Analysis: Scandinavian consolidation
A year has now passed since Betsson completed its acquisition of fellow Nordic operator Betsafe, and the signs are that it was the first of many acquisitions only accelerated by the opening of the Danish market in January. Tom Victor looks at whether the trend is poised to continue.
When Denmark announced it would be issuing egaming licences on 1 January this year, one of the areas of concern was whether or not there would be room within a relatively small jurisdiction for all those who hoped to be involved.
Allowances were made for some 68 licences, with 38 awarded in advance of the market opening – arguably unsustainable in a country of just over 5.5million people.
It is perhaps unsurprising, therefore, that the months since have seen increased consolidation activity among some larger Scandinavian-facing operators, as they look to compete with the notable monopoly presence in Denmark, as well as comparable situations in Sweden and Finland
Consolidation has thus far been limited to sports-led operators, and Betfair’s country manager for Denmark Peter Weinreich understands the logic in the developments.
“Even though the likes of Unibet are getting stronger I see it as an advantage because we have a competitor less,” Weinreich explains, suggesting “If we’re talking about sports-led operators, I think [the market has room for] less than 10, maybe only 5 or 6 in the long run.”
“I think poker is a trickier one as you have PokerStars who are very big and then Danske Spil – those two are leading the market, with a bit of leftovers for the rest of us to share,” adds Weinreich, whose company holds a single-figure market share for each of the product verticals for which it is licensed.
He also suggests “Casino’s a bit different – I can see more growth happening in the casino market so I think we’ll see more operators there. It’s not as mature as the poker market yet so I think we’ll see more casino-led operators out there and also standalone casino operators.”
Nick Batram, analyst with Peel Hunt, similarly considers recent developments to have carried an air of inevitability about them, explaining: “When any market opens up you get an influx of operators all who think they can build a profitable business, but the reality is that not all can. This then leads to exits and mergers.”
This has already been seen elsewhere, most notably France where Unibet failed to launch in earnest after receiving an operating licence in 2010.
Indeed, it took the absorption of a smaller company – EurosportBet owner Solfive – in December last year to bring about the operator’s eventual entry into the French market at the start of 2012, some 15 months after being awarded a licence by regulator ARJEL.
Danish licensee Unibet is also one of those to have looked at an acquisition as a means of strengthening its position in the dot.dk market, snapping up Bet24 for £11.25m after meeting chief executive Henrik Tjärnström’s primary objective of “Being in Denmark from day one”.
At the time, Tjärnström suggested the deal would help Unibet rise from being the third biggest operator in Denmark to the second biggest, emblematic of the operator’s intent to hit the ground running in what is unquestionably a key market for the company, in order to guarantee the problems faced in France will not be repeated.
“Bet24 brand has predominance in Danish market, and though we had a top three position, they also had a top three position so it allowed us to consolidate our position further,” he explained.
Unibet is yet to fully realise the benefits of the deal, but will hope that first-quarter growth in revenues from regulated markets – now comprising some 15% of overall revenues – is a sign of things to come.
Just weeks after Unibet’s deal for Bet24 was first announced, one of its main competitors “ Betsson “ demonstrated it had no intention of ignoring the acquisition route.
Having already acquired Betsafe for up to 60m in May 2011, the Swedish operator agreed a 65m purchase price for Power 50 operator Nordic Gaming Group, another company with a significant Scandinavian player base.
Betsson CEO Magnus Silfverberg lauded the deal for giving his company the opportunity to reaffirm “Its leading position amongst the private gaming company alternatives in the Nordic region.”
Of course one impact of this consolidation is that service providers have fewer parties with whom to do business, something affecting Net Entertainment due to its existing Danish-facing partnerships with Bet24 and Unibet as well as Danbook and Scandic. Both deals come under the Sportingbet banner after being acquired by the London-listed operator late last year.
“For us it doesn’t have so much of an effect except that there are fewer parties to negotiate with. It’s definitely more of an issue for smaller operators trying to gain market share,” explains NetEnt CEO Per Eriksson.
“There’s a lot of consolidation going on in Denmark, yes, but in all markets when you have big growth the consolidation happens in every industry, and we had planned for this happening,” he adds.
As with Eriksson, Batram is not surprised by the speed with which this has all happened, suggesting: “It will be pretty apparent, pretty quickly what is sustainable.”
He admits that “In a bigger market the process may take a bit longer and may support more operators but ultimately the dynamic will be the same,” suggesting something comparable may even be on the cards in the United Kingdom once a point of consumption tax is brought in.
“The costs of operating will go up but the market won’t grow “ the same number of operators just won’t be sustainable,” Batram explains.
Even beyond all this, it remains to be seen how far operators can eat into the market share held by former monopoly Danske Spil, an operator with a strong market share which three operators have been forced to spend eight figures just to come close to breaching. Could efforts ultimately prove futile regardless?
Rolf Andersson, founder of lobby group DanGaming, remarked on last month’s interim figures for the Danish market that “It seems that Danske Spil and Unibet are the big winners in the introduction race.”
However it is worth noting that, while leading the way for casino and poker – where its products are supplied by bwin.party – the lack of a resolution on the former monopoly’s sportsbook tender leaves that particular vertical open for existing operators to capture market share.
This can be seen from the fact that the consolidation to date has surrounded those operators with a particularly strong sportsbook focus, as they seek to take advantage of an area of the market where gross gambling revenue is anticipated to reach DKK1.135bn for its first year of activity compared to DKK735m for online casino.
Weinreich even goes as far as saying “It’s impossible to compete with Danske Spil,” citing the operator’s continued monopoly status for certain products and the existing player base this provides.
“It basically means they started with 600,000 customers in their database which they have acquired from their monopolised games, and were allowed to utilise that database and have a joint website which is a huge advantage for them,” adds Weinreich, noting that “I’m glad I’m working for Betfair since because we’re a betting exchange we have a different target group and a different product compared to the traditional bookmakers.”
Perhaps Danske Spil will meet with some level of resistance once the consolidation of sportsbook-led operators reaches its natural conclusion, but for the time being- as Andersson suggests – It will be a very interesting six months to come.
//www.egr.global/intel/subscriptionsThis article first appeared in the June edition of eGaming Review. For subscription options, click here.