Biding its time: 888’s hunt for the perfect media partnership

Gold rush is perhaps the perfect term for the opening up of the US betting space. In the 16 months since PASPA was repealed, the market has been inundated with action from operators seeking hasty partnerships with betting suppliers and media partners to be as early into the market as possible.

But amid the constant barrage of joint ventures, partnerships and M&A occurring from all angles, Gibraltar-headquartered 888 Holdings is refusing to rush into any deal it doesn’t consider the perfect fit, culturally, financially and strategically.

“The US is a very expensive place to penetrate and operate in because there is a gold rush approach and we’ve had media partnerships in the past in Europe,” SVP, head of commercial development, Yaniv Sherman tells EGR North America.

“A lot of our competitors have already made their moves. Some are very good ones, others may have been premature. It’s all debatable. A lot of the relationships have already been struck but we’re waiting for things to develop. The main difference is we’ve been in the market since 2013.”

He is quick to quash any suggestions the firm has been either “quiet or passive” in the US market, despite its arguable lack of movement. “I want to get the message across that we’re neither, we’re just always conscious.

We’re an operational company, we’re not a financially-driven merger results type of company. We’re still an independent outfit so we’re conscious of under promising and over delivering,” Sherman explains.

Since its entry into the US via its All American PokerNetwork (AAPN) joint venture and Caesars partnership, which gave the firm access to both Nevada and New Jersey via its 888casino and 888poker/WSOP brands, the group has maintained a relatively low profile, putting work into growing its poker business and multi-state liquidity network.

Last December, 888 purchased the remaining stake in the AAPN to further cement its independence in the market. At the time, former 888 group CEO Itai Frieberger said: “Taking outright ownership of AAPN gives 888 additional operational, technological and commercial flexibility to develop innovative and exciting new partnerships and launch in new states – through both B2B and B2C channels – as and when future regulation allows.”

888’s Yaniv Sherman relocated to New Jersey last year to head up the firm’s US business

Shopping around

Despite this largely independent approach, new CEO Itai Pazner has hinted at the group’s desire to forge a media partnership. Of course, the operator does acknowledge the value in these types of pairings, as Sherman himself admitted “partnerships are very important for the marketplace” during the firm’s June Capital Markets Day presentation.

“But we’ve been very busy creating independence and the ability to react. We think there are a lot of alliances and partnerships being made very early on and we want to make sure the market settles,” he added.

But is the operator’s modest approach causing it to miss out on potentially beneficial business opportunities? Analyst and partner at Bixteth Partners Simon French doesn’t believe so. “I think their strategy fits with their long-term patient approach and they are very mindful that there is value around,” French explains.

“If you look at the company’s history way back before UIGEA, it has had a long history of US exposure initially through Casino-on-Net. They have an understanding of how the US customer works.

They’ve had exposure in the US market for the best part of 20 years.” 888 has been in talks with a number of brands it says, but none have ticked all the boxes. Using The Stars Group’s Fox Bet deal as a benchmark, Sherman says the upfront costs and potential risks are too much for the operator.

“We are always conscious of that because we are in a self-sufficient, organic state of mind. From our experience, if you have an organic, self-growth agenda, the rest are add-ons that will follow. You need to ensure the engine, your brands and business agenda are sound and have some reasoning behind them.

Then you can build on top of that,” he notes. For Sherman, the ideal situation would be a media or distribution deal in the next three to five years with a US-facing brand, in a partnership where risk and upside is shared equally.

“I’m positive we will have in the near and mid-term some interesting conversations and potential agreements with media outlets or brands that are out there right now.  We tend to prioritize commitment over perceived value. There are some great brands and assets out there right now.

“[But] the bear-case scenario is you’re in a smaller number of states and you’re independent and that’s not really a bear-case scenario because then you may have a smaller market share but the size is still significant,” he adds.

The media model

French shares Sherman’s discretion and questions whether the traditional media partnership format has a place in the US considering its very different sports distribution structure. He says: “The Fox Bet/Stars Group deal has a lot of rationale to it but there are others like Caesars and ESPN doing deals on the side and it’s not quite clear how that will pan out with Eldorado taking over Caesars. Some valuable media assets have potentially come back into play and it’s uncertain as to how well the model will work.”

On market-access deals, Sherman says tax rate, population size and a state’s propensity to legislate multiple verticals all play a vital role in considering which states to enter. With so much groundwork already laid by the poker business, the group rightfully wants to prioritize states that are likely to include both casino and poker in their online gambling legislation.

The first of which is Pennsylvania. But, as ever, Sherman is being cautious with his approach to entering the state, which has seen online betting revenues account for 18% of overall earnings since it was launched in May. At the time of writing, only a handful of online gaming products are live in the state with the law having come into force in July.

“If we were back in April 2018, then I’d say Pennsylvania was our next stop but now that we have choice we need to look at this from a return perspective and think whether any of the other sports states that will come along in the next few months will have potential. We’ve got Indiana, Colorado, Iowa and Illinois now. Pennsylvania is definitely an interesting opportunity,” says the senior exec.

Playing its cards right

Also weighing on Sherman’s mind is the uncertainty behind the Department of Justice’s (DOJ) Wire Act opinion. Although the opinion, which prohibited inter-state gambling, was ruled as null for poker, lottery and online casino by a New Hampshire District Court, poker liquidity is still at risk in the long term.

Sherman adds: “I hope that’s moving in the right direction. So far it’s encouraging, and we hope they’ll allow us to have a multi-product approach which I think is key for Pennsylvania. It’s a lot of cross-sell, with the tax rates and high fees you need to be uber efficient to succeed there. Eventually we will be there, the question is when? At some point we need to start seeing that gearing effect we are built on as an online business.”

But the outlook for poker is much more positive as the firm celebrates July’s most successful World Series of Poker (WSOP) to date. A record number of players tuned in to the online tournament in both New Jersey and Nevada, and Sherman believes this is a clear sign that demand for poker in the US is growing and regulators will ease their hardline approach to the vertical.

“It’s an important statement we’ll be sharing with lawmakers,” Sherman adds. “Sport moved within the blink of an eye from a taboo to apple pie so right now it’s at the heart of the consensus. I think poker closely follows with casino being the more controversial gaming product.

I think poker is important in that regard in places like Pennsylvania and New York to create a more attractive gaming environment for the players and operators.”

A place for poker

Bixteth’s French agrees that poker is crucial to 888’s multi-product approach and its overall success in the market, particularly as a cross-selling tool. “Having the capabilities to offer multi-state poker is helpful and then the ability to cross-sell poker players into sports is also helpful. It’s reasonable to assume once you get absolute clarity around the Wire Act, poker will follow sports. I think it offers an air of distinction in a crowded market,” he says.

“We’ve seen players like liquidity and the prize pools and they’ve really flocked to the network over the last six weeks on the back of the WSOP to show there is a definite strong agenda for poker in the US which I hope will leverage on into 2020,” Sherman nods.

In Q1 2019, 888 narrowly surpassed PokerStars in gaining the highest market share in New Jersey. The shift is largely attributed to the implementation of its new Poker8 platform and shared network in May 2018. The front-end, which has been trialled in Europe over the last few months, is likely to launch in the US next year but Sherman wants to localize the product before rolling it out to users.

“Because poker is more technically and operationally intensive, I want to make sure it’s working well before we deploy it here, with all the regulatory requirements and sensitivities around that,” he comments.

It’s clear casino and poker have taken precedence in 888’s stateside strategy, particularly when considering its sports product’s performance in New Jersey. Bally’s license, which has both Caesars’ and 888’s product on it, raked in $26,752 in monthly betting revenues in June, the second lowest of all the online licenses.

The future is (Bet)Bright

Sherman knows it is a necessary component of the wider multi-product approach. And with the recent purchase of UK-focused betting technology firm BetBright, a complete platform and product overhaul is on the horizon for sports.

The acquisition, made in March, has given the operator access to a team of in-house traders in Dublin, and completes the firm’s commitments to bring all technology in-house. Although the first market to launch the BetBright-powered product will be Sweden, Sherman is hoping that the US closely follows.

“When we do take our proprietary technology into the US, we want to differentiate ourselves in the market place I think. We’re looking to bring a fresh product agenda and so I’d rather have BetBright in a US state of mind than just deploy it for other purposes.

“Really, we see the US market is product-driven. The product needs to be very good to clear that first threshold for the players to then associate with the brand and incentives,” he remarks.

French plays down 888’s position in the rankings and the industry’s enthusiasm for the state’s month-by-month market share statistics. He highlights the brand awareness the sports product has gained from its New York Jets partnership.

“I can see a lot of people talking about the importance of building market share in New Jersey when it’s not very profitable market share. For 888, sports betting in New Jersey is not going to be the be-all and end-all of their US expansion strategy,” he says.

The state of the market is likely to change significantly during the NFL season, particularly considering the entry of GVC, which is likely to commit to significant marketing expenditure. Sherman is certainly eager to cover more ground with its sports product in future.

“With sports, it’s a much more competitive landscape right now,” he notes. “We’re coming up from a relatively low base to take more market share from the latest launches and that’s completely doable.”

888’s US hub is located in New Jersey’s Secaucus

Full circle

Once all three products are primed for relaunch, Sherman is confident 888 will start to gain the traction it has achieved in Europe. There has been a great deal of discussion over the influence online casino has had over betting revenues in New Jersey, particularly considering the seasonal nature of sports, and Sherman certainly acknowledges that.

He once again emphasizes the necessity for a multi-product approach to reap ROI in the market. The process of widespread adoption is very slow in the States, and although it might be a slight hindrance on potential launches for 888, it also gives the firm time to perfect its product and continue to help educate regulators and lawmakers that are sceptical of the approach.

“Once the mental barrier is reduced and lawmakers see it’s working, they can talk about introducing other products,” Sherman explains. “Realistically, most states have passed sports only. Very few states are considering a multi-product approach beyond Pennsylvania, New Jersey and West Virginia. I think Michigan has introduced a few drafts that include casino and poker.

In New York, we hope poker gets included but other than that the other bills are sports only.” New York is a particularly valuable entry for 888 in the long term, not least because of its NY Jets partnership. “New York will be a watershed moment,” insists Sherman. “And once it’s over the line, I think most of the east coast is spoken for and you can start to look west to see what the bigger states like Texas, California and Florida do.”

The next two to five years will be crucial for 888 as it rolls out an entire series of new products and technologies. And while early entry is not a factor in its long-term plans, the rapid pace at which the market is changing and maturing could very well work in the firm’s favor. Or as Bixteth’s French rightfully says: “Being patient in the US might well turn out to be the right approach.”