees, and not For example, marketing managers need the tools the forest. n to analyse how campaigns are performing in real time, and the freedom to adapt those campaigns if Adi Dagan is CEO and co-founder of Beehive, the they are not meeting expectations. market-leading and only dedicated iGaming CRM and business intelligence provider. He started the comInsights into action pany in 2010 after running a number of independent Segmentation is another area where handing the consultancies in the industry. He previously worked correct tools to operators can very efficiently allow for Playtech, leading client integrations with large them to implemented tailored campaigns that can operators including Mansion, Victor Chandler boost conversion, ROI and retention. and iPoker.it. 9

ON THE FOLLOWING PAGE

12 Ladbrokes, Playtech and more

New SciGames CEO sets about steadying the ship C O LU M N Robin Harrison

From M&A to debt reduction: Scientific Games’ decision to replace Gavin Isaacs as chief executive highlights a company and an industry in flux. Newly appointed CEO Kevin Sheehan explains how he plans to follow one of the most charismatic men in the industry

WHEN KEVIN SHEEHAN was announced as Scientific Games chief executive in early August, one industry executive noted that it stands to reason he comes from a different industry. After all, they said, who in the gaming sector would be willing to replace Gavin Isaacs? SG’s M&A activity may have been sparked by the vision of chairman Ron Perelman, but it was Isaacs’ responsibility to integrate a number of sizeable organisations so they function as whole. Few would say he has not succeeded. The Scientific Games of today, made up of SciGames, WMS Industries, SHFL and Bally, is a major force in the industry and delivering strong growth. Yet Isaacs has previously admitted his frustration at analysts’ warnings of how the corporation’s debt burden could slow this growth. Enter Sheehan as Isaacs’ replacement.

Past glories Sheehan joined SG from Nasdaq-listed Norwegian Cruise Line, where he spent seven years as chief executive. In 2008, the year he became CEO, the company recorded a 3.2 per cent drop in revenue to $2.1bn. By the end of 2015, revenue had more than doubled to $4.3bn. In January 2016 it posted its 30th consecutive quarter of EBITDA growth. During his tenure, Norwegian Cruise Line completed its initial public offering, expanded into luxury cruise ships, improved on-board services, and strengthened its presence in Europe. “At Norwegian Cruise Line, despite a tough economy, I led the turnaround and revitalisation of the business, both domestically and internationally,” Sheehan explains. “It was challenging, but also a lot of fun. My experience working with leveraged companies will be helpful for our work at Scientific Games.” Sheehan admits that Scientific Games needs to reduce its debt, describing the business as being “laser-focused” on achieving this.

“In the second quarter, we continued to deliver, with a $79.8m reduction in the face value of our debt,” he says. “Our focus on fiscal responsibility will remain one of our key drivers.” “[Debt] reduction and fiscal discipline, combined with enhancing existing operational activities and capitalising on future growth opportunities, will be critical for our business and key to continuing our momentum.”

Pointing out parallels Some have suggested that leading a consumerfocused cruise line is a very different proposition to leading a B2B business, but Sheehan sees many parallels. “Scientific Games is a B2B, B2C and B2G business. We market and sell our products to casinos and lotteries, which are primarily government-sponsored organisations, and help market our games and player-focused technologies to their patrons by providing product support,” he explains. “At the same time, we have a robust social casino business that is fully consumer focused.” He points out that while the cruise business is consumer-focussed, it was also “critical” for Norwegian to market its services to travel agents and online travel booking websites, “which was effectively B2B”. “There is so much competition in the travel and hospitality space, which made our B2B efforts just as important as our direct marketing to consumers.” There are also many parallels between hospitality, gaming and lottery, he says. “The cruise business is all about offering the best guest experience, developing loyal patrons, and delivering innovative and entertaining experiences that differentiate your company from the competition. “At Scientific Games, we have the same opportunities,” Sheehan states. “Our

P EO P L E Q3 NEWS

“Following our company’s third consecutive quarter of revenue growth, we see this as a perfect time to accelerate momentum” Kevin Sheehan, Scientific Games mission is to empower our customers with the world’s best gaming and lottery experiences.” Sheehan says that both sectors also depend hugely on relationships. Their size and scale makes it crucial to have strong relationships with the employee base, creating a strong company culture. And in both sectors it is equally crucial to establish trusted relationships with customers, partners, suppliers and shareholders. “The formula is relatively simple, but it all needs to happen simultaneously and collaboratively to ensure strong, long-term momentum.”

Interactive prospects

Ex-SG CEO Gavin Isaacs, above, and his replacement Kevin Sheehan, left

A major focus of SG’s future growth strategy will be its interactive business. Sheehan says that the business is “on fire”, a claim supported by the 62 per cent year-on-year increase in Q2 revenue from the division, in which social gaming comprises 90 per cent of the total. He says the strategy for the division is simple. SciGames will look to build on its existing game apps by adding new content, and it will expand into new territories and capitalise on its content library with additional social apps. It may sound as if interactive is almost entirely centred around social casino. That’s because it is. After all, 90 per cent of revenue from the division is coming from the vertical. Scientific Games is even looking to give the division breathing space to grow, designating its social casino assets such as Phantom EFX and Dragonplay as unrestricted subsidiaries under its debt agreements. This effectively creates breathing space for social to grow without profits being syphoned off by the parent. And while SG retains full ownership, plans are in development to potentially spin off the division through an IPO or expand it through acquisition. “Our industry-leading investment in innovation is paying off,” Sheehan said at the time of announcing a possible spin-off. “Following our company’s third consecutive quarter of revenue growth, we see this as a perfect time to accelerate momentum and explore additional opportunities to deliver greater

value from this strong and rapidly growing segment of our business.” Convergence between social and land-based gaming is a key growth area in the gambling market. It allows operators to leverage their land-based databases online, encourage repeat visits and open up a new revenue stream. Sheehan is quick to highlight links between the importance of interactive assets for a physical business in gambling and in the cruise line sector. “The cruise business is one of the fastest-growing sectors in tourism and hospitality, and it should come as no surprise that interactive and digital solutions are the key to the industry’s long-term growth and success,” he explains. “Cruise lines are concentrating on sophisticated Wi-Fi networks, mobile apps, powerful video streaming, social media integration, seamless online booking and check-in, digital signage and wayfinding, in-cabin entertainment, big data and business intelligence.” There is a lot that can be gained from a social spin-off, for both the interactive and land-based businesses. According to SuperData Research 83 per cent of social casino players visited a casino in the past year, and 60 per cent in the past six months. A thriving free-to-play offering complements the bricks and mortar experience. There is a growing market for social offerings linked to land-based venues. Marketing to the venues’ customer databases, a particularly engaged group of customers, operators can acquire higher value players at a lower cost. Scientific Games’ social offering is particularly strong; the division posted a profit of $13.7m in Q2. Average revenue per daily active user for the quarter was $0.31, 47.6 per cent up on Q2 2015, suggesting a positive growth trajectory. If the subsidiary’s profits are not frittered away on paying down debt, Scientific Games Interactive could grow into a thriving, independent business, while simultaneously aiding the development of retention rates for the supplier’s land-based customers. Sheehan certainly seems up for the challenge: “I’m getting up-to-speed on the great breadth of solutions that Scientific Games offers to empower its gaming and lottery solutions, including our host of SG Interactive B2B, B2C and B2G products.” “It is an exciting time to be in the gaming and lottery technology sector,” he concludes. n 11

PEOPLE Q3 NEWS

IN THE NEWS

Five executives who have been making headlines and what’s in their inbox

ARISTOCRAT SEARCHES FOR NEW DIGITAL CHIEF A ristocrat Leisu re’s chief digital officer Pat Ramsey stepped down to spend more time with his family and the company embarked on a search for Pat Ramsey his successor. Chief digital officer Aristocrat, like other Aristocrat Leisure big land-based suppliers such as IGT and Scientific Games, has focused its digital efforts on social – with some success. It acquired Product Madness in late-2012 and its Heart of Vegas app drove digital revenue up 127 per cent to $130.8m, 13 per cent of Aristocrat’s total H1 revenue. What Aristocrat has failed to do is build a sustainable digital B2B business, despite buying iGaming software from GAN that was supposed to enable this. Here lies the challenge for Ramsey’s successor. It’s a good job for the right person.

FORMER MYBET CEO APPOINTED HEAD OF BETSTARS

CHERRY REPLACES SHANNON AS LADBROKES AUSTRALIA CEO

Zeno Ossko’s appointment as CEO of PokerStars’ sportsbook brand BetStars came as a bolt from the blue following a decade at mybet, but a short spell as CEO. GenZeno Ossko erally, executives with CEO UK industry experience BetStars are targeted for this type of role. Ossko has online and retail experience, which is a helpful for developing an omnichannel offering, but mybet has hardly soared above its competitors in recent years. He is joining a business that has excellent resources and a huge potential customer base, however. In the first half of 2016, combined sportsbook and casino revenue soared 150 per cent year-on-year; if he can maintain this growth rate he could significantly boost his reputation. His experience of the German market – regulation permitting – may also prove a huge advantage.

Paul Cherry’s appointment as CEO of Ladbrokes Australia, replacing his colleague Dean Shannon in the role, shows the operator attempting to ensure continuity in the Paul Cherry business. This seems to be CEO a case of ‘if it ain’t broke, Ladbrokes Australia don’t fix it’. The operator’s H1 results revealed revenue climbing 40 per cent to £35.5m, resulting in a £2.1m operating profit. Cherry has been with Ladbrokes Australia since its previous incarnation as Bookmaker. com.au, before it was acquired in September 2013. Unlike its rival, Ladbrokes appears happy to let the Australian business plough its own furrow. This could be a good move after William Hill struggled to implement its company culture on Sportingbet Australia and Tom Waterhouse. However, Ladbrokes Australia remains tiny compared to its peers. Cherry will need to maintain that growth curve.

PLAYTECH BEEFS UP ITS SPORTSBOOK TEAM Playtech has significantly beefed up its sportsbook management team with the appointments of Richard Andrew, Danny Angus and Eoin Redmond as COO, CTO and sportsbook product manager for Playtech Sports. The trio will be expected to hit the ground running, after Ian Chuter has completed his project to knock the division into shape. They have a strong base to work from, considering Playtech’s stellar customer list and omni-channel solutions. Growth may begin by expanding

Richard Andrew, Danny Angus, Eoin Redmond Playtech Sports

relationships with existing clients, but for it to make a real statement of intent it needs to snap up a customer from rivals such as OpenBet, SBTech or Amelco. With this trio in place, Playtech has some much-needed experienced sportsbook management.

PAUL MILES SWAPS WONGA FOR GVC Paul Miles’ appointment as GVC Holdings’ new chief financial officer, replacing Richard Cooper in the role, is the latest step in the business evolution into a market leader Paul Miles of the iGaming industry. CFO Out goes the old team, and GVC in comes the new. Aside from CEO Kenny Alexander, GVC’s previous team tended to fly under the radar, but this has changed markedly with the new team. Along

with Playtech veterans Shay Segev and Liron Snir, Miles, formerly of payday loans business Wonga, is used to working under scrutiny. As a listed business that generated €212.2m of revenue from unspecified ‘other’ markets in H1 2016 – 56 per cent of its total – this is probably good training. But what remains to be seen is when this transition to a FTSE 250 business sees Alexander depart. GVC’s CEO has overseen a meteoric rise with a seemingly endless source of funds for acquisitions. But with the share price rising he might be tempted into cashing out sooner rather than later.

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F I NA NC E GIQ20 Q3 2012

Omni-channel hits Canada as BCLC launches milestone jackpot game C O LU M N TECHNOLOGY

Kio Dawson

Canada’s land-based sector is embracing digital technology in a similar manner to US casinos THE BRITISH COLUMBIA Lottery Corporation (BCLC) has been at the forefront of the regulated online gaming market in Canada since launching its PlayNow.com site back in 2004. It has now launched North America’s first omnichannel progressive jackpot game through longterm partner IGT. Powerbucks links the jackpot pool from the Powerhits slot games at BCLC’s 33 land-based gaming venues with mobile and desktop versions of the game, which are available through PlayNow.com to players in British Columbia and Manitoba (BCLC powers Manitoba’s iGaming site). Powerbucks offers players the chance to win jackpots of CAD$1m or more, with players staking between $0.50 and $2.99 eligible for the static $1m jackpot, and those staking $3 or more eligible for the progressive jackpot, which starts at $1m. “We’re very excited about it because it’s really our first significant omni-channel product in the casino space,” says Monica Bohm, BCLC’s vice president of eGaming. “We never really had a jackpot that in real time is connected across online, mobile and land-based facilities, and for our players, that’s a really exciting feature.” For IGT, which has been a partner of BCLC for 19 years and a supplier of online games since 2010, the omni-channel launch of Powerbucks is a new milestone for the popular jackpot game. In the US, the land-based game is available to play14

ers across various states including New Jersey, tor. It has rolled out a number of pilot projects South Dakota and Nevada. It paid out its first already, particularly in sports where it has $1m jackpot in March 2015. allowed patrons to place mobile bets in an inBohm hopes this inter-state model will also facility environment, and is also developing be applied to Canada’s provinces. Currently, the a barcode scanning app for lotteries that will online game is linked with the iGaming offering allow players to check paper lottery tickets to in Manitoba, with a land-based version being see if it’s a winner. integrated in casino venues across the province. Bohm says that this will be the first phase of “We certainly hope that other jurisdictions implementation to bring digital into the retail are going to join in. The capability of the game is, space for lottery. of course, to be able to connect across Canada.” “That experience between retail and online In British Columbia, the land-based game is not really converged yet, so I think the was launched across the opportunity is to bring province in June, with the those channels more closely online and mobile version together for a more seamless (and omni-channel capabilexperience. Mobile is allowity) going live earlier in Seping us to entertain our custember. Bohm explains that tomers better, allowing us the response from players to deliver more entertainhas so far been better than ment value to our customers expected, although no one and ultimately that makes has yet won the jackpot prize, them happier.” which is the biggest ever “So we have a lot more offered in British Columbia. plans for that down the road. “What’s really interestThe retail business is dising, and what we’ll learn a rupting in Canada, there’s lot about, is just how quickly lots of changes going on. that jackpot can go up,” she We see mobile as not just a “We see mobile as says. “We hope that the place to sell, but also a place not just a place to more people that participate, to serve our customers sell, but also a the more often it hits, at retail.” place to serve our and the more millionaires Bohm says that partnercustomers at retail” we make.” ships with vendors such as BCLC hopes to bring this IGT are very important to Monica Bohm, BCLC new omni-channel capabilthe operator and a key part ity into other games across its casino portfolio, of its success in the iGaming space. as well as across other lines of business, particu“It took the shared vision for something like larly in lotteries and sports. this to bring it to market, because there is obvi“We have progressives like this on various ously lots of development, lots of work, a little slot games, and we also have progressives in our bit of risk that you take in trying to bring somefacilities on table games, so depending on how thing new to market,” she concludes. we can work with vendors like IGT to create “So I think for the future, I really see the that opportunity, I think there are lots of things operators and the vendors working like this in we can do.” collaboration to bring new innovations and new This is all part of the operator’s strategy to experiences to the market. That’s really going to bring digital technology to the land-based secbe critical.” n

NE W PRODUCTS

Q3 LAUNCHES

WORLD POKER TOUR GOES SOCIAL WITH PLAYWPT LAUNCH The Ourgame International-owned World Poker Tour (WPT) has launched a new social casino platform for players worldwide.

What’s the big idea? The free-to-play

BIG LAUNCHES

PlayWPT.com offering is the first major product to be launched since Ourgame acquired WPT from bwin.party in June 2015. With social poker and slots currently on offer, it aims to narrow the divide between real-money and free-to-play elements. The poker product

includes various ring games, tournaments and sit ’n’ gos, represented by customisable in-game avatars, while PlayWPT Slots features a three-game series called Time Slots, where users play their way through an interconnected story in order to win a virtual currency jackpot. PlayWPT is currently available on desktop and Facebook, with a mobile variant to follow.

GOLDEN NUGGET LAUNCHES FIRST ONLINE LIVE DEALER IN US

sophisticated studio inside its Atlantic City casi-

no to offer the live dealer games via NYX’s Open Gaming System (OGS) platform. Professional casino dealers run table games including Blackjack, American Roulette and Dragon Bonus Baccarat which are streamed online. Popular in regulated European markets, it’s the first time a US operator has released the product to players.

IGT TO EXTEND ONLINE POKER OFFERING FOR SVENSKA SPEL

EVOLUTION PARTNERS iSOFTBET FOR LIVE CASINO IN ROMANIA

PLAYTECH HELPS FORTUNA ROLL OUT ACROSS CENTRAL EUROPE

International Game Technology has signed an extension to its long-running contract with Svenska Spel to enhance the Swedish gaming monopoly operator’s online poker products.

Evolution Gaming will launch a new live dealer studio in Romania at the Grand Casino Bucharest, providing its live casino product to licensed operators in the country through a partnership with iSoftBet.

Playtech is to provide Fortuna Entertainment with a new multi-channel betting and gaming platform as the operator looks to consolidate its position as a leading player in the Central and Eastern European markets.

What’s the big idea? The live casino studio

What’s the big idea? Playtech has already

facility is the first to be launched in the newly regulated Romanian iGaming market, and will go live before the end of 2016. Evolution has partnered iSoftBet, which is licensed in the country to provide its own casino games as well as other certified third-party content, to distribute the solution to clients in the market. The Grand Casino Bucharest live studio will initially offer a selection of Evolution’s core games streamed live to players on desktop, tablet and smartphone.

provided its software for Fortuna’s launch in the newly regulated Romanian market. The new deal expands on that to cover the operator’s key Czech, Polish and Slovakian markets, with scope to move into further territories as and when they are regulated. Playtech will provide sports betting and gaming solutions to the operator, as well as seamless wallet technology and CRM tools, allowing Fortuna’s customers to gamble across all channels and verticals.

GIQ identifies five new ventures and asks “What’s the big idea?”

What’s the big idea? IGT has provided Svenska Spel with its poker software since 2006 (previously as GTECH). The four-year extension, exercised under the operator’s 2013 agreement with IGT, will see the supplier enhance Svenska Spel’s online poker products for desktop, as well as across Android, iOS mobile and tablet devices. Alongside a new user-friendly interface, new game formats and tournament variations, Svenska Spel will introduce IGT’s new Poker Challenge tournament format and characterbased cash tables. GIQ Q3 REVIEW

Golden Nugget Atlantic City launched the first online live dealer offering in the New Jersey iGaming market in August, with the product powered by specialist supplier Ezugi.

What’s the big idea? Golden Nugget built a

F I NA NC E GIQ20 Q3 2012

ON THE FOLLOWING PAGE

19 Inside marketing with LeoVegas

FOOTBALL CRAZY C O LU M N MARKETING

Caroline Parry

Betting brands have piled into the Premier League as TV deals have made it the most-watched league in the world, but are they making the most of these deals? ACCORDING TO NEIL Hopkins, director of sport at agency M&C Saatchi Sport & Entertainment, it is “natural” for a brand with a commercial interest in Asia to use a shirt sponsorship as “an exposure vehicle”. This much we know. However, Hopkins adds, this global interest, coupled with massive revenue now generated by TV rights – which will see each club receive at least £125m this season, up 50 per cent on last season – has created a dividing line in the league. There is the Top Six – Manchester United, Chelsea, Arsenal, Liverpool, Manchester City and Tottenham Hotspur – which attract truly global brands prepared to pay top-end prices. From Chinese insurance brand AIA paying £16m a year at Tottenham, to US car manufacturer Chevrolet’s £47m deal at Man United. Then there are those with deals at the £6m mark, including Sunderland’s two-season deal with Philippines-based Dafabet, down to £1.5m for Watford’s deal with China’s 138.com. Hopkins adds: “The type of shirt sponsor a club can attract is a good reflection of how its brand is performing globally. Betting and gaming sponsorships are more tactical in particular markets.” For Tim Crow, chief executive of sponsorship agency Synergy, the current dominance 18

of betting brands in football is comparable to the way big tobacco brands “colonised” sport in the 1970s and 1980s. “They were similarly ubiquitous,” Crow says. “Although they made much better ads to support their sponsorships than the betting brands do.” This colonisation by the betting brands means getting brand awareness out of a sponsorship deal is now harder than ever. Crow adds: “I suspect that few – if any – of the betting brands are generating significant return on investment because there’s so much betting clutter and also because their activation as an industry is so poor.” Betway, which signed a principal partner deal with West Ham in February 2015 and has now extended it until the 2019/20 season, sees the deal as a “defining point” in its development as a brand, but aims to go beyond the traditional personal appearances and match day competitions to engage with fans. “We want to be more than just a logo on a shirt. We create rich content, such as videos, blogs and mini-series, which lift the lid on the club. It’s a deeper relationship,” says Betway marketing director Anthony Werkman. “The best way to activate any deal is to become fully involved in the partnership. We’ve done it with West Ham and their fans through our content work, with videos such as our Academy of Football miniseries gaining a total of 2.36m views across several channels. “We’ll build on that with creative ideas for celebrating the move to the new stadium,” adds Werkman. “The main thing is that we use the partnership to bring fans closer to the action.” Ths is something 888Sport is also planning through its sponsorship por t folio,

albeit outside of the Premier League. While 888 is a former Middlesbrough sponsor and was the first gaming brand to sign a Premier League deal back in 2004, it is now looking to the Football League Championship to create an impact. This season it will sponsor four teams – Birmingham City, Nottingham Forest, Brentford and Preston North End. To support the deal it is offering free travel for supporters to all clubs for midweek league fixtures before Christmas. Itai Pazner, senior VP and head of B2C at 888, explains: “When we sponsored Middlesborough, we stood out as it was just us, but with half of the teams in the league now sponsored by betting brands your impact is not strong enough. “The idea from our sports marketing team was to go where it is less crowded and make a bigger impact,” he adds. “It is a different approach but we don’t want to just badge shirts and forget about it. We see it as an opportunity to engage with the fan base, with a good geographical spread across the UK.” The future for the traditional model of football sponsorship, particularly in the Premier League, is uncertain. As clubs get wealthier from TV rights, the need for a shirt sponsor may diminish completely. Hopkins believes the frenzy of betting brands clamouring to sign deals may calm down in the coming seasons. “I think this is probably the peak.” Going forwards he predicts clubs will look to create a portfolio of sponsorships through a partnership approach. It is a strategy that raked in £154.8m for Manchester United last year. With betting partnerships the norm and some clubs already boasting two to three such deals, the sector’s association with football looks assured, but true activation will be key. n

MARKE TING

LEOVEGAS

INSIDE MARKETING WITH…

LEOVEGAS

LeoVegas chief marketing officer Louise Nylén reveals the benefits of being mobile-first What are the LeoVegas brand values? LeoVegas’ vision is to create the greatest gaming experience and be number one in mobile gaming. To achieve this, we’re guided by five core values that permeate our entire operation chain, including marketing. In one way or another they are all evident in our branding – mobile, innovative, professional, fun and friendly, and one LeoVegas. We stand for all of these values and have stayed true to them since day one. Perhaps the most obvious ones are that we are a mobile-first and an entertainment company. Mobile is so ingrained in our mindset that we usually refer to it as being part of our DNA and thus we always do things mobile-first. We’re also an entertainment company in that we believe in fun. We understand that mobile devices are now driving the entertainment industry to simply make gaming more fun.

How big is your marketing team and how it is structured? We have a decentralised marketing organisation, where our country managers are responsible for all marketing in their respective countries. We believe in being local in our tone and approach as we understand that marketing differs quite a lot from one market to another. All our country managers are native to their country of responsibility, as we feel that this is important to ensure that our communication is authentic and has the right feel. The country managers are guided in their work by budgets and targets which are set centrally and supported by central teams that work with SEO, programmatic buying, design and affiliation.

Who is your target market? Does it differ between your mobile casino business and your sports division? Our current focus is on the Nordics and UK. But we are continuously looking out for new markets with great potential. LeoVegas Sports has been rolled out in the majority of our GIQ Q3 REVIEW

current markets and the plan forward is based on market potential and regulation.

What is the marketing strategy for the launch of your sports betting division? How will you cut through in such a competitive market? You’re right that in such a competitive market, it is vital to offer something different; our unique selling point is speed. When we think of sports, we think of the agility of the sportsman, and we managed to replicate that for our sportsbook. This was possible due to our modular platform, which is robust, fast and built for mobile-first products. We’ve used it for our successful mobile casino and we’ve also applied it, together with all the experiences and strengths we garnered, to our sportsbook. When benchmarked against our competitors, our loading times are faster and this allows for a superior experience while navigating, and especially for in-play betting.

What role has marketing played in building up the mobile casino business and how is it evolving? The main contributor for LeoVegas to become synonymous with mobile gaming was the fact that we marketed and positioned ourselves as a mobile casino. Having all our products built from a mobile-first perspective continued to drive this point, as when customers tried LeoVegas, they found exactly the fun and entertainment they expected from an intuitive mobile gaming product. In terms of how the marketing has evolved, this differs a lot among our different markets and their level of maturity. In the mature ones we focus more on the brand, while in the younger markets we give more attention to acquisition. What works in one market does not necessarily work in another. For example, when we launched LeoVegas in Sweden, we kicked off with heavy display advertising campaigns

on numerous web portals. This was extremely successful and some of them are still part of our key marketing channels. However, when we launched in the UK and tried to replicate this success by advertising in some of the major tabloids, the results were not so great. One of the reasons why this happened was because at the time online news portals in Sweden were able to offer larger and more attractive formats than their UK counterparts.

How does your position as a mobilefirst business impact on marketing?

We are mobile first in everything we do and that includes marketing too. Having said that, our marketing is very data driven and we only work with formats, channels and activities that meet or exceed the targeted ROI. We measure the success of all our marketing activities based on the ROI they generate. So, for example, we have pre-set threshold targets for our ‘customer acquisition costs’ for each market and once a particular channel or format is not reaching those targets, we either tweak it or remove it.

What is the potential of Live Casino games from a marketing perspective? The superior offering that LeoVegas has within live casino gives us the opportunity to attract a completely new and very interesting niche of the market. We currently have the largest live games portfolio from six industry-leading providers. In June we opened the doors to our very own fully branded Live Casino environment, the LeoVegas Chambre Séparée, with dedicated croupiers and innovative promotions throughout the day. We also have a dedicated Live Casino team, enabling us to give full attention to this vertical by providing personalised promotions for our players, as well as being first with the latest in new game launches and constantly implementing innovative features. n 19

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22 World regulatory update 24 Ask the lawyer... about Germany

Regulation gathers pace in France and the US C O LU M N LEGAL

Steve Hoare

Two events squeezed together within a few days of each other at the end of September suggested a new era of regulatory cooperation that might prove resuscitating rather than stifling

GIQ Q3 REVIEW

protection as other sporting events. This repreBARRING ANY LAST-MINUTE and unexsents more than progress. This is pretty revopected obstruction from president François Hollutionary stuff. And it’s coming out of France! lande, France will have a new law that allows We can only hope that it works. The UK and its regulators to permit poker liquidity sharing Italy are pretty much ready to go with liquidity across national boundaries. sharing. After years of best practice sharing but Before we get too excited, the hard work is little in the way of concrete cooperative projects, still to be done. The regulator will need to thrash this might be something that heralds real rejuout a regulatory framework, including a way to venative change. tax cross-market poker games, which will be The news that the Kahnawake Gaming fraught with argument and counter-argument. Commission was working with the New Jersey But let’s put our reservations to one side, Division of Gaming Enforcement because this is France. It was France that gave us the world’s was as surprising as France getmost difficult regulated market, ting all progressive in the field of Legitimisation the market that only worked for online gaming. a precious few, the market that of online The Mohawk Indians of Southhas been moaned about and with- gaming must ern Quebec’s Kahnawake nation drawn from since before the origi- be gathering have seen the opportunity in nal regulations came into play. pace beyond the regulating online gaming since French players wagered a mainstream and way back in 1999 but the regularecord €137m on Euro2016 with tor’s reputation suffered a haminto the fringes €115m paid out to players. An mer blow with the Absolute Poker additional €13m will be collected and UltimateBet scandals in the by the state in taxes and levies; €1.37m was given mid-2000s. to UEFA and almost €7m was spent on advertisIts unjust reputation as a rogue regulator was ing. This left the country’s 12 (twelve!) licensed further reinforced by its cosy relationship with sports betting operators to split a profit of just Calvyn Ayre’s Bodog and the not-so-cunningly €630,000 before operating expenses. rebranded Bovada. The deal with DGE is a drive The lobby group Association Française du to stop unlicensed operators such as Bovada from Jeu en Ligne (AFJEL) released these figures to operating in New Jersey and other US states. illustrate the fragility of the market and appeal It represents a coming in from the cold for to politicians for a change from tax on amounts Kahnawake but, possibly more importantly, it wagered to a tax on income – and to permit is a recognition of America’s regulated markets. casino games. Most listed operators have talked for the best This is a big ask. But the move to allow part of half-a-decade about the importance of shared poker liquidity showed that immovable regulated markets, while doing their best to get obstacles can budge. round any haziness of regulations. The bill went way beyond poker to set out If Kahnawake is coming in from the cold regulations for a number of eCommerce and telthen the legitimisation of online gaming must ecoms issues, including eSports. France will be be gathering pace beyond the mainstream and one of the first countries to give eSports the same into the fringes. Only politicians can stop it. n 21

L EG A L

Q3 REGULATION HIGHLIGHTS

CANADA

Québec’s new law requiring internet service providers to block access to unlicensed gambling sites faces another challenge after the Canadian Radiotelevision and Telecommunications Commission (CRTC) said that the measure would be “unlawful” without its prior approval. Québec Bill 74 was signed into law in May, although the province has not yet enforced the provisions that require ISPs (internet service providers) and WSPs

(web service providers) to block certain iGaming websites and content. The Canadian Wireless Telecommunications Association (CWTA) and the country’s Public Interest Advocacy Centre (PIAC) are both attempting to have the law overturned by Canada’s Superior Court. The CRTC has now also weighed in on the issue, arguing that any such blocking would be unlawful without prior Commission approval, which would only be given where it would further the telecommunications policy objectives.

PORTUGAL US

The New York State Gaming Commission issued temporary permits to five daily fantasy sports (DFS) operators in August, with leading players FanDuel and DraftKings among those granted permission to immediately resume operations. This came just weeks after the state governor Andrew Cuomo signed a bill legalising DFS contests. The two operators are keen to return to Nevada too – where just one licence has so far been issued to USFantasy – with their own legislation which states that DFS contests do not constitute a sports pool, gambling game or lottery as defined by Nevada statute – contrary to the ruling of the Nevada Gaming Control Board (NGCB) and the state attorney general which forced them to exit the market in October last year. Elsewhere, the Delaware Department of Justice formally notified DraftKings, FanDuel and Yahoo that their online fantasy sports contests were not permitted under Delaware law, while Maryland introduced draft regulations to regulate the product, and West Virginia’s AG declared DFS games as lawful.

World regulatory update Gaming Intelligence outlines the latest legal developments from around the globe 22

Land-based casino operator Estoril Sol was awarded the country’s first online casino licence in July, with its iGaming offering going live through a joint venture with Belgium’s GAMING1. The operator owns the Casino Estoril, Casino Lisboa and Casino da Póvoa land-based venues, and has been licensed by Portugal’s gaming regulator Serviço Regulação e Inspeção de Jogos do Turismo de Portugal (SRIJ) to offer a selection of casino games via Estorilsolcasinos.pt. Estoril Sol is the Portuguese branch of Asia’s Stanley Ho Group, which has been active in the country for more than 50 years and currently holds a 64 per cent share of the land-based casino market. It has become the third operator to secure a Portuguese licence after Betclic Everest Group and Bet Entertainment Technologies were approved to offer sports betting in May and July respectively.

PARAGUAY

The government announced plans to re-regulate the country’s gambling market in July and have a clampdown on illegal operators who are depriving the state of tax revenue. The proposed changes were set out in draft legislation submitted to Congress, in which the government stressed the need for “new legislation that will contribute to the orderly development of the sector” under strict state supervision. The proposals call for the licensing of each gambling activity which should be offered through concessions to private operators or state-controlled entities as well as new types of games – all of which will require “a regulatory body with sufficient resources”.

UK tax authority HM Revenue and Customs launched a consultation in August on the proposal to extend Britain’s Remote Gaming Duty (RGD) to promotional freeplays in online gaming. It aims to end the imbalance in the treatment of freeplays, where remote gambling operators benefit from a more generous tax treatment compared to other free bets, such as retail sports betting and horse racing. From August 2017, freeplays will be defined as “participation by means of an offer that waives all or part of the customer’s payment”, with freeplays deemed to have value for duty purposes when used in place of a gaming payment by a customer. Freeplays that are given as a prize, or as part of a prize, will be deemed to have no value for duty purposes, while cash prizes paid to customers from the successful use of freeplays will continue to be deductible from RGD.

NETHERLANDS

After years of slow progress, the Dutch House of Representatives made a significant step towards opening the country’s iGaming market by passing its online gambling legislation in July. While encouraging for operators, a number of amendments put significant pressure on those looking to enter the market, including a uniform tax rate of 29 per cent of gross gaming revenue for both online and land-based gambling – although this can be reassessed and potentially cut in three years’ time. A further amendment saw the country’s iGaming regulator the Kansspelautoriteit (KSA) lose the power to order internet service providers to block illegal sites, considered to be an infringement of online freedom. The Dutch Senate is likely to vote on – and pass – the iGaming bill before the end of the year. Operators could be approved to launch late next year or in early 2018.

SLOVENIA

The Slovenian Finance Ministry submitted draft regulations to the European Commission in August concerning the operation of games of chance online or via other means of telecommunication. It will regulate most forms of betting and casino games, including lottery games and online slots, bingo and poker, and are subject to a standstill period ending 18 November. The licence holder must ensure that games of chance are provided in a regulated and monitored internet environment, in order to protect minors and other vulnerable persons against adverse effects of excessive gambling and to protect the participants in games of chance.

AUSTRALIA

ISRAEL

Israel may ban slot machines and betting on horse races by next year under new proposals submitted to Finance Minister Moshe Kahlon in August. The wide-ranging report on gambling was formulated by an inter-departmental team, including representatives of the government’s Finance Ministry and Justice Department, and stated that products which can be played quickly and continuously – such as slots and betting on horse races – pose the greatest risk of addiction to consumers and should be banned. It also identified inefficiencies in the operation of the national lottery (Mifal HaPayis) and the Israeli Sports Betting Board, which holds the betting monopoly in the country.

GIQ Q3 REVIEW

South Australia has banned betting on eSports over concerns that it particularly appeals to children. The state government has taken the step over fears that the links to computer games popular in their demographic will attract younger people to betting, with the ban intended to ensure that this group remains “cyber safe”. Consumer and Business Services Minister John Rau ordered the state’s Independent Gambling Authority not to approve betting on computer game sporting

L EG A L

Q3 REGULATION HIGHLIGHTS

POLAND

The government adopted a number of amendments to the Polish Gambling Act in July to end the uncertainty over the legal status of online gaming in the country. It aims to reduce the size of the unregulated gambling market in Poland, offer players greater protection against the negative effects of gambling, as well as setting up a blacklist of illegal operators. It also legalises new products such as online poker. While there are currently no details about the tax rates for these products, the Remote Gambling Association said that the country’s 12 per cent betting turnover tax has ultimately prevented a viable market from developing, and has urged the government to switch to a tax based on gross profit instead, similar to those introduced in other regulated European jurisdictions.

events, irrespective of where the event is taking place. Meanwhile, Victoria has moved to prohibit sports betting advertisements that cannot be avoided by the general public and that are near areas frequented by children. The proposals have been put forward by the state’s Labour government, which believes that betting advertising can encourage problem and at-risk gamblers to continue playing, and as a result is acting to address community concerns.

L EG A L GERMANY

ASK THE LAWYER…

about Germany Hesse’s decision to offer a waiver for iGaming businesses to continue operating in Germany could be the final nail in the coffin for the controversial State Treaty on Gambling, believes Wulf Hambach of Hambach & Hambach

It is the latest step in a strategy that the Hesse government began to implement last year. In 2015 it passed a declaration saying that it had five goals it felt necessary to change the State Treaty. The first principle is to change from a quantity-based licensing approach to a qualitybased approach. HDMIS and the prime minister have already written to their colleagues in other states regarding the Treaty, pledging to make changes if no progress is being made. The toleration process isn’t so much a trick but rather them putting momentum behind the declaration that it is pursuing a qualitative approach.

Is this a one-off change, or will Hesse continue to push for further changes?

them out of the dead end the Treaty has taken Germany down. Hesse is the first domino to fall, and I don’t see how you can argue against quality over quantity. You can see this approach being adopted in other channels, such as the amusement arcade industry. Companies such as Gauselmann and Novomatic accept that they have to comply with a range of regulations but rather than fighting against a new law, they are mapping out a new qualitative approach. They are working with testing houses to have their machines certified, which means that their venues have quality stamps – this way customers can choose certified venues and ensure they are being protected.

Could this lead to positive change in Germany’s regulatory framework for gambling? It is clear that the political decision-makers, namely the prime minister and state chan-

Ultimately, Hesse wants to change the Treaty as a whole. It was responsible for the sports betting tender process, which failed, and ended with the High Administrative Court of Wiesbaden ruling that Hesse could not issue licences. It is now saying that if it can’t do so it will push ahead with the tolerations.

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This feels similar to Schleswig-Holstein, in that Hesse is the second state to rebel against the Treaty, but this time the climate is different. Hesse is being very clever in pushing for quality over quantity and it will be very difficult to get the genie back in the bottle. In Bavaria there was a recent conference in which politicians argued that quality over quantity was exactly what is needed to lead

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Could other states derail Hesse’s toleration process?

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What is the Hesse Ministry of the Interior and Sport (HMDIS) trying to achieve by launching its toleration process for sports betting operators?

There was a recent conference in which politicians argued that quality over quantity was what is needed to lead them out of the dead end the Treaty has taken Germany down cellors, are totally fed up with the issue of gambling regulation. They have seen the Treaty fail time and time again, with the issue continuing to reappear on their agenda. They know that if they leave it as is, it will keep coming back. But these changes will happen behind closed doors. I’m convinced the Social Democratic Party (SPD, one of the main parties in Germany’s ruling coalition), is beginning to change its opinion on gambling legislation. The party’s minister for digital affairs Lars Klingbeil has already suggested that the only answer to illegal sites is to offer licensed alternatives.

What sort of timescale do you foresee for changes being made? The actual path to a liberal, EU-compliant regulatory framework has yet to be determined but I don’t see any alternative. Hesse will be joined by other states in rebelling against the Treaty. If the Christian Democratic Union or Free Democratic Party returns to power in Schleswig-Holstein it will undoubtedly ally with Hesse. Bavaria may well follow. I don’t see this as an immediate change, and there is unlikely to be an agreement at the next state prime minister conference, but it will have to be discussed. n

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28 GSN, World Poker Tour and more

Social casinos begin to repay land-based loyalty C O LU M N Robin Harrison

Social casino has quietly become a crucial component of US landbased casino businesses. This could herald a long-overdue shake-up of the established social casino sector

GIQ Q3 REVIEW

IN THE THIRD quarter of 2015, figures released by Salesforce revealed that cost per install (CPI) for mobile social casino apps had reached $8.50, almost double the US average CPI of $4.60. The likes of DoubleDown, Playtika, GSN and Big Fish Games have ruled the roost for quite some time now, with smaller operators struggling to make the economics work. However, the dominance of the, ahem, big fish is not set in stone. These studios owned by land-based operators and suppliers such as Caesars, Churchill Downs and IGT have enjoyed the greatest success to date, but this has come without much input, other than funding, from their land-based owners. The market is evolving. A new wave of landbased operators are coming to the social sector with more than just finances. Social studios are beginning to place the bricks and mortar casino at the heart of their social strategy. GAN was one of the early movers in the B2B market for social casino. Through integrations

with the likes of Bally Technologies, Konami, Aristocrat and IGT, it believes it offers a unique proposition to casino partners. While exact figures are a closely-guarded secret, CEO Dermot Smurfit says that clients saw an average increase of 28 per cent in onproperty gaming revenue from players that engaged with the venue online via the GANpowered offering. The market is becoming increasingly competitive. Scientific Games has launched its Play4Fun Network; Novomaticâ&#x20AC;&#x2122;s Greentube has entered the sector via its acquisition of BlueBat Games, and Penn National Gaming has pushed its way in, first with OpenWager, then through a $60m deal for Rocket Gaming. Social accounted for 80 per cent (or $74.9m) of Scientific Gamesâ&#x20AC;&#x2122; interactive revenue in Q2 2016. GAN saw Simulated Gaming net revenue soar 377 per cent year-on-year in 2015. Penn National has seen its Hollywoodcasino.com social offering attract 50,000 daily active users and around

SOCIAL GAMING INTELLIGENCE Q3 NEWS ANALYSIS

500,000 sign-ups since it launched in April, targeting players in its customer database. “We have done a lot of analysis in this area, as in the early days there may have been a concern within the industry that social casino could cannibalise the land-based business,” Penn’s managing director of iGaming Chris Sheffield explains. “From day one we have been monitoring and reporting on this whole area and overall we see positive impact on land-based customer behaviour in terms of seeing more visits to the property and higher levels of engagement from iGaming and land-based customers,” he says.

active users into paying customers, he says land-based operators can achieve rates of 15-18 per cent. That’s not to say that social is simply a realmoney placeholder. Smurfit points out that more than 50 per cent of US casino patrons already play several social casino games. “These casino patrons are among the highest-value, biggest-spending player cohorts in the social casino market, which is why GAN reported an average revenue per daily active user of £2.32, achieved in 2015,” he says. There seems to be general consensus that little will change when real-money regulation is rolled out in more US states. Acquisition and “The analogy I often convergence use is that social casinos The opportunity is clear. are similar to video games Land-based casino operabased on sports that appeal tors have huge databases to players interested in of customer details, includthat sport, but do not stop ing emails and data on these individuals from their playing habits within playing in the real world,” their venues. Sheffield says. “They can “Cost per acquisition even build more interest for a player in the curand appeal to that sport rent database is very low, before. Social casi“We’ve been monitoring than because you spent the nos, when employed effecand reporting on money acquiring them to tively, can work in exactly social casinos, and be a bricks-and-mortar the same way.” overall we see positive player; that’s where the iniThere is clear potential tial investment was made,” for these land-based social impact on land-based says Foxwoods Interactive offerings to grow into a customer behaviour” director of administration viable competitor to the Chris Sheffield, Penn Gaming Frank Pracukowski. market giants. He believes that players Rather than the size who come to a social site through playing in a and status of the established industry players land-based casino will be more loyal than to making growth for the land-based-linked comsocial casinos without a land-based presence, panies difficult, Smurfit believes the reverse because they know and trust the brand. is true. The notion of convergence between online “US casino clients moving online [with the real-money gaming and social gaming was likes of GAN] put pressure on B2C social casino once discussed ad nauseam, with online operators, who already find it more expensive operators rubbing their hands at the prospect to acquire and retain players in regions in of linking free-to-play and real-money. After a which our clients have a patron audience and few failures with that strategy, it is barely menbrand equity.” tioned today. However, convergence between Players are already trained on what to land-based gaming and social casinos is alive expect from a social offering. When they and well. access the Foxwoods site, Pracukowski says, Pracukowski believes that this link to the they know exactly what to expect, and also get land-based offering, and the possibility of offeraccess to new and exclusive products. ing tangible rewards, is what gives social offerThe land-based operators muscling in on ings linked to land-based venues an edge over social casino might not expand the industry to their online-only competitors. a new audience, but it proves that a space that While an online-only operator may look to was seen as closed to newcomers might be openconvert two-to-three per cent of daily or monthly ing up once again. n 28

IN BRIEF GAN reveals land-based partners GAN, the company formerly know as GameAccount Network, has begun to reveal the identities of a number of Simulated Gaming partners signed up earlier this year. The Turning Stone Resort Casino in New York State, Oklahoma’s Chickasaw Nation and the Missouri-based Isle of Capri Casinos are the highestprofile launches. The supplier will enhance the Simulated Gaming product by integrating Konami Gaming’s SYNKROS casino management system.

GSN adds Wheel of Fortune game Sony-backed social casino operator GSN Games continues to leverage its rights to the Wheel of Fortune brand, with Wheel of Fortune: The Ultimate Collection now live. The game was rolled out for Android devices, before being made available on Apple and Amazon devices. It features slots set in a range of different locations, with Vanna White, hostess of the TV show since 1982, serving as an in-game host. Players can win up to $100,000 in cash prizes through daily sweepstake draws.

World Poker Tour releases social game The World Poker Tour (WPT) will attempt to crack the social poker market with PlayWPT, a new free-to-play gaming platform available worldwide. The offering is powered by technology from the WPT’s parent company, Hong Kong-listed supplier Ourgame International. It aims to offer a social experience as close to real-money poker as possible, with limited funds available in the game to encourage competitive play. An accompanying slots offering, PlayWPT Slots, comes with a three-game series called Time Slots.

Playstudios acquires Scene53 MGM Resorts-backed social casino studio Playstudios has acquired Scene53, the Tel Aviv-based company that aided the development of its new POP! Slots app. Scene54 develops real-time multiplayer mobile games, and has been renamed Playstudios Israel (PSI) following its acquisition. “Scene53 built an incredible platform for running multi-player, real-time games and hosting virtual events in a 3D setting,” Playstudios CEO Andrew Pascal said. “We saw its potential and believed that together we could build something really great.”

Penn National acquires Rocket Gaming Penn National Gaming has expanded its social casino offering with the $60m acquisition of Rocket Gaming. The studio is behind the Viva Slots Vegas app, and a library of more than 50 free-to-play slot titles. Founded by CEO Bill Gelpi and CTO Steven Jian in 2013, Rocket’s management team was strengthened by the addition of Zynga veterans Niko Vuori as COO and Justin Cooper as chief content officer.

Sales@bit8.com | www.bit8.com | Sales: +356 20925 872 | General Enquiries: +356 20925 800

F E AT U R E INSIDE 888

Body politic 888’s financial revenue continues to rocket. Its M&A attempts continue to flounder. So, asks Steve Hoare, why let M&A disturb a winning team?

888 GROUP REVENUE for the first six It is easy to forget the dire straits in which months of 2016 shot up 19 per cent on the same 888 found itself back in 2011. The 2008 financial period last year to US$262m. Its sportsbook – for crisis came on the back of the company’s exit so long the bastard child of the 888 portfolio – is from the US after the Unlawful Internet Gamflying with revenue up 63 per cent following a ing Enforcement Act of 2006. It had acquired successful Euro 2016. Wink Bingo and owed its founders a small forThe H1 results are the cherry on top of a tune but couldn’t afford to pay them. The US five-year winning streak that, by the end of the was opening up but 888 did not have the cash year, will see revenue double since the current to fund it. management team took charge in 2011. Frieberger and Mattingley installed the The management team is the reason Gamwider executive team to steady the ship. Itai ing Intelligence is visiting Pazner became head of B2C. the 888 HQ in Herzilya, IsraB2C would be the focus. It el. When Itai Frieberger was was the key source of rev“When we started promoted from chief operatenue and needed attention. to work together as ing officer to chief execu“We had failed at our core tive in March this year, business,” says Frieberger. a team we knew we he described it as a minor “The 2008 crisis was bad for needed to focus. on change. He was pleased, of our core business and everyone but it was harder course. Pleased enough to for us. A lot went wrong.” clean the noise from invite your reporter to IsraYaniv Schwartz assumed the outside” el. But the main aim was to the role of head of B2B with a Hila Klein, 888 meet the team. remit to terminate non-perFrieberger insists that forming relationships. becoming chief executive was an honour but not “My first duties as COO were shutting a big deal. The revolution happened in 2011 and things down. I spent six months saying ‘no’ it is the management team that was installed rather than ‘yes’,” quips Frieberger. then that has driven the company forward. Yaniv Sherman was appointed business “There was a dramatic change in 2011. It development director with the responsibility for was a mega-change with a significant organiacquiring licences in regulated markets. This sational change and with a significant stratwas not easy without much in the way of funds egy change,” says Frieberger. Frieberger was to do so. Hila Klein took Frieberger’s old role as appointed chief operating officer and Brian head of product technologies. Mattingley stepped into the chief executive’s Pazner had joined the company a decade office with a promise to stop “chasing dreams”. before the shake-up. Schwartz joined a year

F E AT U R E

INSIDE 888

Yaniv Schwartz Senior VP, head of Dragonfish Schwartz is the in-house genius who can solve any problem with his creative and analytical mind. Nominally head of Dragonfish, he is also Frieberger’s go-to man for tricky projects and problems that need solving. Meanwhile, Dragonfish has evolved with a standalone casino business happily sitting on the bingo platform, which was designed for B2B. Customers range from established clients such as Cashcade to relative newcomers like Costa Bingo and Moon Bingo.

MEET THE 888 TEAM

“I love the business. As a statistician, there’s something in the games I have an affinity with”

Yaniv Sherman Senior VP, head of business development Sherman’s remit stretches far beyond the sales that continue to drive B2B arm Dragonfish forwards. He is responsible for opening up and negotiating 888’s entry into new markets and new business relationships. With regulated markets accounting for 59 per cent of total revenue in the last annual report and rising all the time, his role is key. Sherman is amiable, intelligent and well connected. You would feel confident he could fulfil almost any role the industry could throw at him.

“We have been playing for the winning team these last few years”

Itai Frieberger Chief executive officer Hila Klein SVP, head of product technologies Klein manages 888’s 500-strong technology and products division. She joined as a business analyst before taking charge of the casino and bingo products. She was promoted to Frieberger’s old role, when he became COO. Her analytical mind, sensitivity and charm coupled with an outstanding stewardship of 888’s core technology platform mark her out as a potential successor in the chief executive’s office.

“We are very resultsorientated but we do see the overall picture” GIQ Q3 REVIEW

The big boss joined 888 in 2003 following the demise of his own company, which operated Who Wants to be a Millionaire games over the telephone. The venture was funded by 888’s founders, who then invited him to join 888. He has worked in various roles – head of NextGen products, head of product technologies and COO – before being named CEO in March this year. Frieberger is smart, humble, calm and strong – possibly the ideal boss.

“I always make mistakes. It is my number one characteristic, but you need to learn from your mistakes”

Itai Pazner Senior VP, head of B2C Pazner is the longest-serving member of the 888 management team. As head of the all-important B2C division, he could be seen as a combined chief operating officer and chief marketing officer. He is studious, fast, energetic and forward thinking. 888 will not fall behind on his watch.

“The online marketing world has changed dramatically in the last few years. I’m trying to keep driving data and technology as the key issues for our marketing people to bear in mind in everything they do” 31

F E AT U R E INSIDE 888

later in 2002 with Frieberger following in 2003. Schwartz recruited Klein that same year and Klein recruited Sherman a couple of years later. “The team is very tight knit,” says Frieberger. “It’s part of our magic.” 888 merged its product and technology groups in 2010. Klein believes it is one of the company’s most important organisational changes. A change of product no longer required a request to the technology team to divert their attention from important infrastructure projects. It was not until this change that Klein first started managing technology teams. She is not a techie by trade. She joined as a business analyst and moved on to lead the casino product team. Now she oversees the 500-strong technical team at the heart of the business. Her period in charge has coincided with 888’s upward curve. “When we started to work together as a team we knew we needed to focus,” explains Klein. “We knew the business and we knew it would not be easy. We knew we needed to focus on our core business and clean the noise from the outside.”

For the first three years there were four key areas of focus: mobile; regulated markets; the customer experience; and optimisation. Klein’s team is constantly being asked for this and that. For three years Klein judged every request with its relevance to those three criteria. “We knew our CRM system was very good but we needed to enhance it. We rebuilt the infrastructure,” says Klein. B2C chief Pazner says the connection with Klein’s product and technology team is vital, and one of 888’s competitive advantages. “If I need something I have the ability to stop everything else or redefine the priorities of our technology division of 500 people and push them towards what I need to deliver our goals,” says Pazner. “This is one of the benefits of owning your own software.” This is a recurring theme of any conversation with 888.

The core of 888 888 has long argued in investor presentations that its technology suite places it in a unique position. GVC, now it has acquired bwin.party, is the only other operator that owns the whole

888 REVENUES 2011-2015 500

n Total Revenues (US$) n Adjusted EBITDA

2014

450

454.7m

300

462.1m

2013

400

350

2015

2012

400.5m

375.8m 2011

331.1m

250

200

150

100

0 32

$100.7m $55.6m

$66.8m

$75.6m

$80.6m

stack. Indeed, it has the sportsbook too. But almost every other significant operator in Europe’s regulated markets relies, to a greater or lesser extent, on OpenBet or Playtech or a combination of the two. This has its pros and cons. When revenue goes down, margin goes down dramatically because the technology cost is fixed. Of course, when revenue goes up, technology costs are still fixed and your margin goes up dramatically. “You suffer less from declining revenues when your platform is external because it’s not a fixed base, it’s a revenue share base so the price will go down. However, your ability to innovate, differentiate and react to challenges and to opportunities are completely different when you own your own software,” explains Frieberger. Frieberger says the company embarked on 270 projects last year. A significant amount were failures but the company can fail and try again. Frieberger argues that there are only so many failures that an external provider will countenance before turning its attention to another customer. Of course, not all of those projects were failures. If Klein is the beating heart at the core of

F E AT U R E

INSIDE 888

the operation and Pazner projects its personality to the world, then B2B chief Schwartz is the company’s brains. Schwartz is a statistician by trade. After a year in 888’s support centre in Antigua, he returned to Israel to lead the data mining team. Pazner will tell you that everything at 888 is data driven – “It’s part of the DNA of this group” – so Schwartz became integral to every major decision taken. Frieberger values his intellect so highly that he will often assign Schwartz to special projects, such as the one needed to minimise the impact of last year’s change of tax rules and regulation in the UK. Frieberger will tell you that 2015 was the most successful year in the company’s history. Yes, he is well aware that EBITDA sunk from $100.7m in 2014 to $80.6m in 2015. But if you take out the impact of the UK’s point of consumption tax, currency fluctuations and VAT then EBITDA would have been $128m. “It made us a much better operator,” says Frieberger and he owes a lot of that improvement to Schwartz.

Merger mayhem Despite the company’s sparkling financial record, its sheen has been slightly tarnished by its inability to close the deal that makes it a mega-operator. Last year it rejected a bid from GIQ Q3 REVIEW

William Hill before missing out to GVC in a long and costly battle for bwin.party. The price was not right for a sale to William Hill but management could see the upside and returned with Rank to launch a takeover attempt for the UK bookmaker. Few analysts could understand what Rank brought to the party (other than money). The William Hill board agreed and rejected the bid. Frieberger, naturally, disagrees. “It needs to be a win-win for everyone and with the Rank deal some people did not see it as a win-win. It has to be.” “However, imagine what it would mean for William Hill, in this case, to have the platform we have – to control its own destiny, to modernise its technology by a generation. What would be the impact for its online business? It would only be for the benefit of William Hill and its shareholders. That was the industrial logic.” It was the same logic that William Hill applied when making its own bid for 888 at the beginning of 2016. (888 had rejected that offer on the basis of price.) But following the departure of CEO James Henderson, the mood had clearly changed on the bookmaker’s board of directors. They rejected the 888-Rank bid with talk of a “standalone strategy”. However, if there is one operator that might be able to standalone from a position of strength then it is probably 888 rather than William Hill. Is there not a risk

888 CEOs past and present: Brian Mattingly and Itai Frieberger

“Any 888 merger would use the 888 platform. There is no way I would jeopardise the investment we have made in that platform” Itai Frieberger, 888 33

F E AT U R E INSIDE 888

that any transaction will disrupt 888’s winning formula? “I don’t see it as a risk,” says Frieberger. “We are being very picky.” “It’s not something we need to maintain the business. We’re big enough,” he continues. “We do not need to invent anything. We don’t need to develop anything new. We have it. It’s all here.” He believes 888 does not need new products, new jurisdictions or a boost to its sportsbook. It has enough money to do all that on its own. “However, if there is an opportunity to leapfrog the business forward in terms of scale, then we will take that.” Frieberger returns to 888’s key point of differentiation – the technology platform and CRM engine at its core. He believes the company acquires and retains customers better than any other operator. “Most companies do not have that and they need it. If you can imagine what can happen to a business, which takes its scale and places it on our platform, the value that could be added is immense.” He says the online part of the business (i.e. the current 888) would remain intact after any transaction. Whatever is being added through M&A would not disturb the 888 team or the technical infrastructure. “Any 888 merger would use the 888 platform,” says Frieberger. “There is no way I would jeopardise the investment we have made in that platform. The investment we have made there is greater than anything else. It is definitely greater than the investment we have made into any of the individual products.”

The one that got away Continuing the 888 as body analogy, business development chief Sherman is the company’s eyes and ears. He has successfully taken the company into jurisdictions such as Denmark, Italy and Spain. He formed the AAPN partnership with Avenue Capital, which funded the company’s US venture when it did not have the cash to go it alone. He has also reinvigorated the company’s B2B efforts with 30 bingo deals last year and 15 new casino skins on the bingo platform via the Casinoflex system. However, Sherman describes his involvement in the company’s M&A efforts as some of the saddest things in his time at the company. He says slightly woefully that “things could have been different” and you get the impression he would rather leave the detail to the boss. For his part, Frieberger remains ebullient. He is the soul of the organisation. He is a fairly laidback character but passionate about the business and its opportunities. He is honest, 34

perceptive and focused. He is also protective – of the business and of his colleagues. The one that got away, as far as Frieberger is concerned, is bwin.party. That, he says, was a great opportunity. This was the one the company came closest to completing. bwin.party accepted 888’s bid before GVC upped the price beyond 888’s reach. The saga cost 888 $17.5m, although this was partially offset by an $8.8m break fee from bwin.party. The strategy was exactly the same as it would have been for William Hill. Take the customers from bwin.party’s platform, close it down, and migrate them onto 888’s “modern and effective gaming machine” – in the words of Frieberger. “You will see the bwin customers generate more money, you will see the sports customers playing more casino games and poker, and PartyPoker players would have a better game and increased liquidity.” “This is where we are better than anybody else. Our automated ability to capture audiences from one vertical and cross it over to another vertical, whether that be sport to casino or between verticals, from PC to tablet to mobile, is probably second to none in the industry. It’s all in the core platform.” Ultimately, Frieberger had to fold when GVC raised the stakes too far. “We have made mistakes,” admits Frieberger. “I always make mistakes. It is my number one characteristic but you need to learn from your mistakes. I know exactly what we could have done to close the deal.” He won’t let us in on the secret but his mistake was certainly not the amount of money 888 bid. He is incredulous – even months down the line – how much bwin.party ended up costing GVC, but ultimately it was worth that to the up-and-coming operator and not to 888. “One door closes, another one appears. My duty or my responsibility is to make sure the core business is performing. I look into other opportunities that could help us make the business bigger. We are very much engaged in that.” The one person who is missing from our visit is chairman Mattingley, who is not based in the Herzilya nerve centre. Mattingley has been just as important on this journey. He was a commanding voice in the 2011 strategy change that cut away the excess baggage and brought 888 back to basics. He has given 888 more credibility in the city and he has cleared the path for Frieberger’s ascent to the hot seat. “Brian is great,” says Frieberger. “He is an amazing person.” He would say that of most of his team. And it’s easy to understand why. n

Collaborators and competitors: Kenny Alexander of GVC, Henry Birch of Rank and James Henderson, former CEO at William Hill

F E AT U R E iLOTTERY

An iLottery buyer’s guide Kio Dawson surveys the technology solutions of North America’s leading iLottery providers LIKE IGAMING IN US states, the North American iLottery market has been slow to take customers online. Only six of 45 US states with lotteries currently allow residents to buy lottery draw tickets online, with half of those including some variety of instant win or scratchcard games. Virginia will be the next to go online, joining Georgia, Illinois, Michigan, North Carolina, North Dakota and Kentucky, but that still means there are another 38 lotteries that have not. The likes of Florida, Massachusetts and Connecticut all failed to get legislative approval this year for iLottery. In this modern age of technology, lotteries are playing catch-up with other customerfacing industries, which have embraced eCommerce first and mobile second. “With respect to interactive wagering, slow and steady are perhaps the operative words for

NEOPOLLARD AND MICHIGAN LEAD THE WAY Combining the seasoned experience of Canadian instant lottery supplier Pollard Banknote with NeoGames’ online expertise, particularly in regards to instant games, the NeoPollard joint venture has been working with the Michigan Lottery to create what is fast becoming the most interactive lottery in the US. The Michigan Lottery’s online games platform made its debut in August 2014. At launch, the lottery featured nine online games, which has since expanded to 35 games, 27 of which are optimised for mobile. NeoPollard is not just focused on eInstant games. It has introduced several successful Keno games to the Michigan market, delivering a unique Keno On Demand product that responds to player and market demand. NeoPollard co-CEO Ilan Rosen says the supplier has worked with the lottery to optimise the product by introducing fun and innovative eInstant games, as well as new categories of games,

the US,” says IGT vice president for iLottery Giuseppe Portoricco. While players may not be able to buy their tickets online, all the US lotteries have a web-based portal and various mobile apps to connect with players. The digitalisation of lotteries is happening and suppliers are bringing innovative omni-channel initiatives to these traditionally land-based businesses within the limitations of the regulatory environment. “We tend to broaden it and look at interactive as a category,” says Michael Lightman, senior VP, Lottery Interactive for Scientific Games. “To us it’s not so important whether or not a player is purchasing online or purchasing at retail. It’s all about creating interactive engagement for players to help lotteries have a direct relationship with them.”

Lotteries have been running interactive second-chance promotional games and free-to-play games on their sites for years, but mobile has become the most important channel of all. Scientific Games, IGT (previously GTECH) and Intralot dominate the iLottery supplier space but we’ll begin with NeoPollard Interactive, which has pioneered some important innovations.

such as the interactive draw-based games that operation of multi-jurisdictional lottery games, were launched earlier this year. including Mega Millions and Powerball. During its 2015 fiscal year, the Michigan LotThis has seen the supplier launch a MUSLtery’s online business generated nearly $19m certified interactive central gaming system for in net win (revenue net of discounts and prize draw-based games, with four games released expenses). Current projections indicate the lotin Michigan so far – Mega Millions, Powerball, tery is on track to more than double its online Lotto 47 and Fantasy 5. sales and net win this fiscal year. “These games are available across all web Mobile has also been a key and mobile channels and have channel for the offering. It repproven to be very successful, NEOPOLLARD resents more than half of online generating over $2m in sales in INTERACTIVE play and sales. By next year, July alone,” says Pollard. “These Online Lottery Sales: 1 NeoPollard expects this figure numbers – both the absolute Mobile Apps: 1 to grow to more than 60 per cent. sales as well as the percentage Key customers: Michigan, Doug Pollard, co-CEO of Neoof retail sales – are record-breakVirginia (soon) Pollard, says NeoPollard is working in the US market.” ing with Michigan to “expand, Aside from Michigan, Neooptimise and fine-tune the programme”. Pollard will introduce a custom platform for The supplier has been working with the enhanced subscriptions for the Virginia LotMega Millions Consortium and the Multitery later this year. Previously the lottery only State Lottery Association (MUSL), a non-profoffered subscriptions for Mega Millions, but its it government-benefit association owned and new eSubscriptions platform will allow players operated by lottery members, to facilitate the to purchase subscriptions for Powerball, with

F E AT U R E iLOTTERY

US LOTTERIES ONLINE GEORGIA LOTTERY Supplier: IGT Draw Games: Mega Millions, Powerball, Fantasy 5, Keno eInstants: (Diggi Games) ILLINOIS STATE LOTTERY Supplier: Scientific Games/IGT* Draw Games: Mega Millions, Powerball, Lotto, Lucky Day Lotto, Pick 3, Pick 4 KENTUCKY LOTTERY Supplier: GT Draw Games: Mega Millions, Powerball, Cash Ball MICHIGAN LOTTERY Supplier: NeoPollard Draw Games: Mega Millions, Powerball, Fantasy 5, Keno, Lotto47 NORTH CAROLINA EDUCATION LOTTERY Supplier: Scientific Games Draw Games: Mega Millions, Powerball, Lucky For Life, Carolina Cash 5 NORTH DAKOTA LOTTERY Supplier: Scientific Games Draw Games: Mega Millions, Powerball, Lucky For Life, 2 by 2, Hot Lotto COMING SOON Virginia Lottery, Massachusetts Lottery

the ability to expand the portfolio to include other draw games such as Cash4Life and Bank a Million. NeoPollard is also working with the lottery to offer expanded payment options for players, which will feature an eWallet to offer debit and ACH payment options at launch. Pollard says the company has been keen to share the insight it has gained from the Michigan operation with other lotteries to get them ready for iLottery. “Because our lottery clients work within regulated environments, many lotteries require state legislative approval in order to get into the digital market,” he says. “This has proven to be a lengthy process for most lotteries.” While the lottery retail network and associated retail-based products will continue to be the core business for lotteries for the foreseeable future, NeoPollard believes that iLottery will be an essential component as lotteries look to attract new players. “Across all retail sectors, online purchasing grows each year and becomes more and

GIQ Q3 REVIEW

“Lotteries will need to expand their presence online in order to be relevant to the next generation of players” Ilan Rosen, NeoPollard more pervasive,” says Rosen. “As consumer behaviour continues to adapt and evolve with technology, lotteries will need to expand their presence online in order to be relevant to the next generation of players.”

This is where the supplier’s omni-channel solution comes in. The company has introduced several innovative solutions that link the retail and online lottery experience, such as retail-based payments, and various scratch and terminal-based online game cards. The company is working on enhancements to allow players to claim their iLottery winnings at retail locations or claim their retail-based winnings online. It is also integrating with loyalty solutions and players’ clubs to convert loyalty points into iLottery vouchers and more. “A player is a player, no matter which channel is used to engage with them. Players don’t necessarily care whether a lottery uses different technologies or vendors for different channels. For this reason, we work with our clients to assist them in putting the player at the centre and employing our omni-channel framework to ensure the player experience is consistent across all touchpoints,” he says. NeoPollard has broken new ground. One senses this is just the beginning.

F E AT U R E iLOTTERY

SCIGAMES FOCUSES ON BONUSES, LOYALTY AND SALES

lotteries in Arizona, Arkansas, Maryland, a lottery interactive bonus game around our Maine, Missouri, New Mexico, New York, Goldfish casino brand for the Ohio Lottery and Scientific Games has deployed more than 600 North Carolina, North Dakota and Tennessee. it’s doing very well.” internet interactive engagement projects for “You’ll find that not every lottery uses an In August, the supplier launched a Monop45 lotteries across the US, Canada and Europe. app to deliver its bonusing and loyalty prooly-themed mobile and web bonus game to go The company launched its first iLottery grammes, but most are quickly catching up,” along with a Monopoly-themed lottery instant solution to sell lottery tickets on the internet he says. game for the Massachusetts Lottery. in 2001 for Lotto Bayern in Germany, and has The third piece in SciGames’ spectrum is In Canada, the company provides lottery pioneered the use of interactive bonus games the sale of lottery games on the solutions to all of the provincial and loyalty rewards programmes for lotteries internet in North Carolina and lotteries. The company is readyin the US. North Dakota – two of just six ing the internet gaming plat“To us, it’s not so important whether a playUS states that have implemented form for the Atlantic Lottery er is purchasing lottery online or at retail,” online lottery sales. Corporation (ALC) in Canada. explains Michael Lightman, SVP Interactive “In the case of North Carolina Its new SciPlay platform goes Products Group at Scientific Games. “It’s all and North Dakota, we provide live for ALC in the second quarabout creating interactive engagement for the web interface to players, the ter of next year. players to help lotteries have a direct relationeCommerce system, integration “Sciplay will be ALC’s core ship with them.” into payment services, and the interactive player account For SciGames, the lottery interactive specgaming platform – everything management platform, as well trum falls into three broad categories; bonusthat makes it possible for them to as the player-facing solution ing; loyalty rewards; and eCommerce (selling sell their games through mobile draw games and facilitating “It makes sense for lottery games online). and web,” says Lightman. instant lottery games, and then that if we have “Today, when you look at it this way, the In both cases, the lotteries it will integrate with their curpopular brands US market is doing more than any place in the are selling draw games online, rent providers for some of their in one gaming world when it comes to lottery interactive,” although neither are yet selling other iGaming verticals, such says Lightman. “Basically, every lottery in the instant games. as sports betting and bingo. We channel, those US has some sort of internet presence.” The company also implementwill integrate a common wallet brands would Most of the company’s interactive work ed eScratch games for the Minfor all of their gaming verticals be successful to date with US lotteries involves bonusing. nesota State Lottery in February their systems.” in other gaming withAnother This can give players who buy an instant win 2014 as the first US launch of lotbig project involves channels” or draw game a second chance to win. It is gentery instant games on the web. replacing rival IGT as the new Michael Lightman erally delivered through a mobile app, with A more recent innovation has system supplier for Danish lotplayers scanning the barcode on their nonseen the company transfer its tery operator Danske Spil. SciGwinning ticket with a mobile device to unlock casino brands to lotteries, with Jackpot Party ames will provide systems technology to the a second-chance casual game experience. and Gold Fish making debuts as lottery instant lottery, including game solutions and services, SciGames has also implemented 12 differgames with interactive bonusing promotions. as well as powering Danske Spil’s interactive ent loyalty reward programmes or limited“We are seeing great value in the crossoplayer account management system to unify time promotions for lotteries, ver of brands,” says Lightman. player experience across all products and diswhich are primarily delivered “We’ve seen tremendous overtribution channels. SCIENTIFIC via mobile. This enables playlap between lottery players and “As the consumer drives consolidation GAMES ers to participate in a pointscasino players. And so it only of their gaming universe, we are seeing a Online Lottery Sales: 3 based rewards programme in makes sense that if we have stronger need for a common player account (NorthStar JV SG and IGT) which they accumulate and popular brands in one gammanagement solution and the common walMobile Apps: 13 redeem points for prizes and ing channel, that those brands let to go along with it,” continues Lightman. Key customers: North merchandise in the company’s would be successful in other Back in the US, SciGames recently delivered Carolina, North Dakota, Points for Prizes online store. gaming channels.” a comprehensive loyalty promotion to the New Illinois The programme can also In addition to its in-house York Lottery, offering players the opportunity store a player’s favourite draw game numbers content studios WMS, Bally and Barcrest, to win points when they play any game, then and produce a barcode on their mobile screen, Scientific Games has a long history of redeem their points in an exclusive online store which can then be scanned at a retail checkout bringing strong third-party brands to its featuring gift cards and merchandise. to print out lottery tickets. lottery products, including a number of popu“Our innovation is focused on creating “So if you put bonusing and loyalty lar Hasbro brands such as Monopoly. more winning experiences for players and programmes together, our mobile apps are “We’ve really started to leverage our more opportunities for the player to engage currently in market with 13 US lotteries,” brands portfolio, especially because of the and win in an interactive way, using the abilsays Lightman. depth of our casino business over the years, ity of players to not only win cash prizes but This includes mobile and web-based loyalty which has built up some widely popular win drawing entries, points, and other virtual and rewards programmes and promotions for brands,” says Lightman. “We have created prizes,” he concludes.

F E AT U R E iLOTTERY

IGT TAKES TECH TO THE LOTTERIES IGT provides its iLottery services to two of the most recent US states to go online, Georgia and Kentucky, and is supporting a total of seven mobile apps with various lotteries. It is looking to offer new forms of lottery entertainment at retail through the launch later this year of its omni-channel solution. The past few years have seen IGT develop its PlaySpot (formerly IGT OnPremise) mobile betting and casino games solution, which is being tested across several MGM Resorts properties in Nevada. The technology is being brought to the lottery market, with a mobile app which simplifies game and number selection and retail purchases. It sends proximity messages, locates nearby retailers, sends alerts when large jackpot draws exist, scans tickets to check for wins, and offers second-chance drawing entry. It is all part of IGT’s strategy to put the experience “directly into the hands of consumers”. IGT vice president for iLottery Giuseppe Portoricco explains: “Our PlaySpot retail solution, which we hope to deploy late this year, will enable players to use their mobile phones to play lottery games on their own terms, without connecting to the internet.” IGT provides US lotteries with seven mobile apps on both Android and iOS. All of these include a number of player convenience

INTRALOT READIES MOBILE PRODUCTS

features, while some enable wagering where Some of the games that are already live permissible, such as Georgia and Kentucky. include Astro Cash, Medieval Money and Mon“In the past year, we’ve seen continued key Drop. All instant win games are available growth in the number of mobile apps we’re on mobile and desktop. providing, as well as an expansion of the type “We are also actively engaged in a pilot for of functionality we deploy,” says Portoricco. proximity marketing that leverages an existThese apps also support omni-channel ing lottery app and beacons placed at lottery interaction, such as scanning for a winning retailers to deliver targeted messaging and ticket and then directing conoffers from lottery and retail sumers to the nearest retailer partners to consumers’ smartIGT for redemption, or providing phones,” adds Portoricco. “We Online Lottery Sales: 3 digital playslips to reduce look forward to sharing our Mobile Apps: 7 paper consumables. insights on proximity marketKey customers: Georgia, “iLottery gives US lotteries ing once we’ve gathered the Kentucky, Illinois the opportunity to meet revenue right amount of data.” goals by not just extending their Another innovation includes product selection, but by providing more conutilising the real-time technology developed by venient, social and personalised experiences iPro, which was founded by former IGT executhat ultimately deepen player engagement,” he tive Robert Melendres. IGT has an exclusive says. “As the industry witnesses the success of partnership to bring iPro-developed Ringit! to today’s iLottery programmes, we expect others lotteries. The Ringit! app lets players win cash to follow suit.” through sports knowledge. One of the most notable areas where IGT is The real-time mobile-focused prediction innovating is in the relatively new instant win game was recently integrated with the betting market, which the supplier claims offers playplatform operated by IGT’s Italian B2C brand, ers enriching entertainment that increases Lottomatica. In addition to the mobile plattheir long-term engagement and in turn boosts form in Italy, it is also offered as a standalone revenue for lottery operators. The games can iOS/Android app in the US for the NFL season. also be used as part of a second chance pro“Real-time gameplay is incredibly engaggramme to win entries instead of cash prizes. ing,” says Portoricco. “These innovations pro“It’s a category that’s going to provide a key vide the foundations for the future of growth growth area for iLotteries,” Portoricco says. in the US iLottery sector.”

The company gives players the ability to purchase tickets on mobile Intralot USA vice president of devices, with the latest Intralot marketing John Pittman (pictured Mobile Lottery app allowing players right) has been in the lottery industry to purchase vouchers at bricks and for more than 39 years. In 1992, he mortar retailers and to play games formed the team that helped Intralot on their mobile by scanning or become the first non-US supplier to entering a code on the voucher. break into the North American lottery Pittman believes legislative sector. The company is trying to authorisation for internet and expand its reach into iLottery despite mobile play will continue to be the market’s limitations. It has slow but thinks legislators will look recently finalised development of a closer at the opportunity when comprehensive system for iLottery. they have solid data showing the “The market for iLottery in the US monetary benefit. is growing and there “They will will be a number of see that, not only INTRALOT opportunities for did such internet us as legislatures Online Lottery Sales: 0 sales not hurt the approve sales on Mobile Apps: 3 retailers’ sales or the internet,” Key customers: Ohio, reduce the number says Pittman. Idaho, Montana of consumers that

GIQ Q3 REVIEW

visited their stores, but also that their sales actually increased.” Intralot currently offers a range of online and mobile lottery solutions in three states – Montana, Ohio and Idaho. This includes its Ticket Checker app that enables customers to quickly check for winnings through their mobile and the Mobile Lottery Companion app that extends the full lottery experience to mobile. This allows lottery customers to check for winnings, see the latest results, participate in secondchance draws, prepare electronic playslips for games and submit ePlayslips to lottery point of sales

for participation in games. Intralot also provides an online lottery desktop and mobile portal, which enables customers to check news and results, register for the lottery players’ club, participate in games and second chance draws. Next year, the company will go live with a multi-state Fast Play game with a progressive jackpot. Set for rollout in April 2017, Intralot has developed a jackpot management system to support the game and will develop and maintain its website. Players will be able to participate online and on mobile devices, with any US lottery, Intralot customer or not, able to participate in the game.

SPECIAL REPORT

Emerging markets The excitement around the liberalisation of the gambling industry in Brazil has been growing to fever pitch but obstacles remain. On the following pages, we pick out some more emerging markets and highlight the risks and rewards. Mexico Colombia Argentina Philippines Russia Central & Eastern Europe

44 45 46 48 50 51

Latin America: gross gaming yield

$605m

$693m

$768m

$834m

(forecast)

Source: GBGC

2013

2014

2015

2016

BRAZILIAN P Intransigent attitudes, rather than political upheaval, are responsible for slow regulatory progress, writes Robin Harrison BRAZIL LOOKED SET to move forward with online gaming legislation, only to see the political upheaval, which has seen president Dilma Rousseff deposed, shifting focus from the issue. After years of glacial movement on the regulatory front, Brazil’s politicians suddenly sparked into life in 2015 with a new push for legislation, but ultimately this came to nothing. In theory Brazil enforces a prohibition on betting and gaming with notable exceptions such as specific games of poker and betting on horse racing that is held at authorised racecourses. Other forms of gambling are all banned under Decree-Law No. 3,688/1941, the Criminal Contraventions Law. Only the Caixa Econômica Federal, the country’s federal savings bank, is allowed to offer gambling products. It offers governmental and sporting lotteries as well as instant scratch lotteries under the LOTEX brand. However, the legislation was revisited earlier this year and two bills have “reasonable prospects of being passed into law”, according to local lawyer Neil Montgomery, the managing partner of Montgomery & Associados. Bill 186/2014 and 442/1991 are currently under discussion in the country’s Senate and House of Representatives. Both bills explicitly ban online betting but would allow online casino and bingo games, state lotteries and the widely popular – but highly illegal – Jogo de Bicho, a lottery based on numbers and animals. A key, if unusual, difference is that Bill 186/2014 describes legal products as “games of chance”, whereas 442/1991 describes these

as “games of fortune”. This suggests the latter aims to prevent any future expansion into other verticals. The president of the Brazilian Institute for Legal Gaming (ILJ), Magnho José, argues that the 442/1991 is a much more restrictive bill, benefitting only some participants in the country’s gambling market. However, with Rousseff impeached and her predecessor Luiz Inácio Lula da Silva set to stand trial on corruption charges, priorities have changed. A senate debate on the legislation was cancelled, and it seems as if the political turmoil engulfing the country has pushed gambling reform off the radar.

Ripe culture José says says Brazil “needs to grow up” and address the issue of gambling regulation. The size of the market should be motivation enough. José estimates the black market has grown to around R$6.1bn ($1.9bn) per annum against the R$4.2bn legal market. “Prohibition has not ended illegality: for every three reals that are gambled in Brazil, one real goes to legal gambling,” says José. If sensible regulations come into force, José believes that up to R$6bn could be raised through tax and investment from foreign businesses. But the traditional arguments against liberalisation prevail: gambling cannot be controlled, it benefits money laundering, it leads to pathological conditions and fosters organised crime. Such arguments, pushed forward by politicians and the media, fail to tackle the fact that gambling in Brazil is widespread already.

PROMISE Jogo de Bicho, a game that originated in Rio de Janeiro’s zoo in 1888, is played by around 20m people – 10 per cent of the Brazilian population – and is totally illegal. There are concerns that games are run by criminal gangs and operators can face jail terms when caught. Despite the risks, people keep playing the game, to the point where LOTEP, the state lottery of Paraíba offers a legal version in contravention of the federal ban. The legality of a game does not serve as a major deterrent to its popularity. As a similar game to Jogo de Bicho, bingo is particularly popular. You will often see it played on street corners. Sports betting also has a small, but dedicated audience.

Market leaders GVC Holdings has been active in the Brazilian market since it acquired Betboo in 2008, a sports betting-focused brand, before its business was further strengthened by the purchase of Sportingbet. “Betboo was small at the time so it gave us a foothold, though we felt we could become the market leader,” GVC CEO Kenny Alexander explains. “We then acquired Sportingbet, which was the second-largest, so now we are the sports market leader. It’s going very nicely. It’s a good market for us.” He estimates that Brazil is now GVC’s third or fourth-largest market in terms of revenue. Other

“Brazilians have a love of bingo and lotteries, and the illegal animal lottery is larger than the national lottery” Warwick Bartlett, GBGC

GIQ Q3 REVIEW

KEY FACTS

brands doing especially well are “With the new wording proBetMotion and BetMais. vided by Law No. 13,155/2015 Alexander is optimistic explicitly including online gamPOPULATION about the prospect of new reguing and betting in the definition lation. He welcomes it – as long of the prohibited activities, it is as conditions are sensible – as now even more clear and unamINTERNET USERS it gives surety of earnings and biguous that online gaming and allows more regulated channels. betting are currently prohibited Warwick Bartlett of gaming in Brazil,” he says. consultancy and data analysis “Payment processing in relaSMARTPHONE specialist GBGC believes that tion to gaming and betting activiPENETRATION Brazil could become an importies may also have other criminal tant player in the online gamrepercussions, in particular the (Pew Research Centre 2015) bling market: “It is the fifth money laundering offences and most popular country in the application of criminal sanctions PROJECTED GROSS world, with 200m people,” he and civil penalties.” GAMING YIELD 2016 (US$) says, “Fifty one per cent have José says that something internet access; this may not needs to happen. He feels that seem high relative to Europe Brazil’s gaming laws have fallen (GBGC) but at 51 per cent it places Brabehind, with around 75 years zil fourth in the global league.” having passed since sensible “Short-term the prospects changes were last made. There are good and long-term even are simply not enough changes better,” Bartlett continues. being made, he says, but remains Betboo (GVC) “They have a love of bingo and enthusiastic about the possibility PokerStars lotteries, and the illegal aniof federal changes one day. mal lottery is larger than the The country’s precarious Bet9 national lottery.” financial state could push things BetMais However, he adds, considerforward. A wide-ranging privatiBetMotion ing the size of the market – and sation plan will see a 51 per cent its love of football – sports betstake in the scratch lottery busiting has never really taken off. This means ness Loteria Instantânea Exclusiva (LOTEX) put newcomers to the market will have to budget up for sale. This could raise an estimated R$4bn, for higher marketing spend in the initial stages. although the tender process is yet to be launched. Brazilians are gambling regardless of legalGrey turning black ity and it is obvious they are unlikely to stop, The regulatory picture is clearing. Montgomery which means operators will not be easy to shift. says prior to the most recent amendment to the If the government and media can overcome its Criminal Convention Law it could be said online moral and religious objections the government gaming and betting were not covered by the ban. could significantly boost tax revenue. n

205.8m 120.7m 41%

$394m

LEADING OPERATORS

SPECIAL REPORT

Emerging markets

Mexico

ente and Tijuana grow, before the operator was forced to pivot after horse racing was legalised in California in the late 1980s. It has since evolved into a thriving sports betting brand, branching out into casino, live dealer games and bingo, powered by Playtech. However, sports betting remains its most popular product. Like many Latin American countries Mexico is football-mad, but the influence of the US is never far away. “Even though we are a football country there is a lot of interest in American sports [such as baseball, basketball and NFL] so it’s a real mix,” Hank explains. “It makes it a unique market, because I cannot think of any other market so influenced by American sports betting.” The product itself is also influenced by this, with many preferring the US, rather than European odds layouts. Caliente POPULATION finds itself in a unique position in the Mexican iGaming market. “The online market is not mature,” Hank says. “I think the INTERNET USERS success of our brand is down to the fact that we have been in the market for 100 years. We have SMARTPHONE over 80 casinos with which we PENETRATION share the brand, which is key to “The government then startour operational model of offering ed working on closing down an omni-channel service.” (Pew Research Centre 2015) these land-based businesses. Not only is a land-based operThey now have the time and ation necessary in a legal sense, resources to focus on illegal but Hank believes it is the only online operators, and I think way to develop a meaningful the misconception comes from business in Mexico. Caliente the government lacking the “Though eCommerce is growBetCRIS resources to tackle these sites.” ing, there is still a lot of mistrust Sportium Gambling is thriving. There and customers rely on brands PokerStars are more than 319 land-based that have a physical presence,” venues in the country, according he says. “We are developing the Miapuesta to the Mexican Gaming Associaonline market. We are teaching bet365 tion (AIEJA). Online licensees the land-based customers and include: Greenplay.mx, a joint moving them online, and for me venture between IGT and Codere; a new offerthe market is still maturing.” ing launched via a partnership between LadA number of leading operators, including brokes, CIRSA and local operator Casino Life; bwin.party, have tried and failed to establish and Caliente’s Caliente.mx. themselves in Mexico. Brands without an estabCaliente Interactive was established in 2014 lished name in Mexico will find the going tough. after being spun off from the main Caliente Looking ahead Mexico seems likely to business, a gambling industry institution that make additional changes to its iGaming legcelebrates its 100th birthday this year. islation, Hank says, but a total overhaul is Caliente started out with a racetrack in unlikely. Similar to recent changes made in Tijuana, taking advantage of alcohol prohiPoland, the laws will simply be tightened to bition in the US to attract customers from give the regulator more powers to tackle unliacross the border. The track helped both Calicensed iGaming operators. n

Misunderstood and unwelcoming Mexico is generally considered a grey market but this could not be further from the truth, writes Robin Harrison RECENT YEARS HAVE seen the Mexican government embark on a major drive to shut down unlicensed land-based casinos. iGaming operators active in the market without a licence have largely escaped unscathed, creating the misconception that it is effectively a grey market. This could not be further from the truth. Mexico has an established regulatory framework for gambling – those with a land-based presence are eligible for an online permit. Companies should be under no illusions that operating there without approval is illegal. The passage of the Ley Federal de Juegos con Apuesta y Sorteos, the first time Mexico has updated its gambling laws since 1947, saw iGaming regulated for the first time. The Instituto Nacional de Juegos y Sorteos is responsible for oversight of the sector, a subdivision of the Ministry of Internal Affairs, with operators taxed on 30 per cent of net gaming revenue. “This misconception might have started because in 2005 and 2006, when the land-based casino industry started growing, there was also growth in the illegal land-based casino market,” explains Caliente Interactive president and CEO Emilio Hank. 44

KEY FACTS

123.2m 69.9m 35%

LEADING OPERATORS

KEY FACTS POPULATION

47.2m INTERNET USERS

26.1m SMARTPHONE PENETRATION

50.4% (Pew Research Centre 2015)

GROSS GAMING YIELD 2015

Colombia

Liberalisation with suspicion

$0.13bn

Colombia appears to be moving slowly and surely towards expanding its online gambling regulations, but the authorities are also stepping up a crackdown on unlicensed operators, writes Robin Harrison

NetBet Chance Hill Casino Mr Green

THERE IS CLEAR momentum behind iGaming in Colombia. By the end of 2015 there were nine different legal types of gambling, up from six in 2013, after pari-mutuel sports betting, betting on horse racing and virtual sports betting were legalised. Colombia’s regulated gambling market is thriving, according to figures released by the country’s regulatory body Coljuegos. Revenue for 2015 was estimated to climb to COL$370.6bn ($0.13bn), with regulated bingo and casino accounting for COL$225.4m – 61 per cent – of this total. Further changes are coming, with draft regulations that will allow private operators to offer casino games such as blackjack, roulette, poker and bingo online, as well as fixedodds and exchange betting on real and virtual sports. Companies will be taxed on 15 per cent of net gaming revenue, as well as ensuring a return to players of at least 83 per cent of gross gaming revenue. Yet there are signs that the authorities are pushing back against this rapid progress. The proposed roll-out of Multiplicador, a new variant of the Baloto lottery game, with higherpriced tickets and longer odds of winning, has GIQ Q3 REVIEW

been suspended over concerns about the game’s impact on other lottery products. Dilian Francisca Toro, governor of the Valle del Cauca region, warned that it could erode revenue for the lower-priced, more popular chance and lottery games. This appears misguided – revenue for Baloto fell 15.7 per cent in 2015, which would suggest efforts need to be taken to kick-start the product’s growth. What is telling is that the government listened, and suspended the process, despite there being clear evidence that Baloto does not cannibalise revenue from other lotteries. This could be indicative of how things will go, slowing down the march of new legislation. A rival project to combine all lotteries into a single entity under the LOTIN brand has also been mooted. This would aid smaller, unprofit-

While other Latin American markets seem to be in limbo, Colombia is making efforts to push players towards the regulated offering

(GBGC)

LEADING OPERATORS

able regional lotteries, helping ensure funding for public health initiatives, the main beneficiary of state lottery revenue. But these discussions, and the concerns about expanded regulation, are not creating a vacuum into which unlicensed operators can move. Colombia is cracking down on illegal gambling. Coljuegos launched a crackdown on unlicensed gambling in 2014, with the regulator taking 407 enforcement actions over the course of the year, with 2,671 electronic slot machines confiscated in these raids. Illegal sports betting offerings have also been tackeld for the first time, with 46 shut down and 12 arrested. This year has already seen an illegal online sportsbook operation shut down this year. Operation Chameleon saw COL$30.1m in cash seized and seven arrested, with the crackdown carried out by Coljuegos, the Office of the Attorney General, and the Cuerpo Técnico de Investigación (CTI). While other Latin American markets seem to be in limbo, Colombia is making efforts to push players towards the regulated offering. However this crackdown at least is being balanced out with a viable regulatory framework, and one that is already in place. n 45

SPECIAL REPORT

Emerging markets

Argentina

legal gambling in the country”. The likes of bet365, BetAndonis and Pinnacle Sports are among the operators active there. “When we issued a permit or concession to launch an [iGaming] site, the Loteria Nacional acted against us and our licensee, but never took action against hundreds of thousands of illegal games that irresponsibly operated gambling,” he explained. “As a state and lottery operator we not only have to regulate the gambling activity but also must control who is playing, and other provinces shirked that responsibility: on those [unlicensed] websites there is no control over whether minors are playing, where the money comes from, how payments are made and whether bettors are being scammed.” Torres’ criticism of ALEA has been scathing: “We could not keep up with the hypocrisy of travelling the world to learn POPULATION about latest technologies, making talks, and when it came time to act nobody took the initiative and continued to denounce legalINTERNET USERS ly authorised games while turning a blind eye to illegal sites.” He doesn’t see it as a oneSMARTPHONE state solution either, with plans PENETRATION to expand across Argentina, shifting the focus to tackling (Pew Research Centre 2015) illegal gambling rather than ing tax. The Misiones licences state-sanctioned offerings. HowGROSS GAMING were effectively overturned. ever, Schleswig-Holstein, after YIELD 2015 (US$) But that has not stopped the initially striking out on its own, province from continuing its eventually caved and returned (GBGC) fight. In December last year its to Germany’s restrictive State provincial lottery El Instituto ProTreaty. Whether Misiones will vincial de Lotería y Casinos Sociehold out remains to be seen. dad del Estado (IPLyC) launched This saga offers a snapshot Misionbet.ar, a site offering indicative of the Argentine marCasinos del online sports betting, casino ket. There is appetite for change, games and lottery products. albeit only from a small group. If Rio This has been a contentious Misiones can build on this supMision Bet move, with IPLyC relinquishing port we could see new legislation, Mr Green its ALEA membership in order but there is a powerful lottery bet365 to launch the site. The lottery’s organisation resistant to change. president Eduardo Torres said Such entities tend to prevail. that IPLyC’s concerns about the growth of It also highlights Argentina’s position as a unlicensed gambling in Argentina were largegrey market. As Torres says, there are multiple ly ignored by ALEA, despite clear signs that operators active in the country without a licence, online gambling was the future of the industry. and while sports betting is popular, Argentines Torres estimated that there are “more than are also happily playing online casino games. 7,000” sites that facilitate sports betting, casinos Ironically, attempting to legitimise business and slots, but that IPLyC’s colleagues in seems to be more detrimental to operators than ALEA, “some in particular, acted only against continuing to offer services under the radar. n

Status quo unlikely to be bucked by mouse that roared

Argentina once appeared to be more likely to pass online gaming legislation than its conservative neighbour Brazil. The balance has certainly shifted THE ASOCIACIÓN DE Loterías, Quinielas y Casinos Estatales (ALEA), the umbrella group for the country’s state lotteries, set up a working group to explore a regulatory iGaming framework in 2012. The silence since has been deafening. Argentina, with a patchwork of provincial lotteries governed by a powerful industry body, is similar to Germany. And like Germany, one small state is rebelling against the status quo. For Schleswig-Holstein in Germany we have Misiones in Argentina. Like its German counterpart, Misiones is a tiny state, with its population of 1.1m representing around 2.5 per cent of the country’s total. And like Schleswig-Holstein it has shown a clear desire to push for regulated online gaming. This first became apparent when it licensed BetVictor, then Victor Chandler, and bwin in 2006 and 2008 respectively. These licences were challenged by the staterun lottery Loteria Nacional, with both blocked from operating in the market in 2008. That year also saw internet service providers ordered to block unlicensed operators that were not pay46

KEY FACTS

43.9m 30.1m 48%

$356m

LEADING OPERATORS

SPECIAL REPORT

Emerging markets recent news that PAGCOR wants to begin offering ‘offshore gambling licences’, it puts those CEZA licensees in a more uncertain position.”

Direct competition

Asia

Gambling on the Philippines President Duterte’s crackdown on gambling has left operators and suppliers at risk of closure, and First Cagayan licensees exposed, writes Martyn Hannah SINCE BECOMING PRESIDENT of the Philippines back in June, Rodrigo Duterte has been on the warpath. On taking office he made it clear he would take a hard line approach to numerous areas of society, with gambling and iGaming very much in his sights. Recently, he ordered the government-owned regulator PAGCOR (Philippines Amusement and Gaming Corporation) to refuse to relicense gambling technology provider PhilWeb, and to pull down the shutters on 53 eBingo stores operated by Leisure and Resorts World Corporation (LRWC). Some say the closures are part of Duterte’s personal vendetta against PhilWeb founder Roberto Ongpin, who the president has described as an oligarch and tax dodger. But in his efforts to destroy Ongpin, his crackdown has led to the closure of 270 independent electronic games outlets using PhilWeb’s licence to operate their businesses. This, in turn, has sent shockwaves through the Philippine gambling industry, with operators and licensees across the country looking over their shoulders to see if they will be the next victim of the president’s purge. Those at risk include operators licensed by First Cagayan; the online gambling arm of LWRC and licensor for the Cagayan Freeport and Special Economic Zone. “Duterte’s attempts to close down gambling operations are all the more unsettling for the sector because it’s not clear what the overall 48

aim is, beyond some pronouncements that gambling is one of the ‘social ills’ that needs to be dealt with,” says Lorien Pilling, director of Global Betting and Gaming Consultants. “Initially, it would have seemed that First Cagayan licence holders would have been relatively safe because they do not offer gambling to Filipino citizens. But with

FIRST CAGAYAN KEY FACTS NUMBER OF LICENSEES

142

GROSS REVENUE 2015

php1.6bn ($33m)

NET INCOME 2015

php516.18m ($10.7m)

LEADING OPERATORS 12bet, 188bet, Bodog, Dafabet, Fun88, SBOBet

At this stage it is unclear if the two licensing regimes will operate side by side, or if PAGCOR will look to curtail the scope of First Cagayan’s operations. A full-scale shutdown could be on the cards, but seems unlikely given that First Cagayan generates revenues for PAGCOR – it pays a percentage of its income back to the regulator – and is a major employer in the region. “If it was to be shut down, the most significant impact would be on employment, with its roll call of around 20,000,” says an industry insider, who wishes to remain anonymous. Just how much revenue First Cagayan kicks back to PAGCOR is unknown, but following the recent closures, the Philippine gambling industry will be out of pocket by around $250m per year. Ironically, this could be seen as good news for First Cagayan licensees, as a second major crackdown would only deepen that financial black hole further. But when it comes to Duterte, there can be no certainties and some operators will be looking at licensing opportunities elsewhere should the president wage his war in the Cagayan Economic Zone. But those opportunities, and in other Asian markets, seem to be limited at best: “There are currently no similar licensing opportunities in Asia, so operators will need to keep a close eye on what PAGCOR and Duterte plan to do,” says Pilling. “One of PACGOR’s conditions is that its licence holders will not be able to take business from jurisdictions which prohibit internet gambling, which would presumably cover markets such as China, Malaysia and Vietnam among others. What’s more, there are no significant new jurisdictions in Asia seeking to regulate internet gambling or open it up to private operators.” But it’s not all doom and gloom. At the back end of August, Duterte said he would allow the resumption of online gambling and electronic gaming in the region so long as operators pay the correct taxes, and gaming parlours are located away from schools and churches. “Pay the correct taxes […] gamble until you die. I don’t care,” he was reported as saying. And while that may not be the best foundation on which to build a sustainable online gambling industry in the region, it should at least ensure that First Cagayan licensees have a little breathing space over the coming months. n

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SPECIAL REPORT

Emerging markets

Russia

Liga Stavok and the Stoloto-owned 888. ru (not connected to the Israeli company) are among the early recipients, but this has not stopped unlicensed companies from targeting Russian players. PokerStars continues to operate in the country, banking on a ruling made in January this year by the Civic Chamber that decided poker is a game of skill. Securing a licence may not even be particularly beneficial, due to a punishing regime of fees and taxes. A rate of 10 per cent has been mooted for licensed operators, but it remains unclear whether this would be on turnover or gross profit. On top of this, operators will be expected to pay a fee of up to RUB3m (€42,000) to each of Russia’s 12 economic regions before it can accept bets from those territories. Bookmakers are also required to pay RUB60m (€838,581) to the country’s sports federations. This seems prohibitively high but a clause in Amaya’s THERE HAVE BEEN signs the acquisition agreement with PokRussian government is preparerStars owner Rational Group ing the ground for a liberalised gives an indication of just how POPULATION gambling framework, but hisvaluable the market could be. tory shows Russia has been in The agreement, signed in June this position before. All that led 2014, states that should no new INTERNET USERS to was more prohibition. regulation be passed in Russia, The fall of the Soviet Union Amaya will pay Oldford Group, saw Russia’s first land-based PokerStars’ sellers, $400m. venue open in 1989, with the Should the country regulate SMARTPHONE number of gambling compaonline poker and PokerStars PENETRATION nies exploding to almost 500 by is licensed, this sum rises to the mid-1990s, with the major$550m – provided the rate of tax (Pew Research Centre 2015) ity shirking tax obligations. is “beneficial”. New legislation in 1998 failed to If online poker is outlawed, stem this growth, and by 2005 it the sum Amaya is to pay falls was estimated to be 60,000 slot to $100m. This shows just how machines in Moscow – one for lucrative Russia is to Poker888.ru every 170 citizens. Stars at least, and how much of Liga Stavok This expansion was checked an impact the loss of revenue in 2006 when land-based gamfrom the market would be for PokerStars bling was restricted to four the operator. BetVictor regions; Kaliningrad, KrasnodA draft law is being considBetMIRA ar, Altay and Primorie. The legered to criminalise transacislation also included a blanket tions to and from unlicensed ban on iGaming, though it took until 2015 for gambling sites, similar to the US’ Unlawful Roskomnadzor, the country’s media regulator, Internet Gaming Enforcement Act (UIGEA). to introduce a blacklist of unlicensed operators. It remains to be seen whether Russia, with This saw a range of companies, from leading its huge grey market, will be able to push players international operators such as bwin.party and to the legal offering, especially considering the Ladbrokes to local businesses Liga Stavok and heavy tax and fees will make the illegal offerFonbet, banned from the market. The fact that ings more attractive. Should a bill pass, Russia’s Russia’s first online betting licences were doled grey market status may come to an end, but out this year suggested that the government had considering the drip-feed of new rules, fees and been clearing the decks for the legal market. taxes this is unlikely to happen soon. n

Huge market, crippling regulations Russia is a potential goldmine, but hefty fees, an uncertain tax rate and uncertainty over further changes, not to mention a thriving grey market, mean all but the most committed operators will struggle, writes Robin Harrison

KEY FACTS

142.4m 104.6m 45%

LEADING OPERATORS

Central & Eastern Europe

Eastern Europe welcomes casino games Eastern European gaming markets are still relatively underdeveloped, with most of the regulated markets focussed on online betting. But things are changing and 2017 should see a number of countries introduce regulations for online casino games, writes Kio Dawson THE CZECH REPUBLIC will introduce new iGaming regulations, as will Slovakia and Slovenia, while Poland is undergoing further regulatory changes which will see it expand games that can be offered online. They follow in the footsteps of Romania which has successfully introduced a new iGaming framework and issued a number of licences to operators and suppliers. Arguments to open up the market to include online casino have centred on reducing the ‘grey area’ in gambling, and raising the level of protection for players. This means better protection for existing licensees, and IP and payment-blocking measures against unlicensed operators, which Lithuania introduced at the start of this year.

Poland Of the four, Poland is by far the biggest market, with a population of 38m and GDP of $525.9bn, significantly more than the Czech Republic, Slovakia and Slovenia combined. Fortuna, Totolotek and STS are among the biggest betting operators in the country, with the first online betting licence issued to Fortuna in January 2012. Currently, no measures have been taken against the illegal offshore market which is estimated to be about five times bigger than the regulated market. While still subject to changes, an amendment adopted in July will see the country introduce a blacklist of illegal gaming operators on 1 January 2017, and block corresponding websites and payments to players. The new regulations also extend the catalogue of games that can be offered online, including poker, bets on virtual sports and other online games run by the state monopoly. Crucially it provides no details on the expected tax rate. The Remote Gambling Association has long complained that the country’s 12 per cent online betting turnover tax prevents a viable market from developing, and has urged the government to switch to a tax based on gross GIQ Q3 REVIEW

profit instead, similar to those introduced in other regulated European jurisdictions. There are also doubts as to the compliance of these regulations with EU law however, specifically concerning the state monopoly being able to operate any and all online gambling games, apart from betting and promotional lotteries. This may delay the planned effective date of these regulations.

Czech Republic The Czech Republic has authorised online betting since 2009, but, early next year, will open the market to foreign operators with new regulations for online casino games. Online registrations will also be permitted for betting operators which have previously been handicapped by only being able to secure customer registrations in betting shops. The betting sector is composed primarily of five major bookmakers; Tipsport, Fortuna, Chance (acquired by Tipsport in 2013), Sazka and SynotTip. The government has already introduced measures to block marketing from offshore operators, and will strengthen this with the implementation of IP and payment blocking measures from 1 January 2017. Advertising by offshore betting operators will also be prohibited, with regulations placing higher requirements on the ownership transparency of onshore companies.

Slovakia Slovakia will also enact regulations for online casino in early 2017, with leading operator Niké already signing up Gaming Innovation Group to power its offer-

ing once it receives licence approval. Niké has been operating in Slovakia since 1991 and was the first operator to open a betting outlet there. Along with Fortuna SK, the two dominate the Slovakian betting market, while Tipos and Tipsport also operate in the country. Online betting has been legal since 2007. The government is also likely to introduce blocking measures against offshore operators, although this is unlikely to happen before Q1 2018.

In Poland no measures have been taken against the illegal offshore market, which is estimated to be about five times bigger than the regulated market Slovenia T h e c o u nt r y ’s F i n a n c e Ministry submitted draft regulations to the European Commission on 17 August, concerning the operation of games of chance online or via other means of telecommunication such as mobile. It will regulate most forms of betting and casino games, including lottery games and online slots, bingo and poker, and are subject to a standstill period ending 18 November. The licence holder must ensure that games of chance are provided in a regulated and monitored internet environment, in order to protect minors and other vulnerable persons against adverse effects of excessive gambling and to protect the participants in games of chance. n

GDP IN CENTRAL AND EASTERN EUROPEAN COUNTRIES

Population (2013) GDP (2013) GDP per Capita (2013)

Czech Republic

Poland

Slovakia

Slovenia

10.4m

38.5m

5.4m

2.1m

$235.2bn

$525.9bn

$86.63bn

$47.99bn

$19,845

$13,648

$18,047

$23,289

ON THE FOLLOWING PAGES

54 GIQ20 H1 2016 results and analysis 67 Fantini 15 US operators H1 2016 72 The Gaming Intelligence stock index Q3 2016

The GIQ H1 2016 Once again M&A dominated results for those at the top of the GIQ20 chart. In fact, nine of the top 10 companies benefited from recent acquisitions. LeoVegas was the only one with purely organic growth to make the top 10. Others such as Evolution Gaming, NetEnt and 888 deserve a mention too, with the latter stealing the headlines in Q2 with its failed attempt to acquire William Hill with Rank Group. Acquisitions have always been a big part of this industry, and they helped each of the top six companies in the GIQ20 chart to achieve triple-digit revenue growth in H1. Kudos to GVC for hitting the top spot as it continues with the resurgence of bwin.party. Gaming Innovation Group has come out of nowhere to become a leading B2B provider, and its purchase of Betit Group gives it an even bigger B2C platform. Meanwhile, NYX Gaming continues to lay claim to being one of the most prominent suppliers around and results can only get better once OpenBet’s financials are included. Overall, it was a strong performance by all GIQ20 companies, with Playtech propping up the table despite revenue growth of 18 per cent. At the other end of the table, William Hill’s online business continues to struggle as the company looks for a new CEO to replace James Henderson. mybet also remains in trouble and is also looking for a new chief after losing Zeno Osskó to Amaya’s BetStars. n GIQ Q3 REVIEW

The GIQ20 H1 2016 COMPANY

ONLINE H1 2015

ONLINE H1 2016

% CHANGE

GVC HOLDINGS

€120.9m

€390.6m

223%

GAMING INNOVATION GROUP

€6.5m

€17.6m

169%

NYX GAMING

CAD$20.6m

CAD$54.9m

166%

CHERRY

SEK128.3m

SEK300.5m

134%

TANGELO GAMES (FORMERLY IMPERUS)

CAD$9.8m

CAD$20.9m

113%

GAMING REALMS

£8.0m

£16.6m

109%

INTERTAIN GROUP

CAD$130.3m

CAD$247.3m

90%

LEOVEGAS

€34.4m

€60.5m

76%

32RED

£18.6m

£30.4m

63%

UNIBET

£156.6m

£249.0m

59%

SCIENTIFIC GAMES

$98.5m

$156.0m

58%

EVOLUTION GAMING

€33.7m

€51.9m

54%

LADBROKES

£112.2m

£158.1m

41%

NETENT

SEK529.5m

SEK697.4m

32%

CAESARS INTERACTIVE

$362.8m

$477.2m

32%

KAMBI GROUP

€20.7m

€26.9m

30%

CHURCHILL DOWNS

$302.5m

$364.9m

21%

PADDY POWER BETFAIR

£511m

£612m

20%

888

US$220.0m

US$262.0m

19%

PLAYTECH

€286.0m

€337.7m

18%

F I NA NC E GIQ20 H1 2016

All about M&A during outstanding H1 Amaya, Betsson, Mr Green and Rank miss out in GIQ20 despite double-digit growth, writes Kio Dawson GVC HOLDINGS 223% Net revenue (€)

TOTAL

H1 2015 H1 2016

Change

120.9m 390.6m

223%

Buoyed by its newly-acquired bwin.party business, GVC’s revenue soared to €390.6m during the first half of 2016, with the German and Turkish markets representing more than a third of the total. On a pro forma basis however (including bwin.party results for the full H1 period and in the comparable period), revenue was up by eight per cent, with sports labels (including the bwin and Sportingbet brands) generating 73 per cent of the total (€320.6m). GVC said that during Q2, bwin achieved its 54

highest level of quarterly customer deposits and NGR of the last three years, while Sportingbet recorded an all-time high in player acquisition, customer deposits and NGR. The games label business (which includes Foxy Bingo, partypoker, partycasino and Gioco Digitale) struggled however, with NGR falling six per cent to €103.7m, which GVC attributed to increased gaming taxes in Austria and Germany. “The group operates in a highly competitive, increasingly regulated and taxed environment; GVC has never been better placed to face these challenges,” said CEO Kenny Alexander. “Indeed, we believe the organic growth potential of the group is now greater than originally anticipated at the time of the bwin. party transaction acquisition.”

F I NA NC E

GIQ20 H1 2016

“We aim to create the leading Nordic iGaming company, and in order to reach this goal we need the best technology, partners and highly qualified employees” Robin Reed, Gaming Innovation Group

NYX GAMING GROUP

CHERRY

166%

134%

Net revenue (CAD$)

Net revenue (SEK) H1 2015 H1 2016

Royalty/licence fees

16.9m

38.2m

126%

Professional services

0.9m

13.3m

1353%

Social gaming

2.9m

3.3m

14%

20.6m

54.9m

166%

TOTAL

GAMING INNOVATION GROUP 169% Net revenue (€) H1 2015 H1 2016 TOTAL

6.5m

17.6m

Change 169%

The Oslo-listed gaming operator and B2B provider has enjoyed impressive growth in the past year, and its B2C offering will be further boosted by its recent €54m acquisition of Betit Group. Revenue was up 161 per cent versus the previous year, following a strong performance in Q2 which saw growth across all of its business areas. The company’s iGaming Cloud (iGC) platform had 11 ext ernal operators live at the end of Q2 and three new agreements signed, while its affiliate business was boosted by the integration of the acquired Dutch and Swedish affiliate networks. In its B2C operations, active customers were up 155 per cent to 81,645, with total deposits across the company’s Guts.com, Rizk.com and Betspin.com brands climbing to €27.7m during the quarter. “During the first half of 2016 we have focused on M&A activity, adding on some of the most exciting companies within the iGaming industry,” said CEO Robin Reed. “We aim to create the leading Nordic iGaming company, and in order to reach this goal we need the best technology, partners and highly qualified employees.” GIQ Q3 REVIEW

H1 2015 H1 2016

Change

NYX is well on its way to becoming one of the leading suppliers and its financial results are beginning to back this up. First half revenue soared to CAD$54.9m as a result of various acquisitions made in the past year, with OpenBet the latest addition to its roster of businesses which now include CryptoLogic, Chartwell, Game 360, Side City and Betdigital. During Q2, the supplier launched content for 18 new customers, as well as signing 11 new client agreements for its Open Platform System and Open Gaming System. It also rolled out OGS content across 21 new client sites. Among the new customers were Italy’s Sisal, tribal operator Pala Interactive and Rush Street Gaming, with OGS rolled out to mybet, SNAI, Sisal and Rush Street. CEO Matt Davey commented: “With the closing of the OpenBet acquisition, we move our focus from acquisitions to integration of our business operations and delivery of operational leverage. We look forward to continuing to strengthen our business model and create reoccurring, sustainable revenue over the long-term across all products for the benefit of our customers and shareholders.”

Online gaming Yggdrasil Gaming TOTAL

Change

123.8m

266.4m

115%

4.5m

34.1m

658%

128.3m 300.5m

134%

Cherry’s online business now represents 80 per cent of total revenue, which will be significantly boosted by its €80m acquisition of a 49 per cent stake in operator ComeOn in July. iGaming revenue rose 115 per cent to SEK266.4m in H1, with the company’s Yggdrasil game development studio contributing an additional SEK34.1m. Cherry also revealed that ComeOn generated revenue of SEK445m during the period, up 32 per cent versus the previous year, with its results to be included from Q3 onwards. “Our ambition is to continue to grow faster than the market, and we are well equipped to do this both through organic growth and acquisitions,” said Cherry CEO Fredrik Burvall. “Our strategy, in combination with differentiated business areas, will create excellent opportunities for continued high growth, high profitability and strong value growth.”

“Our ambition is to continue to grow faster than the market, and we are well equipped to do this both through organic growth and acquisitions” Fredrik Burvall 55

F I NA NC E GIQ20 H1 2016

TANGELO 113% Net revenue (CAD$) H1 2015 H1 2016 7.6m

8.0m

Facebook

8.2m

10.5m

28%

Mobile

1.6m

2.0m

25%

n/a

0.3m

n/a

9.8m

20.9m

113%

Other TOTAL

Patrick Southon

“We have seen strong growth on our proprietary Grizzly platform, which has been achieved through the development of unique content, investment in player acquisition and improved use of CRM on mobile” Patrick Southon, Gaming Realms

Change

Portal

Tangelo, the social casino operator formerly known as Imperus Technologies, saw revenue more than double to CAD$20.9m during the first half of the year, with the company now transitioning towards becoming a mobilefirst business. Half of its revenue was derived from Facebook ($10.5m), with another $8m from its website portal and $2m from its growing mobile channel. The growth in revenue was a result of the acquisition of Akamon last November, which added to its diwip purchase earlier in the year. “Our rapid mobile growth in Q2 demonstrates that Tangelo is on the right track,” said CEO James Lanthier. “While desktop still makes up the majority of our revenue, our business is geared towards the future and growing faster than the industry rate.” The company continues to evaluate further M&A opportunities, particularly those that would allow it to further improve its capital structure.

GAMING REALMS 109% Net revenue (£) H1 2015 H1 2016

Change

Social gaming and licensing

0.5m

3.8m

7011%

Real-money gambling

4.2m

10.2m

143%

Marketing services

3.7m

2.7m

-28%

TOTAL

8.0m

16.6m

109%

Gaming Realms credited increased mobile play via its Grizzly iGaming platform for delivering significant strong growth in revenue during the first half of the year. The company recorded a 109 per cent increase in revenue to £16.6m, driven predominantly by real-money gaming but supported by a leap in free-to-play revenue following last year’s acquisition of RealNetworks’ social assets. The period saw 143,282 new depositing players acquired, up 269 per cent year-on-year, with 56

the Grizzly platform accounting for 75,644 (or 53 per cent) of the total. The number of daily active depositing players was also up, growing 101 per cent to 6,116, excluding disposed thirdparty legacy site players. The bulk of these players accessed games on mobile, with 84 per cent of funded players using mobile devices, up from 80 per cent in H1 2015. “We have seen strong growth on our proprietary Grizzly platform, which has been achieved through the development of unique content, investment in player acquisition and improved use of CRM on mobile,” CEO Patrick Southon explained.

INTERTAIN 90% Net revenue (CAD$) H1 2015 H1 2016

Change

Jackpotjoy

64.5m

169.7m

163%

Vera&John

46.4m

56.2m

21%

Mandalay TOTAL

19.3m

21.5m

11%

130.3m

247.3m

90%

It’s been a busy few months for Intertain with the company preparing to re-list on the London Stock Exchange under its new Jackpotjoy corporate name, and tying up Gamesys as its long-term supplier until at least 2030. The company’s financial results were also impressive as revenue grew by 90 per cent to CAD$247.3m, with its Jackpotjoy brand accounting for more than two-thirds of the total. Jackpotjoy revenue was up 163 per cent to $169.7m, having been acquired at the beginning of Q2 2015. Vera&John revenue grew 52 per cent to $52.1m, while Mandalay revenue was up 11 per cent to $21.5m. A further $12.2m was earned from the revenue guarantee entered into with Amaya. “Increasing shareholder value remains my key objective, and all efforts going forward will Jackpot Joy

F I NA NC E

GIQ20 H1 2016

be focused on positioning the company for longterm growth and success,” said newly appointed CEO Andrew McIver. T he London-listing is expected to take place in early to mid-October, with Jackpotjoy plc serving as the parent company of Intertain Group.

LEOVEGAS 76% Net revenue (€) H1 2015 H1 2016 TOTAL

34.4m

60.5m

Change 76%

The mobile gaming specialist reported a 76 per cent improvement in net gaming revenue to €60.5m during H1, as the operator benefited from a large inflow of new customers following the launch of its sportsbook and live casino during the second quarter. The company said that its potential to acquire new customers was “considerably extended” with the launch of its sportsbook and live casino offerings during Q2. New depositing customers more than doubled yearon-year to 176,635, with active customers up 193 per cent to 540,276 during the period. “The great interest in LeoVegas Sport from both new and existing customers reinforces our ambition for LeoVegas to offer the fastest, most user-friendly mobile sportsbook on the market,” said LeoVegas CEO and co-founder Gustaf Hagman. The Kambi-powered sports betting offering accounted for 4.6 per cent of net gaming revenue (before bonus costs) during Euro2016, of which 80 per cent came from mobile devices. “With strong customer growth, new gaming categories and a leading mobile position, we look forward to an eventful autumn,” he said.

GIQ Q3 REVIEW

32RED 63% Net revenue (£) H1 2015 H1 2016

Change

32Red Casino

17.0m

21.2m

25%

Other products

0.7m

2.3m

229%

Italy

0.9m

1.1m

22%

n/a

5.8m

n/a

18.6m

30.4m

63%

Roxy Palace TOTAL

32Red’s record results were driven by a combination of strong organic growth in its core business, reflecting increased marketing investment, and £5.8m from Roxy Palace

32Red reported a 63 per cent increase in revenue to £30.4m for the first half period, buoyed by an improved performance from its sportsbook and a strong contribution from Roxy Palace. Its record results were driven by a combination of strong organic growth in its core business, reflecting increased marketing investment, and £5.8m from Roxy Palace. Revenue from 32Red Casino rose 24 per cent, with mobile representing half of the total, up from 42 per cent a year ago. Revenue from other products including its sportsbook soared 223 per cent, while the Italian business generated a further £1.1m in revenue, up 33 per cent year-on-year. The operator also renewed its contract with Microgaming which will allow it to use alternative providers for the first time, which CEO Ed Ware said would provide “further opportunities to invest in and develop our business.” 57

F I NA NC E GIQ20 H1 2016

UNIBET 59% Net revenue (£) H1 2015 H1 2016 70.4m

110.3m

57%

Casino and games

75.5m

126.0m

67%

Poker

4.1m

5.8m

35%

Other

6.6m

6.9m

156.6m

249.0m

59%

TOTAL

“Our performance demonstrates the ongoing success of our business and the value from our diverse revenue streams” Gavin Isaacs, Scientific Games

Change

Sports betting

Unibet’s first half results benefited from its recent acquisitions of iGame Group and Stan James Online, as well as a strong performance during Euro 2016. The company said that the second quarter was characterised by Euro 2016, which provided a new all-time high in active customers of 1,132,840, while iGame and Stan James contributed £14.7m during the period. Revenue from sports betting increased by 61 per cent in Q2, with live betting representing more than half (51 per cent) of the total. Casino and games revenue rose by 59 per cent, accounting for 51 per cent of Unibet’s total, while revenue from poker climbed 37 per cent. Other products contributed revenue of £3.1m, unchanged versus a year ago. Revenue from mobile more than doubled compared to last year and accounted for 63 per cent of total revenue in the quarter.

SCIENTIFIC GAMES 58% Net revenue (US$) H1 2015 H1 2016 Social gaming (inc SG Universe) Real-money TOTAL

Change

EVOLUTION GAMING 54% Net revenue (€) H1 2015 H1 2016 TOTAL

33.7m

51.9m

Change 54%

The live dealer specialist remains on course to break the €100m revenue mark for the full 2016 year following a strong first half performance. Evolution celebrated its 10th year in operation during the second quarter, which saw growth from increased commission from existing and new customers, as well as additional operators demanding customised live casino environments. Its mobile channel also continued to grow, representing 40 per cent of revenue in Q2, up from a 24 per cent share a year ago. Evolution said that one of its most significant activities in Q2 was the launch of several additional tables for Unibet at its studios in Riga and Malta. It also relaunched Grosvenor Casino’s live casino and introduced a first dedicated environment for LeoVegas.

85.4m

139.0m

63%

LADBROKES

13.1m

17.0m

30%

41%

98.5m

156.0m

58%

Net revenue (£)

Scientific Games’ announcement in September that it was looking to spin off its interactive division came as a surprise but the business again outperformed its core lottery and gaming offerings. Interactive revenue rose 58 per cent during H1, of which 89 per cent was derived from social gaming (including the supplier’s SG Universe products). In Q2, average daily active users (DAUs) increased by nine per cent to 2.4m, with average monthly active users (MAUs) up 10 per cent to 8.0m. Average revenue per DAU rose 48 per cent to $0.31. The supplier said that growth in social gaming reflected the ongoing popularity of its Jackpot Party Social Casino and the success 58

of the recently launched Quick Hit Slots and Hot Shot Social Casino apps. It also launched Blazing 7s Hot Shots Slots toward the end of the quarter. “Our performance demonstrates the ongoing success of our business and the value from our diverse revenue streams,” said Gavin Isaacs, who has stepped aside as CEO to be replaced by Kevin Sheehan, but will remain with the company as vice chairman. “Our interactive division is on fire.”

H1 2015 H1 2016

Change

Sportsbook

34.5m

58.3m

69%

Gaming

43.3m

54.9m

27%

Exchanges Australia Other TOTAL

6.8m

6.4m

-6%

25.4m

35.5m

40%

2.2m

3.0m

36%

112.2m

158.1m

41%

Ladbrokes saw continued growth in its digital offering as revenue climbed 41 per cent on the back of its sportsbook, which benefited from Euro 2016 and favourable sporting results in the UK, particularly in football. Online sportsbook revenue was up 69 per cent, while the operator’s gaming

F I NA NC E GIQ20 H1 2016

NETENT 32% Net revenue (SEK) H1 2015 H1 2016 TOTAL

529.5m

697.4m

Change 32%

It was another solid first half for NetEnt as revenue climbed 32 per cent to SEK697.4m, with further growth set to come through the supplier’s pipeline of 31 new customers who have yet to launch its games. Second quarter revenue rose 30 per cent, with NetEnt’s mobile channel doubling compared to last year and representing 37 per cent of revenue. The supplier signed 12 new customer agreements and launched content for six new customers in the quarter, including Tropicana in New Jersey. President and CEO Per Eriksson said that the company continued to see high levels of activity with its games in New Jersey and hoped to see more US states follow suit and open up for iGaming, noting encouraging steps taken by lawmakers in Pennsylvania and Michigan. “The second quarter featured strong demand for our products and strong growth,” Eriksson said. “I am optimistic going into the second half of 2016 – the conditions look good for continued strong growth.” Sportsbooks across the board benefitted from Euro 2016

vertical enjoyed its seventh consecutive quarter of year-on-year growth as revenue rose 27 per cent. The Australia business contributed £35.5m, up 40 per cent year-on-year, helping to offset a six per cent drop in revenue from Betdaq and the Ladbrokes Exchange. Digital now accounts for a quarter of Ladbrokes’ total revenue. “Encouragingly we have delivered a good performance across all the key customer metrics outlined in last year’s strategic plan and that gives us confidence that we are well placed to deliver against our stated 2017 targets,” said CEO Jim Mullen.

“We have delivered a good performance across all the key customer metrics and that gives us confidence that we are well placed to deliver against our 2017 targets” Jim Mullen, Ladbrokes 60

CAESARS INTERACTIVE 32% Net revenue (US$) H1 2015 H1 2016 Social/mobile games WSOP/online real-money TOTAL

Change

343.0m

455.6m

33%

19.8m

21.6m

362.8m

477.2m

32%

Caesars Interactive Entertainment (CIE) was on course to generate close to $1bn in full year revenue following a strong first half performance which saw results increase by 32 per cent. The increase in revenue was primarily driven by strong organic growth in its social and mobile gaming business Playtika, which the company has agreed to sell to a Chinese consortium for $4.4bn. Benefiting from a continued focus on conversion and monetisation, Playtika contributed 95 per cent of CIE’s H1 revenue, up 33 per cent year-on-year. North America represented 75 per cent ($342.9m) of Playtika’s total, with the Asia Pacific market generating 14 per cent

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F I NA NC E GIQ20 H1 2016

($65m) and Europe nine per cent ($42.4m). The company’s WSOP and online real-money gaming business, which was not part of the recent purchase agreement, accounted for the remaining $21.6m. At the end of Q2, average daily active users (DAUs) were up six per cent year-on-year to just under 6.5m, with average monthly active users (MAUs) climbing six per cent to more than 20.2m. Average revenue per user was up 29 per cent to $0.40.

KAMBI GROUP 30% Net revenue (£) H1 2015 H1 2016 TOTAL

20.7m

26.9m

Change 30%

A strong second quarter helped Swedish sportsbook supplier Kambi post a 30 per cent increase in revenue to €26.9m, with a major contribution from Euro 2016 which was its biggest event to date. Kambi launched online sportsbooks for three operators ahead of the football tournament, LeoVegas, Rank Group and Mr Green. “Euro 2016 was a great success for Kambi both financially and operationally,” said CEO Kristian Nylén. “Our operators saw a remarkable increase in turnover. We delivered exciting new features as part of our fantastic offering with excellent technical performance.” The supplier also announced the signing of a new contract with Spanish omni-channel gaming operator R.Franco to replace its existing sportsbook in Spain, which operates under the Wanabet.es brand.

per cent increase in handle in Q2 and a 26 per cent increase in active players after a recordbreaking Kentucky Derby and Oaks week. “Each of our operating segments showed top-line net revenue growth this quarter and we continue to maintain focus and discipline on our cost structure,” said CEO Bill Carstanjen.

PADDY POWER BETFAIR 20%

H1 2015 H1 2016

Australia

CHURCHILL DOWNS INCORPORATED 21% Net revenue (US$) H1 2015 H1 2016 TwinSpires

106.1m

Change

117.6m

11%

Big Fish Games

196.4m

247.3m

26%

TOTAL

302.5m

364.9m

21%

Big Fish Games remains Churchill Downs’ largest single division in terms of revenue, which increased by 26 per cent in H1 despite a decline in social casino. Strong growth in Big Fish’s casual games business, up 97 per cent year-on-year, offset a four per cent drop in social casino revenue, while TwinSpires contributed a further $117.6m in revenue during the period. This followed a 16 62

Bill Carstanjen, Churchill Downs

Net revenue (£)

Online

“Each of our operating segments showed top-line net revenue growth this quarter and we continue to maintain focus and discipline on our cost structure”

Change

365m

440m

20%

111m

129m

17%

35m

43m

23%

TOTAL

511m

612m

20%

The London-listed betting and gaming operator reported strong results for the first half of 2016, with online now representing threequarters of the total when including results from Australia. Online revenue grew by 20 per cent to £440m, with sports revenue up by 21 per cent to £316m and mobile accounting for 76 per cent of the total. Gaming revenue rose by 20 per cent to £124m as a result of increased cross-selling from sports betting and growth in mobile. Total active customers were up 17 per cent to 3,061,000, driven by strong sportsbook acquisition growth across its brands, including at Euro 2016. Revenue from the company’s Australian division, comprising the Sportsbet brand,

F I NA NC E GIQ20 H1 2016

increased by 17 per cent to £129m, despite the impact of adverse sports results, in particular in horseracing where over half of the top 50 races were loss-making. “We are creating a world-class operation by exploiting the unique assets and capabilities of each legacy business, particularly in the key functions of technology, marketing and trading,” said CEO Breon Corcoran.

In the B2B segment, 888’s Dragonfish achieved six per cent year-on-year revenue growth, with growth primarily driven through the bingo network which added a further 16 new skins during the period.

PLAYTECH 18% Net revenue (£)

888

H1 2015 H1 2016

19%

Casino

Net revenue (US$) H1 2015 H1 2016 Casino

108.7m

Change

141.5m

30%

Poker

46.2m

43.1m

-7%

Bingo

22.6m

23.1m

Sport

15.3m

25.0m

63%

Emerging

1.7m

1.8m

10%

B2B

30.6

32.5m

VAT

(5.1m)

(5.0m)

n/a

220.0m

262.0m

19%

TOTAL

While it failed with its joint bid with Rank to acquire William Hill, 888 enjoyed a solid first six months to the year, with the operator revealing full sportsbook results for the first time. Previously reported under the emerging offering segment, revenue from 888’s sportsbook grew 71 per cent in H1 and overtook bingo to become the operator’s third biggest product behind casino and poker. 888’s casino continues to account for the bulk of revenue, climbing 30 per cent following a 36 per cent increase in active player numbers. The bingo vertical also recorded growth during the period with revenue climbing two per cent. In contrast, poker revenue fell by seven per cent, despite a three per cent increase in first time depositors.

A FEW THAT MISSED OUT… There were six other companies that just missed out on a place in the GIQ20, despite solid year-on-year growth during H1 2016. NetPlay TV, bet-at-home, Betsson and Rank all recorded growth of between 12 and 15 per cent, while Mr Green & Co and Amaya saw revenue increase by 10 and eight per cent respectively.

Change

148.8m

177.0m

Services

73.9m

76.5m

Sport

16.1m

17.7m

10%

Land-based

15.1m

15.5m

Bingo

10.1m

9.0m

-11%

Poker

6.0m

5.0m

-16%

Other Financials TOTAL

19%

5.4m

5.7m

10.6m

31.3m

194%

286.0m

337.7m

18%

Playtech revenue rose to €337.7m for the six month period, with casino again the best performer by vertical. Sports revenue climbed 10 per cent, helping to offset year-on-year declines in bingo and poker. Casino grew 19 per cent, while revenue from services was up just three per cent. Playtech’s financials division saw revenue soar 194 per cent following its acquisition of Markets in May 2015. The company’s chairman Alan Jackson said that Playtech had made significant progress in 2016 as it delivered on its strategic objectives. “The gaming division continues to deliver strong growth, driven by our industry-leading casino offering,” he said. “We have ‘locked-in’ future growth with important new licensees signed and significant contracts renewed. “Seven of our top 10 licensees are now on contracts which have at least three years remaining and our pipeline of new licensees and structured agreements remains strong.”

“We have ‘locked-in’ future growth with important new licensees signed and significant contracts renewed” Alan Jackson, Playtech

GOING DOWN H1 As with the first quarter, the same three operators saw revenue decline during H1. For William Hill, it was the fourth consecutive period that it missed out on the GIQ20 chart. Online revenue fell three per cent to £277.2m following decreases across both sportsbook and gaming, down one per cent and six per cent respectively, with the company’s Australian business also underperforming versus a year ago, with net revenue down 10 per cent. IGT’s social casino business Doubledown Casino saw H1 revenue drop one per cent to $152.5m, following a second consecutive quarter of decline in Q2. While revenue declined by just one per cent during the quarter, daily active users fell nine per cent to 1.67m and monthly active users were down eight per cent to 4.1m. mybet’s revenue fell by 17 per cent to €24m, but remains hopeful that its revamped online sportsbook and casino offering can return the company to growth. That didn’t stop its CEO Zeno Osskó from leaving the company, however. He was confirmed as BetStars’ new chief in August. Net revenue Online H1 2015

Online H1 2016

% Change

IGT (DoubleDown only)

$153.7m

$152.5m

-1%

William Hill (inc Aus)

£339.8m

£324.9m

-4%

€28.7m

€24.0m

-17%

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F I NA NC E

FANTINI 15 H1 2016

Cost cuts continue but Vegas remains strong After cutting marketing budgets and implementing cost controls, Las Vegas operators enjoyed strong growth in the first half of 2016

GIQ Q3 REVIEW

COST SAVINGS AND refined marketing are the two phrases that dominated US land-based casino operators first-half operations. Several operators as a result improved EBITDA margins, examples being Affinity, Caesars and Churchill Downs and MGM Resorts. Another highlight of the first half was continued strength in Las Vegas trends, despite a hiccup in May when many operators saw declines in revenues given an uneven calendar with two major events last year. And while US listed operators with casinos in Macau continued to see declines in VIP revenue, there were positive signs out of the premium mass segment in June, when the Las Vegas Sands saw its first rise in revenues since September 2014. Looking ahead, there are big projects for land-based US operators on the horizon, including: Boyd’s purchase of the Aliante and two Cannery casinos, all in the Las Vegas locals market; Gaming and Leisure Properties’ purchase of the Meadows Racetrack and Casino in Pennsylvania; Monarch Casino’s expansion of Monarch Casino Black Hawk in Colorado into a destination resort; Red Rock Resorts purchase of the Palms Casino Resort, Las Vegas; and Wynn Resorts’ results from the recently opened $4.2bn Wynn Palace in Cotai.

AFFINITY GAMING H1 2016 Net revenue Adjusted EBITDA

H1 2015

$190.408m $198.489m $39.578m

$35.813m

Cost savings and refined marketing programmes continue to be credited by Affinity for growth in EBITDA, which has now risen by double-digits for six straight quarters. As a result, EBITDA margins also improved in the first half. BALANCE SHEET Cash: $74.678m vs $157.779m as of December 2015 Long-term debt: $379.832m vs $382.745m

BOYD H1 2016

H1 2015

Adjusted earnings per share

38 cents

28 cents

GAAP earnings per share

55 cents

25 cents

$1.097bn

$1.110bn

Net revenue Adjusted EBITDA

$275.589m $270.905m

Despite missing earnings consensus in the second quarter, CEO Keith Smith pointed to the several transactions Boyd has in the works, which he says sets the company up for growth and puts it in the position to pay down debt. 67

F I NA NC E

FANTINI 15 H1 2016

The company achieved a 38 per cent growth in Reno EBITDA in the second quarter, where CEO Gary Carano remains enthusiastic given Eldorado’s acquisitions of MGM Resorts properties last year and the booming economy. Eldorado has achieved its goal of bringing debt-to-EBITDA below five times. It is now at 4.9 times. BALANCE SHEET Cash: $37.105m vs $78.278m as of December 2015 Long-term debt: $817.8m

FULL HOUSE RESORTS H1 2016

Eldorado Shreveport

Earnings per share

They include finalising the sale of its share of the Borgata and acquiring Aliante Casino and two Cannery casinos in Las Vegas, which Smith pointed out increases Boyd’s presence in the growing locals market. Operationally, Boyd continues to see growth in the Las Vegas and Las Vegas locals markets, but like other Nevada operators, May was weak given a tough comparison to last year when there were several major events on the calendar. BALANCE SHEET Cash: $628.3m Long-term debt: $3.71bn

CAESARS H1 2016

H1 2015

Diluted earnings per share

($16.39)

46.27

Net revenue

$2.398m

$2.395m

$737m

$682m

Adjusted EBITDA

Caesars grew EBITDA, revenue and margins in first half thanks to continued strength in Las Vegas, strong non-gaming revenue, growth of Caesars Interactive and expense controls. Caesars lost $2bn on a GAAP basis in the second quarter because of an accrual related to the planned bankruptcy reorganisation of Caesars Entertainment Operating Company and stock compensation based on fair value assessment at Caesars Interactive. Adjusted EBITDA was up 12 per cent in the second quarter at Caesars Entertainment Corporation and eight per cent enterprisewide – which includes Caesar Entertainment Operating Company. BALANCE SHEET Cash: $1.525bn vs $1.388bn as of December Long-term debt: $6.763bn vs $6.777bn

Revenue

CHURCHILL DOWNS Diluted earnings per share

H1 2016

H1 2015

$4.27

$3.02

Net revenue

$726.9m

$660.1m

Adjusted EBITDA

$215.7m

$208.7m

Churchill Downs grew adjusted EBITDA 3.35 per cent in the first half in the wake of a record-setting Kentucky Derby, improvements in marketing and cost controls and higher management fees from Saratoga Casino and Raceway in New York. The downside: social gamer Big Fish’s EBITDA declined 27.6 per cent in the second quarter due to higher bookings, which led to higher platform fees, and on $11.5m spent to acquire players. The operator expects higher player acquisition costs to continue through the year, pointing out that the typical time-frame to see returns on those investments is six to 18 months. BALANCE SHEET Cash: $55.1m vs $74.5m as of December 2015

Adjusted EBITDA

Diluted earnings per share Net revenue Adjusted EBITDA

H1 2016

H1 2015

30 cents

(3 cents)

$444.881m

$444.134m

$84.989m

$78.487m

Eldorado reported the same trends as other regional casino operators in the first half: a weak May and June, and a July rebound. However, the operator grew adjusted EBITDA over eight per cent in the first half despite low table hold in Shreveport and construction disruption at Presque Isle Downs. The construction disruption is now over and Shreveport rebounded with a strong July, ERI said.

(14 cents)

(12 cents)

$66.854m

$59.810m

$6.966m

$5.080m

Full House Resorts grew EBITDA but lost money in the first half as the operator was hit with the cost of buying Bronco Billy’s Casino in Cripple Creek, Colorado, in the second quarter, the cost of debt refinancing, and higher interest rates as it borrowed $35m for the purchase. In addition, Full House’s Silver Slipper and Lodge casinos endured unusually low table hold in the second quarter and especially suffered in comparison to last year when hold was unusually high. The company expects full-year EBITDA of around $5m from Bronco Billy’s. BALANCE SHEET Cash: $20.6m as of June Long-term debt: $100.0m

GAMING AND LEISURE PROPERTIES

Long-term debt: $319.7m vs $171.9m

ELDORADO RESORTS

H1 2015

H1 2016

H1 2015

Net income per diluted share Adjusted funds from operations

69 cents

55 cents

$218.676m

$158.845m

Net revenue

$356.181m $298.572m

Adjusted EBITDA

$293.682m

$219.183m

Gaming and Leisure Properties’ (GLPI) first half was highlighted by the purchase of Pinnacle’s real-estate assets, which CEO Peter Carlino said has strengthened its already stable cash flows. GLPI also expects to close on the purchase of the Meadows Racetrack and Casino in September, using cash and $168m in debt, giving the purchase a debt-to-EBITDA ratio of 5.5 times.

F I NA NC E

FANTINI 15 H1 2016

fered in Las Vegas in the first half, with declines in both earnings and EBITDA. However, CEO Sheldon Adelson noted in the company’s conference call that June was the first up month for mass and premiummass gaming in Macau since September 2014 and said he sees no reason for the market to reverse again. BALANCE SHEET Cash: $2.23bn Total debt: $10.27bn

MGM RESORTS GAAP earnings per share

Blake Sartini

By the end of the year, GLPI forecasts a company-wide debt-to-EBITDA level of 5.3 times, which Carlino said will allow GLPI to finance small-to-moderate real estate purchases without having to worry about volatility in the equity markets. BALANCE SHEET Cash: $23.7m Long-term debt: $4.5bn

GOLDEN ENTERTAINMENT H1 2016 Net revenues Adjusted EBITDA

H1 2015

$193.592m

$172.781m

$23.849m

$21.068m

Continued Nevada slot route growth and expense reductions at its two Pahrump casinos contributed to double-digit EBITDA growth in both the second quarter and first half Golden Entertainment. Overall, Golden is seeing economic growth in all three states in which it operates, and its recently acquired slot routes in Montana are off to a good start, CEO Blake Sartini has said.

H1 2016

H1 2015

95 cents

50 cents

Net revenue

$4.479bn

$4.717bn

Adjusted EBITDA

$1.544bn

$1.198bn

Adjusted property EBITDA

$1.704bn

$1.313bn

MGM Resorts reported its strongest US numbers in the second quarter since the Great Recession and its best July ever in Las Vegas. Property EBITDA at wholly owned properties crossed $500m for the first time since 2008 and margins of 30.4 per cent were the best since 2007. MGM announced it is increasing its Profit Growth Program to generate $400m a year in EBITDA rather than $300m. The company credited the program with $64m of the second quarter’s EBITDA. Cash flows from MGM’s regional properties were up double-digits. BALANCE SHEET Cash: $2.503bn vs $1.670bn as of December Long-term debt: $12.364bn vs $12.368bn

MONARCH CASINO H1 2016 Diluted earnings per share Net revenue EBITDA

H1 2015

58 cents

53 cents

$104.327m

$97.184m

$24.807m

$23.358m

On top of the seventh straight quarter of double-digit net income growth in the second quarter, Monarch has increased its $100m credit facility to $250m to assure the financing of its Black Hawk expansion. Monarch has completed almost all of its improvements in Black Hawk and now plans to begin construction early next year on the hotel tower and casino expansion that will transform Monarch Black Hawk into a destination resort. To that end, the company intends to spend up to $259m with eyes on an opening in the first quarter of 2019. BALANCE SHEET Cash: $19.296m vs $21.164m as of 15 December Long-term debt: $35m

PENN NATIONAL Diluted earnings per share Net revenue Adjusted EBITDA

H1 2016

H1 2015

63 cents

5 cents

$1.526bn

$1.365bn

$436.664m

$379.761m

Penn Nationa l was anot her operator that saw a marked pick up in business in July, following a first half that was hurt by tough comparisons to the same period the previous year and softer-than-expected regional trends.

BALANCE SHEET Cash: $61.705m vs $69.177m as of December 2015 Long-term debt: $169.937m vs $137.546m

LAS VEGAS SANDS H1 2016

H1 2015

Adjusted earnings per share

97 cents

$1.27

GAAP earnings per share

82 cents

$1.23

Net revenue

$5.366bn

$5.933bn

Adjusted property EBITDA

$1.873bn

$2.066bn

Las Vegas Sands’s VIP gaming revenues slipped in Singapore, Macau hotel rates and occupancy declined and table hold sufGIQ Q3 REVIEW

Las Vegas Sands Macau 69

F I NA NC E

FANTINI 15 H1 2016

ABOUT FANTINI RESEARCH FANTINI RESEARCH is a publishing, research and consulting firm serving the gaming industry, primarily institutional investors, C-level executives and professionals such as attorneys and regulators. Its numerous publications and reports revolve around the flagship Fantini’s Gaming Report, the industry’s leading daily source of news, analysis and information. Fantini also publishes the monthly National Revenue Report, Fantini’s Public Policy Review, and co-publishes the industry-leading EILERS-FANTINI Quarterly Slot Survey, and Spectrumetrix reports, the gaming industry’s data source. For more information, visit www.fantiniresearch.com or contact Ashley Hara at ahara@fantiniresearch. com or at (+1) 302 730 3793.

Wynn Palace, Cotai

Penn lowered its full-year guidance to $3.031bn in revenue and $844.6m in adjusted EBITDA but upped the diluted earnings per share forecast to $1.08. Operationally, stable revenue from rated player offset lower business from unrated players in some areas.

Properties that saw GLPI acquire Pinnacle’s real estate. BALANCE SHEET Cash: $119.374m vs $164.034m as of December 2015 Long-term debt, including current portion: $822.964m vs $3.628bn

BALANCE SHEET Cash: $221.360m vs $237.009m as of December

RED ROCK RESORTS

Total debt: $1.668bn vs $1.711bn Diluted earnings per share

PINNACLE

Revenue H1 2016

GAAP earnings per share Net revenue

H1 2015

$7.33

78 cents

$1.146bn

$1.155bn

Adjusted EBITDAR

$329.361m $323.968m

Adjusted EBITDA

$142.410m

$137.017m

In addition to low table hold that affected other operators in the first half, Pinnacle was contending with flooding in southeast Texas that hurt visitation to its Lake Charles property. Despite this, Pinnacle beat most EBITDA estimates in the second quarter, benefiting from cost controls across all its properties, resulting in an EBITDAR margin increase of 1.12 percentage points to 27.7 per cent. GAAP earnings were thrown into the red on accounting changes involved in the REIT transaction with Gaming & Leisure 70

Adjusted EBITDA

H1 2016

H1 2015

33 cents

77 cents

$710.733m $680.587m $250.630m

$229.732m

Red Rock Resorts has completed its IPO, raising $ 541m, refinanced $2.4bn in debt and inked an agreement to buy the Palms Las Vegas in the first half. The operator expects to close on the $312.5m Palms acquisition in the third quarter. In terms of operations, Affinity posted its 21st straight quarter of adjusted EBITDA growth in the second quarter, and the second highest quarter since 2008. Red Rock’s Las Vegas operations were strong in April and June, though like other Las Vegas operators, it saw some weakness in May due to the calendar difference. BALANCE SHEET

WYNN RESORTS H1 2016

H1 2015

Adjusted earnings per share

$2.14

$1.63

GAAP earnings per share

$1.43

12 cents

Net revenue Adjusted EBITDA

$2.056bn

$2.133bn

$612.948m

$618.447m

Wynn Resorts’ second quarter profits benefited by $20m, thanks to high table hold in Macau. In Wynn’s second quarter investor call, CEO Steve Wynn described how Wynn has improved casino profitability by reducing its odds on games, comps for gamblers and selling more hotel rooms for cash. Since the end of the first half, Wynn has opened the $4.2bn Wynn Palace casino in Cotai. BALANCE SHEET

Cash: $251.4m

Cash: $2.21bn

Long-term debt: $2.26bn

Long-term debt: $9.46bn

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F I NA NC E STOCK INDEX Q3

THE GAMING INTELLIGENCE STOCK INDEX Q3 2016 It was a good quarter for shareholders across the gambling industry as operators and suppliers saw their shares increase by a combined 10 per cent, writes Kio Dawson SNAI TOPPED THE chart as shares soared 85 per cent during Q3 following its acquisition of Italian operator rival Cogemat, while shareholders of TechFinancials, Sportech and GAN, would have also enjoyed the quarter. Sportech shares surged 44 per cent during the period which saw it announce a deal to sell its football pools business to Burlywood Capital for £97m. The investment firm, led by iGaming veteran Mark Blandford and former Merrill Lynch executive Andrew Burnett, plans to seek admission to trading on London’s AIM market through a new company incorporated for the purposes of acquiring The Football Pools and financing the transaction. They could be a new addition to our chart next time around. Despite continuing to rack up losses, gaming supplier GAN has successfully expanded its presence in the US market following a number of deals to provide land-based casinos with its social gaming platform. GAN has been raising its profile as one of the leading suppliers in this vertical – reflected in its share price which rose 37 per cent in Q3. TechFinancials’ shareholders benefited from a 48 per cent increase in share price, following a strong performance during the first half of the year which saw turnover increase 34 per cent to $9.9m and the business return to profit. Long-time rivals in the gaming and lottery sector, International Game Technology (IGT) and Scientific Games recorded share price growth of 30 per cent and 23 per cent respectively in Q3, as they both completed the integration of their recent acquisitions and continue with their omni-channel strategies. Scientific Games announced in September that it may spin-off its successful social casino business, as part of a drive to maximise growth for its interactive division. IGT’s own social casino business DoubleDown Casino, meanwhile, has struggled for growth of late, although it remains one of the leading operators around. The big three UK bookmakers also saw their shares increase by the end of the period, Ladbrokes coming out on top with a 24 per cent improvement, compared to William Hill’s 17 per cent and Paddy Power Betfair’s seven per cent. Betsson’s shares rallied 34 per cent during Q3, following a disastrous Q2 which saw its shares lose 44 per cent of their value, while GVC’s shares also saw strong growth, rising to 742p by the end of the three-month period with its turnaround of bwin.party beginning to bear fruit. n 72

COMPANY SNAI SpA TechFinancials Inc Sportech plc GAN plc XLMedia plc DJI Holdings plc Jumbo Interactive Ltd Betsson AB GVC Holdings plc International Game Technology plc Ladbrokes plc Scientific Games Corporation Cherry AB OPAP SA Lotto24 AG William Hill plc Zynga Inc Intralot SA Gaming Innovation Group Inc Churchill Downs Incorporated Aristocrat Leisure Ltd Paysafe Group plc Playtech plc Stride Gaming plc Nordic Leisure AB Caesars Acquisition Company Innova Gaming Group Inc Evolution Gaming Group AB Safecharge International Group Ltd Tabcorp Holding Ltd 888 Holdings plc 32Red plc Groupe Partouche SA Boyd Gaming Corporation Amaya Inc IG Group Holdings plc Paddy Power Betfair plc 500.com Ltd NetPlay TV plc Mr Green & Co AB Angler Gaming plc Intertain Group Ltd Codere SA Unibet Group plc Ainsworth Game Technology Ltd Fortuna Entertainment Group LeoVegas AB Plus500 Ltd China LotSynergy Holdings Ltd Kambi Group plc Bet-at-home.com AG Caesars Entertainment Corporation ZEAL Network SE Tatts Group Ltd Rank Group plc Gaming Realms plc NetEnt AB Olympic Entertainment Group AS NYX Gaming Group AGTech Holdings Ltd China Vanguard Group Ltd Nektan plc mybet Holding SE CMC Markets plc PCGE Entertainment plc Tangelo Games Corporation Webis Holdings plc London Capital Group Holdings plc Contagious Gaming Inc PhilWeb Corporation

OP. PRICE 01.07.16 € 0.63 10.50p 56.50p 31.50p 66.63p 105.75p AUD$1.30 SEK70.50 566.00p $18.73 112.50p $9.17 SEK138.00 € 6.30 € 4.55 259.80p $2.49 € 0.89 NOK3.42 $126.51 AUD$13.80 389.80p 801.00p 245.00p SEK5.15 $11.27 CAD$1.18 SEK254.50 201.00p AUD$4.55 202.50p 138.00p € 35.90 $18.42 CAD$19.84 816.50p € 94.50 $16.69 8.13p SEK33.50 SEK3.06 CAD$10.51 € 0.44 SEK78.10 AUD$2.21 CZK86.40 SEK32.30 660.00p HK$0.265 SEK123.50 € 69.50 $7.66 € 32.83 AUD$3.81 217.50p 20.25p 83.80p € 1.95 CAD$2.30 HK$1.85 HK$0.305 52.50p € 0.79 268.20p 0.375p CAD$0.105 1.35p 4.88p CAD$0.105 P20.00

CL. PRICE 30.09.16 € 1.16 15.50p 81.50p 43.00p 90.25p 143.00p AUD$1.75 SEK94.80 742.00p $24.38 140.00p $11.27 SEK168.00 € 7.52 € 5.40 304.20p $2.91 € 1.04 NOK3.97 $146.35 AUD$15.81 446.10p 910.00p 277.50p SEK5.70 $12.42 CAD$1.30 SEK279.50 220.00p AUD$4.98 221.50p 150.00p € 39.00 $19.78 CAD$21.25 871.00p € 100.70 $17.63 8.50p SEK34.60 SEK3.15 CAD$10.80 € 0.45 SEK79.70 AUD$2.25 CZK87.80 SEK32.70 662.50p HK$0.265 SEK122.50 € 68.43 $7.45 € 31.47 AUD$3.65 205.40p 19.00p 78.50p € 1.82 CAD$1.92 HK$1.54 HK$0.249 42.00p € 0.60 197.00p 0.275p CAD$0.075 0.925p 3.25p CAD$0.06 P5.94

% CHANGE 85.16% 47.62% 44.25% 36.51% 35.45% 35.22% 34.62% 34.47% 31.10% 30.17% 24.44% 22.90% 21.74% 19.37% 18.68% 17.09% 16.87% 16.85% 16.08% 15.68% 14.57% 14.44% 13.61% 13.27% 10.68% 10.20% 10.17% 9.82% 9.45% 9.45% 9.38% 8.70% 8.64% 7.38% 7.11% 6.67% 6.56% 5.63% 4.55% 3.28% 2.94% 2.76% 2.27% 2.05% 1.81% 1.62% 1.24% 0.38% 0.00% -0.81% -1.54% -2.74% -4.14% -4.20% -5.56% -6.17% -6.32% -6.67% -16.52% -16.76% -18.36% -20.00% -24.24% -26.55% -26.67% -28.57% -31.48% -33.40% -42.86% -70.30%

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C O LU M N AND ANOTHER THING...

Good ideas that will kill you OPINION Joe Brennan

Joe Brennan, chief executive of FastFantasy, continues his diary of a startup with a chance encounter that nearly leads to disaster

hen last we met on the pages of GIQ, our company was in the midst of its ‘pivot’ to being a pure B2B provider of sports analytics-based games, which in some markets (like the US and India) would mean fantasy sports. In other markets, such as Asia and the UK, they would be considered player proposition bets. I’m not being clever, this simply recognises that the local market will have this game content on its own terms and the games are what the local regulators say they are, which is just fine in our book. We just want the business. But not just any business. Because as we are finding out (and perhaps this is a lesson you have already learned the hard way) there are some pieces of business that, while potentially lucrative, will kill you and your little company before you have a chance to enjoy it. We just had the unpleasant experience of walking away from a deal that promised a ton of potential. It was as if, as the comedian Patton Oswalt once said: “They were not only offering a profane amount of money, they were not only offering an obscene amount of money, they were offering a sacrilegious amount of money.” We met this company earlier in the year, and, without a doubt, they were successful. 74

Getting the call from them felt like an accomMr A that the company’s “good idea” was, er, plishment in and of itself, and we did a lot of “interesting”, and that I would take it back to virtual high-fiving among our team at having our team to discuss. caught the eye of such a clearly discerning and “That’s great, Joe,” Mr A said, “because I forward-thinking firm. think you’ll see, in the long run, this is what The introductory calls with the company will work out best for everyone.” went great. In no time, we were yucking it up I’ll give our team credit. Rather than burning with their team like they were old college budme at the stake the moment I relayed the “good dies. We would create a white-label version of idea” to them, we took time to talk through this our games for the company, license our platnew offer, and broke it down to see the merits. form on a revenue share basis, and manage the However, no matter how rational or mergame markets on an ongoing basis. It was as cenary (it was still potentially a lot of money) easy as that, and we had already indicated we we tried to be, we could not find a way for it to would be happy to prioritise getting them live make sense for us. There was the suspicion that, in the timeline they laid out for us. should we accede to this “good idea” there would A few weeks in, I get a call one fine morning be many more “good ideas” to follow, all with from my (new) old buddy “Mr the same original characteristic A” at the company. Pleasantof being a disproportionate burries were exchanged, questions den on our firm. We felt we would asked and answered about develwind up being a de facto subsidiThere are opment schedules and digital ary of the company, without any some pieces of assets exchanged. All brilliant. of the de jure benefits. business that, Then Mr A said, “We have We tried to let the company while lucrative, had a discussion here at the comdown easily, but frankly, they will kill your pany, Joe, and we’ve hit on an were a bit put off. OK, they were little company idea that I wanted to run by you, a lot put off. But it was clear this old chum, to get your reaction, marriage would not be a happy because we really think it is quite a good idea...” one, so why go on? Oh yes, the money … eveOver the next 10 minutes or so, as Mr A ryone keeps reminding me about the money. recounted the “good idea” to me, a knot began Luckily, we have a pretty good build-up of to form in my stomach that took quite some our sales pipeline and our games have launched time to untie. By the time he had finished, it with enough partners that we got to do the rarwas clear things had changed drastically est of things for a startup: walk away from a from what had been agreed only the partner that would surely have killed us. week before. However, rather In the meantime, we’re coming off a new than give in to my gut reacround of investment, we have our eyes set tion, I simply told on launching with partners in the UK and Asia, and, believe it or not, our holiday away from our native America may be shorter-lived than we originally expected as regulatory events unfold in interesting ways. But more on that next time, I promise. n Joe Brennan is the founder and CEO of FastFantasy and former director of industry association iMega

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