Industry predictions: Beast from the East to slow large-scale M&A in the West

Chris Welch, industry consultant

Germany, a marathon not a sprint

The once heroic Lance Armstong once said: “Pain is temporary, quitting is forever”, and to some the German regulation must seem like some Tim Burton-inspired Tour de France, full of ever increasing mountains and terrible surprises. Many have fled the market, while those brave souls that remain are enduring crashing player values and steep taxes.

Like a flat piece of road on a mountain stage, 2022 will see some relief, with sports betting being the saviour driven by a World Cup and operators adapting to the new German reality. But with a regulator on a steep learning curve, barriers to offshore sites remaining low and the German states in no mood to give a push, the road ahead in particular remains mountainous and not for the faint hearted or those lacking stamina.

Germans love gambling as much as they enjoy beer. Operators and affiliates that can get their model right and continue to adapt will in 2022 start to see better days.

Those succeeding in 2022 can reflect on the wise words of long-distance cyclist Heinz Stücke: “It is the unknown around the corner that turns my wheels.”

Canada – There’s gold in them there hills…sell shovels

1896 sparked the Klondike Gold Rush where about 100,000 prospectors faced huge hurdles climbing mountains and surviving frostbite. Once there, they found few opportunities and many left disappointed. The biggest winners, it was said, were the sellers of shovels and snowshoes.

The opening of regulated gambling in Ontario will, I fear, have some similarities in 2022. Canada has for years been the greyest of grey markets, this is very different from a US state regulating for one thing.

Canada is a mature market with an experienced and savvy user base, high lifetime values but often eyewatering acquisition costs.

With a population of around 38 million (same as Poland) but with bigger gambling wallets, it represents a golden opportunity, however many are likely to find their experience similar to those grizzled prospectors, a lot of blood, sweat, tears and expense only to find heartache, broken dreams and a reality that bore no similarity to their plans for greatness.

The winners in 2022 will be a handful of operators and the shovel sellers; affiliates, game studios and payment providers. The biggest winners being those experts operating in the Canadian market who for certain will find gold and lots of it.

Marry in haste…

Mergers can and do work but many struggle to justify the huge premiums paid, nor deliver on the soon forgotten promises of synergies and cost savings

2021 saw some mega mergers and some that were left at the alter and 2022 will see more marriages, nearly marriages and the odd divorce. Horizontal and vertical takeovers will continue, as will rising valuations as the number of potential quality targets grows smaller and the suitors’ wallets and shareholders’ demands for growth become ever larger. Size it seems is no defence and it seems likely the industry behemoths like Entain, Flutter and the newly merged 888/Hills combo will all face suitors at some point in 2022 with at least one likely to have new owners or face a takeover attempt by the end of the year.

A good marriage is one where each partner secretly suspects they have got the better deal and like a new marriage, a merger requires a lot of work and compromises. I predict the 888 and Hills marriage will, after a few bumps, prove a hit because: “Success is not final, failure is not fatal: it is the courage to continue that counts,” said Churchill.

Jeevan Jeyaratnam, COO, Abelson Odds

Brazilian sports betting continues to stutter towards regulation

Brazilian president Jair Bolsonaro’s reign has been turbulent, to say the least. His inept handling of the Covid-19 epidemic has contributed to a resounding lack of faith at the polls. As I write, William Hill has former president Luiz Inacio Lula da Silva as 1.61 favourite to unseat him in next year’s election.

Bolsonaro’s latest submission, that he would veto the current proposal to regulate the market, appears to be an attempt to appease his influential evangelical fan base, deemed vital to his chances of remaining in power.

With a fully regulated market expected to be worth between £9-13bn per annum, and with 10 million Brazilians betting daily, “offshore”, the chance of non-regulation appears unlikely, but quite when the new statutes are signed off is still to be determined. With 2021 drawing to a close and the Sao Paulo mayor suggesting that “nothing of relevance will now be voted on this year”, we are likely to see the roadshow roll into 2022, which by virtue of being an election year could spell further delays for the highly anticipated reforms.

Over the last two years, a number of European providers have begun to establish themselves within the country. With every Serie A football club now featuring a betting partnership, they will be hoping that this prediction proves misplaced.

Beast from the East to slow large-scale M&A in the West

Does a dragon’s fiery breath in China scorch M&A plans in the US? A wholesale gaming review is currently ongoing in Macau, with all six concessions (gaming licences) due to expire in June 2022. US behemoths Las Vegas Sands, MGM Resorts and Wynn Resorts hold three of those concessions, which are considered vital to their revenues. While it would be quite staggering if any of the six incumbents failed to secure a new licence, there are further causes for concern in the region.

The arrest of Alvin Chau in November, one of 11 people detained, signalled the next phase of the Chinese government’s plan to stamp out “illegal gambling and money laundering”. Chau was the boss of Macau’s largest casino junket operator, Suncity Group, facilitating trips to Macau for thousands of VIPs, who, according to Bernstein Research, contribute 70% of Macau’s GGR. Suncity has since terminated all of its junket operations in Macau.

With further worries about Covid and whispers from the Chinese about introducing a digital currency to avoid capital flight, there could be a negative impact on the major casino operators’ ability to pursue large-scale M&A elsewhere in the globe.

A clampdown on advertising and marketing in the US

I was in the audience at an industry conference in November, where MaximBet CEO Daniel Graetzer told an attentive group about his recent experience at Mile High, home of NFL franchise Denver Broncos. He spoke about the proliferation of advertising for gambling companies, including the use of “sign-up tents”, capturing potential customers as they walked to the stadium with their families.

America is, whether they accept it or not, following a similar development trajectory to the UK. Unsurprising, given the number of UK firms operating there. While the UK took years to reach its current guise, everything in the US is happening at an accelerated rate. What took 10 years in the UK will likely take just three to four years in the US. That includes a significant and warranted clampdown in the volume of betting-related advertising and marketing.

If operators do not self-regulate, then they may find that much stricter frameworks are forced upon them. A restriction on advertising and marketing could actually help fragment the market away from the current dominant triumvirate. Smaller operators would have a chance to gain traction by focusing on a better overall product, something that is lacking in the current market.