Mega mergers and major changes for egaming

Consolidation in the egaming sector it seems comes at first very slowly, and then all at once. After 10 years of analysts predicting an impending wave of M&A due to varying, shifting financial pressures the industry has still been caught a little on the hoof by the rapid escalation of recent months. And many in the sector are now trying to make sense of the new order that’s emerging.

The race got off to a bit of a false start with William Hill’s failed acquisition of 888 back in February, but it began in earnest in July with the news Ladbrokes and Gala Coral were planning a merger and 888 was set to acquire bwin.party. Just as we were beginning to catch our breath Paddy Power and Betfair shocked the sector with news of a £5bn merger deal of their own. And arguably, this is when the game changed.

The Paddy Power Betfair merger is less about the old model of piecing together complementary businesses to create a best of breed multi-vertical goliath than simply recognising the true benefits of scale. Paddy Power and Betfair are two hugely successful and growing businesses, which are broadly good at the same sort of things. There is clear value in coming together in terms of technology efficiencies and shared knowledge, but what they gain most is size.

Benefits of scale

What we’ve seen over the past 10 years of online gambling is when operators reach a certain scale that voice can become so deafening it begins to shout down the competition. And this is far more than simply buying more TV ads than the competition it’s about attracting the best talent, affiliates and suppliers, dominating natural search and being able to invest more into CRM and product to increase that share of wallet.

The importance of data to revenue growth at the major firms can’t be underestimated right now, and the bigger the business the broader the data and the greater resource you can place into analysis and modelling. This rather than any great leap forward in product is likely to drive a step-change in revenues at some of these mega-merger giants.

Another vital component will be a true multi-channel offering. Betfair CEO Breon Corcoran saying he felt shops were a major benefit for attracting horse racing punters, and Gala Coral’s latest result suggested growth was driven by its omni-channel Coral Connect card. And in an era where the egaming sector may be running out of new customers in the UK this is no small advantage.

A New Era

As the importance, and convenience, of a multi-platform offering increases it’s likely we will see a shift to fewer accounts and far higher consumer expectations of what an online gambling product should be. The old model of customers with several accounts is at risk, and while this should worry some of the big players, it should terrify the mid-tier ones.

What the industry is quickly being forced to do is reset its view of what an egaming giant truly is.

It’s almost shocking to see the likes of Amaya relegated to “normal” size in terms of revenue and profitability, but a combined Paddy Power Betfair with revenues of £1bn a year would be larger than Amaya. And a 888 bwin.party combination wouldn’t be much smaller while bet365 is already easily at that scale and Hills isn’t a long way off.

If these operators represent egaming vision of the future then the Ladbrokes Gala Coral deal, sadly, feels like little bit like last year’s version. It’s a deal that has many strategic strengths and a killer app in the form of Coral’s multi-channel integration, but it may take a year to close due to competition issues and end up with a firm the size of last year’s model: a 2.0 egaming giant for a 3.0 world.

A combined Ladbrokes Gala Coral would have online revenues of around £400m a year, which previously would have been competitive for a top tier placing but now looks more like a mid-tier operator that rapidly needs to build scale. And that is perhaps the biggest lesson of all. By this time next year the egaming sector may need to rewrite its definition of what a big player means.