GIQ - Gaming Intelligence Quarterly Jul-Sep 2016

• JULY–SEPT 2016 • ISSUE 26

G A M I N G

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

Q U A R T

July–Sept 2016

Q2 REVIEW

PLUS

SPECIAL REPORT: IS REV SHARE KILLING THE INDUSTRY? NOVOMATIC’S ONLINE AMBITION

A GAMING INTELLIGENCE PUBLICATION

RESUSCITATING BWIN.PARTY GVC’S SHAY SEGEV AND TEAM ON THE ART OF INTEGRATION

BETWAY | LADBROKES | BREXIT | Q1 FINANCE | WORLD REGULATORY UPDATE

CONTENTS

LEADER Q2 REVIEW

FEATURES 30 Betway interview Director of marketing and operations Anthony Werkman explains the strategy behind the new kid on the block 35 Rev Share deals under fire Revenue sharing deals are the foundation of the gambling ecosystem, but not everyone benefits 45 Novomatic interview Group CTO and Greentube CEO Thomas Graf unravels the mysteries behind Novomatic’s 188 companies 51 GVC gets down to business at bwin.party GVC COO Shay Segev and team on the tricky task of reviving a fallen giant

ANALYSIS & OPINION 4 Snapshot Top stories, top quotes, top deals and deal of the quarter 7 People Realistic Games, William Hill, Nektan and more 12 Technology & new products GameTech and the second coming of skill games; plus new products from Inspired, Gamesys, Betfair and more 16 Marketing Ladbrokes marketing chief Kristof Fahy; Q&A with Betcade’s David Chang 21 Legal Brexit, world regulatory update and more 78 And another thing...

Joe Brennan of FastFantasy

FINANCE Q1 2016 57 The GIQ 20 Listed operators’ online results 71 The Fantini 15 US casinos’ Q1 results 76 The GI Stock Index Q2 2016

Steve Hoare

E D I TO R

REASONS TO BE CHEERFUL ikes! An industry reels from the impact of Brexit, plus fresh regulations in Poland, Bulgaria, the Czech Republic and elsewhere. While Europe’s biggest market is shrouded in uncertainty, the future of the German gambling market remains stuck in its continuing four-year limbo. Doom, gloom, woe…

Or not? While gambling industry shares fell all over the world in the wake of the UK’s referendum result, Ladbrokes, Playtech and 888, to take just three examples, were rising again by early July – if not quite up to the levels of 23 June.

As Deloitte pointed out in a postBrexit report, the leisure industry (particularly in the UK) has been remarkably resilient in recent years. There is a very real shift in consumer habits from owning stuff to doing stuff. That includes betting and gambling.

While vast swathes of the marketing industry will tell you that the 21st-century consumer wants experiences that enrich their lives, they also want thrills and spills. Gambling falls neatly into that category.

Gaming Intelligence is approaching its 10th anniversary. Since 2006, the industry has suffered the closure of the world’s biggest gambling market (the US) and the biggest recession since the 1920s. Yet

remarkably, many of the companies we covered in our early days are the same ones we cover today.

Every operator has had its ups and downs in that time. William Hill was in the doldrums, then it was the industry darling and now it’s in the doldrums once again. Ladbrokes was a basket case but now seems to be emerging from the ashes. 888 was a pioneer, then its share price and profits spiralled downhill for two years before it emerged triumphant in a five-year winning streak.

Betfair was another pioneer that hit hard times before re-emerging under new management.

While Big Economic Events unarguably play a role in determining revenue, profits and share prices, our world tends to plough on regardless, shaped more by management decisions and company culture than by forces beyond our control.

Of course, long-term economic trends will claim livelihoods. The ever-declining number of casinos in Atlantic City is proof positive of this, but the world of online gambling is still so young, so under-developed and so niche that its future can only be rosy for the majority. So let’s leave the uncertainty and pessimism to the politicians and financial traders, and get back to business. sah@gamingintelligence.com

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Y

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STAFF WRITERS Kio Dawson k.dawson@gamingintelligence.com

ADVERTISING & SUBSCRIPTIONS Omer Uziely omer@gamingintelligence.com

EDITOR Steve Hoare sah@gamingintelligence.com

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GIQ Q2 REVIEW

Michelle Barber m.barber@gamingintelligence.com CONTRIBUTORS Joe Brennan, Caroline Parry

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

Copyright © 2016 Gaming Intelligence.

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GIQ Q2 2016

Snapshot most popular news stories on GamingIntelligence.com NYX acquires OpenBet in £270m deal Vitruvian set to sell Inspired as Novomatic waits in the wings NairaBet signs affiliate marketing deal with Income Access Former bwin.party chief joins FastForward as special adviser NYX sells Ongame poker network to focus on sportsbook and gaming CVC Capital Partners acquires majority stake in Tipico UK gambling participation falls as young people play less Playtech expands casual games business with Funtactix acquisition Intralot sells majority stake in Peru business and finalises Italian merger William Hill goes live on Betfect social betting network

Quote of the Quarter These providers to the US market were caught with the wrong product, in the wrong market at the wrong time” Novomatic chief technology officer Thomas Graf,

4

Brexit uncertainty hits Gibraltar operators hardest THE IMMEDIATE IMPACT of the UK referendum was on the industry’s share prices (see page 76) but the longer-term consequences of the UK’s exit from the European Union are harder to fathom.

With around 4,000 gambling industry jobs residing in Gibraltar it was natural the attention should quickly turn to the rock.

The minister for financial services and gaming in Gibraltar, Albert Isola, emerged a week after the vote in an attempt to reassure everyone that it is “business as usual”. “ H M G over n ment of Gibraltar wi l l continue to work with HM Government UK to ensure the best possible outcome from the ongoing discussions in the expectation that there will be little or no change to the current arrangements for those who live and work in or travel to Gibraltar, and all the indications are that it really will be ‘business as usual’,” said Isola in a prepared statement.

Indeed, for now, it is business as usual but we are sailing into uncharted territory.

Nobody in the UK government has a blueprint for how this unfolds, so we are left with best guesses.

Chief minister of Gibraltar Fabian Picardo also moved quickly to reassure citizens and businesses that all would be well. An estimated 12,000 people cross the border every day between their homes in Spain and their workplaces in Gibraltar. While Picardo admitted he can only guess on the outcome of the UK’s exit negotiations, his words on cross-frontier workers provided some comfort.

“HM government of Gibraltar is committed to ensuring guaranteed and unhindered access to Gibraltar [for crossborder workers] ,” said Picardo.

While the interim Spanish foreign minister was keen to claim co-sovereignty, Picardo rejected this option outright, but Gibraltarians might have to consider it more seriously than they ever had in the past. Picardo assured workers that the government has a good and close relationship with the local government in Andalucia and that both sides are committed to keeping the border open.

This issue was the main concern for Gib-based operators. Lottoland CEO Nigel Birrell admitted: “That is the biggest worry we have now.

The majority of our workers – about 90 per cent – live in Spain. I think our neighbours will be grown up about it. I think it’s likely to be OK.” As reassu rance messages go, it was perhaps not the strongest. Birrell said the company was founded in Gib and Gib is its home. It is not unique in that regard but some operators have more options. After acquiring bwin.party, GVC Holdings has 300 workers in Gibraltar.

However, its biggest office is in Vienna, it has about 200 people in London and, crucially, it has an office and licence in Malta.

“Like everyone else we are waiting to see how this unfolds. However, as a group with an international footprint we feel we have the flexibility to manage any outcome,” said GVC’s head of investor relations Nick Batram.

Malta might also be a destination for 888, according to Canaccord Genuity analyst Simon Davies: “Brexit could remove Gibraltar’s access to the EU markets. But it would be relatively low cost for 888 to acquire a licence, set up in Malta and invest in additional servers, so it could continue to serve EU territories. More costly would be if Spain applied border restrictions, given that half the workforce in Gibraltar lives in Spain, and 888 employs 225 staff there.

But 888 will have several years to plan, and we don’t see this as a painful adjustment.”

888 and GVC probably have the scale to ameliorate the effects, but others might not. n For more on this story, see page 21.

GIQ Q2 2016

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GVC signs 10-year deal to power Betfred website GVC HOLDINGS WON a fierce competition It is a task he is not talking lightly but he is to serve as the technical platform provider to unconcerned about the complexity of adding the UK’s fourth largest bookmaker, Betfred. the Betfred brands to a platform that already GVC will take over from Finsoft, which hosts the likes of bwin, PartyGaming, Foxy provided Betfred with its sports betting platBingo and more (see interview, page 51). form and Playtech, its gaming partner.

Betfred said it selected GVC after an extenGVC chief operating officer Shay Segev sive review, adding that the new platform will said he expects the deal to transform the forenable it to speed up its international expantunes of GVC’s B2B team, which it inherited sion plans. Betfred will also hope for better as part of the bwin.party acquisition. returns from the Tote’s website, which has The deal originated in PartyGambeen in decline since the bookmaker ing’s B2B team prior to the acquiacquired it from the UK government sition. While PartyGaming can in 2011. Betfred runs 1,400 betting count top-tier operators such as offices in the UK and Tote outlets PMU, Danske Spil and Boyd Gamat most of the UK’s 60 racecoursOF THE ing among its clientele, it has not es. GGR in 2015 was £729m. n QUARTER sealed a deal of that size for many years. What’s more, this is the first time bwin has opened up its full technology stack – betting and gaming – to a customer.

“Betfred will be a test case we need to deliver,” commented Segev.

The chief operating officer’s nine-year spell at Playtech should be of value to GVC as it makes its first leap into B2B. However, Segev has plenty on his plate integrating bwin.party with all of GVC’s own brands.

DEAL

THE QUARTER’S DEALS IN 60 SECONDS NYX GAMING GROUP won the race to acquire OpenBet from Vitruvian Partners at the beginning of the quarter. It received a helping hand from SkyBet and William Hill with the £270m needed to see off Playtech and other bidders.

Despite closing the biggest deal of its life, NYX remains hungry for more and followed up with the £24.5m acquisition of Betdigital, a cross-platform gaming engine that enables online gaming companies to bring their games to the land-based market.

Playtech’s response was to spend £50m on slots studio Quickspin and an undisclosed amount on casual games company Funtactix. The latter was Playtech’s third acquisition in the sector following deals for Game Maker and YoYo Games. Funtactix boasts a portfolio based around films such as The Hunger Games, Mission: Impossible, Power Rangers and Rocky.

GIQ Q2 REVIEW

Even hungrier than NYX was Novomatic, which completed its deal to acquire Len Ainsworth’s 53 per cent share in Ainsworth Game Technology for AUD$473m (thus ending, for now at least, one of gaming’s longest soap operas) and then followed that with the AUD$210m acquisition of Tatts Group’s UK arcades company Talarius.

Meanwhile, if you thought the sale of OpenBet suggested that private equity might be withdrawing its interest in the industry, think again. CVC Capital Partners was the quarter’s biggest spender. It did not disclose how much it spent on a 60 per cent stake in German market-leader Tipico but pundits reckoned it could be in excess of £1bn. Days later, it revealed the purchase of Italy’s SISAL Group for €1bn. If you add in the UK’s SkyBet, which CVC acquired for £800m last year, CVC is creating quite the European portfolio.

The quarter in numbers FINANCE

-11%

William Hill online revenue decline in Q1

36.5%

Ladbrokes online revenue increase in Q1

£273m

Paddy Power Betfair online revenue in Q1 (inc US and Oz) M&A

2

Acquisitions by NYX in Q2 (OpenBet and BetDigital)

€80m Amount paid by Cherry for 49% stake in ComeOn

€1bn CVC Capital acquires Italy’s Sisal REGULATORY

131

Romanian iGaming supplier licences awarded

7

US states to have passed fantasy sports legislation this year BUSINESS

12

US casino operator partners for GAN’s social casino LOTTERY

3

Mobile apps rolled out by Camelot in Switzerland, Ireland and the UK 5

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ON THE FOLLOWING PAGE

8 Tipico, Playtech, WHO & more

New Realistic CEO aims for the big time C O LU M N Robin Harrison

Andy Harris has been promoted from commercial director to the CEO role as Realistic Games hits a steep growth curve REALISTIC GAMES HAS been in business since 2002, but while its games have long been praised for their quality, the company never seemed to break into the mainstream. It felt like a well-respected arthouse filmmaker unable to compete in a world dominated by blockbuster producers such as Playtech or Microgaming.

This all changed with the appointment of Andy Harris as the supplier’s commercial director. Since joining in 2012 he has played a major role in taking Realistic from a small company struggling to get its games distributed to one that is now so successful online it has branched out into the land-based sector.

Without compromising the quality of its content, Realistic now has its own remote games server, a client base that reads like a who’s who of the industry’s top-tier operators, and is now live in licensed betting offices with Ladbrokes. Few can deny he’s had a transformational impact on the business, and his appointment as chief executive seems a fitting reward for his work.

Harris is modest about his impact on the company, preferring to highlight the quality of the supplier’s content. “I think it was a case of two guys who were incredibly talented when it came to the production of content and had some innovative and creative ideas of what to bring to GIQ Q2 REVIEW

ily backed that horse. It was a clear move to say we need to get our content mobilised and working effectively in HTML5,” he explains. “That stood us in good stead.”

The company’s growth has facilitated his ascendancy to the CEO position. Realistic has gone from a team of eight to around 50. It is no longer an upstart supplier but one that needs market, but without the experience and contacts a strong corporate structure. He is currently to realise the distribution opportunity,” he says. implementing a business plan to achieve this.

“It was a classic case of a great product that felt There are three key elements. First he wants like the best-kept secret. Realistic was waiting to to ensure the supplier continues to provide flourish but its experience wasn’t in that area.” excellent customer service to existing clients, He says the main thing he brought to the ensuring organic growth. Secondly, it must conbusiness was his contacts. After starting his tinue producing high-quality content. Finally, career with Rank’s sportsbook subsidiary Blue he wants the company to “take more risks” in Square, he moved on to Victor Chandler and developing for new platforms and using new then Ladbrokes, rising to director of gaming mechanics. Key to this will be its push into the before leaving as Richard Glynn made his first retail sector. attempt to turn the operator around.

Harris explains that founders Andy CatThat sort of career trajectory could have trell and Mike Parry are steeped in retail game seen him stay with a B2C business, taking on development and they wanted to reverse the an executive position or a CEO focus from online. role. Instead he changed tack, “You’ve seen a lot of retail joining his first B2B employer. suppliers coming into the “I’d worked for some large online space, and we felt that “Realistic had a publicly owned businesses, so I the retail environment had different level of felt I’d done my time at that and become a little stale, so we wanted to get into something understanding than decided to give it a go and build where there was an opportunia team capable of doing that.” any other provider ty to move a bit faster and influEverything has been kept I’d come across” ence things more,” he says. proprietary and developed Andy Harris, Realistic Games “I’d known the guys at Realin-house, whereas some other istic for about 10 years at that suppliers have outsourced time, and I felt they had a differretail development to third parties. ent level of understanding “I think it’s important to keep the than any other provider I’d quality up,” says Harris. come across.”

The Ladbrokes games have been He says contacts aren’t released simultaneously across everything but admits they phone, tablet and FOBTs, as the may have played a part in bookmaker looks to taking advanhelping him strike some tage of the omnichannel opportuearly deals. From that nity. Harris has already had a big point, however, Harris impact. If he manages to continue believes it was the quality that trajectory without compromisof the products that helped ing the quality of its products, then attract clients.

Harris may find his indie busi“I think we were fortunate ness gate-crashing in a lot of ways in terms of our the mainstream timing and the entry into sooner rather the mobile space. We heavthan later. n 7

PEOPLE Q2 NEWS

RODANO HIRE SUGGESTS NEW TERRITORIES FOR PLAYTECH

MADSEN HANDS OVER REINS AT DANSKE SPIL

As chief policy officer, Francesco Rodano will take responsibility for developi ng busi ness opportunities, establishing new relationships and working alongside Francesco Rodano institutions and induschief policy officer try stakeholders, reportPlaytech ing directly to Mor Weizer. Rodano has nine years’ experience with Italian gaming regulator L’Amministrazione Autonoma dei Monopoli di Stato (AAMS) and is credited with helping the country’s iGaming market revenue to grow to more than €800m.

Such a high-profile appointment suggests Playtech will be moving into new territories.

The continuing development of regulated markets in Europe means Rodano will never be short of work, but could the company be preparing to expand its presence in Asia, or maybe even into the US? Playtech has consistently said that the market is not yet viable and the cynics carp that it is unlicensable. But if PokerStars can find a way to win a licence in New Jersey and keep it despite all manner of legal issues, then why not Playtech?

HC Madsen steps down as Danske Spil CEO after steering the company through a major period of upheaval and evolution. His tenure should be held up as exactly how HC Madsen the chief of a monopoly CEO operator should steer Danske Spil their company through gambling regulatory reform. The operator was split into three divisions, allowing it to keep its monopoly status to an extent, and the success of its iGaming arm shows that such companies, often the most resistant to new legislation, should not be too concerned about their native market opening.

Madsen’s replacement, who will begin work in April 2017, still has a lot to do. They will be responsible for implementing the Danske Spil 2020 strategy, described as a “digitisation” of the business, as well as ensuring the company offers the best possible customer experience, underpinned by responsible gambling controls.

The operator might now choose to go with an executive with private iGaming experience, but it is to Madsen’s credit that this person will have such a strong platform on which to build.

NEW MD NIEBOER TO STEER WHO THROUGH ROCKY PATCH

NISSIM APPOINTED FOR NEKTAN EUROPE PUSH

BACA TO AID TIPICO’S ITEGRATION WITH CVC ASSETS

One of the industry’s worst-kept secrets was revealed when Crispin Nieboer was confirmed as the managing director of William Hill Online, having held the position on Crispin Nieboer an interim business since MD January this year.

William Hill Online The operator is going through a difficult period and has brought in KPMG to conduct a review of its business, with a focus on its online and technology divisions. This is due in part to the botched launch of its Project Trafalgar initiative – despite the company stressing that it is starting to have a positive effect – and looks set to push through further changes. Nieboer is highly rated within the business and has appointed a new online management team, but bringing in external consultants does not send out the right signals.

It suggests the company is casting about for a solution to ongoing problems, which it cannot resolve on its own.

Nektan feels like a company that has promised much but delivered less.

It is by no means a failing business, but, like GAN, it seems to have put a lot of effort into developing Leigh Nissim a US market presence CEO only to see regulatory Nektan progress slow to a crawl.

With Nissim it has a man capable of pushing the company forward. If he plays his cards right he could have the same sort of transformational effect that Andy Harris has had on Realistic Games. Not only does he have excellent contacts from this time with IGT, GTECH G2 and St Minver, but he has experience of the US and European markets. His appointment comes at a crucial time for the business, which has just been approved to launch its Rapid Games in-venue mobile gaming solution in the US market. Should he be able to build on the company’s growth and help it make a splash in Europe this could be a match made in heaven.

Baca takes over from Jan Bolz as chief executive of Tipico just months after private equity firm CVC Capital Partners acquired a controlling stake in the business.

Joachim Baca Tipico is a success story, CEO having established itself Tipico as one of Germany’s leading sportsbooks. But what is more intriguing is whether CVC plans to mesh its business with its other gaming assets, Sky Betting & Gaming and Italy’s SISAL. Each company has assets and experience that could benefit the other.

Working alongside Tipico, SkyBet could finally push into foreign markets, especially considering the Sky brand is already strong in Italy and Germany. Baca’s experience could be crucial here; at bwin.party he was COO at a time when the PartyGaming integration was ongoing. That particular project hardly turned out as expected, but could provide crucial experience to help him keep several plates spinning at once.

IN THE NEWS

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

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

Aspiring for the top Aspire Global CEO Tsachi Maimon provides a glimpse at its roadmap, revealing the steps behind the company’s success as a B2B casino platform provider, and its planned expansion into sports betting

GIQ Q2 REVIEW

Aspire Global is not a new player in the iGaming market, but more and more brands are choosing to operate on your platform. Why is this?

I can mostly attribute this to two main things: we provide our operator partners with the highest level of casino platform and operation services on the market.

We are considered to be very good at what we do, and feel compelled to prove it on a day-to-day basis to our partners. On top of this, our hard work and dedication to our partners’ prosperity certainly pays off, and as word of mouth gets around, more and more partners choose to operate on our platform.

Tell us how it all began.

We started 10 years ago as the iGaming arm of the NeoGames Group, managing familiar brands such as Karamba, Hopa and Dansk777. In 2008 we turned to our strength in operations and created a full turnkey casino gaming platform solution for other operators.

In 2014, Aspire branched out from NeoGames, which today is a leader in digital lottery solutions, and since then we have pursued our own independent path. With our HQ of over 400 employees based in Malta, we are located close to many of our partners, allowing us to maintain strong relationships in one of the most influential focal points of the gaming world.

Currently, Aspire operates over 50 brands in 10 markets, and under five regulatory frameworks. Our

hard work and successful platform has helped us to establish ourselves among the leading casino networks in Europe, growing at an average of 30 per cent every year over the past few years. Last year alone, we turned over €100m in GGR (gross gaming revenue).

How would you describe your solution?

We offer a full turnkey solution for casino operators. We take care of the player journey from sign-up onwards. We offer CRM, customer support, compliance, analysis, fraud and many other services. Our partners’ brands operate using our gaming licence in each targeted market. The casino owner takes care of the marketing and we manage the day-to-day running of the casino. You could say that we manage the daily online casino operations from A to Z. In a crowded global market, what distinguishes Aspire from its competitors?

I would have to say there are a few key areas where, in my opinion, we stand above the crowd. The main thing differentiating us is that we are probably the only provider offering a truly complete turnkey solution. Our partners can focus on what they do best, generating traffic, and we take care of everything else.

That includes games, operations, CRM, compliance, risk, regulations – it’s all part of the package, and we do it with a dedicated plan for each operator.

9

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

When it comes to the selection of games, I believe we stand out by being able to offer not just the most prominent providers out there (Microgaming, NetEnt, Evolution Gaming and others) but also over 100 exclusive in-house games. We offer the ability to create bespoke content as well – and I can tell you from experience that these two factors can really enhance a player’s experience, and in turn, our partner’s revenues.

We also have a wealth of experience, gained by being a 10-year veteran in the market. This has enabled us to build very strong CRM methodology with real-time flexible bonus mechanisms, in-house predictive analytic capabilities and top-notch support with VIP customer service.

The whole idea is that the operator is responsible for its own marketing, branding and generation of traffic to their site. We take care of the rest of the details, enabling each side to focus on its own strengths.

What do you offer your partners to help them manage their business effectively?

As part of our turnkey solution we offer partners a number of tools, such as real-time backend reports, a daily KPI dashboard and API Gateway reports.

However, the most valuable tool is our model that can predict the total revenue of a player two years in advance. This report gives our partners their first insights after only seven days of life-cycle.

In addition, our dedicated analysis department is on hand to provide ad-hoc analysis for any player stats or activity that our partner needs.

What is Aspire’s biggest market?

We are regulated in several jurisdictions, including Malta, Denmark, the UK, Italy and Belgium. Of course, every operator on our platform has different strengths in different markets. Within the markets in which we are regulated, we are the strongest in Denmark and the UK. Who are your customers?

We have two types of customer: firstly gaming operators who generate in excess of €10m GGR a year and are looking to improve their business performance.

Secondly, companies that have an excellent knowledge of online marketing and acquisition, and wish to enter the prosperous field of online casinos. We make it easier for them, by allowing these companies to focus on what they do best, while taking care of everything else – which is what we do best.

Do you think there is a conflict between your B2C and B2B businesses?

As far as I see it, the two businesses are completely separate. Every company (whether it’s B2C or B2B) has a separate set of operational tools, independent of each other. It’s what makes our solution so unique, 10

as most B2B providers build their solution first and expect their clients to adjust accordingly. We work differently. Our platform is built from the bottom up – we create it from the perspective of the operator, as we are also our own client in our B2C arm.

What does the next few years hold for Aspire?

Our plan is to continue updating our portfolio, making sure we have a leading selection of games. We have recently launched with Evolution Gaming and Scientific Games, and are currently in the process of integrating with Playn’ GO. I can also reveal that we intend to add Playtech content before the end of the year, and will be adding another vertical to our portfolio in the near future – sports betting.

We understand the importance of this vertical for many of our partners, and so chose a leading sports betting platform to integrate into our portfolio. This is very exciting news for us and we look forward to revealing the partnership very soon. We also plan to strengthen our already powerful mobile solution, which currently generates more than 50 per cent of revenue, including the recent introduction of our application. It is our belief that the combination of these will allow our partners to promote their casinos in more channels than ever before.

What’s the company’s strategy for the coming years?

Internally, all the projects on our roadmap contribute to the increase of the player’s life-time value. Everything that is necessary, from providing more relevant payment methods, to extra bonus features. We will make certain that our platform continues to be stable, and that the backend remains strong. That’s the heart of it all.

In terms of expanding our business, our strong EBIDTA allows us more space, so we are looking to also acquire small/medium casino operators (generating up to €30m GGR yearly). We are looking for casinos to fit our DNA, hunger and geographic strategy.

How has your background in iGaming equipped you for the role of CEO? For the last 10 years I have worked in various online businesses. The past eight years have been spent in iGaming. Before Aspire, I worked for a Playtech licensee, managing some of the largest casinos. The majority of CEOs in the gaming industry have a background in marketing and player acquisition. I’m a little different, as my background is in retention and CRM. This is reflected in the fact that our company focuses more on improving the performance of our existing players, rather than just increasing the number of new players.

Finally, what can you tell us about yourself that most people don’t know?

I am very competitive, a good tennis player, and I challenge anyone to a game!

Most B2B providers build their solution first and expect their clients to adjust accordingly.

We work differently.

Our platform is built from the bottom up

F I NA NC E GIQ20 Q3 2012

GamyTech looks to bring real-money skill games back into fashion C O LU M N TECHNOLOGY

Kio Dawson

The recent emergence of the eSports industry has brought attention back to the skill games market after years in the doldrums. Malta-based GamyTech is one of a number of suppliers looking to cash in. CEO Jonathan Swerdlow explains his company’s mission to change the way people play on mobile

WITH THE ONLINE casino market increasstructure to offer our users a more exciting ingly dominated by slot games, the resurgence experience,” continues Swerdlow. “Users now of the skill games market has been a welcome will be able to benefit from their achievements distraction, as evidenced by the rise of eSports and more rewards programmes, as well as overand the competitive video gaming industry. As all improved game-play. with fantasy sports, these products are now “We will be adding some exciting new feaengaging more players than ever before. tures such as big tournaments with huge prize The competitive skill-gaming pools. Additionally, we will keep model has been around for a long producing fun and innovative time, but it is predominantly games in order to provide our “2016 will be web-based, with experiences users with quality content.” a year of big built for a different era. CompaSwerdlow believes its biggest growth for the direct rival is Games Studio, nies such as GAN have lessened their reliance on skill games which is working with the likes of entire mobile after focussing their attention Skillz and CashPlay, while it sees skill-gaming on the US market, but others the wider US land-based gambling industry” like GamyTech are proving the industry as its most significant Jonathan Swerdlow real-money skill games model can competitor. still work.

“It’s our goal to attract those GamyTech was founded two years ago to players to our platform,” he says. “I think it’s bring real-money betting to the skill games likely we will see a rise in the competition. It market. It now employs a team of 16 engineers, seems logical that more traditional, land-based creative designers and innovative marketers, and online gambling operators will enter the with most of the R&D team currently based in skill-game industry to keep offering users simiTel Aviv, Israel. lar and yet new experiences.

“The skill games market is still in its infan“While 2016 will be a year of big growth cy in terms of growth and potential, which is for the entire mobile skill-gaming industry, it something we are trying to take advantage of is our goal to continue growing as well so we in terms of trailblazing,” says Swerdlow. “Curwill be able to compete with more established rently, the US is by far our biggest market and operators in case they decide to jump into the we focus most of our efforts there.” market.”

GamyTech has so far released eight realOf course, players have been able to play money titles, and is currently focused on skill games for cash prizes for years, and GSN improving its top performing game, BackgamGaming’s planned launch of its Sparcade realmon For Money. New games due to launch money casual-gaming platform later this year include Money Crush, Trivia For Money and could be significant in revolutionising the Solitaire For Money. mobile gaming sector.

“Recently, we’ve upgraded our entire infraThe platform has been in development 12

for more than two years, and will feature three of the biggest game franchises of all time; PacMan, Scrabble and Tetris. It will deliver a competitive twist on the brands, including Tetris Burst – the first-ever Tetris-branded game playable for money. GSN, co-owned by Sony Pictures and AT&T Entertainment, currently pays out around $175m per year to players across its social casino and gaming platform, having been in the skill games sector since acquiring WorldWinner in 2007.

“GSN has been doing a good job at creating online content in the past and securing partnerships with big brands,” says Swerdlow. “I think it was time for them to shift their focus to mobile. Sparcade will be a good platform and I’m happy to see the mobile industry is growing. Competition is a sign we’re heading in the right direction.

“GamyTech has been doing a great job at producing unique content and securing key positions in the App Store for games like Backgammon For Money, and we plan to continue that success. I believe that Sparcade and GamyTech are competitive yet complementary businesses that will head in a similar direction.”

Both GSN and GamyTech will be looking to stake their claim for a slice of the skill games market. n

NE W PRODUCTS

Q2 LAUNCHES

INSPIRED READIES VIRTUAL SPORTS IN US Inspired signed deals to launch virtual sports content in New Jersey, partnering with Golden Nugget and Resorts Digital, operator of Resortscasino.com and Mohegansuncasino.com.

What’s the big idea? It will be the first time that the supplier’s online games have been avail-

BIG LAUNCHES

able in North America, and has been facilitated

by Inspired’s partnership with Spin Games.

Titles such as Rush Horse Racing and Rush Football will go live across desktop and mobile channels. Resorts will also broadcast virtual sports to its iGaming Lounge, creating a shared player experience in a sportsbook-like atmosphere.

PENN NATIONAL GAMING LAUNCHES SOCIAL CASINO The US racetrack and gaming operator will look to better engage with existing customers and attract new players with the launch of a new mobile social slot title Hollywood Slots.

What’s the big idea? Featuring exclusive content from OpenWager, the app is available from Apple’s App Store and the Google Play Store. Hollywood Slots’ graphics have been tailored to incorporate elements of Penn National’s popular Hollywood brand. The launch further expands its social casino range, with the

company already active on Scientific Games’ Play4Fun network. It has also invested in the social sports studio iPro, founded by former IGT and DoubleDown executive Robert Melendres.

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Digital Sports Tech has released a unique betting product for Australian betting operator MadBookie.com, which allows players to create and customise their own proposition bets on football, American football, basketball, rugby league and Aussie rules.

Gamesys will enter the sports betting vertical for the first time, with Las Vegasbased supplier Metric Gaming providing the technology behind the new offering.

Betfair launched its core exchange wagering product in New Jersey for the first time in May through a partnership with Darby Development, operator of the Monmouth Park racetrack.

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

What’s the big idea? The Player Props product enables sportsbook customers to bet on exactly what they want and are most interested in, with the platform and algorithms instantaneously analysing each customised bet to generate accurate odds. The supplier said that it saw the product as the first legitimate bridge between fantasy and sports betting, as it appeals to recreational users and produces a deeper level of fan engagement than other products.

GIQ Q2 REVIEW

What’s the big idea? The companies will collaborate on a ‘next generation’ sportsbook offering powered by Metric’s SuperLive technology platform. This is the first time Metric’s platform has been employed by a third-party partner, with the solution currently used to host the company’s SuperLive markets. These are designed to enable rapidfire betting opportunities, such as whether a goal will be scored in the next 60 seconds of a football match, with customer accounts credited in real-time.

What’s the big idea? Betfair pioneered the betting exchange concept in the UK 15 years ago, and now processes more than 3m transactions each day. The launch of 4NJBets, through its US subsidiary, will allow New Jersey residents to access fixed-odds, peer-topeer pari-mutuel betting. It further strengthens the operator’s presence in the US, where it owns the horse racing television network and wagering platform TVG, as well as BetfairCasino.com in New Jersey.

13

F I NA NC E GIQ20 Q3 2012

ON THE FOLLOWING PAGE

18 Inside Marketing with Betcade

FROM LADBROKES LIFE TO THE DEATH OF THE AFFILIATE C O LU M N MARKETING

Caroline Parry

Ladbrokes chief marketing officer Kristof Fahy on how marketing will play its part in the revitalisation of a grand old UK bookmaker THE FIRST TIME GIQ spoke to Kristof Fahy, chief marketing officer at Ladbrokes, he was presiding over his first ad campaign launch over at rival William Hill, where he was in the same role for five years.

There he talked of a strategy to place product and innovation front and centre of the company’s advertising campaign, to make a conscious shift away from the brand-led advertising that had become the industry standard.

Six years later, the industry landscape has changed beyond recognition thanks to the rise of digital and, in particular, mobile. And while the brand is different, the challenge to make a betting industry giant feel relevant in a fastchanging world feels remarkably similar.

“My brief is simple,” explains Fahy, who left William Hill to join Telegraph Media Group for just seven months before returning to the industry. “To put some rigour and momentum around the brand and its marketing.

Ladbrokes is the biggest brand in the sector and that is a great thing to own, but now we have to deliver to that.”

Having posted a pre-tax loss of £43.2m for the 12 months to 31 December 2015 – its first ever full-year loss – at first glance things look far from rosy for the UK’s second-biggest book16

maker. Those losses, however, included £17.6m of costs relating to its proposed £2.3bn merger with Gala Coral; £53.2m in impairment charges related to its UK and Ireland retail estate; and a £50m hit from regulations and taxes.

Despite this, analysts made positive noises about signs of recovery both in revenue and margins in the final quarter of the year. This was borne out by the results over the first quarter of 2016, despite the bookmaker taking a significant hit from Cheltenham, described by chief executive and industry veteran Jim Mullen as the “worst in living memory”.

Group net revenue for the three months to 31 March was up by 10.6 per cent, while digital net revenue rose by 36.5 per cent, which suggests its five-year deal with Playtech and its 70,000-strong affiliate programme is starting to pay dividends. Meanwhile, arch rival William Hill posted a profit warning, blaming both Cheltenham and regulatory costs.

Speaking when the results were posted in April, Mullen said he saw “plenty of evidence that our plan is working, but we are still early in our turnaround strategy”.

Since laying out that plan in July 2015, Mullen has made it clear he believes marketing is fundamental to its success. Investment has already been seen, with ad spend in the tabloids and on TV up by 26 per cent year-on-year in 2015 as Ladbrokes sought to engage the recreational football customer.

Responsibility for ensuring this significantly increased focus on marketing pay-off now lies firmly at Fahy’s door. With the UEFA European Championship looming as he joined, Fahy wasted no time scrapping the Ladbrokes Life campaign, which had proved controversial from its launch.

The campaign, created by BBH (which is no longer working with Ladbrokes), aimed to shift away from the shouty laddish ads that dominate and

attempted to take a ‘lifestyle’ approach – an unprecedented move for the sector. Fahy admits he was surprised to find the work tracked well with customers.

“The ads were not bombing but the task of the campaign was to reinvigorate the brand. We are already the number one brand, but we need to be relevant again,” he explains. “The brief was wrong but the work was good as it provoked an emotional response, not a rational one.”

This was swiftly replaced with a Euro 2016-focused in-play betting ad featuring the return of football pundit Chris Kamara, who had been dropped when Ladbrokes Life was launched, alongside Ally McCoist. Meanwhile, former jockey Frankie Dettori has been signed as brand ambassador and has already featured in a racing-focused campaign on Channel 4.

“Frankie is still the biggest name in racing,” says Fahy of the move. “He is probably the only guy in racing who would be instantly

MARKE TING LADBROKES

Ladbrokes’ Euro 2016 campaign with Ally McCoist and Chris Kamara

recognised by fellow passengers if he were to jump on a bus anywhere in the UK. That level of cut-through has huge value to us.”

Neither campaign is particularly innovative. This is back-to-basics stuff that is supposedly proven with young, white males. “[The work] is relevant, fun, simple, direct and entertaining,” explains Fahy. “And that is the task.

We need to make sure the customer chooses us first. A lot of feedback we received said Ladbrokes had been too quiet.”

Strategic sponsorships are also playing a role beefing up marketing. In May, Ladbrokes signed a deal to become the official betting partner of the Football Association, giving it exposure during England fixtures and the Emirates FA Cup. It is also halfway through a two-year deal with the Scottish Professional Football League and sponsored the World Grand Prix and Players Championship snooker tournaments in March.

Fahy described the potential of the FA deal as “enormous”. He adds: “Aligning ourselves to the national team of the national game immediately elevates us to new territory as we seek

GIQ Q2 REVIEW

to re-establish the Ladbrokes brand as the posed merger with Gala Coral, which would see nation’s favourite.” him assume the chief marketing role across both So far, he has made very little structural brands, is holding up any plans. As it stands, the change to the marketing team as he claims it brands will remain separate. He says: “If I look at “wasn’t in a terrible state”, although there were my to-do list now, the proposed deal is numbers small issues. These include the UK team not one to five, as we are just starting to look at it. working “as well as we could” with its 40-strong “Ladbrokes and Coral are two very strong digital team in Israel, a division created as part brands in the market, so we have to think about of its Playtech deal. how we maximise our own positions to the benHe has, however, made a lot of “directional” efit of one overall business. For now we are comchange. He explains: “There was no clear direcpeting businesses and it is very controlled as to tion in which marketing was facing, so I have what can even be discussed.” realigned all of our activities With a decision from the around the customer.”

Competition and Markets While Mullen talks about Authority due as GIQ went “Ladbrokes is the the importance of capturing to press, Fahy’s priorities biggest brand in the could be set to change any “recreational users”, Fahy is focused on putting customers day, but his goal for Ladsector and that is a – new, loyal and lapsed cusbrokes will remain the great thing to own, tomers – at the heart of Ladsame: to make the brand but now we have to brokes’ strategy, and ensurrelevant through strong deliver to that’’ ing an exceptional customer marketing and a customerKristof Fahy, Ladbrokes journey regardless of chancentric strategy. nel. It is a view that chimes “Customers want the best with the One Ladbrokes multichannel strategy. prices and really good promotions but they also Launched last year, One Ladbrokes is one want a good experience; decent shops and good of the company’s strategic priorities – to make mobile products, and they want it all to work sure customers choose Ladbrokes regardless of without glitches. If they win online they want to how, when or where they choose to bet. withdraw in the shop. There is a huge opportu“In the past, we have put channels first and nity across retail, digital and mobile, and makcustomers second, “ says Fahy. “But customers ing them work seamlessly is the key.” don’t think to themselves: ‘Right, I am going to Right now, Fahy believes the industry is have a mobile experience, then a retail experimissing a trick by continuing to focus on acquience and later a desktop experience’. sition rather than retention. A side effect, per“Over the past three or four months I have haps, of the widespread reliance on affiliates. been working to bring the customer to the “My personal point of view is it would be good forefront,” he adds. “There were many differto get to a point where more people came to us ent customer relationship management teams direct, rather than sending in affiliates,” he says. across the business and we were potentially He adds: “There is a really significant prize over CRMing customers. We have now set up available for the brands that focus on the cusa team across it all that is going through the tomer journey and on service in its totality. customer journey step by step.”

I don’t think any brands are focusing on it in Fahy dismisses any suggestion that the proentirety yet.” n 17

MARKE TING BETCADE

Inside marketing with

BETCADE Betcade is hoping its app, to be released this summer, can have a big impact. Chief executive and founder David Chang explains why What is Betcade and who are the key players behind it?

Betcade will work like the major app stores. Players will be able to browse apps by categories but we’ll have algorithmically driven lists such as most popular, fastest rising, what’s new, and promotions of time-based events such as slots or poker tournaments and sports matches.

Players can also opt to have selections targeted to them based on their interests and behaviour. In addition, the store search will be a very strong component of app discovery.

Finally, there will be editorially driven features like ‘editor’s choice’ overall and across the store categories.

Betcade is the first dedicated Android app store for real-money gaming apps, with the goal of creating an ecosystem that benefits all stakeholders in the gaming industry.

I am a former head of industry relations and chief marketing officer at gaming technology provider Gamblit Gaming and, prior to that, I launched two gaming companies – OnNet Europe and Gamiker. I am also a former managing director of international business at gaming and entertainment company IGN. The senior team also comprises Paul Barclay as general manager and Trevor Fiatal as chief What gap in the technology officer. Paul, who market do you believe “The luxury of joined from online payments needs filling? being first to company Skrill, is leading the The idea of Betcade came out payments and operations side of my experience as an operamarket means of Betcade. He is also a former tor, frustrated by the realisawe don’t have a global vice president at Worldtion that reaching players on direct competitor, Pay and also held roles at BarAndroid, the world’s most popbut the toughest claycard and Barclays Bank. ular mobile operating system, competition is for Trevor is overseeing all was going to be nearly imposconsumers’ time” technical matters, including sible as a gaming company.

David Chang, Betcade product, operation and secuThis un-met need for mobile rity. He has co-founded sevdiscovery, distribution, and eral start-ups such as mobile traffic data and payment on Android was a concern of every analytics company Seven Networks. He has operator I talked to. It was a huge missed also advised many tech start-ups from preopportunity seed to pre-IPO, offering expert consulting in product strategy, technology and platform Who do you see as your direct selection, user experience design and leadercompetitors? ship problem-solving.

The luxury of being first to market means we don’t have a direct competitor just now. HowCan you explain what the Betcade app ever, the toughest competition for any product store will offer and how it works? is the competition for consumers’ time.

Betcade is exclusive to real-money gaming One of the most important ways we and will offer apps in every category: sports, can compete is to offer a best-in-class user poker, slots, casino, bingo and lottery, as well experience that makes it easy for players as newer types like skill and eSports. Our only to find and play the content they want. requirement is that the apps must be licensed T hi s h as b e en a major focu s of ou r in the UK to be offered on the Betcade store. product development.

18

What research have you carried out on demand for this type of service?

Our research has been very direct. We were hearing from everyone in the industry that this was a problem that needed to be solved.

And then we worked closely with them to build exactly the product they wanted to solve it.

How are you recruiting operators and what is your commercial model?

Operators can enter into our programme by signing up at our website. From there, they have access to everything they need to launch their games on Betcade. We’ve also got a support team in place to help with everything from SDK integration to placing their games in the store.

Unlike the other app stores that only pay developers 70 per cent of their revenue, Betcade has designed a revenue model customised for the gaming industry. Operators pay us an affiliate fee for users that monetise in their Betcadedistributed app. Additionally, we will charge an industry-standard payment-processing fee for deposits, similar to Skrill or PayPal.

What impact will your launch have on affiliates?

We expect to have a positive impact on affiliates. Their job is to get players into games and playing, and we are offering them a channel where it’s exponentially easier for players to download games and make deposits.

What can you tell us about your planned marketing strategy – again both the industry and consumers?

We’ll be at industry events showing demos of the store, and continuing to work with operators to integrate their games. On the consumer side, you’ll see us doing a combination of building awareness and educating consumers on how the store works, and most importantly letting them know all the great games that will be on the store. n

Isle of Man e-Gaming

by Tony Jones, e-Gaming Development Executive, Isle of Man Government Many wonder why the Isle of Man partnership with the largest Asian facing sportsbooks and casinos is so successful. Why have companies like Dafabet, 12Bet, SBOBET, 188Bet and many more decided to make the Isle of Man their home, headquarters and regulatory base of operations? Well, there is no great secret, it is based on a business environment aligned to the success of these companies, and a cluster of experienced gaming service providers who understand what it takes to conduct business in Asia.

Our proven robust regulation maintains flexibility for innovative solutions and provides comfort to investors, board members and players alike. The IOM emblem on a website re-assures players that their money is safe with that gaming company, as well as demonstrating to investors that the company is operated to the highest standards of regulation, respectability and transparency.

The Isle of Man’s strong business links to the City of London provide an ideal

base and environment from which to float a company on the Stock Exchange or AIM (Alternative Investment Market).

Research commissioned by the IOM Government, found the Isle of Man to be the number one location among non-UK incorporated AIM top 100 companies. The Isle of Man was found to have a market share of 18.6 per cent, up from 16.3 per cent in 2010.

The I.T. and power infrastructure on the Isle of Man is modern, reliable and the envy of many other jurisdictions.

This infrastructure has benefited from hundreds of millions of pounds worth of public and private sector investment in recent years. The transmission capacity available to the Island is measured in terabytes, effectively future-proofing the Island’s telecommunications needs.

In addition, the Island has electricity production capabilities that can produce 40% more electricity than peak demand.

The Isle of Man’s attractive tax regime has 0% Corporation Tax, No Capital Gains Tax, No Inheritance Tax, No Stamp

Duty or Land Tax, combined with very low Gambling Duty rates based on profit, not turnover, of between 1.5% and 0.1% depending on the level of profits accumulated.

The Island provides an ideal location for placing staff and headquarters, allowing your company to show true permanent establishment where the tax footprint is.

Beautiful countryside, a low crime rate, excellent public services, well equipped schools and no restrictions on house purchases mean that the Island is a highly attractive and stable location for your staff to live, grow and prosper.

These are some of the reasons the greatest companies in online gaming have decided to make the Isle of Man their home, headquarters and base of operations. If you would like any information on how your company can take its place in the Isle of Man success story please contact tony.jones2@gov.im or call on +44 (0) 1624 687185

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22 World regulatory update 24 UK regulator gets tough

Brexit dominates thinking as lawyers plot strategy C O LU M N LEGAL

Steve Hoare

The result of the UK’s EU Referendum has huge potential ramifications for the industry – but no one knows exactly what they might be yet

If a company was based in Gibraltar – or indeed in London – it would need to relocate elsewhere and that is not just a case of buying a server in Malta GIQ Q2 REVIEW

IT IS NO surprise that worries about Brexit have swept through the industry after the largest and most developed gambling market in the continent voted to leave the European Union.

The possible effect on Gibraltar is discussed elsewhere (page 4) and the very real effect on share prices is documented in the Gaming Intelligence Share Index (page 76) but the potential ramifications will probably be felt way beyond Gibraltar and the FTSE. As GIQ went to press, the UK’s two largest political parties had lame-duck leaders halfway out the back door. The politicians queuing up to take their place had various ideas about how and when Brexit would be negotiated and implemented, while almost half the nation is still hoping it will not happen.

Mishcon de Reya, a leading London-based firm, threatened legal action to make sure of it. Mishcons is one of London’s most PR-savvy firms, never shy to throw its opinion into a high-profile argument, but it is also one of the UK’s leading authorities on constitutional law.

Its argument is that a British prime minister would need to win the backing of the majority of MPs before invoking Article 50 of the Lisbon Treaty. While some MPs might be inclined to follow the will of the voters, the majority were in favour of staying in Europe.

The pound fell to a 31-year low against the dollar on the day GIQ went to press, as political uncertainty swept the markets. William Hill’s share price, which was 300.2p on 23 June, had sunk to 250.1p. It has become a cliché, but if there is one thing markets don’t like, it is uncertainty.

Deloitte quickly issued a report on the leisure industry, which concluded: “The result of the EU referendum has led to uncertainty which may impact a leisure sector reliant on

discretionary spending. In the longer term, the impact of leaving the EU will largely depend on the terms of the exit and their effect on consumers, employees and investors.”

It might be stating the obvious, but according to the report, if consumers get hit by a reduction in disposable income they will most likely reduce spending on frequent, habitual leisure activities such as betting and gaming (45 per cent) eating out (39 per cent) and drinking out (38 per cent).

The potential ramifications for an industry mired in consolidation are huge. Lawyers on all sides are busy trying to figure out how best to structure a company for tax efficiency and regulatory efficiency. Some jurisdictions, such as Germany, require operators to be based in the European Economic Area. If the company was only based in Gibraltar – or indeed in London – it would need to relocate elsewhere and that is not just a case of buying a server in Malta, as one lawyer put it.

Furthermore, German DLA Piper partner Michael Stulz-Herrnstadt argued: “Gambling companies with licences from the UK, Gibraltar and/or the Isle of Man might not be able to refer to the single market and the EU’s freedom to provide services any more if those states are not able to negotiate participation in the single market with the EU. This becomes relevant in court proceedings where EU licensed gambling companies argue that they are allowed to operate in Germany with the non-German but EU licence.”

Of course, with so much uncertainty it is wise not to be too rash with costly decisions.

“It’s one thing planning ahead,” said another lawyer, “but you don’t want to plan for something that never happens. Could you unravel all those plans if Brexit falls apart? Most people are taking a ‘wait and see’ approach.”n 21

L EG A L

Q2 REGULATION HIGHLIGHTS

PORTUGAL

The country’s regulator, Turismo de Portugal, granted its first online gaming licence to Betclic Everest Group at the end of May following the re-regulation of the market last year. Betclic Everest became the first operator to go live in the newly-regulated market with the roll out of its Betclic.pt sports betting site.

Before the re-regulation of Portugal’s iGaming market, Betclic Everest had developed a strong presence in the country, sponsoring a number of sporting teams, before pulling out to ensure it could secure a licence.

Portugal has set out a tax rate of between eight and 16 per cent of sports betting turnover and between 15 and 30 per cent of casino and games turnover, with these rates expected to generate€€25m in tax revenue.

FRANCE

The French government has moved forward with plans to allow its poker licensees to pool liquidity with other jurisdictions, submitting draft legislation to the European Commission (EC) for approval.

The proposed legislation aims to allow customers of licensed French poker sites to play against players registered with companies operating lawfully in another member state of the European Union or part of the European Economic Area.

It was put forward after the French Senate approved the law for a Digital Republic in May, a wide-ranging bill concerning internet technology, including a number of gambling-related elements, of which the clause allowing for international poker liquidity was the most noteworthy.

GERMANY

US

New York recently became the seventh US state to pass a fantasy sports bill this year, but there was less movement in the real-money gaming space. While there remains an outside shot that California may pass Adam Gray’s bill, efforts in New York will have to wait another year, as the legislative session came to an end in June. Mike Kowall’s iGaming bill in Michigan also remains in play but time is running short.

Most of the legislative action stateside has come from the daily fantasy sports sector, with the states of New York, Colorado, Mississippi and Tennessee among those to have passed fantasy sports bills this year. At least 33 states have proposed some form of DFS regulation during the most recent legislative session.

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

The legislative situation remains in limbo, but Germany’s powerful association of state lottery operators, the Deutsche Lotto und Totoblock (DLTB), met with European Union officials in June to discuss a range of issues relating to the process of regulating the country’s iGaming market. It called for the EU to take action to restrict the access of operators licensed and taxed in an EU jurisdiction from using the principle of free movement to enter other markets.

Meanwhile, a Wiesbaden court declared in April that Germany’s sports betting licence cap was illegal under EU law, and that the body responsible for the licensing process was obliged to award a licence to all applicants who meet the licensing criteria.

The ruling could have implications for the German licensing process following the rejection of proposed changes to open up the market by the minister presidents of Germany’s 16 states, which instead doubled the sports betting licence cap to 40.

SOUTH AFRICA

The country’s Department of Trade and Industry (DTI) published its national gambling policy review, proposing a major overhaul of industry regulations and the introduction of new controls to stamp out unlicensed online gambling.

Among a number of recommendations, the DTI said that measures against illegal online gambling should be strengthened by giving the regulator powers to block unlicensed gaming sites.

This should be achieved without the need to involve the country’s police, it added, although the education and training of police and prosecutors should be improved to ensure that cases are successfully prosecuted.

The recommendations are to be accepted into the final National Gambling Policy Document to be discussed by the South African Cabinet, and ultimately passed into law via publication in the Government Gazette.

THE NETHERLANDS

Gambling regulator Kansspelautoriteit (KSA) is stepping up its investigation into gambling apps illegally targeting customers in the country, as well as preparing an investigation into potential dangers posed to minors by social casino apps. An initial assessment carried out by the KSA at the end of April found that 49 illegal realmoney gaming apps could be downloaded in the Netherlands, with the authority now planning to monitor these products.

With new iGaming legislation expected to be adopted in July, all forms of online gambling are currently considered illegal, with operators required to remove all real-money apps from app stores. The KSA’s new investigation will monitor whether operators are complying with this requirement, with the possibility of enforcement action against operators who fail to comply.

ROMANIA

Romania’s regulator, the National Gambling Office (ONJN), has now issued 131 Class 2 licences to a wide variety of iGaming software suppliers, including the likes of NYX Gaming, Playtech, Vermantia and NetEnt. Romania’s new gambling regulations were passed in March, establishing a clear legislative framework for landbased and online operators, with the first approvals awarded that month.

Sixteen temporary operator licences have so far been issued. Three full licences have been granted to Netbet, Winmasters and Stanleybet.

NEW ZEALAND

The government has proposed changes to the Racing Act which will allow the country’s central betting agency to expand its range of betting products, while setting a consumption and ‘use of data’ fee for offshore operators accepting bets from NZ residents.

The proposals aim to make the TAB more competitive and help ensure offshore providers pay their fair share back to local racing and sport groups. It includes removing the prohibition on the TAB taking bets during a race, and the restriction that requires the TAB to offer bets only on sports represented by national sporting organisations. It also allows the TAB to offer betting on novelty prediction events.

Also proposed is a consumption fee for offshore gambling operators accepting bets from New Zealand, and a ‘use of data’ fee for offshore operators using the country’s race and sport data.

GIQ Q2 REVIEW

LITHUANIA

The Gaming Control Authority of Lithuania singled out Unibet in May, accusing the operator of systematically violating its gambling regulations by operating without a licence. The regulator said that Unibet was guilty of “malicious behaviour”, which raised doubts about the company’s commitment to regulated markets.

This prompted a robust response from the operator, which claimed that Lithuania was attempting to enforce rules on the basis of legislation that had not been properly notified to the European Commission.

The operator said that as Lithuania had violated the EC-mandated standstill period by enacting its new gambling law on 1 January, it does not consider them enforceable and believes that punitive action against the country by the EC is more likely.

CZECH REPUBLIC

President Milos Zeman signed a new bill into law to re-regulate the country’s gambling market, which will allow operators from the European Union and European Economic Area to apply for licensure to offer a broad spectrum of games to Czech players, both online and in land-based venues.

Set to come into force on 1 January 2017, licensed operators face a hefty tax rate of 23 per cent of gross gaming revenue for lotteries

AUSTRALIA

The federal government accepted 18 of the 19 recommendations contained in the O’Farrell review into illegal offshore wagering, which found that as much as AUD$400m was being gambled with unlicensed operators.

The biggest blow to operators will be the decision to close a loophole under which they have offered in-play betting to customers via click-to-call.

L EG A L

Q2 REGULATION HIGHLIGHTS

POLAND

The Ministry of Finance is considering a number of potential amendments to the country’s Gambling Act, aimed at introducing IP and payment blocking for unlicensed operators, establishing a state monopoly on slots outside casinos, and legalising online and offline poker.

The proposals were published after the country’s deputy prime minister Jarosław Gowin, a member of the minority Polska Razem party, issued separate proposals. This included legalising poker and a 20 per cent gross gaming tax on sports betting to replace the current 12 per cent turnover tax.

The Ministry of Finance’s proposal, put forward by the government’s majority Law and Justice Party (PIS), is more likely to pass into law, however. The government aims to bring in the new controls from 1 January 2017.

and sports betting, with this rising to 35 per cent for casino products.

Until now the Czech online gambling market has been largely unregulated with foreign operators prohibited from securing a licence without establishing a local base. This was seen as discriminatory by the European Commission, which launched infringement proceedings against the country in November 2013, prompting the new legislation.

The Northern Territory also passed legislation at the end of May to regulate exchange betting products, with Betfair Australia, the country’s only licensed betting exchange operator, relocating its operations to Darwin as a result.

Meanwhile the state of South Australia became the first jurisdiction to introduce a point of consumption tax on iGaming since its adoption by the United Kingdom.

23

L EG A L

GAMBLING COMMISSION

The Gambling Commission now has turned its attention to monitoring and enforcement. It is doing what a regulator should do

Betfred case reveals the Gambling Commission’s new teeth The UK Gambling Commission is getting used to life as a proper regulator after years of regulating just one company, writes Steve Hoare THE ONLINE GAMBLING industry has had a strange evolution in the UK. In 2005, the UK became one of the first countries to pass a gambling act that regulated internet gambling.

However, because of the decision to leave the gates open, it only really regulated bet365.

“It didn’t really understand how it works,” says a gambling industry lawyer. “It has had to up its game and, to some extent, the Gambling Commission has taken it on itself to help the industry mature.”

This has led to a quick succession of costly raps on the knuckles for Paddy Power, Gala Coral and Betfred.

At the beginning of the year, Paddy Power paid £280,000 to socially responsible causes over what the UK Gambling Commission described as its failure “to keep crime out of gambling and protect vulnerable people”.

It apparently had social responsibility and anti-money laundering policies in place but forgot to tell its staff about them.

“One of the Gambling Commission’s biggest gripes is people not adhering to its policies,” says the lawyer.

24

In April, Gala Coral agreed to return more than £846,000 to the victims of a man who had stolen money from them to fund his gambling addiction.

“Once you have the serious issue of people committing an offence to fund a gambling habit, you have the perfect compliance storm,” comments another lawyer.

“There were indicators in the customer’s online and in-store play which could have been used to identify him as a problem gambler,” the Commission said. “These included an increase in the number of bets, the value of bets and the time spent gambling. Despite being in possession of this information as part of account monitoring, Gala Coral Group did not assess the customer from a social responsibility perspective and there were no recorded interactions with him.”

The latest regulatory intervention involved Betfred. It was judged to have inadequate social responsibility and money laundering procedures in place. Again, this case involved a gambler stealing money (this time from his employer) to fund his gambling habit.

The Betfred case is the first time the Gambling Commission has held a licence review to deal with such a case. One of the consequences of a licence review can be the revocation of the licence.

“That is a much more aggressive step by the Commission. The power was there for them to use and they have said quite clearly they will use it,” says another lawyer.

Nobody can say they have not been warned.

The newish Gambling Commission chief executive officer Sarah Harrison said that social responsibility was a priority upon taking charge. Anyone who took social responsibility lightly, should not be doing so now. The Gambling Commission might have been bogged down in licence applications for a year or two but now it has most certainly turned its attention to monitoring and enforcement. It is doing what a regulator should do.

It is understood that Betfred did not help itself in these circumstances. It was given the opportunity to clear up the issue but decided it would prefer to wait for the result of the investigation. It was not the best approach. Lawyers are fairly universal in agreement that you should treat the Commission with deference.

The last thing you want to do is rattle its cage.

This seems like common sense advice.

It could be argued that the regulator has been relatively lenient thus far. There have not been massive fines but merely a returning of funds or a redistribution of profit from the criminal activity. Operators should consider themselves warned.

Following the conclusion of another case, the Gambling Commission amended the licensing conditions and codes of practice to ensure operators approached data collection in a holistic way. That means using the same data and applying it equally to sales, marketing, social responsibility or any other purpose.

“It takes time and is expensive to install that level of data analysis,” says a source. But the technology is there. Online operators have argued for years that there is less risk of money laundering because of this kind of tracking.

The Commission is now demanding that operators prove it. n

ON THE FOLLOWING PAGE

28 Zynga, WPFH and more

KAMAGAMES GOES TOE-TO-TOE WITH SOCIAL CASINO GIANTS Pokerist Texas Poker has been a consistent performer in the social casino market, but KamaGames has long believed it can do better, and is now ready to take on Zynga C O LU M N Robin Harrison THESE DAYS THERE isn’t so much of a social poker industry, rather a sector entirely dominated by Zynga Poker, with a few others following in its wake.

Smaller developers have popped up, made some noise and then quietened down, only reemerging as either the latest company to be acquired by one of the larger players or simply closing down.

This is what makes KamaGames rather unique. Yes, it has expanded into other verticals, signing an intriguing brand partnership with Manchester United and launching a 3D blackjack game, but it has faith that its core Pokerist product can eventually challenge Zynga at the pinnacle of the sector.

The game has proved to have remarkable longevity. It has been ranked among the Apple App Store’s 100 highest-grossing apps since 2011 in 89 countries, and in the top five highestgrossing apps on Google Play in 24 countries.

Pokerist also has remarkable reach – as well as being live on iOS, Android and Facebook, it is also available via Russian social networks VK and Odnoklassniki, as well as Korean platform Bada. Despite this, it is largely overlooked.

It is hard to see beyond Zynga Poker. No social poker app has enjoyed its level of success and exposure. Most believe that there is just no scope for a competitor to grow in the market today.

KamaGames thinks otherwise. The first pieces of an aggressive growth strategy have already been put in place. Former PokerStars GIQ Q2 REVIEW

mobile chief Danny Kashti has been appointed as chief marketing officer, and the company’s first London office has been established.

Unlike competitors, KamaGames’ origins do not lie in the standard social casino hubs of San Francisco or Tel Aviv, but in Russia. The company moved to Dublin in 2013, and last year pledged to create at least 100 new jobs in the city following the signing of its Manchester United partnership. However, Kashti believes work must be done if the company is to become a top-tier operator.

“I saw a company that is focused on developing the best, fastest and fairest games, but also one that is not investing a lot in marketing and branding,” Kashti says of KamaGames.

“There was a major gap between the quality of the product and its visibility, and I saw this as something really interesting to get involved in.”

While admitting Kama needs to do more to develop brand awareness, Kashti describes the company as “a dominant developer” in the social casino sector.

“This was not just by chance,” he says. “The quality of the game and the fact you play against real people in a safe, simple environment have contributed to Kama’s success. When people discover a game they enjoy it, and this brings me back to the core point – we need to make sure we are delivering our games to wider audiences.”

Kashti believes that rather than simply trying to monetise players, KamaGames, through

titles such as Pokerist, “nurtures” its players’ needs. Pokerist aims to encourage interaction between players using chat features and gifting, to the point that in some territories it is used as a communication tool rather than a gaming platform.

The figures don’t lie. Pokerist is a particularly social game. Since 2010, four billion messages have been sent between players; 200 million new social connections were made via the game and 500 billion gifts were exchanged between players.

Kashti believes that while Pokerist has the scope to grow with more marketing investment, there are also opportunities in other verticals. Kama’s Roulettist product has been on the market for a number of years, and a revamped 3D version of its blackjack game has been rolled out. There is potential for crosssell between these different games, offering the same communication tools made popular through Pokerist.

“What we’ve done so far is mildly cross-sell from poker, and what we’ve seen is that once a user discovers the other game they adopt that product,” he explains.

He is particularly enthused about the 3D Blackjack game.

“We have been able to transform a single-player product to a nicely designed multiplayer game.

We imported the chat mechanism and some of the elements from Pokerist to make the blackjack experience very social, which is different from what you see in other games.”

The developer’s expansion drive has started at a particularly interesting time. For years it’s felt as if the social casino sector has been shrinking, with high-performing businesses such as KamaGames often being overlooked.

If the company can successfully break Zynga’s stranglehold on social poker, it is better placed than most to make the jump to the big league. Watch this space. n 27

SOCIAL GAMING INTELLIGENCE Q2 NEWS ANALYSIS

Zynga expands slot portfolio with Willy Wonka & Hit it Rich! sequel ZYNGA HAS EXPANDED its range of social slot titles as it continues to build its increasingly successful Casino franchise, with the launch of a Willy Wonka-branded app and a sequel to its Hit it Rich! smash.

Slots have become an increasingly important part of Zynga’s business, with mobile bookings up 77 per cent in the first quarter of the year, prompting the operator to develop new titles.

This has seen Willy Wonka and the Chocolate Factory Slots launch in April, following a licensing deal with Warner Brothers signed last year.

“Beloved by generations, the Wonka-verse is full of imagination and fun, making it the perfect setting for an immersive social slots experience,” said chief game designer and senior vice president of slots, Joe Kaminkow.

“With timeless characters and scenes, Willy Wonka and the Chocolate Factory Slots allow players to enter the world of Wonka’s Chocolate Factory, experiencing the movie magic in a new way.”

Zynga has continued its roll-out of new slot content with Spin it Rich!, the sequel to Hit it Rich!, in May. Both have been developed by the company’s studio, formerly Spooky Cool Labs, led by Kaminkow. The game will look to build on the success of Hit it Rich by offering what

28

Shoutz launches social lottery platform Texas-based Shoutz has launched a new social lottery platform, GameRail, powered by Gaming Realms’ Blastworks subsidiary. Shoutz has rolled out more than 50 free-to-play slot, card and instant win games. Shoutz aims to pioneer social lottery products with GameRail, to a potential audience of more than 120m US lottery participants. Using the GameRail platform, Shoutz will also launch Pitbull Arcade, a social casino product launched in partnership with Grammy Award winner Pitbull.

Imperus signs PokerStars deal

Zynga believes to be an enhanced version.

Casino is now one of Zynga’s largest franchises, generating 49 per cent – $67.2m – of total online gaming revenue in Q1. Zynga Poker remains a key title, accounting for 19 per cent of this total, with Hit it Rich! and Wizard of Oz Slots accounting for 15 per cent each.

The new launches come as Zynga shows signs of finally achieving its goal of becoming a mobile-first company. In the first quarter of the year it was revealed that Apple had replaced Facebook as its largest platform partner, with mobile accounting for 76 per cent of total bookings for the period. n

Soulja Boy’s WPFH snaps up UEG stake in US gaming push WORLD POKER FUND Holdings (WPFH), the poker and entertainment business backed

by Grammy-winning rapper Soulja Boy, is preparing to enter the real-money gaming sector, acquiring a stake in social casino operator Universal Entertainment Group (UEG).

UEG is the iGaming arm of the Iowa Tribe of Oklahoma, and in May launched PokerTribe. com, a free-to-play gaming site designed as a precursor for a real-money product. WPFH has acquired a 49 per cent stake in the business for an undisclosed sum.

PokerTribe offers players up to 50,000 virtual credits to sign up and play a range of poker, pulltab and bingo games, similar to WPFH’s CelebrityWorld.com, another site powered by UEG.

IN BRIEF

CelebrityWorld, which also went live early in May, is described as a celebrity-backed site which uses ambassadors such as Soulja Boy, former World Series of Poker champion Jamie Gold, American football star De’Anthony Thomas, singer and actor Kyle Massey and NBA All-Star Tracy McGrady to build up a user base.

Soulja Boy has claimed to have signed a $400m endorsement deal with WPFH, though sources have since suggested this may be an exaggeration. The launch of the company’s social offering is to be followed by plans to roll out an in-flight gambling solution for airlines as well as licensed real-money gaming sites in certain US markets. n

Social casino operator Imperus Technologies has signed a major distribution deal with PokerStars, with a selection of its slot games to be launched on the operator’s social poker product Jackpot Poker. This will see content developed by Akamon Entertainment, acquired

by Imperus in November 2015, launched as side games on Jackpot Poker. PokerStars describes the launch of the Akamon games as part of the app’s next evolution.

Dutch regulator launches investigation Netherlands gambling regulator the Kansspelautoriteit (KSA) has revealed plans to launch an investigation into social casino in a bid to ascertain whether the products encourage minors to gamble. The regulator cites Australian research which suggests minors being exposed to “games which simulate gambling” may result in problem gambling habits later in life. “Not only are these types of games freely available to minors, but they can also be downloaded for free,” the KSA explained. “The combination of this low threshold for accessibility and the larger risk for minors has given cause for the KSA to investigate in the coming months.”

Greentube makes US debut Greentube, the online gaming subsidiary of Austrian gambling behemoth Novomatic, has launched a social casino app for Connecticut’s Foxwoods Resort Casino.

The launch marks the debut of Greentube’s social offering in the US, after usurping GAN as the land-based casino’s free-to-play technology partner. The Foxwoods site underwent an extensive redevelopment before being launched on the Greentube Pro platform, strengthened by technology provided by Greentube’s Blue Bat Games division.

GAN expands roster of US partners Despite losing Foxwoods as a client, GAN continues to expand its roster of land-based partners in the US, with the company announcing its 12th deal to roll out a free-to-play gaming product for a Native American casino operator. The London-listed supplier will roll out its Simulated Gaming product for the operator after securing “suitable commercial and regulatory consents”, at which point details of the partner will be disclosed.

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F E AT U R E BETWAY

Betway breaks big brand hegemony 30

F E AT U R E

BETWAY

Betway is one of the few brands to have successfully raised its profile in a market dominated by traditional brands. Robin Harrison examines how the growing operator has managed to carve a foothold in the crowded UK gambling sector GIQ Q2 REVIEW

THE UK BOOKMAKING sector is dominated by the elderly. Ladbrokes is 130 years old. Coral is 90. William Hill is 82. Betfred is a relative whippersnapper at 49. bet365 is the exception to the rule, aged just 16, but the Stoke-based operator’s stellar growth is unique.

Then we have Betway. The business was founded in 2006, but only began to take off in 2011 after it was acquired by its current owners. At that point efforts were undertaken to diversify the business, with new products rolled out, strategic partnerships established, regulatory approval secured and the management team strengthened. Betway’s infrastructure has also benefitted from huge investment, as has its marketing efforts.

Betway has exploded into prominence with high-profile television campaigns backed by a raft of sponsorship deals. The company features on the shirts of London’s West Ham United, giving it major exposure among football fans, while its backing of various darts competitions help it rival the likes of Ladbrokes and William Hill for brand recognition in that sport. It backs a growing number of horse racing events, served as title sponsor of the UK Snooker Championship and backed the Davis and Fed Cups in tennis.

It is happy to back niche opportunities, such as naming the English Federation of Disability in Sport as its official charity partner for 2016, as it is sponsoring the Premier League’s global audio partner talkSPORT. “We are confident that the expertise, infrastructure and investment is in place to continue the growth and success [of the company],” says Betway’s director of marketing and operations Anthony Werkman.

The company believes it has established itself in the UK to the extent that it can now look further afield, focusing on developing its business in other territories such as Germany, Belgium, Ireland, Italy and Spain. In just five years the company has gone from being just another small brand screaming for attention in an overcrowded market to one rubbing shoulders with the industry’s bestestablished players.

The Microgaming connection Betway’s meteoric rise since being acquired in 2011 has led to some industry speculation that Microgaming was the company’s true owner.

“There is no common ownership between Betway and Microgaming,” Werkman says, flatly. “Betway is an independent company with a number of third-party suppliers, of which Microgaming is one.”

He does not want to discuss the ownership further but Betway is part of the same group as

Win Technologies. Its main shareholders are understood to be chairman Neal Menashe and his brother Gavin, who is business and product intelligence director, together with managing director Brian Susskind and others.

Werkman will only say the operator is “privately owned by a group of shareholders from within the gambling and technology industries, who like their privacy”.

While the owners might be very private individuals, the company has not been shy about shouting loudly to potential customers.

Betway has grown rapidly through a careful marketing-led strategy, which sometimes feels like it is sponsoring everything.

The strategy has been implemented by a strong management team with a wealth of experience in the gambling industry led by CEO Richard Akitt and supported by Werkman as marketing and operations chief. It is this team’s effort, rather than its links to any other company, that has helped Betway grow into a business that has established operators looking nervously over their shoulders.

“All the systems we have built today allow us to pull in different suppliers when we see the need and when the tech roadmap allows us,” Werkman explains. The notion that Betway only takes content from Microgaming is already off the mark, with Evolution Gaming supplying its live dealer games.

“As we look to new markets and emerging products we constantly review the content from other providers,” he adds.

Werkman highlights the benefits of the Microgaming solution: “The platform lets us customise the customer experience, and we have based our offering around delivering a strong customer experience.

“I think for us it’s an ongoing product, an ongoing evolution and about trying to give the product experience the customer wants,” he explains. “We are trying to serve up offers and information specific to the individual’s interests.”

Big-time marketing This focus on servicing each players’ particular interests is key to Betway’s growth strategy. Werkman refuses to reveal any figures but points to the operator’s brand presence as showing it has committed to “significant marketing spend” as part of a “long-term, strategic marketing strategy.”

This is all focused around “bringing customers closer to the action”. It’s the sort of phrase trotted out by marketers from almost any business, but Werkman stresses that a personalised approach towards customers is 31

F E AT U R E BETWAY

key and that retention is every bit as important as acquisition. Big data is key to this approach.

Again, a phrase that is bandied around a little too readily by companies looking to appear cutting-edge.

“Big data is a lovely buzzword, but when you scratch down to what that means, it’s taking data and driving some value from it,” says Werkman.

“Our business by nature is data-driven; early in my time in the industry I worked as an analyst and a company’s ability to interpret and analyse its data is a key element of success.

The areas of conversion, segmentation and, of course, responsible gaming are highly reliant on data mining, visualisation and predictive analytics to enhance decision making. Datadriven marketing strategies are very important to our business.”

“We think that in the future, the ability to add real value to customers will require the wide-scale adoption of artificial intelligence,” he continues. “We expect marketing to become increasingly reliant on artificial intelligence.

The demand for this in our industry is already being driven by customers wanting immediate satisfaction expressed through the dominance of in-play betting.

“The ability to understand a customer’s requirements in the moment and to respond immediately in a commercial, compliant and socially responsible way will require sophisticated and highly intelligent technical support. Of course, this trend emerges against the backdrop of the Data Protection Act.” 32

This data-driven approach will become the norm, he says, as operators realise that current marketing strategies are unsustainable.

Werkman believes that new entrants to the industry are determined to put their products on TV, pushing ‘crazy offers’ to customers for events such as the Cheltenham Festival. But this can’t carry on forever, he says, especially with the UK Gambling Commission pushing for fair and open marketing with a close focus on misleading advertising, aiming to hold operators to account for bonus strategies.

“The self-regulatory code of the Industry Group for Responsible Gambling commits us all to ‘no more new customer welcome bonuses on TV before the watershed’ and this is impacting TVbased acquisition strategies profoundly already,” he continues. “Furthermore, some operators are being reported in the press for withholding winnings arising from bonuses, and the industry is seeing customers themselves using increasingly sophisticated betting strategies.

“This price war with free bets and bonus money cannot carry on forever. It’s a race to the bottom, with a small select few ruining the image of an otherwise wellregulated industry.”

Customer is king Werkman believes that in the future, iGaming marketing will focus on more than just price and special offers, focusing instead on “real value”. This is

“In the future, the ability to add real value to customers will require the wide-scale adoption of artificial intelligence” Anthony Werkman, Betway

F E AT U R E

BETWAY

where the “bringing the customer close to the action” mantra comes in.

“We bring the customer closer to the action by providing them with information which is relevant and insightful, and experiences and entertainment unique to Betway customers,” he says.

“The Betway Insider blog is the tool through which we provide information and insights to our customers, and this comes from our ambassadors who provide the content, drawn from their experience and knowledge.

“Our customers thus have highly targeted and insightful information at their fingertips.

Our current crop of sporting ambassadors includes Simon Hughes, Richard Johnson and Silvestre De Sousa.”

But there is more to this approach of driving value than just providing such insights.

Betway is looking to develop a sense of community and belonging among its customers through social events, in order to boost loyalty.

Customers are invited to events such as Cheltenham, where Betway hosted guests, media and sporting figures in a lounge overlooking the racetrack. This gives bettors “a taste of the experience”, Werkman says, with general racegoers able to win a ‘best seat in the house’ with a perfect view of the course and a butler for an hour. The company’s betting products and odds are also featured heavily, linking the luxury surroundings with its offering.

Werkman believes that this “fills the gap between the betting slip and the event”. It GIQ Q2 REVIEW

certainly feels similar to concepts being bandied about in Germany, where there is a focus on portraying betting as a form of entertainment, ‘bettortainment’.

It’s a case of marrying the different experiences and assets, linking sponsorship deals to exclusive information such as the Betway Insider blog, and content from brand ambassadors, to special competitions and events that give users experiences based around teams or events.

This sounds like a costly approach, but Werkman explains that it is part of a carefully managed plan, which also takes into account costs associated with entering new markets.

“Our growth has been strategically planned with a long-term view in mind. We anticipated increasing costs in our plans and in particular the impact of taxes and levies,” he says. “As you know, with increased brand awareness comes a positive knock-on effect on marketing costs in general, and we are actually performing better than we forecasted in our plans.”

What’s more, Werkman believes that this approach can be universally applied to a number of markets as Betway plans to bring its brand to new territories.

In Germany, where the operator holds a licence in Schleswig-Holstein, it will look to retain this close commitment to customers, while fully abiding with restrictions in the market. Tweaks will be made to ensure different customer needs in different markets are fulfilled, but the core approach will remain the same.

Summer fun Betway is now in a crucial period, with Euro 2016 followed in quick succession with the start of Wimbledon and Royal Ascot, before the Olympics kicking off in August, and the Premier League soon after.

“Strategically it’s a very important few weeks,” Werkman says. “With the increase in teams and more live matches, it should produce turnover just shy of the World Cup. We look to producing innovative markets that combine the major events, aiming to encourage crossover between key sports.”

There are some parallels between Betway and bet365. Both are privately-owned by extremely private owners. And both brands are almost unavoidable on your TV set.

Sports operators have been slow to pursue offline engagement in the manner of a poker tour or community engagement in the manner of Jackpot Joy or Tombola, but this is Betway’s aim.

It declines to release figures, but the sheer weight of advertising seems to be paying off.

The summer’s sporting events are going to be a major test of this focus on bettortainment, especially with a resurgent Ladbrokes jostling with William Hill, desperately in need of a strong showing, and consistently dominant players Paddy Power Betfair and bet365 still leading the way.

Should its approach continue to pay off, t he op er at or c ou ld s o on f i nd it s el f ranked alongside the brands once seen as untouchable. n 33

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GETTING A FAIR SHARE

evelopers d s e m a g d e s once allow greater competition t n e m e e r g a e Revenue shar e. Today, higher costs and y Robin Harrison volv to share. B e u n e v to grow and e e r s s is a lot le means there GIQ Q2 REVIEW

S P EC I A L R E P O RT REV SHARE UNDER FIRE

R

evenue share is a crucial part of the online casino sector. It has helped shape it into the thriving sector it is today, providing a way for smaller developers to grow their businesses, improve their products and meet increasingly sophisticated consumer demands, backed up by a steady revenue stream.

“From a traditional theoretical standpoint, the revenue share model is a thing of beauty,” MX Digital founder and director Ike McFadden says. “You invest once to build a product, and get recurring revenue.”

Things have moved on, however. Operators’ profits are being eroded by soaring costs such as higher tax rates and regulatory expenses.

And while increased demand for content has created more opportunities, it is also accompanied by much fiercer competition. New suppliers, such as US developers traditionally focused on the land-based sector, have entered the online market, with market consolidation leaving smaller developers competing against well-funded, technologically adept behemoths, with vast libraries of titles.

Poor returns In this environment, iGaming operators are throwing all the games they can at their sites to see what sticks. There is an assumption that you have to offer your players every game imaginable or risk losing them to another site that does. Operators want 3D graphics, rich sounds and dazzling animation. They also want more of it. And they want it now.

Major global suppliers such as International Game Technology, Scientific Games and Aristocrat Technologies have turned their attention online to meet this seemingly insatiable demand. These billion-dollar gaming giants are bringing titles with established fanbases in the land-based market online, meaning that smaller studios have to fight tooth and nail for a share of the customer wallet.

And just as development costs have climbed, technology costs have also risen.

Studios have to either invest heavily in developing a remote games server (RGS) to get their games to market, or join one of the growing number of content aggregation platforms.

This end of the supply chain is led by Playtech and Microgaming, with NYX rapidly making up ground and the likes of GECO Gaming and Leander Games bringing up the rear. The studios pay a fee to the platforms for their games to be made available to operators.

This can vastly extend a studio’s reach, but it comes at a cost.

36

“Competition is super-high for limited real estate,” one developer says. Regulatory costs are also passed on from operators to studios, he explains. “Operators of all shapes and sizes are squeezing suppliers more. These operators can really take their pick of the content and push hard commercial terms.”

As a result, revenue share agreements today are yielding smaller and smaller returns to developers and aggregators, with high-quality content no longer a guarantee of success, even in an era in which ‘open’ platforms are the norm.

The sorry state of the revenue share model is highlighted by the plight of Odobo.

It appeared to be destined to make a massive impression on the industry. The company had the backing of investors with deep pockets, such as PartyGaming founder Russell DeLeon, as well as a partnership with Playtech and a hefty marketing budget.

Instead it crumbled, shutting down after burning through major cash reserves in just over four years. Essentially, the costs associated with its technology were too much to bear, with some former partners revealing that Odobo had attempted to hike fees for studios in order to generate revenue. Games launched via its platform simply couldn’t gain traction on operators sites, and for a business model dependent on revenue share, this was fatal.

As a marketer in any industry, your first thought would not be to try and promote

your products on a page alongside 200 of your closest competitors, but this is the situation that developers often find themselves in.

And with revenue share models meaning that operators are not invested in the third-party games they offer, they have little incentive to drive the success of one over another. Then there is the issue of the revenue share itself.

Going rates Developers charge operators between 10 and 14 per cent for taking their content. Prices may be higher for branded games. But where does this money go? Paul Beattie of Soko Advisors offers a run-down of how the revenue is distributed.

“Let’s say the developer is charging the operator 12 per cent of revenue,” he says. “The platform provider will be charging the operator an additional percentage of up to three per cent for facilitating the integration of the developer’s game into its wallet. The studio that created the game will pay an additional two per cent to the platform provider as a wallet access fee.”

This means that while the operator launching the game believes it is paying 12 per cent of revenue to the studio and three per cent to the platform provider, it is in fact paying five per cent to the platform and 10 per cent to the studio. In addition, if the game studio is integrating via an aggregator rather than the platform provider directly, they will be charged a sum of between 15 to 25 per cent of the game’s revenue for being hosted on the platform.

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Playtech and Microgaming dominate content aggregation

“We believe that aggregators should make more money if and only if they give operators more choice (more suppliers) and bring the game studios more clients” Paul Beattie, Soko Advisors

A provider such as Playtech or Microgaming may charge the developer even more, although their reach does go some way towards justifying the higher cost.

But just as developers are suffering under this scenario, so too are content aggregators.

Take NYX Gaming Group. Despite having more than 170 customers, including some of the industry’s leading lights, the supplier posted a CAD$8.4m loss in its 2015 financial year. This was attributed in part to the increased uptake in third-party content offered via its platform.

“Our business model is based around delivering fantastic proprietary content to customers, but we also want to offer third-party content,” NYX CEO Matt Davey told me following the results announcement. “We make a smaller margin on third-party content, so this mix will impact gross profit margin, but it’s a healthy mix.”

And there is no clear alternative. Should the content aggregators reduce the number of games they offer to customers, those customers will simply move to a supplier which does offer more games.

Stepping back Can this situation be changed? Beattie thinks so. He advises Game Server Integrations (GSI), which provides operators with access to a large range of games from leading suppliers via its lightweight Mesh Integration Platform. GSI believes that dialling things back to an annual fee can offer a solution.

“We believe that aggregators should make more money if and only if they give operators more choice (more suppliers) and bring the game studios more clients,” he says.

“Revenue share percentage fees to the aggregators are not justifiable over a long period of time if all you are offering is an integration,” Beattie argues. “Essentially it’s a tax GIQ Q2 REVIEW

on access, unless the aggregator is bringing a constant stream of notable clients, it’s not an easily justifiable fee.

“It also favours historical relationships.

With the notable exception of Quickspin, few new entrants have managed to develop meaningful partnerships with platform providers.”

New platform providers will play a crucial role in reshaping a sector dominated by revenue share deals. As Beattie says, older platforms have long-term, successful partnerships with content providers. The platforms need to ensure they can make money, so these partners will be given preferential treatment.

Platform providers that also offer content will naturally push their own games over thirdparty suppliers. This is not cynical or unfair.

They have invested in these games and need to deliver a return. As a result, these titles gain more visibility with operators and players. Smaller developers will rarely, if ever, get such an opportunity.

Vicious circle The platform provider is never going to promote a developer’s game as much as the studios would like.

“For the studio, ‘Game A’ might be the only product it puts out in a given quarter,” McFadden says. “It’s damn important to the studio to get that game out.

“But for the platform, that game is maybe one of a dozen it has coming out that quarter.

Generally speaking, the platform has no particular incentive to push one game over another developer’s game.”

A vicious cycle develops. Games studios push out more content with less and less reward. The small revenue delivered under these agreements means there is less money to invest in innovation, so studios churn out more of the same, replacing mermaids with leprechauns with pharaohs. The content aggregator, working under a revenue share agreement, adds more content from more developers to ensure a return for itself, but at the same time increases competition for the games it seeks to market. This sorry state of affairs has seen the suppliers and 37

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operators with the biggest clout take steps to insulate themselves.

With its acquisition of GECO Gaming, its £50m purchase of Quickspin and its rumoured deal for elements of Odobo’s technology, Playtech is actively taking steps to reduce its reliance on third-parties.

Coral, soon to merge with Ladbrokes, has launched a proprietary studio, CR Games. Sky Betting & Gaming has brought content development in-house through its acquisition of CORE Gaming. William Hill, after using the likes of Blueprint Gaming to develop its own games, has partnered Ever Adventure to develop new game concepts targeting casual players.

Paddy Power was one of the first operators to ramp up this strategy. It acquired Bulgaria-based developer Cayetano in 2011. By 2015, 22 per cent of its online gaming revenue came from its in-house content, up from 11 per cent in 2014.

“We’ve taken our top games and plonked them into our FOBT machines, meaning that a whole new audience can now punt away on Paddy Power Gold, one of our top performers,” explains product manager Hugh Casey. “Paddy Power Gold became the fastest game to make it to the £1m mark in terms of revenue.”

And with no revenue share, it’s no surprise that another operator’s CEO says he believed it was vital for his company to shift away from only offering third-party games to establishing a proprietary development studio.

“We decided to revive our internal games studio,” he explains on condition of anonymity.

“We had one in the past but then some of the [old] management decided that games are a pure commodity, and wanted to outsource all the games from the existing providers. At one point we had 100 per cent of our content from third-party sources.

“I had a different view and we established an in-house studio. It took a very long time to get that studio in motion and get it working properly; deciding what type of games you have to develop in-house and what you outsource. We don’t do everything internally. It’s a hybrid model.

“The upside of it is that other than being unique, when you take a thirdparty game you pay revenue share, whether that’s two per cent or 20 per cent. But if you develop a game alone you cover the costs of creating that game and the profit flows down without anyone sharing the upside, which is important to us,” they add. “We can also develop a title once and distribute it across all channels and verticals.”

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making new money,” he says.

“That’s a business and psychological change that’s coming about now. As industries mature they tend to solidify and it becomes harder for smaller companies to become bigger companies.”

Where to next?

“This makes the industry more conservative as operators are concerned about losing the money they’re making, as opposed to making new money” Ike McFadden, MX Digital

Yet even with this internal studio, the operator admits that it has taken his company years before it could produce a decent standard of game, and even now it’s “not in an optimum position yet”. If operators are investing heavily in proprietary content they are going to look to ensure maximum returns. Third-party content agreements will be the first in the firing line in this scenario. According to McFadden, this is the natural result of increasing competition and pressure on profits.

“This makes the industry more conservative as now operators are concerned about losing the money they’re making, as opposed to

Operators are starting to look beyond traditional games in a bid to appeal to ‘the PlayStation generation’. This approach is expected to see more games based on adult themes and featuring mechanics such as leaderboards and experience points more commonly associated with social and console titles.

In this environment revenue share agreements could thrive again, but distribution is an issue. Games are released in tranches by operators. There are often waiting lists, so developers’ titles are added to a long queue.

Suppliers such as Playtech with proven track records of generating revenue and longterm relationships with operators are given preferential treatment. Why shouldn’t they be?

Their games make money and operators are looking to boost revenue.

There is no industry-wide standard for releasing new games and operators are extremely wary about disclosing too much information about their business strategy.

However, a number of them did share some insights with us on condition of anonymity.

The operator CEO says that it is something his company looks at annually.

“We calculate how many ‘mega releases’ we have over a year and how many smaller ones.

Games strategy changes every year. We follow that, and based on that we decide, we set how big the in-house development team is and what proficiencies it needs.”

Some companies plump for an aggressive schedule of rolling out one game a week. This is something of a ‘survival of the fittest’ approach, one product manager says.

“The popular content would stick around and the rest would fall away,” he explains.

The key problem lies in the fact that little is done to really promote new content. Games may have a week or so to gain traction on an operator’s site, then find themselves shunted out of sight as more titles are added. They may be given a stay of execution if some money is put behind promoting the game. Meanwhile, branded and proprietary games are often afforded a site takeover, with images of the title splashed all over an operator’s casino tab, but they are invested in these games and so demand to see

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“When you get to our casino lobby you’ll get a very Netflix-style experience.

We’ve attempted to replicate one of the most popular apps used by consumers” Jim Ryan, Pala Interactive

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a return. Smaller suppliers have a shorter and shorter window in which to make money.

“We ran a taxi and TV ad campaign for the first time ever, and instead of prompting the brand itself, we promoted a [proprietary] game, and that was, I think, quite unique in the marketplace,” our operator says. Despite refusing to share any figures, the CEO says that the game’s performance had been significantly boosted. But no developer could afford a similar campaign, and it seems unlikely that a third-party title would ever be given such exposure by an operator.

“As the industry has matured it has become more and more like traditional media, you can have a big opening weekend [for a game] and then it may drop off faster in terms of performance, so you have a shorter time period to make the money you are going to make,” McFadden explains.

Delivering the right games Visit a gaming site today and more often than not you will be presented with a host of games on a single page in a grid layout, displayed in a seemingly random order. Naturally the titles at the top of the page attract greater attention.

Operators have started to talk up the barely novel concept of responsive sites, where the display can be customised to player preferences, but this is only just emerging.

Pala Interactive, the tribal gaming operator active in the New Jersey market, is staking its success on developing a site inspired by the likes of Netflix and Amazon. What Pala CEO Jim Ryan is looking to offer is a way of filtering a vast selection of games quickly, using previous choices to build up a profile of the games individual players enjoy most.

“When you get to our casino lobby you’ll get a very Netflix-style experience,” he says.

“We’ve attempted to replicate one of the most popular apps used by consumers, and the experience of being able to get through a ton of content very efficiently and in a short space of time.”

But for now, this approach is the exception rather than the rule. For games to be successful they need to be visible. A lot has been said about personalisation but few operators currently practice what they preach.

Our product manager source says his old employer targeted different individuals or groups of players with particular lobby pages in a bid to ensure users were given content they would prefer. However, he adds, this is not done by all operators.

“Less advanced lobbies just shut [all the new content] up, with little management.”

“We have a very sophisticated back office system which allows us to create different types of incentives and different types of offerings segmented for different types of customers,” an operator CEO adds. “We don’t just measure the impact of a new game on one parameter. It’s a very holistic view of how that game fits into the portfolio.”

There is also the issue of feedback. If a developer does not have its own remote games server, it finds it very difficult to gather much feedback on the performance of new launches.

“To be honest, we only get a limited amount of feedback,” one independent studio founder says. “It all depends on the supplier’s relationship with the operators.”

“I believe that suppliers with their own RGS seem to get more data, but the ultimate would be the likes of Cayetano who have all Paddy Power’s data and can optimise games against it.”

Considering Paddy Power’s proprietary Cayetano studio rolls out games alongside third-party content, smaller developers are not only competing against other platforms and games hosted on the same platform, but in some cases against the operators themselves.

Lack of alternatives As McFadden says, the revenue share agreement does appear to be a “thing of beauty”, but it has not evolved in step with the industry. Money is being divided between a greater number of sources and less of it is available to be pumped back into developing truly innovative content.

What is most worrying is the lack of alternative solutions. GSI stands out, largely because it is just about the only platform provider offering an alternative. Black Cow Games is another. Like GSI it focuses on fixed-revenue deals with suppliers in an attempt to give partners greater scope to grow.

Long-term agreements between operators, developers and platforms make immediate changes difficult across the industry, but it does occasionally appear to be an excuse for inaction. Operators seem only too happy to renegotiate terms when it suits them.

Revenue share once helped to increase choice in the industry. Money flowed to a wide range of suppliers, each doing something different and trying out new mechanics and development strategies. Today, it only seems to limit games developers. Worse still, it could be killing them off. n

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Novomatic acquired a startling 10 companies during 2015. Here, group CTO and Greentube CEO Thomas Graf gives an in-depth view of where the Austrian gaming giant is and where it is going with its iGaming strategy. Interview by Robin Harrison

I N T E RV I E W NOVOMATIC

NOVOMATIC IS A giant of the gaming industry. Anyone who has ever seen its gargantuan stand at the ICE conference will be aware of its largesse.

Its recent annual report revealed revenue growing 5.5 per cent year-on-year to €2.09bn, the highest level in the company’s 35-year history. Earnings before interest, tax, depreciation and amortisation might have fallen 4.7 per cent, but with EBITDA of €616.7m, the company remains extremely profitable.

During 2015 Novomatic made 10 acquisitions, including some key deals in Spain and the UK. The Austrian company purchased Spain’s third-largest games manufacturer Gigames, plus several arcade operations. In the UK, meanwhile, it acquired Playnation, a business operating 20,000 amusement machines in over 1,700 locations.

The acquisitions take the number of companies in the Novomatic Group to 188. With so many subsidiaries it is sometimes difficult for outsiders to understand the full story of Novomatic.

Group chief technology officer and Greentube chief executive officer Thomas Graf is only too happy to explain.

Can you give us a brief history of your time with the company?

I started working for the group back in 1989 when the first sports betting company was founded under the Admiral Sportwetten brand.

Admiral is Austria’s leading chain of retail betting offices, with over 200 outlets across the country.

After gaining experience in various operations management capacities in domestic and foreign markets, I joined Novomatic in 2003 to head up the company’s research and development centre in Austria. After holding this position for six years, I became chief technology officer for the group, leading product innovations within the company and managing a growing multi-national team of software engineers, game designers and system architects.

In addition to playing a key management role on the board of directors of Novomatic, I assumed the role as CEO of Greentube, the interactive division of Novomatic, to spearhead the group’s expansion efforts in the iGaming sector. I also hold a number of board positions with group companies in the US, Spain and the Netherlands.

How do you combine the Novomatic CTO role with that of Greentube CEO – is there much overlap between the two businesses? How does Novomatic feed into Greentube and vice-versa?

There are many crossovers between CTO of the Novomatic Group and CEO of our interactive division, as the latter area continues to play a vital role in the development of the gaming industry. We are now able to offer our land-based customers a quick

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and easy solution to provide tried-and-tested Novomatic content on their online and mobile casinos. Our group-led strategy to acquire leading companies in different gaming verticals applies to both the land-based and online sectors in which we operate. All Novomatic Group companies run interdependently with a shared vision of innovation and market-led content that involves close collaboration between the two businesses.

A recent example of cross-disciplines between Greentube and other Novomatic companies is our server-based Plurius system, a true omni-channel solution involving electronic gaming terminals from Novomatic.

This system has been developed by collaborative efforts between R&D teams from more than five Novomatic companies.

How much overlap between Novomatic’s various subsidiaries is there? Does each department have a degree of autonomy? How do you ensure they can all work together?

A key to the success of Novomatic has been to preserve the identity of the acquired subsidiaries and benefit from their strengths and local market knowledge. We encourage our subsidiaries to continue their individual growth strategies and keep their brand identities intact while at the same time receiving the full support of our headquarters in Austria with access to our extensive R&D capabilities. This is achieved through the acquisition of highly specific companies that fill gaps in our product and geographic portfolios, to meet the evolving requirements of individual markets. We also make sure that a maximum of revenue and cost synergies are being realised.

F E AT U R E

BETWAY

Novomatic targets North and South America from its Chicago HQ

There has been a lot of action taken to expand Novomatic’s business in the past year, such as moves to increase its presence in the UK market. What is the strategy behind these deals?

We made a number of strategic acquisitions over the past year to expand our position in both the operations and supply side of the business. The UK is a very important market for us and Novomatic UK represents the UK’s largest gaming operation comprising manufacturing, operating and distribution of gaming and amusement equipment. The company is a great success story of one of our subsidiaries and has grown to comprise almost 3,000 employees. Last year, Novomatic UK established a new headquarters in London as well as completing the acquisition of Playnation, which operates some 20,000 entertainment devices at over 1,700 locations. And the growth path is set to continue moving forward.

Reports have linked Greentube/Novomatic to a deal to acquire Inspired. Can you comment?

There are always rumours in the gaming industry about potential acquisitions, and Novomatic’s name is frequently being mentioned due to our history of M&A transactions.

Although we maintain a good long-term business relationship with Inspired, these rumours cannot be confirmed.

Greentube is building a presence as a social gaming supplier in the US market. Is work being done behind the scenes to develop a realmoney online gaming offering that can power a land-based casino where regulation permits?

Greentube is currently focusing solely on its B2B private-label social casino offering for land-based casinos throughout the US. Greentube Pro is currently not considering any realmoney offering as it does not meet Greentube’s return on investment expectations, given the limited scope of real-money gaming in just a few states in the US.

It’s striking that Greentube has been able to replace arguably more established iGaming suppliers such as GAN (as Foxwoods’ social gaming partner) – why do you feel this is?

What helps your free-to-play products stand out from competitors?

GIQ Q2 REVIEW

“From an iGaming perspective, while the UK is the most competitive landscape in Europe, we believe there is still room for growth” There are many reasons Greentube has replaced GAN as Foxwoods’ social gaming partner. First and foremost, our private-label social casino platform, Greentube Pro, has been architected and built from the ground up to be a cloud-based social casino platform.

Almost all of our major competitors, GAN in particular, developed real-money gaming platforms for a market that never materialised.

These providers were then caught with the wrong product, in the wrong market, at the wrong time. To survive, they had to rebrand their solutions as social casino solutions.

The Greentube Pro platform, firstly, is truly customisable so it can be built to meet the branding, marketing and operational requirements of our clients the casino operators. Second, we happen to think user interface design and information architecture is extremely important to the end-user customer experience. Our competitors think bland templates that look alike on every site is great

design, but we believe our clients and their players deserve better.

Third, besides the ability to purchase virtual currency, the Greentube Pro solution is a huge marketing platform with multiple features and functions. This allows the casino to market and message players directly while they are in the game, through many channels. The ultimate goal is to drive those players back to the land-based casino through an innovative rewards system.

Fourth, to be a social casino you have to be able to offer ways for players to interact with their friends through different social mechanics such as gifting, sending luck, inviting friends, etc. Fifth, content is king for social casino gaming and the Greentube Pro platform brings the entire Novomatic and Greentube game libraries with it. Our games are successful throughout the world and they are now available in the US market.

Finally, the Greentube Pro platform is backed by the Novomatic group, whose reputation and experience is known worldwide.

Having established Novomatic in the UK through acquisitions, how does the company intend to strengthen its presence there? Is there space for growth in the iGaming market?

We noted the opportunity in 2009-10 to embark upon an acquisitive strategy in the 47

I N T E RV I E W NOVOMATIC

Italy being the first market to enter with a dedicated B2C solution. Substantial investments in server infrastructure, local language support, local marketing and compliance are necessary for an increasingly fragmented and ring-fenced operating environment.

What other territories do you feel offer opportunities for growth?

UK. The years that followed revealed sensible opportunities for acquisitive growth and we have managed to successfully build a UK group with critical mass, active in all areas of the UK gaming space. Employing more than 2,500 people in operations, design and manufacturing, we have built a large and dynamic business. Going forward our focus is now on consolidation; investment in our UK business is underpinning a strategy of profitable organic growth.

Given there are eight very distinct companies as part of the Novomatic UK group, the companies work very closely together and are always finding ways to support each other and profitably grow the business. The overriding and key aspect in the UK is to delight customers with the best games, product, technology, ideas, service and support. We aim to be nothing less than the very best in this market.

Naturally this is very challenging in a sophisticated and dynamic market such as the UK. However, with the support of the parent company, as well as excellent customers and staff, we are convinced the UK group will continue to exceed customer expectations.

From an iGaming perspective, while the UK is, by and large, the most competitive landscape in Europe, we believe there is still room for growth. Technology and product will shift and change, addressing needs in different and creative ways. New products will emerge and investment in R&D and creative ideas will pave the way for further growth and shifting of the status quo. Both land-based and iGaming will be exciting places to be in the UK for a long time to come.

Novomatic UK’s wholly owned subsidiary Greentube Vienna provides game content to 48

a growing number of land-based and internet gaming operators throughout the UK. The number of Greentube RGS integrations will more than double in the next 12-18 months.

By 2017-18, the largest 10 iGaming operators, controlling approximately 90 per cent of the UK market, will all have been integrated with Greentube’s B2B solution. On the B2B landbased side, our focus will be centred around offering Novomatic retail customers a true omni-channel gaming solution, combining electronic gaming terminal, desktop and mobile applications.

Many have argued that Novomatic/Greentube is a ‘sleeping giant’ in the iGaming space.

People have suggested that if it was to make a serious push to develop a strong presence in the sector it would quickly grow to rival the likes of Playtech. Would you agree?

The key difference between Greentube and the likes of Playtech and NYX is that our dual strategy of being an operator and technology provider is also true for our iGaming business. On the B2B side, our clear focus is to provide our iconic blue-chip land-based games to customers for their omni-channel strategy. We offer very localised content via a growing number of Greentube SDK partners with a clear focus on slot game content. We are bringing some of the top-performing land-based games from countries such as the UK, Italy, Spain, Belgium and Latvia to licensed iGaming operators in these jurisdictions. And the number is constantly growing thanks to the ongoing regulation of internet gaming throughout Europe.

We have been focusing on setting up a technological infrastructure in each market, where we are following our dual strategy with

Novomatic is a major international player, with locations in over 50 countries and more than 24,000 staff worldwide. One of our principle focuses this year is the expansion in North and Latin America. From its base in Chicago, Novomatic Americas has been working tirelessly on licensing processes over the past two years. This has been a significant investment that will start to pay off this year as we begin to introduce our products to the market. We have established a new headquarters in Illinois, as well as opened a product development studio at the facility, with a recruitment drive for local developers. This allows us to adapt Novomatic games to meet US player tastes as well as create bespoke US games in line with player preferences.

Can you give some insight into how Novomatic’s senior management keeps control of such a huge business? What has helped the company maintain such a high level of success?

Maintaining the highest standards of production and service, attracting the best talents in many different areas of our business and creating the best possible customer experience are core values shared among our numerous subsidiaries operating throughout the world. Combined with the strategic vision of our founder and majority shareholder, Professor Johann F Graf, these principles have ensured we maintain high levels of success in all areas of our business. We make a significant investment in R&D each year which enables Novomatic to deliver a continuous stream of leading product innovations to the market.

Conversely, are there any failures you feel have harmed the business or slowed its progress?

As an organisation with a rapid expansion of new markets in each pocket of the global gaming industry, we continue to learn as we grow.

Changing regulations in different international jurisdictions remains a challenge, and creating market-first innovation might not always perform as expected in certain markets, but we work closely with regulators and customers to ensure the best products are delivered to meet the needs of changing market dynamics. n

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GVC AND THE INTEGRATION OF BWIN.PARTY

Healing Hands bwin.party had lost its way but with a new management team in place, GVC is bringing it back to life. Steve Hoare speaks to chief operating officer Shay Segev and chief product officer Liron Snir about the task ahead

GVC CHIEF OPERATING officer Shay Segev was recruited from Gala Coral to manage the integration of GVC and bwin.party, and deliver the €125m in synergies that would make the transaction a success. It’s a pretty big job.

In effect, chief executive Kenny Alexander is backing Segev to make a success of bwin.party in a way that Jim Ryan and Norbert Teufelberger could not. While integrating bwin with GVC’s other brands (Sportingbet, Betboo et al), Segev is also expected to take out a huge number of people and technology costs. Segev is unfazed by the magnitude of the task but he does need some help.

His first move was to recruit former Playtech colleague Liron Snir as chief product officer. The new recruits are Gaming Intelligence Hot 50 alumni – as is boss Alexander. Together with a senior management team drawn more or less equally from bwin and GVC, they are pushing ahead with an integration that is reaping fruit far quicker than anyone could have expected.

First quarter results for bwin.party alone GIQ Q2 REVIEW

were up eight per cent – a minor miracle after years and years of stagnation and decline.

While Alexander attributed that growth to the fact that GVC acquired a company that had stabilised and was ready to return to growth, there is little doubt that the new team in charge has had an energising effect on the business.

The difficulty that bwin had integrating PartyGaming is well documented. It then spent the best part of a couple of years trying to sell the business.

“If you look at the bwin.party offering it’s probably three years old,” says Segev. “There is a missing knowledge of where this industry went during the past three years.”

This is where Segev and Snir come in.

The pair worked together closely at Playtech for nine years. Segev was VP of products and delivery, while Snir was in charge of customer relations, so they collaborated on the design of the product roadmap for customers. They both have strong technological backgrounds, which worked well when communicating with devel-

opment teams or third parties.

By the time Segev left Playtech for a year at Gala Coral he was chief operating officer.

Snir was VP for product strategy. His experience was just what GVC needed. Segev was only too happy to recommend his former colleague after joining GVC. Segev started on 1 March and Snir joined one month later.

If you speak to any of Segev’s former colleagues at Gala Coral, they will tell you that he was a breath of fresh air. One tells me that he refused to acknowledge barriers. If there was a way to do something, he would find it. It is not in his psychological make-up to let bureaucracy get in the way of progress. This was quite an eye opener for many of Gala Coral’s old hands, who were used to innovation getting held up by big company politics or red tape. Snir brings a similar mentality.

First things first The pair have wasted no time getting down to business with their new employer. The 51

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GVC AND THE INTEGRATION OF BWIN.PARTY

“Revamping the front-end technology is not rocket science. It is about making life easier for the players and for us” Liron Snir, GVC

The relaunched PartyCasino.com; bwin sponsored MotoGP

relaunch of PartyCasino.com came just four months after GVC acquired the company.

The main changes regard the front-end.

The new site features an improved player lobby, crisp large game tiles and immediate access to recently played games. It also features a new customisable favourites section, allowing players to fill their own pages with the games they enjoy the most, and a ‘recent winners’ spot, which will highlight the players enjoying big wins, and on which game.

This is supported by a number of technical improvements to make the site more flexible and speed up the player journey, allowing additional feature enhancements and promotions to be rolled out rapidly.

“Revamping the front-end technology is not rocket science,” says Snir. “It is about making life easier for the players and for us.”

“It is not a matter of reinventing the wheel or innovating or being the next big thing,” agrees Segev. “We

need to have a good view of where the industry is today and what all these operators are doing now.”

These words will be music to the ears of boss Alexander, whose hugely successful approach has been driven by pragmatism, practicality and attention to detail and to the bottom line.

“All of these operators were my clients,” continues Snir, “and I was very much involved in their roadmaps and business decisions. Coming from Playtech, which is such a hub, you learn so much and do so much.”

“Liron is leading a change in products that will not happen overnight,” chips in Segev. “We will not introduce a lot at the same time. It will be a step-by-step evolution rather than a revolution.”

While the relaunch of PartyCasino.com might look like a large project, a lot can be accomplished with a simple tweak or a decision to drive through a positive change. For example, loading times on in-house games were much slower than the industry norm. The change needed to fix this is not difficult to deliver from a technical perspective, argues Snir.

“Because the organisation was stuck for a year waiting for someone to acquire it, nobody

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GVC AND THE INTEGRATION OF BWIN.PARTY

took a decision. This is what has changed most.

People like Shay and myself take decisions,” says Snir. “If you ask me ‘what is the best wallet?’ I will tell you. I don’t need lots of trial and error.”

These minor issues/easy fixes are found elsewhere. For example, the bwin fixed-odds sportsbook and the in-play book were running separately but it is not difficult to merge the two, says Snir. bwin was one of the first operators to introduce in-play and it evolved as two separate books, but the industry realised a long time ago that one book was better than two.

There is a danger that GVC will get left behind as it plays catch-up, but Segev is unconcerned by such a scenario. He sees huge benefit in GVC owning all of its own technology. It is an advantage often cited by 888 , “but they don’t own their sportsbook,” notes Snir.

Snir draws comfort from the theory of second-mover advantage. While bwin was an innovator with in-play, it suffered from not taking it to the next level. It suffered last time round but could benefit now.

“We know what is and isn’t beneficial, and the main thing is focusing on the main things that will drive revenue,” comments Snir.

GIQ Q2 REVIEW

“We don’t need every feature.

We just need to get the most important things right” Shay Segev, GVC

53

C OV E R F E AT U R E

GVC AND THE INTEGRATION OF BWIN.PARTY

“We don’t need every feature,” agrees Segev.

“We just need to get the most important things right.”

This is a strategy of parsimony that will be familiar to experienced GVC-watchers.

The company has bought well and stripped out the fat to focus on the key things that drive revenue – and, in turn, drive dividends towards shareholders.

The synergies question GVC is good at extracting value. One of the most eye-catching aspects of the GVC-bwin deal (in addition to the £1.12bn price) was the promise of €125m in synergies. The responsibility for fulfilling this falls on Segev. He admits it is early days in terms of the hunt for synergies.

“There is probably a duplication all over the business because you are basically merging two identical companies,” he says.

The management team is reviewing each and every area. It involves a lot of analysis and a lot of meetings. Of course, some unpleasant decisions will have to be taken regarding people’s jobs, but that is the nature of the beast. While salary costs will probably make up the majority of cuts, Segev believes technology savings will not be far behind and might even end up being bigger.

“It’s quite expensive to maintain a full stack of technologies,” says Segev. “That’s why we have seen a lot of consolidation.”

The relaunched PartyCasino sits on a new framework that was launched for bwin last year. It will eventually be rolled out to all of GVC’s sites, including the likes of Sportingbet and Betboo.

“It’s a small bit but it’s part of the bigger plan,” says Snir. “The idea is to have the same front end across all sites. Then, when you do one development, it can be put across all sites.”

Including, it seems, the new Betfred.com.

GVC signed a 10-year deal at the end of May to provide Betfred with a full technology stack.

GVC will replace a variety of platforms provided by the likes of Finsoft (IGT) and Playtech.

While GVC’s former Playtech pair might look like obvious catalysts for this type of deal, it was the PartyGaming B2B team that opened the door a long time before GVC closed in on its acquisition of bwin.party.

Under the leadership of Jim Ryan, PartyGaming entered the world of B2B with some gusto back in 2010, when it signed deals to pro54

vide casino and poker to former bwin.party CEO Norbert Teufelberger Danish monopoly Danske and his closest lieutenants.

Spil, poker to French monopoly Tom Waters was previously head of finance PMU and poker to Boyd Gaming and business intelligence for games at bwin. and MGM in the US. To a large extent, party, and has since become group head of the company has gone quiet since those heady PartyPoker and Cashcade. Adam Lewis joined days – mired in integration, looking inward GVC with Sportingbet, and is now chief marketrather than outwards. ing officer for all the sport labels.

“This is transformational,” says Segev. “It’s Interestingly, there are a few among the the first time we have opened up and given the GVC old guard with previous experience of full stack to a tier-one customer.” bwin.party. Jon Salmon is in charge of GVC’s bwin’s previous B2B experience did not gaming labels and was formerly CMO at Parspread much beyond Ongame’s poker clients, tyGaming. He joined GVC as managing direcso this all-encompassing deal is new territory. tor of the company’s German-facing CasinoClub Is Segev not concerned that the Betfred deal business in 2010. CTO Keith Laidlaw joined might distract attention from the almighty task GVC in 2011, following spells at Ongame and he already has on his plate?

PartyGaming.

“For us it’s like playing in a playground “GVC was quite a small company that is we’re familiar with,” replies becoming much larger,” says Segev. “If you look into the Snir. “It’s new to me working technology, it’s already fit to with these people, as GVC was “If you look into the serve different brands. So it technology, it’s already not a Playtech customer. But doesn’t require a big change it’s a strong team and it’s comfit to serve different to fit a B2B model.” ing together really nicely.” brands. So it doesn’t However, he admits that Segev admits he was somerequire a big change he doubts the company will what concerned about what he to fit a B2B model” strike another deal of this might find given the history of size anytime soon.

Shay Segev, GVC bwin.party. He was worried “Betfred will be a test that there would be a lot of case we need to deliver,” concludes Segev. issues that would take a long time to fix, but he has been pleasantly surprised.

Meeting the team “It was just missing the drive and the deciThe Betfred deal highlights the fact that the sion-making. I just see so much opportunity.” new boys are not doing this alone. Chief execuSegev gives himself a timescale of 12 to 24 tive Alexander has assembled a strong manmonths to get it right. The main focus during agement team that he believes draws on the that time will be integration and installing the strengths of all his acquired brands, along new blueprint. With the kind of small tweaks with a sprinkling of stardust from the former that can make a big difference, Segev is looking Playtech duo. forward with confidence.

Alexander has spoken about an overhaul of “We will definitely grow more than the the company’s culture and he has been assiduindustry average,” he predicts. Few would bet ously building a fresh team to replace that of against him. n

ON THE FOLLOWING PAGES

58 GIQ20 Q1 2016 results and analysis 71 Fantini 15 US operators Q1 2016 76 The Gaming Intelligence stock index Q2 2016

The GIQ Q1 2016 It was a strong first quarter for those companies making up the GIQ20 chart, with the top five all benefiting from recent acquisitions and Intertain holding on to its position at the top for the third consecutive period. This pattern is likely to continue for the foreseeable future, with GVC closing the gap, and NYX and Cherry moving further ahead with their acquisitive strategies after deals for OpenBet and ComeOn respectively.

Mobile gaming specialist LeoVegas was a new addition to the chart following its IPO in Sweden in March. It becomes the eighth Stockholm-listed company to make the GIQ20, reflecting the Swedes’ entrepreneurial spirit and longstanding influence in the iGaming sector.

While Jackpotjoy boosted Intertain’s results, GVC returned bwin.party to year-onyear growth in Q1. With results already at a low, one suspects that the real hard work begins now. A new B2B deal with Betfred and approval from the New Jersey regulator provided some more good news for the operator, too.

There was impressive growth from Ladbrokes’ digital business, which was the best performing UK bookmaker, with Gala Coral also posting strong online results – putting the two companies in good stead ahead of their impending merger later this year.

Results were pretty strong for Paddy Power Betfair too, but William Hill’s poor recent run continued as, again, it missed out on a place in the chart. n GIQ Q2 REVIEW

The GIQ20 Q1 2016 COMPANY

ONLINE Q1 2015

ONLINE Q1 2016

% CHANGE

CAD$32.8m

CAD$128.5m

292%

€60.0m

€167.7m

180%

SEK60.1m

SEK138.5m

133%

£3.8m

£7.5m

100%

CAD$9.9M

CAD$18.8m

89%

1

INTERTAIN GROUP

2

GVC HOLDINGS

3

CHERRY

4

GAMING REALMS

5

NYX GAMING

6

LEOVEGAS

€15.9m

€29.5m

86%

7

UNIBET

£76.1m

£122.4m

61%

8

EVOLUTION GAMING

€15.6m

€24.8m

59%

9

SCIENTIFIC GAMES

$46.9m

$72.6m

55%

10

LADBROKES

N/A

N/A

37%

11

NETENT

SEK258.3m

SEK345.4m

34%

12

KAMBI GROUP

€10.0m

€13.3m

33%

13

GALA CORAL

£58.4m

£75.1m

29%

14

CAESARS INTERACTIVE

$176.6m

$227.8m

29%

15

CHURCHILL DOWNS

$137.3m

$171.5m

25%

16

PADDY POWER BETFAIR (INCL. OZ &

£229m

£273m

19%

17

BETSSON

SEK847.4m

SEK1,000.1m

18%

18

MR GREEN & CO

SEK195.2m

SEK218.5m

12%

19

ZEAL NETWORK

€36.1m

€38.6m

7%

20

AMAYA

CAD$272.3m

CAD$288.7m

6%

57

F I NA NC E GIQ20 Q1 2016

Intertain out on top again but GVC storms up the chart

GVC has already managed to return bwin.party to growth, writes Kio Dawson, but its biggest challenges are still to come

NGR +292% Net revenue CAD$

58

Q1 2015 Q1 2016

Change

Jackpotjoy

n/a

87.4m

n/a

Vera&John

15.2m

25.3m

66%

Mandalay

9.9m

11.4m

15%

InterCasino

7.7m

4.4m

-43%

32.8m

128.5m

292%

TOTAL

Kenneth Alexander

tives, including a greater exposure to European markets. At the end of June, it announced the appointments of Neil Goulden as chairman and Andrew McIver as chief executive.

INTERTAIN GROUP

After topping the GIQ20 chart in its last two editions, Canada’s Intertain held on to its position during the first quarter of 2016 as its acquisition of Jackpotjoy continued to boost results.

During Q1, Jackpotjoy contributed 68 per cent of revenue with CAD$87.4m, having grown by 20 per cent on a like-for-like basis, due mostly to growth in the UK and Spain. Vera&John revenue increased by 53 per cent following continued organic growth in existing markets, while Mandalay revenue was up nine per cent.

At the end of the period, total average customers were up nine per cent year-on-year to 218,701, as a result of growth across all brands, except InterCasino.

Intertain’s future remains up in the air for now, with the company receiving a number of preliminary offers from third parties and exploring a broad range of value-enhancing alterna-

GVC NGR +180% Net revenue Euros (€)

Q1 2015 Q1 2016

Change

Sports betting

28.2m

70.3m

149%

Gaming

31.7m

92.5m

192%

n/a

4.9m

n/a

60.0m

167.7m

180%

Other TOTAL

GVC saw first quarter revenue soar by 180 per cent to €167.7m, benefiting from the first contributions from the recently acquired bwin.party, which was completed on 1 February.

Revenue from sports betting rose 147 per cent to €70.3m, although the gaming vertical performed even better, with revenue up 189 per cent to €92.5m. This included the first year-on-year quarterly growth for five years from the PartyPoker brand. Overall, bwin. party accounted for 71 per cent of total revenue during Q1, with results up by eight per cent year-on-year to €163m, with revenue from GVC’s existing operations increasing 12 per cent to €67.9m.

F I NA NC E

GIQ20 Q1 2016

“The board believes the group has never been in a stronger position than now, benefitting from robust trading; diversified products and markets; highly motivated staff; and technological opportunities which will allow the group to prosper,” said GVC CEO Kenneth Alexander. “We look forward to a successful year.”

GVC is confident the company can secure its target of €125m cost synergies within a year, the full benefits of which will be seen in 2018.

CHERRY NGR +133% Net revenue SEK Online Gaming

Q1 2015 Q1 2016

Change

58.3m

127.3m

118%

2.3m

14.2m

517%

Internal revenue from Yggdrasil to Cherry

(0.5m)

(3.0m)

N/A

TOTAL

60.1m

138.5m

133%

Yggdrasil Gaming

Cherry’s focus on its iGaming businesses has seen revenue more than double to SEK141.5m (including Yggdrasil) during the first quarter of 2016, with further growth to come following its acquisition of ComeOn. Revenue from online gaming, which includes CherryCasino.com and SpilleAutomater.com among others, climbed 118 per cent year-on-year to SEK127.3m, as the number of active players more than tripled to 79,378.

Games developer Yggdrasil contributed a further SEK14.2m in revenue.

Online now represents 78 per cent of the company’s total revenue of SEK177.3m, up from a 63 per cent share a year ago.

Cherry CEO Fredrik Burvall commented: “Cherry continues to deliver according to its strategy, which combines organic growth with strategic acquisitions. Our strategy and our diversified business areas create very good conditions for continued strong expansion, strong profitability and strong growth of value.”

In May, Cherry signed an agreement to acquire a 49 per cent stake in ComeOn, which operates brands such as ComeOn.com, Mobilbet.com, GetLucky.com and Kasyno.com. As part of the deal, Cherry has the option to acquire the remaining 51 per cent of the business later this year. ComeOn expects to generate turnover of €100m-€120m this year.

GIQ Q2 REVIEW

GAMING REALMS NGR +97% Net revenue £

Q1 2015 Q1 2016

Change

Real-money gambling

1.8m

4.2m

133%

Social and licensing

0.3m

2.0m

567%

Marketing services

1.7m

1.3m

-24%

TOTAL

3.8m

7.5m

197%

“Cherry continues to deliver according to its strategy, which combines organic growth with strategic acquisitions” Fredrik Burvall, Cherry

It has been an encouraging start to 2016 for Gaming Realms, with a number of licence agreements already signed for its Slingo product and revenue doubling to £7.5m in the first quarter.

Real-money gaming revenue rose 128 per cent to £4.2m, while revenue from the US-facing social and licensing business climbed 643 per cent to £2m. The remainder was generated from its marketing services business.

Total new depositing players increased by 73 per cent to 62,106, with 81 per cent of realmoney players on the company’s proprietary Grizzly platform playing via mobile.

During Q1 Gaming Realms signed licensing deals with Scientific Games, Zynga, Fremantle Media and Endemol, launched a new Britain’s Got Talent games website and signed a partnership with Pala Interactive to provide bingo software in the New Jersey iGaming market.

“In addition to our B2B licensing partnerships into global lottery and land-based casino 59

F I NA NC E GIQ20 Q1 2016

“Q1 not only marks another strong quarter but is also a confirmation of our long-term strategy to be the leading provider of digital gaming content and technology worldwide” Matt Davey, NYX Gaming markets, our ability to attract highly complementary media brands such as Britain’s Got Talent, the X Factor and Deal or No Deal into our own B2C business offers us potential for further growth in the remainder of 2016,” said Gaming Realms chairman Michael Buckley.

NYX GAMING NGR +89% Net revenue CAD$

Q1 2015 Q1 2016

Change

UK and Europe

6.7m

13.6m

Americas & Caribbean

3.1m

4.5m

103% 45%

Australasia

0.1m

0.6m

500%

TOTAL

9.9m

18.8m

89%

NYX Gaming hailed the success of its acquisition strategy, which helped revenue reach $18.8m for the first quarter of 2016. Royalty and licensing revenue was the main driver of growth, with NYX benefiting from a full contribution from its recent acquisitions and four new customers launching during the period.

During Q1, the supplier continued to see strong demand for its Open Gaming System (OGS) and Open Platform System (OPS), with 12 new OGS agreements signed during the period.

OGS was launched with four new client sites in the regulated Latvian, Belgian and Danish markets, while its Italian Game360 subsidiary rolled out a sportsbook for Stanleybet and 60

content for Sisal and SNAI. NYX also signed a deal with the Netherlands’ newly-merged national lottery to integrate content and a player account management system via the OPS. “We are very proud that Q1 not only marks another strong quarter but is also a confirmation of our long-term strategy to be the leading provider of digital gaming content and technology worldwide,” said NYX CEO Matt Davey.

NYX’s acquisitive nature was reaffirmed when it completed the purchase of sportsbook supplier OpenBet in May, following that deal up with the acquisition of UK-based technology and content provider Betdigital.

LEOVEGAS NGR +86% Net revenue Euros (€) TOTAL

Q1 2015 Q1 2016 15.9m

29.5m

Change 86%

Making its first appearance in the GIQ20 chart after its Stockholm IPO in March, mobile gaming specialist LeoVegas posted an 86 per cent increase in revenue to €29.5m in Q1 and followed that up with the launch of a Kambipowered sportsbook in May. The company benefited from organic growth during the period, including new launches in Canada, the Czech Republic and Slovakia, although results were impacted by currency fluctuations.

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sales@sbtech.com www.sbtech.com

F I NA NC E GIQ20 Q1 2016

“LeoVegas’ strategy is to prioritise growth,” said LeoVegas CEO and co-founder Gustaf Hagman. “In connection with the launch of LeoVegas Sport, we will increase our investments in marketing and act upon the new opportunities during this major year in the world of sport.”

Hagman said that the venture represents an exciting growth opportunity and the addition of new customers, even though the company will likely see a decrease in profitability in the near term.

“Our investments in LeoVegas Sport and Live Casino should be viewed from a longterm perspective,” he continued. “With strong growth, good profitability and our successful stock market introduction behind us, we are looking forward to an exciting and eventful summer.”

UNIBET NGR +61% Net revenue £

Q1 2015 Q1 2016

The recently purchased businesses contributed £12.8m during the quarter, equivalent to more than 10 per cent of the company’s total revenue.

Casino and games accounted for half of revenue during Q1, having grown by 76 per cent versus a year ago to £61.3m. The vertical now offers players over 800 games from 47 software providers, with 15 games exclusive to Unibet.

Sports betting also saw strong growth, up 52 per cent to £54.1m, with live betting representing 52 per cent of the total. Poker revenue climbed 45 per cent to £3.2m, while other revenue was up nine per cent to £3.8m “This is, again, significantly higher growth than the overall market and indicates that we are continuing to take market share across the board,” said Unibet CEO Henrik Tjärnström. “Our market-leading mobile offerings are continuing to deliver strong growth and now account for 59 per cent of gross winnings revenue.”

Change

Sports betting

35.5m

54.1m

52%

EVOLUTION GAMING

Casino and games

34.9m

61.3m

76%

NGR +59%

Poker

2.2m

3.2m

45%

Other

3.5m

3.8m

9%

TOTAL

76.1m

122.4m

61%

Unibet benefited from strong contributions from the newly acquired Stan James Online and iGame Group businesses, which helped first quarter gross winnings revenue climb 61 per cent to a record £122.4m.

62

Net revenue Euros (€) TOTAL

Q1 2015 Q1 2016 15.6m

24.8m

Change 59%

Live casino specialist Evolution posted a 59 per cent increase in revenue to €24.8m for the first quarter of 2016, with mobile now accounting for more than a third of the total.

“Although live casino remains a small part of the total online gaming market, with its social interaction and customisable content, it has what it takes to continue growing at a high pace over the coming years” Jens von Bahr, Evolution Gaming

The company said that the year so far had been characterised by a high level of activity, with the positive revenue development mainly derived from increased commission income from existing and new customers.

“Although live casino remains a small part of the total online gaming market, with its social interaction and customisable content, it has what it takes to continue growing at a high pace over the coming years,” said Evolution Gaming CEO Jens von Bahr. “At the same time, we will continue working according to our clear strategy to support both existing customers to develop their live offerings, while also benefitting from future growth areas such as land-based casinos.”

Last year’s strategic agreement with Microgaming also began to produce results for the company during Q1, with Betway having integrated its services fully, including a number of dedicated tables, and 32Red the next operator set to take on its products.

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F I NA NC E GIQ20 Q1 2016

SCIENTIFIC GAMES

“Since July 2015 we have been successfully implementing our strategic plan and the encouraging customer metrics we saw at the end of the year have continued during Q1 2016” Jim Mullen, Ladbrokes

NGR +55% Net revenue £ Social gaming Real-money gaming TOTAL

Q1 2015

Q1 2016

40.9m

64.8m

Change 58%

6.0m

7.8m

30%

46.9m

72.6m

55%

Scientific Games Corporation reported a 55 per cent increase in first quarter revenue to $72.6m from its interactive division, buoyed by the strong performance of its social gaming business which accounted for 89 per cent of the total.

Social gaming revenue grew 58 per cent year-on-year due to the ongoing popularity of its Jackpot Party Social Casino, the success of Quick Hit Slots social app, and the launch of Hot Shot Social Casino. Revenue was up 20 per cent on a sequential quarterly basis.

Average daily active users (DAUs) rose nine per cent to 2.5m, with average monthly active users (MAUs) climbing four per cent to eight million. Average daily revenue per DAU rose 37 per cent to $0.26.

Revenue from the company’s real-money gaming business climbed 30 per cent to $7.8m.

Overall, the interactive division represented just 11 per cent of Scientific Games overall revenue in Q1, which rose four per cent to $682m.

it celebrated its best quarterly result in years.

Digital revenue was up 36.5 per cent despite a disappointing racing festival, as sportsbook revenue grew by 59 per cent yearon-year, buoyed by a 35 per cent improvement in stakes, a 28 per cent rise in actives and a gross win margin of 7.9 per cent. Mobile staking rose 58 per cent and now represents 77 per cent of sportsbook stakes.

Gaming also performed well, with revenue climbing 27 per cent, its sixth consecutive quarter of year-on-year growth, with actives up 44 per cent. In Australia, revenue increased by 38 per cent in local currency, as sustained marketing and sponsorship activity delivered increased actives and recreational customer base.

“Since July 2015 we have been successfully implementing our strategic plan and the encouraging customer metrics we saw at the end of the year have continued during the first quarter of 2016,” Ladbrokes’ chief executive Jim Mullen said. “While we see plenty of evidence to support that our plan is working, our focus remains on delivering against our strategy and our 2017 targets.”

NETENT NGR +34% Net revenue

LADBROKES

SEK

Q1 2015 Q1 2016

NGR +36.5%

TOTAL

258.3m

Net revenue £

Q1 2015 Q1 2016

Change

Ladbrokes.com plus Exchanges

n/a

n/a

38%

Sportsbook

n/a

n/a

59%

Gaming

n/a

n/a

27%

Ladbrokes Australia

n/a

n/a

38%

TOTAL

n/a

n/a

36.5%

With a mega-merger with Coral on the cards and chief rival William Hill struggling, the good times appear to be returning to Ladbrokes’ digital business, as

Jim Mullen

345.4m

Change 34%

The Swedish casino games supplier enjoyed a successful first quarter as revenue rose 34 per cent on the back of the release of its most successful game to date.

The number of gaming transactions processed by NetEnt in Q1 reached 8.9bn, up 37 per cent from the previous year.

Customer growth continued over the quarter with nine new licence agreements signed, and eight new customers launching NetEnt’s casino games, with the roll-out of content with PokerStars in New Jersey a highlight.

“We have successfully signed up all gam-

F I NA NC E

GIQ20 Q1 2016

“We are very pleased with the traction and market share gains we continue to see from our operators” Kristian Nylén, Kambi

amounts staked rose 27 per cent to £1.92bn, with year-on-year revenue growth boosted by strong performances across its brands, in particular Coral.co.uk which contributed more than half of online revenue.

Active customers also grew across the brands, with Coral.co.uk actives up to now up to 585,800, Gala website actives actives up to 210,700 and the Italian-facing Eurobet brand up to 156,000.Ahead of its merger with Ladbrokes, both companies may have to sell around 350 to 400 UK retail shops to resolve competition concerns following a provisional ruling by the Competition and Markets Authority (CMA).

ing operators in New Jersey and have quickly gained market share and traction with our games there, which is good for our future growth not only in New Jersey, but also in other US states, if and when they decide to reregulate the online gaming market,” CEO Per Eriksson explained.

Eriksson also credited some of its success to the release of the Guns N’ Roses slot game in January, which became the company’s most successful game release so far.

far in 2016, with new sportsbook products rolled out for LeoVegas and Mr Green ahead of Euro 2016.

“We are very pleased with the traction and market share gains we continue to see from our operators as we service them with a highly competitive and cost-efficient sportsbook,” said Kambi CEO Kristian Nylén.

Kambi expects the roll out of its new HTML5 client and upgraded Italian service to position the company to be able to build on the success of its operators this year.

KAMBI GROUP GALA CORAL

NGR +33%

NGR +29%

Net revenue Euros (€) TOTAL

Q1 2015 Q1 2016 10.0m

13.3m

Change 33%

It has been a busy start to the year for Swedish sportsbook supplier Kambi, and its Q1 results reflected its recent success as revenue climbed 33 per cent year-on-year.

Operators utilising the Kambi platform saw their first quarter turnover climb by more than 50 per cent year-on-year, helping the supplier’s Q1 revenue rise to €13.3m. The company has signed new agreements with LeoVegas, Grosvenor Casinos, Mr Green and 32Red so GIQ Q2 REVIEW

Net revenue £

Q1 2015 Q1 2016

Change

Coral.co.uk

26.4m

38.5m

46%

Gala websites

22.6m

24.0m

6%

9.4m

12.6m

34%

58.4m

75.1m

29%

Eurobet.it TOTAL

Gala Coral’s online channel continues to go from strength-to-strength and now accounts for more than a quarter (27 per cent) of the operator’s total revenue.

In the first three months of 2016, total

CAESARS INTERACTIVE NGR +29% Net revenue US$ Social and mobile games WSOP and real-money gaming TOTAL

Q1 2015 Q1 2016

Change

167.6m

218.2m

30%

9.0m

9.6m

7%

176.6m

227.8m

29%

Caesars Interactive Entertainment (CIE) benefited from a strong performance from its social gaming business, which saw average daily active users increase to more than 6.76m during Q1.

CIE, a subsidiary of Caesars Growth Partners, saw revenue from social and mobile games climb 30 per cent, with WSOP and realmoney gaming revenue up seven per cent year-on-year.

North America represented 76 per cent of social and mobile games revenue, up from a 71 per cent share in the previous year, with Asia Pacific contributing 13 per cent and Europe 10 per cent. The company said that the increase in revenue and earnings was driven primarily by the continued focus on conversion and monetisation of users to increase revenue per user.

Average daily active users across its Playtika 65

F I NA NC E GIQ20 Q1 2016

brands rose 11 per cent year-on-year to 6.76m, with monthly active users up by 17 per cent to 22.26m. Average revenue per user increased by 13 per cent to $0.35.

BETSSON NGR +18% Net revenue SEK

Q1 2015

Q1 2016

Change

CHURCHILL DOWNS INCORPORATED

Casino

585.0m

669.1m

14%

NGR +25%

Poker

29.3m

33.3m

14%

Sportsbook

217.7m

292.8m

34%

Other

15.4m

4.9m

-68%

847.4m 1,000.1m

18%

Net revenue US$

Q1 2015 Q1 2016

Change

TwinSpires

45.4m

49.4m

9%

Big Fish Games

91.9m

122.1m

33%

$137.3m $171.5m

25%

TOTAL

US racetrack and casino operator Churchill Downs owed its first quarter growth to the improvements in its casual and mid-core freeto-play business, which saw revenue increase by 33 per cent.

Big Fish Games remained the principal driver of CDI revenue growth in Q1, contributing revenue of $122.1m in the period, up 33 per cent year-on-year.

This came despite a decline in bookings from its flagship social casino business, down four per cent to $47.4m. Casual and mid-core games saw bookings double to $55m, with Gummy Drop, Dungeon Boss and Fairway Solitaire Blast picked out as key performers.

Premium games bookings fell 10 per cent to $25.8m.

The online account wagering business TwinSpires saw revenue climb nine per cent following handle growth of 11 per cent, which CDI said outpaced total industry performance by 7.5 percentage points.

Combined, the interactive business now generates nearly 60 per cent of CDI’s total revenue.

PADDY PADDY

66

TOTAL

Breon Corcoran

PADDY POWER BETFAIR NGR +19% Net revenue £

Q1 2015 Q1 2016

Change

Online

167m

195m

17%

– Sports

116m

135m

17%

– Gaming

51m

60m

17%

Australia

47m

58m

22%

15m

20m

29%

£229m

£273m

19%

US TOTAL

Newly merged Paddy Power Betfair saw growth across all of its business divisions during Q1, with its combined online business now contributing more than 80 per cent of the company’s revenue.

Online revenue grew by 17 per cent, with sports revenue also up by 17 per cent, driven by a 23 per cent increase in sportsbook stakes and five per cent growth in Exchange and B2B revenue. Mobile continues to be a key driver of sportsbook growth and now represents 76 per cent of sportsbook revenue.

The operator’s Australian and US businesses generated a further £78m in combined revenue, with strong year-on-year growth of 22 per cent and 29 per cent respectively.

CEO Breon Corcoran commented: “All four of our brands − Paddy Power, Betfair, Sportsbet and TVG – continue to trade well in a highly competitive environment. This good start to the financial year is a credit to our colleagues, particularly at a time when we are bringing together two businesses.”

Betsson saw revenue reach SEK1bn during the first quarter, buoyed by continuing growth from its online casino and sportsbook. The recently acquired Europe-Bet contributed SEK93.9m during the quarter, having grown by 11 per cent year-on-year.

While overall results were negatively impacted by currency exchange rate fluctuations, online casino revenue increased by 14 per cent, and now contributes twothirds of Betsson’s total revenue in Q1. Gross turnover in sportsbook climbed 11 per cent to SEK6.7bn, of which 75 per cent related to live betting, with revenue climbing 34 per cent.

Revenue from poker rose 14 per cent, with Europe-Bet contributing more than 30 per cent of the total during the period. The operator said, however, that activity from its own poker network continued to decrease.

Revenue from other products fell 68 per cent year-on-year.

Mobile revenue increased by 68 per cent to SEK391.2m, representing 39 per cent of total revenue, with all of its major consumer brands demonstrating mobile growth of between 50 and 100 per cent.

At the end of the quarter, active customers were up 45 per cent to 538,077, from a total registered customer base of 9.2m, an increase of 16 per cent compared to a year ago.

MR GREEN & CO NGR +12% Net revenue Q1 2015

Q1 2016

Change

Nordic

SEK

93.9m

93.8m

-0.1%

Europe

99.5m

119.9m

21%

1.8m

4.8m

167%

195.2m

218.5m

12%

Rest of world TOTAL

Mr Green went live with its new Kambipowered sportsbook in June, a few months ahead of schedule, to cap off a good start to

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F I NA NC E GIQ20 Q1 2016

the year for the previously casino-only focused operator.

Flat results from its core Scandinavian business were offset by strong growth in other European markets. Mr Green’s mobile gaming offering performed strongly and now represents 35 per cent of total revenue, or SEK76.5m, up 37 per cent year-on-year.

“Over the past year many important steps have been taken to further strengthen Mr Green’s position,” Group chief executive Per Norman commented. “Mr Green’s core strengths are its strong brand and good customer relationships.”

Norman said that by launching a sportsbook, it was meeting its customers’ demand for betting and odds.

“Together, we have managed to build the sportsbook in record time, thanks to our new, efficient product platform,” he continued. “We have built a sportsbook of the same high quality as our online casino, and I’m happy that we launched the sportsbook ahead of the European Championship.”

ZEAL NETWORK NGR +7% Net revenue Euros (€) TOTAL

Q1 2015

Q1 2016

Change

36.1m

38.6m

7%

The German online lottery broker reported a seven per cent increase in net gaming revenue to €38.6m for the first quarter of 2016, but its bottom line was hit by a €19m charge as it wrote off its investment in location-based lottery developer Geonomics.

The company said that it continues to see growth in its core customer-facing business, particularly from instant-win games, with its growth strategy for its B2B offering also performing in line with expectations.

It concluded however that it no long supports the carrying value of its original investment in Geonomics Global Games and its UKbased Geo24 UK subsidiary. ZEAL acquired a 25.7 per cent stake in Geonomics in December 2012 for around £10m, with the GeoLotto game launched in 2014. ZEAL subsequently acquired the remaining shares in the business for £0.8m after the game had trouble reaching critical mass. ZEAL intends to put the current Geo business model into maintenance mode and leverage the skills of the Geo team, accelerating the development of its B2B and B2G products.

68

AMAYA

GOING DOWN Q1

NGR +6% CAD$

Q1 2015 Q1 2016

Poker

242.8m

216.4m

-11%

Casino and sportsbook

16.4m

60.1m

266%

Other B2C

12.6m

12.0m

-5%

272.3m

288.7m

6%

TOTAL

Change

Foreign exchange fluctuations continued to impact Amaya’s online poker revenue, which would have risen 14 per cent but instead fell by 11 per cent during the first quarter. The product vertical now represents 75 per cent of the company’s total revenue, down from an 89 per cent share a year ago.

Despite the decline in poker, total revenue was up six per cent due to further growth in its casino and sportsbook offering, which contributed $60.1m during the period. Other B2C revenue fell five per cent, with a decrease in revenue from play-money-chip sales offset by an increase in live events revenue.

Customer registrations increased to around 102m at the end of Q1, with total combined quarterly active customers rising two per cent year-on-year to 2.5m. Amaya’s online casino offering had approximately 469,000 actives, and its sportsbook 169,000.

“Amaya remains focused,” said interim CEO Rafi Ashkenazi. “During the first quarter, we continued to execute on our growth plans despite unexpected challenges, including management changes and the ongoing strategic alternatives process.” n

William Hill missed out on a place in the GIQ20 chart for the third consecutive period, as its online channel recorded an 11 per cent drop in revenue for the first 17 weeks of the year. This included a 17 per cent drop in sportsbook revenue as gross win margin fell to 6.3 per cent, down from 7.2 per cent a year ago, while online gaming revenue declining by four per cent.

The company had already warned that its online trading was being negatively impacted by new regulatory controls, including an acceleration in the number of time-outs and automatic self-exclusions, as well as a fall in gross win margins – which would likely reduce online profits by £20m to £25m this year.

Another operator to struggle was mybet, which saw revenue fall 11 per cent due to capital controls in Greece and the limitations of its existing gaming platform. The launch of its revamped online sportsbook and casino offering has also been pushed back to the third quarter.

Meanwhile, IGT surprisingly saw revenue from its social gaming business DoubleDown Casino fall, albeit only marginally by 0.6 per cent, despite continuing growth from its mobile channel. This came as daily active users fell by four per cent year-on-year to 1,859,000, and monthly active users dropped nine per cent to 4,310,000. Bookings per DAU rose marginally by 0.8 per cent to $0.47.

Net revenue IGT (DoubleDown only) William Hill (inc Aus) mybet

Q1 2015

Q1 2016

Change

$80.6m

$80.1m

-1%

n/a

n/a

-11%

€16.7m

€14.9m

-11%

“We continued to execute on our growth plans despite unexpected challenges, including management changes” Rafi Ashkenazi, Amaya

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F I NA NC E

FANTINI 15

US OPERATORS CONTINUE COST CONTROLS IN Q1 US operators continued to focus on cost controls in the first quarter, as evidenced by a widespread improvement in margins, writes Ashley Rentz, associate publisher and editor at Fantini Research AS WELL AS focussing on cost controls in the first quarter, US operators were also making investments in their properties, including Monarch Casino, which continues to develop its Black Hawk, Colorado casino into a destination resort, and Caesars, which is upgrading thousands of hotel rooms.

Another highlight from the quarter was the continued resurgence of Las Vegas, including the locals market. Affinity, Boyd, Las Vegas Sands, MGM Resorts, Red Rock Resorts and Wynn were all beneficiaries, seeing growth in room rates, RevPAR and gaming revenues.

Likewise, MCRI said trends in Reno remain positive.

Macau gaming revenues continued to decline year-on-year for US-based operators there, although Las Vegas Sands managed an improvement in mass market revenues.

AFFINITY GAMING

BOYD Q1 2016

Q1 2015

Net revenue

$95.750m

$96.978m

Adjusted EBITDA

$20.202m

$18.222m

Nevada

$12.894m

$10.522m

Net revenue

$552.378m $550.578m

Midwest

$10.674m

$9.569m

Adjusted EBITDA

$160.360m

$149.172m

Colorado

$1.144m

$1.906m

Midwest South

$48.813m

$50.984m

Las Vegas locals

$44.271m

$38.877m

Downtown LV

$12.681m

$10.677m

$47.112m

$46.363m

$22.668m

$18.913m

The continued focus on cost savings led to Affinity Gaming’s fifth straight quarter of double-digit adjusted EBITDA growth in the first quarter.

Colorado was the only segment of Affinity’s business that posted a decline in adjusted EBITDA, though CEO Michael Silberling has said that since management and operational changes, there have been early signs of improvement.

BALANCE SHEET Cash: $169.012m vs $157.779m as of December 2015 Long-term debt: $382.745m vs $382.745m

Sam Boyd’s California Hotel and Casino

Q1 2016

Q2 2015

Adjusted earnings per share

30 cents

13 cents

GAAP earnings per share

29 cents

31 cents

Peninsula Borgata

Improvements in operations and the resurgence of the Las Vegas locals market that generated its best revenue comparisons in a decade led to Boyd beating consensus earnings per share estimates by five cents in the first quarter.

It was Boyd’s seventh straight quarter of year-over-year revenue and EBITDA growth.

Boyd’s midwest and southern regions were hurt by flooding in Louisiana and the opening of a new competitor in Mississippi to IP Biloxi.

BALANCE SHEET Cash: $616.2m Long-term debt: $3.75bn

CAESARS Q1 2016

Q1 2015

($2.12)

N/A

$1.168bn

$1.095bn

Adjusted EBITDA

$349m

$301m

CERP

$158m

$162m

CGP

$105m

$85m

$89m

$63m

Diluted earnings per share Net revenue

Caesars Interactive

Factor out Caesars Entertainment Operating Company, which is still working to get creditor approval for its bankruptcy reorganisation, and Caesars adjusted EBITDA jumped 15.9 per cent in the first quarter.

GIQ Q2 REVIEW

71

Full House Resorts is another US operator seeing growth in adjusted EBITDA as a result of cost controls and improvements in Nevada.

And like Boyd, Full House had a relatively flat quarter at its Silver Slipper casino in Mississippi due to the heavy rainfall and flooding in the Gulf Coast region. Factor out the weather, and Silver Slipper would have seen an 8.2 per cent jump in adjusted property EBITDA. Moving forward, Full House will be closing on the refinancing of its debt.

BALANCE SHEET Cash: $13.7m as of 31 March Debt: $65.0m

GAMING AND LEISURE PROPERTIES Eldorado Reno

Adjusted FFO per share Net income per diluted shares

Adjusted EBITDA margins hit an all-time record on growth from Caesars hospitality revenues, as the company has invested in upgrading hotel rooms.

BALANCE SHEET (EXCLUDING CEOC)

CHURCHILL DOWNS Diluted earnings per share Net revenue Adjusted EBITDA

Q1 2015

16 cents

(9 cents)

$288.4m

$250.9m

$52.8m

$49.8m

Racing

($7.4m)

($9.2m)

Casinos

$34.3m

$30.4m

TwinSpires

$12.1m

$10.1m

Big Fish

$15.0m

$20.0m

Churchill Downs continues to grow EBITDA on the strength of its social iGamer Big Fish, which grew revenues by 32.9 per cent.

However, a one-time $3.3m benefit last year and higher acquisition expenses resulted in Big Fish EBITDA declining $5m.

Partially offsetting that decline was a rise in EBITDA from the operator’s land-based casinos.

BALANCE SHEET Cash: $51.1m vs $74.5m as of 31 December Long-term debt: $382.7m vs $171.9m

72

Diluted earnings per share

Adjusted EBITDA

Long-term debt: $6.770bn vs $6.777bn

Q1 2016

ELDORADO

Net revenue

Cash: $1.444bn vs $1.388bn as of December

Net revenue Q1 2016

Q1 2015

7 cents

(13 cents)

$213.566m

$211.793m

$38.34m

$32.673m

Property enhancements and a focus on managing expenses resulted in Eldorado Resorts growing EBITDA by double-digits at six of seven properties for the second quarter in a row.

Eldorado will continue to add to its existing properties, with a 118-room hotel at Scioto Downs, a second smoking patio, casino bar and 120 new VLTs to open in late second quarter, and a new Brew Brothers restaurant coming to Presque Isle.

The company continues to reduce debt, paying down $35m in the quarter.

FULL HOUSE RESORTS

Revenue

27 cents

28 cents

$148.820m $148.705m $113.233m $110.562m

Gaming and Leisure Properties (GLPI) issued new guidance in the first quarter ahead of consensus, expecting to generate total rent of $681.7m vs an earlier forecast of $173.3m, as it incorporates rents from Pinnacle properties.

GLPI closed on its purchase of Pinnacle’s real estate in the second quarter.

GLPI remains focused on keeping its balance sheet strong in order to complete further real estate deals, planning to have its debt-toEBITDA ratio down to 5.5 times by the end of the year.

BALANCE SHEET Cash: $61.6m Long-term debt: $2.468bn

GOLDEN ENTERTAINMENT Diluted earnings per share

Q1 2016

Q1 2015

10 cents

(13 cents)

Net revenue

$91.034m

$84.770m

(2 cents)

(9 cents)

Adjusted EBITDA

$10.548m

$9.209m

$29.130m

$26.354m

Distributed gaming

$10.221m

$9.235m

Casinos

$ 4.746m

$4.072m

Adjusted EBITDA

$3.568m

$2.141m

Silver Slipper

$2.661m

$2.696m

Rising Star

$1.301m

$205,000

$767,000

$363,000

Northern Nevada

Q1 2015 67 cents

Q1 2016

Q1 2016 Earnings per share

Adjusted EBITDA

Q1 2016 70 cents

Corporate

($4.437m) ($4.098m)

Golden Entertainment will continue to create value for shareholders by building its slot route operations, which it calls distributed gaming, through acquisitions, CEO Blake Sartini said.

F I NA NC E

FANTINI 15

To this end, Golden is off to a strong start, with the acquisition of 1,800 gaming devices in Montana.

Above results include the combined results of Sartini Gaming and Lakes Entertainment from the first quarter, which didn’t officially merge until 31 July last year.

BALANCE SHEET Cash: $66.454m vs $69.177m Long-term debt: $147.170m vs $137.546m

LAS VEGAS SANDS Adjusted earnings per share

BALANCE SHEET Q1 2016

Q1 2015

45 cents

66 cents

GAAP earnings per share

40 cents

64 cents

Net revenue

$2.716bn

$3.011bn

Adjusted property EBITDA

$917.584m

$1.050bn

Macau

$510.429m $527.702m

Marina Bay Sands

$274.872m $415.272m

Las Vegas

$86.898m

Sands Bethlehem

MGM Resorts had what CEO Jim Murren called an exceptional quarter, with its highest adjusted property EBITDA margins since 2007 and a first quarter earnings per share beat of five cents. MGM’s Las Vegas RevPAR grew eight per cent.

Another highlight from the quarter: MGM Growth Properties, of which MGM owns 70 per cent, completed its initial public offering.

However, the downturn for MGM in Macau continued, with adjusted EBITDA there falling 23 per cent.

$37.725m

$74.109m $29.893m

Unlucky play at the VIP tables in Singapore and currency fluctuations hurt Las Vegas Sands’ first quarter earnings, which missed earnings consensus by 17 cents a share.

Singapore’s EBITDA would have grown 10.3 per cent, absent luck and currency rates, LVS said.

On the upside: LVS improved operating margins 1.9 points to 32.1 per cent, and experienced its first sequential growth in Macau mass-market revenue since the first quarter of 2014.

the third quarter in 2018. The operator has spent $183m on the property to date, and will spend another $252m to $264m on the expansion.

BALANCE SHEET Cash: $18.409m vs $21.164m Current portion of long-term debt: $35.4m vs $40.9m

PENN NATIONAL Earnings per share

Q1 2016

Q1 2015

26 cents

2 cents

Cash: $1.665bn vs $1.670bn as of December 2015

Net revenue

$756.451m $664.138m

Long-term debt: $12.686bn vs $12.368bn

Adjusted EBITDA

$212.883m $184.374m

East/Midwest

$134.798m

West

$20.055m

$17.879m

$77.694m

$72.806m

MONARCH CASINO Q1 2016

Q1 2015

Southern Plains

26 cents

24 cents

Other

Net revenues

$49.749m

$47.171m

Adjusted EBITDA

$11.042m

$10.875m

Diluted earnings per share

Monarch Casino is positioned for continued growth this year as market trends in both Reno and Black Hawk remain positive, CEO John Farahi said, following a first quarter that saw across-the-board growth in revenue, earnings and EBITDA. Factor out the $1.4m upgrade of the buffet at its Atlantis casino, and Monarch’s adjusted EBITDA would have been up 14 per cent.

Monarch also continues to transform its casino in Black Hawk into a destination resort, with the expansion slated to open in

$116.477m

($19.664m) ($22.783m)

Penn National was also among the US landbased operators that beat earnings consensus in the first quarter, also raising its EBITDA guidance for the year in each of the regions in which it operates.

Highlights from the quarter: Penn said it is already seeing improvement at the Tropicana Las Vegas after making changes to the property and integrating the casino into its loyalty rewards programme, and the Jamul Indian casino east of San Diego it will manage is on track to open mid-summer.

BALANCE SHEET Cash: $214.238m vs $237.009m as of December 2015 Total debt: $1.694bn vs $1.710bn

BALANCE SHEET Unrestricted cash: $1.70bn Total debt: $9.51bn

MGM RESORTS Adjusted earnings per share Diluted earnings per share Net revenue Adjusted EBITDA

Q1 2016

Q1 2015

16 cents

24 cents

12 cents

33 cents

$2.210bn

$2.332bn

$542.884m $618.976m

Adjusted property EBITDA

$617.871m $672.033m

Bellagio

$116.651m

$89.167m

MGM Grand LV

$80.894m

$65.206m

Mandalay Bay

$58.122m

$53.988m

MGM Grand Detroit

$40.042m

$33.612m

MGM China

$114.123m $148.456m

GIQ Q2 REVIEW

Tropicana Las Vegas

73

F I NA NC E FANTINI 15

Red Rock Resort Spa and Casino

PINNACLE Adjusted earnings per share GAAP earnings per share

Q1 2016

Q1 2015

83 cents

52 cents

65 cents

44 cents

Net revenue

$580.025m $572.839m

Adjusted EBITDA

$172.350m

Midwest

$107.456m $100.780m

South

$64.606m

$67.524m

West

$20.918m

$20.658m

$169.723m

Pinnacle beat first quarter earnings consensus by 19 cents a share and posted record first quarter adjusted EBITDA of $172.350m, a rise of 1.6 per cent.

The strong results came despite Pinnacle being hit by the flooding in Louisiana and a tough comparison given the $3.6m in adjusted EBITDA it generated last year from a refund on disputed vendor payments.

Pinnacle’s portfolio-wide market share rose 0.23 per cent in the first quarter.

BALANCE SHEET Cash: $121.317m vs $164.034m as of December 2015 Long-term debt, including current portion: $3.526bn vs $3.628bn

RED ROCK RESORTS Net income Net revenue Adjusted EBITDA

74

Q1 2016

Q1 2015

$57.639m

$44.107m

$359.247m $342.769m $133.216m $119.842m

In its first quarter as a publicly-traded company following its 2 May IPO, Red Rock Resorts reported its twentieth straight quarter of EBITDA growth to a strong and growing Las Vegas. Red Rock’s Las Vegas EBITDA grew seven per cent to $119.090m on a 3.1 per cent increase in revenue. Overall EBITDA margins increased 2.1 percentage points to 37.1 per cent.

BALANCE SHEET Cash: $122.6m Long-term debt: $2.0bn

WYNN Q1 2016 Adjusted earnings per share

Q1 2015

$1.07

70 cents

74 cents

(44 cents)

Net revenue

$997.678m

$1.092bn

Adjusted property EBITDA

$300.269m $323.019m

Macau

$191.245m $212.342m

Las Vegas

$109.024m

GAAP earnings per share

$110.677m

Wynn slammed earnings consensus in the first quarter by 24 cents a share after reducing interest expense by $25.6m.

Las Vegas gaming revenues were up slightly, along with a 3.4 per cent jump in RevPAR. Macau gaming revenues continued to decline, though the silver lining there was a 5.5 per cent rise in slot revenue and confirmation that its Wynn Palace in Cotai will open in the third quarter.

BALANCE SHEET Cash: $2.37bn Total debt: $9.41bn

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.

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F I NA NC E STOCK INDEX Q2

THE GAMING INTELLIGENCE STOCK INDEX Q2 2016

Brexit blues hit share prices far beyond the UK The second quarter of 2016 proved to be a tough period for a number of operators and suppliers across the gambling industry, with the UK’s shock referendum result at the end of June exacerbating matters, writes Kio Dawson

THE 68 GAMING operators and suppliers making up the Gaming Intelligence Stock Index saw their combined share price fall by 12 per cent between 1 April and 30 June of this year. That followed a slow start to the year which saw combined share prices increase by three per cent during the first quarter.

Britain’s shock vote to leave the EU had a big impact on the world’s financial markets in late June, and the gaming sector took a big hit. The big UK and Gibraltar-based operators were the worst off, with significant share price declines across the board.

Ladbrokes shares fell 5.71 per cent following confirmation of the vote on Friday 24 June, followed by a 13.10 per cent decline on the following day’s trading on Monday (27 June). William Hill shares were down 7.96 per cent on the Friday, and continued to drop on Monday by a further 8.43 per cent, hitting a new 52-week low of 235.50 pence in the process.

Paddy Power Betfair fared better with minimal movement on Friday although its shares dropped 7.62 per cent on the Monday; while Rank Group’s shares fell by 10.74 per cent and 7.93 per cent across the two days of trading.

There were further share price drops from listed companies with operations in Gibraltar.

This included 888, which saw its shares fall by 7.55 per cent and 9.24 per cent in the two days of trading, while GVC’s shares were down 1.91 per 76

cent and 6.54 per cent. Another locally licensed company, 32Red, saw its shares fall by 8.10 per cent and 9.96 per cent in the two days, slightly denting an otherwise strong year for the online casino operator which has seen its share price soar 122.73 per cent.

Across the Atlantic, Toronto-listed supplier NYX Gaming Group couldn’t escape the fallout from the Brexit vote, with shares dropping 6.15 per cent on Friday and 6.11 per cent on Monday. For the quarter as a whole, its shares were down 29.41 per cent. While the deals for OpenBet and Betdigital may have hit the headlines, NYX continues to operate at a loss, following a number of years in the red.

Big listed suppliers with some exposure to the European market were also impacted, including Scientific Games (down 7.23 per cent and 9.61 per cent), IGT (down 3.03 per cent and 3.39 per cent), and Intralot, which saw its shares drop 12.56 per cent on 24 June.

Despite the overall decline in combined share value, the Index did see some standout performances during the quarter, with strong positive share movement from the likes of Caesars Interactive owner Caesars Acquisition Company and China-facing lottery supplier DJI Holdings.

Shares in Caesars Acquisition rose 86.69 per cent as it continues to see growth in its social gaming business. It enjoyed a strong first

quarter, with net revenue climbing 29 per cent to $227.8m, as average daily active users rose to more than 6.7m.

Meanwhile, DJI is gearing up for major expansion in China, with a £29m share offering to help fund its repositioning as a major internet technology provider. It recently added three new members to its board, including new finance chief Scott Kennedy and Wei Qi, chief operating officer and CEO of the China business.

Altogether, there were 15 companies that saw double-digit growth in their share prices, including Webis Holding, Aristocrat and GAN. The share prices of Amaya, NetEnt, Stride Gaming, IGT and Intertain also performed solidly.

Webis’ shares rose 58.82 per cent during Q2, boosted by the extension in early June to its racing and wagering contract with Cal Expo Harness Racing, the Californian harness racing track based in Sacramento.

Meanwhile, Aristocrat released a strong trading update at the end of May, with revenue hitting AUD$1bn for the first half of its financial year. Digital revenue doubled to $130.8m, driven by its Heart of Vegas social gaming app.

Shareholders were satisfied as shares rose 34.63 per cent by the end of the quarter.

GAN (formerly GameAccount Network) signed up its 12th US casino as a partner dur-

F I NA NC E STOCK INDEX Q2

COMPANY

ing the quarter, continuing its social casino rollout across the US. It is still struggling with its financials, but shareholders benefited by a 23.53 per cent increase in value during Q2.

Just 29 companies ended the quarter with an improved share price. Thirty-nine companies saw their share price decline. Of these, 23 were double-digit declines, including two of the biggest UK operators – Paddy Power Betfair and Rank.

It was a difficult period for a number of Stockholm-listed companies, with Betsson, Unibet, LeoVegas, Evolution Gaming, Kambi and Mr Green all seeing their shares decline during the period.

Perhaps most surprising was the share price movement of Swedish operator Betsson, which saw it lose 43.92 per cent of its value during the three-month period. This included a 26.44 per cent decline on 28 June alone, when the company issued a profit warning. For the month of June as a whole, the shares were down 38.86 per cent.

William Hill was another to have a quarter to forget, as its shares fell to a new 52-week low in June, finishing Q2 down 20.79 per cent. In the past year, the company’s share price has dropped by 36.14 per cent. Its financial results have not been much better. Group net revenue in Q1 fell three per cent, with its key online channel recording an 11 per cent decrease. n GIQ Q2 REVIEW

Caesars Acquisition Company DJI Holdings Webis Holding Aristocrat Leisure GAN Tangelo Games Corp (previously Imperus Technologies) Caesars Entertainment Corp Amaya Cherry GVC Holdings CMC Markets Groupe Partouche Zynga Philweb Corp NetEnt Nordic Leisure Lotto24 Bet-at-home.com Tabcorp Holdings Stride Gaming Gaming Realms International Game Technology Fortuna Entertainment Group (PRA) mybet Holding Tatts Group IG Group Holdings Intertain Group OPAP 500.com Olympic Entertainment Group Jumbo Interactive Scientific Games Corp AGTech Holdings 888 Holdings Ladbrokes 32Red TechFinancials Playtech Paysafe Group Ainsworth Game Technology Contagious Gaming Mr Green & Co Sportech XLMedia Kambi Group Boyd Gaming Corp Evolution Gaming Group London Capital Group Holdings LeoVegas Gaming Innovation Group Churchill Downs Rank Group China LotSynergy Holdings Unibet Group Paddy Power Betfair Nektan SNAI William Hill Intralot Safecharge International Group ZEAL Network NetPlay TV NYX Gaming Group Innova Gaming Group Betsson Codere China Vanguard Group PCG Entertainment

OPENING PRICE 01.04.16 US$6.01 59.00p 0.85p AUD$10.25 25.50p CAD$0.09 US$6.67 CAD$17.27 SEK120.00 500.00p 247.00p €33.40 US$2.25 P22.05 SEK75.40 SEK4.55 €4.20 €63.40 AUD$4.22 236.50p 19.03p US$18.04 CZK85.10 €0.77 AUD$3.76 798.00p CAD$10.32 €6.18 $16.54 €1.95 AUD$1.31 US$9.27 HK$1.89 210.00p 115.60p 141.75p 11.00p 856.00p 419.00p AUD$2.33 CAD$0.12 SEK36.70 65.00p 72.50p SEK135.75 US$20.46 SEK283.50 5.59p SEK37.20 NOK3.95 US$146.92 249.60p HK$0.31 SEK91.80 9,640.00 75.63p €0.81 325.10p €1.13 257.50p €41.58 11.12p CAD$3.23 CAD$1.80 SEK125.00 €0.79 HK$0.59 1.03p

CLOSING PRICE 30.06.16 US$11.22 108.50p 1.35p AUD$13.80 31.50p CAD$0.105 US$7.69 CAD$19.82 SEK137.25 563.00p 274.60p €37.00 US$2.49 P24.40 SEK83.00 SEK5.00 €4.59 €68.79 AUD$4.57 250.00p 19.88p US$18.74 CZK88.00 €0.79 AUD$3.82 809.50p CAD$10.45 €6.22 $16.62 €1.94 AUD$1.30 US$9.19 HK$1.86 204.75p 111.60p 135.75p 10.50p 796.50p 388.90p AUD$2.16 CAD$0.11 SEK33.40 59.00p 65.63p SEK122.50 US$18.40 SEK253.50 4.88p SEK32.20 NOK3.40 US$126.36 214.10p HK$0.265 SEK77.30 7,895.00p 61.00p €0.65 257.50p €0.89 202.00p €31.80 8.13p CAD$2.28 CAD$1.16 SEK70.10 €0.44 HK$0.30 0.375p

% CHANGE 86.69% 83.90% 58.82% 34.63% 23.53% 16.67% 15.29% 14.77% 14.38% 12.60% 11.17% 10.78% 10.67% 10.66% 10.08% 9.89% 9.29% 8.50% 8.29% 5.71% 4.47% 3.88% 3.41% 2.60% 1.60% 1.44% 1.26% 0.65% 0.48% -0.51% -0.76% -0.86% -1.59% -2.50% -3.46% -4.23% -4.55% -6.95% -7.18% -7.30% -8.33% -8.99% -9.23% -9.48% -9.76% -10.07% -10.58% -12.70% -13.44% -13.92% -13.99% -14.22% -14.52% -15.80% -18.10% -19.34% -20.47% -20.79% -21.42% -21.55% -23.52% -26.89% -29.41% -35.56% -43.92% -44.30% -49.15% -63.59%

77

C O LU M N AND ANOTHER THING...

Goodbye America, hello Europe!

OPINION Joe Brennan

Joe Brennan, chief executive of FastFantasy, on the latest twist in the regulatory tale of daily fantasy sports

W

hen last we were together, we talked about surviving the raging forest fire that FanDuel and DraftKings had made of daily fantasy sports (DFS) in the US. This spring, a number of states created laws specifically permitting and regulating DFS, and dozens more have introduced similar legislation that would, to some degree, licence, regulate and tax this fledgling gaming market. Certainly, news of apparent rebirth would be greeted with overwhelming joy and optimism, right?

But this is the gaming industry, so instead of seeing all of this in a generally positive light, the griping immediately commenced. I won’t go into details – I’m sure a fine summary can be found on GamingIntelligence.com – but it boils down to this: “What? Taxes? Licensing fees?

Regulations? I thought we were just going to ‘ensure consumer protection’. Right, Mr Lawmaker, don’t you understand... this is bad for my business!”

In general, there seems to be a perception among the intellectually lazy that only the Big Two can afford such ‘legalisation’, but if reports about the level of cash holdings of those companies are correct, they might not be able to, either – which no doubt is one of the drivers behind the “FanDuel and DraftKings should 78

merge” chatter (i.e. One Company, One Fee, One Tax, One Government Compliance Team).

Sure, other operators banded together into a small business Fantasy Sports Trade Association, to push back on regulatory costs, and anything resembling a competitive advantage for the Big Two, but their “it’s bad for my business, too” message only gained moderate traction.

The high watermark for all of this is, at the time of this writing, an incredibly muddled legalisation bill that sits on the desk of the New York governor, Andrew Cuomo, awaiting the stroke speed and simplicity of in-game markets, the of his pen to either set off a second ‘Big Bang’ Americanised-specialisation and complexity in DFS, and/or the creative destruction of of conventional models of DFS – salary caps, the status quo. drafts, loads of time – left operators in Europe Now, when we first pitched our firm to and Asia cold. investors, we indicated that there would be So, you can imagine our joy when our simsignificant opportunity in both B2C and B2B ple ‘player vs player’ matchup model caught channels. Given America’s propensity to regthe interest of a number of operators looking ulate (Brussels has nothing on us, baby), we for new, differentiated content for their sports thought it was likely that B2B would be a better offering, seeing it as more consistent with their path in the US... eventually. In 2015, we thought betting experience than typical fantasy sports. that state legislatures would eventually get This is why our startup is working round-thearound to passing pro-DFS laws in a few years. clock to complete integration with our new Obviously, having underestimated the speed partners to be live for the 13 August kickoff of with which lawmakers would the Premier League. look into this (thanks again, Some have asked me, “But aren’t Big Two) we needed to ‘pivot’ you saying that DFS is gambling by A muddled to account for the new market letting yourself be used by betting legislation bill conditions and political realicompanies?” I would answer in the ties. How have we responded sits on the desk manner of one of my deeply-Southhere at FastFantasy? ern neighbours: “Jus’ cause your of the New By heading overseas, of dawg hangs ’round the hen house York governor course. Not only that, but we don’t make it a chicken.”

Andrew Cuomo are doing so focusing on the This time last year, our biggest B2B aspect of our company. question was, “Will we have payIt seems a groaning public and cashment processing by the time the biggest league strapped state legislators weren’t the only in America kicks off?” Now, the question is, ones seeing the legion of TV ads for DFS. “How many currencies will we be working Apparently, gaming operators internationally in by the time the biggest league in the world were also taking notice and asking, “What’s kicks off?” all this commotion?”

In the meantime, America: get back to us But, particularly for an industry like sports when you’ve got things sorted out. We’ll be betting that has become so wedded to the ready when you are. n

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