Analysis: The (un)importance of predicting the future

Disagreement appears to be the core belief of the online gambling industry. Speak to four executives and you will probably get five opinions, but right now there appears to be one thing everyone agrees on: there’s nobody quite like King Kenny. The CEO of GVC Holdings has risen from a supporting role in the Sportingbet empire to probably the most powerful man in the online gambling industry.

At its annual results last week GVC announced revenues up 17% to just over €1bn and EBITDA up 40% to €274m, but it was the manner of the growth rather than the numbers that impressed the industry. After acquiring the basket case that was bwin.party it would be reasonable to expect a quiet year dealing with some major remedial work and integration issues so to turn things around in such a short space of time is quite some achievement. Even partypoker is looking like a brand reborn.

GVC is now undoubtedly in the absolute top tier of egaming firms and this is before the impending takeover of the Ladbrokes Coral colossus, which sees GVC enter the retail sector for the first time. The deal will create arguably the world’s largest listed sports betting operator and one with an international reach only bet365 can match. And the question everyone is asking is just what did GVC do right?

Managing your own expectations

The most obvious answer to GVC’s success is its management. CEO Kenny Alexander is rightly lauded as a focused operator who knows how to drive value and who understands the business inside out. He’s a gambler as well as an executive, as his comment at the analyst call bore out in humorous fashion. “I was playing in a poker tournament last night,” he noted to illustrate his fellow players kind words for Party Poker, but he couldn’t resist jokingly pointing out he came third and flashing a wad of cash in a Ritz casino envelope to prove it.

His unique style, low-key and relentlessly profit-focused, has been key to GVC’s growth and his approach to acquisitions has been a big factor in the growth of the firm. There has been a level of ruthless efficiency and a lack of sentimentality around both the Sportingbet and bwin.party deals. And even with the Ladbrokes Coral deal it’s clear where things stand from the start. Alexander answered questions over the pending integration issues with a simple message for Playtech: the GVC platform is the one being used and either get on board or go home.

An accident or a design?

But perhaps the main reason for GVC’s success is its a firm that has diametrically opposed the industry consensus. In the words of the tune currently in the popular music hit parade, there is an element of IDGAF about GVC and Kenny Alexander, which an industry feeling constrained by regulators cheers on despite itself. While the rest of the industry was going to great lengths to look whiter than white in advance of the predicted rush to regulated markets, GVC was investing into Turkey and Latin America.

Was it a strategy driven by deep analysis of the prevailing market conditions and the likely directions of trend or was it just a profit focused push into markets where some fast cash could be made? History is written by the winners so we will likely let GVC tell us its version of the truth but a case can be made for either. And certainly the old-school dividend-focused GVC didn’t appear to be lifting its head too often to look around at what the rest of the industry was doing. Where it agrees with current received wisdom, such as platform ownership, it’s conclusions it has arrived at on its own.

While everyone else was preparing for a regulated future GVC was making hay in an unregulated present. There is a tendency within online gambling to pass up the current opportunity for a promise of future riches, or perhaps to overestimate the pace of change and the ability of both consumers and regulators to move with it. This was an industry that was ready for the “mobile revolution” nearly a decade before it happened and even in the last couple of years we’ve arguably seen firms leave some desktop casino money on the table as they “pivot to mobile”.

Leaving behind the grey markets

What GVC does next is very interesting in this context, as now they seem to be readying to leave the grey days behind. At least to an extent. There is a certain sleight of hand in the way GVC presents itself to the market. The end of year results spoke of 74% of revenues coming from “regulated” markets and more than 90% doing so post-LCL acquisition, but there was also talk of Germany and Brazil being the core growth markets. Germany is included within “regulated” although the market remains with some question marks over it and Brazil is as grey as a winters day in the Isle of Man.

But a regulated future for GVC seems inevitable and the takeover of LCL puts it in a very different, much more visible, position not least due to its large retail estate. One area where Alexander would not be drawn was making a prediction on the eventual results of the triennial review into FOBT stakes. “It could be £20, could be £2 and I’m 50/50 on either,” was the summary of his remarks on what has suddenly become a major issue for the previously online-only CEO. With the differential priced into the Ladbrokes Coral deal it’s reasonable he is so sanguine about the outcome.

Although perhaps his sanguinity is a snapshot of what GVC is all about. The firm has always and will continue to focus on doing what it thinks is correct now and not worrying about trying to predict the future. It’s a charge that couldn’t easily be levelled at some of its rivals in the sector.