Analysis: In online gambling, the only constant is change

It has been a busy week in the egaming world with changes at the top at both William Hill and GiG, NetEnt acquiring Red Tiger Gaming for a very large chunk of change, and EveryMatrix having its operating licence suspended in the UK. While none of these are connected, they all pull at a common theme in the sector during 2019, that change is the new status quo.

For fans of symbolism, the change at the top of William Hill couldn’t have been more perfect. Replacing the outgoing English CEO with a long track record in the broader land-based leisure sector, is a Swedish online gambling focused leader with a background in non-UK markets and high exposure to the unregulated sector. It’s a story that tells itself so well, that if anything you’d say William Hill’s board has been a bit heavy handed in the narrative.

Ulrik Bengtsson is charged with taking William Hill into a new digital, international future and it’s likely the change at the top will lead to some substantial changes throughout the group. Hills is a business in the midst of a transformation and still has a lot of heavy lifting to do in terms of technology, international growth and brand positioning, so you’d imagine he would be less keen to undo recent work and start from scratch. But a true shift to internationally rather than UK-led would require some big changes.

Shifting from the UK

That shift in focus, you could argue, is exactly what the UK-led industry needs at a time when its core market is facing slowdown and even decline. Whether Bengtsson is the man to do so is something for him to prove and it’s certainly no small task, but none of the challenges facing the online gambling sector are at the present time. His time at Betsson almost seems a different era now post-changes in the UK, Sweden, the US and the re-ordering of grey market opportunities, and new solutions and possibly acquisitions will need to be sought rather than lessons from the past.

https://twitter.com/UlrikBengtsson/status/1169493127687737344

The same could be said of NetEnt, which was the firm at the centre of the other big story this week with its £223m acquisition of Red Tiger Gaming. Twelve-times 2018 EBITDA is a hefty chunk in an industry where the hot supplier tends to cool rather rapidly, but it speaks once more to both NetEnt’s position in the industry and the changing nature of the industry itself.  You could argue that NetEnt is buying the 2019 version of itself, an innovative, modern slots supplier that’s shaking up the sector and as such future-proofing itself to an extent. You could also argue that this may not be exactly what it needs.

Expanding horizontally rather than vertically is hugely challenging to suppliers, but when faced with an ever-crowded slots vertical you could easily make a case for it. The slots supplier sector is heaving with small gaming studios churning out new content for a wide variety of markets with the occasional breakout success, while the bigger players such as Playtech and Microgaming are increasingly acting as both creator and curator. In between this we have mid-sized suppliers such as PlayNGo, Pragmatic and Yggdrasil who are carving out ever larger market shares.

The next big thing

At the same time nobody has really been able to take on the live casino giant that is Evolution in a meaningful way or find the “next big thing” to give them some clear blue water. Operators tendencies to take more and more in-house is another pressure point for suppliers with a limited focus, and as margins continue to be squeezed in regulated markets, that is a trend that is only set to get more prominent. Suppliers are looking at a future where they need to be innovative or expansive, or ideally both, to continue to grow and gain share as operator’s needs change.

The trouble is for all sides is nobody is exactly sure where that change is leading. Operators looking to push beyond core competencies are looking at increasingly broad range of options from Asia to Africa, from US sports betting to small regulated European casino markets. While we hear less of moving into adjacent sectors such as social or even esports there is no shortage of discussions on how to continue to move the needle when big markets looking to be running out of gas a little. The only thing that seems unlikely is “more of the same” being the way forward.

This is arguably the most exciting and challenging time in online gambling since the late 90s and it is going to require exceptional management and strategic thinking to navigate it. Business models that have been the basis of the industry are looking flawed and markets that were once ignored are now centre stage and vice versa and it will take a rare mix of industry insight and a wider consumer and technology perspective to see the route forward. As a result, it would be no surprise to see more management changes and more sizeable M&A deals as some of the bigger players look to bring in new talent, products and tools to get the job done.

The only constant thing in the online gambling industry is change, and this year is no exception. But looking ahead to what’s to come in 2020 and beyond you sense we haven’t seen anything yet.