Lessons from history: How the EGR Power 50 rankings have changed in the last five years

Once again, sitting proudly at the top of EGR’s 2018 Power 50 list was bet365. In fact, you need to look back to the last decade to find any other firm taking top spot on the list. But that belies the bigger story, as behind the sports betting monolith there has been a lot more movement with firms rising and falling dramatically, merging and being acquired over the last few years. The egaming industry has changed a great deal and there is no better way to show this than taking a glance at the Power 50 from 2013.

We can see that five years ago, the number one was indeed bet365, which was described as “a dominant force in sports betting with a huge presence in the UK and Spain, and a dominant presence throughout Europe”. The report also noted it was unlikely to be a player in M&A and that further regulated market launches were likely. So far so unremarkable then, but that’s pretty much where the familiarity ends, and the numbers tell their own story.

For the year ending March 2014, bet365 posted £1.3bn in revenue and £320m in operating profit. For the year ending March 2018, the most recent results we have, the revenue base had grown to £2.7bn with an operating profit of £682m. That is an astonishing level of growth in just four years, never mind the full five, and shows not only how well bet365 has performed in the intervening period and how much they deserve their position at the top spot, but also just how big the business of egaming has become.

In the same period, according to data from Eilers & Krejcik Gaming, we’ve seen the Italian online market grow from €726m in 2013 to €1.6bn in 2018, and the UK from £3bn in 2013 to £5.8bn in 2018. Europe generally has grown at a slightly lower rate but we’re looking at something not far off a doubling of size in five years and this has altered our perception of what scale is in the egaming sector. Annual revenues of €1bn are now the norm rather than the exception, and the giants of the industry are increasingly becoming mid-sized players.

Resetting the scale

Sitting in second in the 2013 list was William Hill, which was described as an “almost unstoppably ascendant at the current time”. Coming into 2013 it had just completed the acquisition of Sportingbet’s Australian and Spanish businesses, and bought out Playtech’s share of the online casino joint-venture and looked one of the more likely firms to be involved in the next stage of consolidation. “The risk for Hills is the rapid and geographically broad expansion might prove tough to manage in the coming year with integrating three new businesses on two continents clearly a major challenge,” the 2013 Power 50 noted.

But while the write-up may have not predicted the future it did have some accidentally prescient observations on what would come next. “Hills is doing a lot of things right, and [there is] is every chance it will continue to be heavily involved in any future M&A in the sector,” it added. That Hills was more a spectator than a participant in the recent M&A activity is a big reason why it is no longer in second spot, with the rate of M&A in the UK in particular changing the industry’s power structures dramatically.

Within a short space of time we had the Amaya acquisition of PokerStars (10th in 2013) in 2014; then in August 2015 the merger of the operator at number three in the 2013 list, Paddy Power; and the one in seventh place, Betfair, made Hills’ £649m of online revenue (including Australia) suddenly look a bit less giant. The rules of the game didn’t change but the playing field suddenly felt a little grander in scale, and this was only confirmed with Ladbrokes’ acquisition of Gala Coral in 2016, GVC’s acquisition of bwin.party in 2017, and then in turn the group’s merger deal with the Ladbrokes Coral group in 2018.

Then there was the newly named Stars Group’s stunning takeover of the Sky Betting & Gaming Group that occupied 9th place in 2013. The definition of scale has truly changed for good. What the last five years have proved is how it’s hard, if not impossible, to make an assault on the top tier without some major acquisition appetite. Two of the more significant risers in Kindred Group (13th to fifth) and LeoVegas (37th to 10th) have ascended in no small part through bolt-on acquisitions in the period.

“What the last five years have proved is how it’s hard, if not impossible, to make an assault on the top tier without some major acquisition appetite”

Kindred Group, then known as Unibet, sat at 13th in 2013 and has since swallowed up 34th-placed 32Red and 48th-placed Stan James as well as Nordic operator iGame Group and posted strong organic growth to fully justify its number five position in 2018. The 2013 report noted Kindred was a “widely underestimated operator with a strong product offering, broad geographic reach and substantial revenue base,” and really not much has changed since. You sense it remains one big deal away from being a very major player.

Another firm a little bit left behind by this rush to scale up is 888, which has also proved how focus on the wrong areas can create growth issues in the future. 888’s poker and US focus in 2013 now looks a little naïve in retrospect, but it helped it to fourth place in the 2013 list and gave it a real point of differentiation over the rest of the sector. In many ways the market changed around 888 with bingo heading into decline; it missed out on the major wave of M&A and the US did not really fulfil its early promise. It remains in a strong position in Spain, but Italy didn’t kick on to the same extent and the UK has been troubling of late. But its position of eighth in 2018 speaks to the inherent strengths that still exist in the business.

The more that changes…

But while our sense of scale has changed, there was also a more subtle shift taking place in the industry’s view of international diversity. Paddy Power Betfair and Ladbrokes Coral – much like the William Hill group they both surpassed – remained heavily dependent on the UK for revenue, whereas the likes of Kindred, TSG and GVC were far more international in outlook. The original Power 50 noted how much potential all of these UK giants had for international expansion, but to date that’s not really come to pass.

In fact, at the time of the 2013 Power 50, Betfair was busy pulling out of a number of grey markets under its new CEO Breon Corcoran. And it’s arguable this decision was a factor in it eventually being overtaken by an operator that was plotting a very different course at the time.

As noted in the 2013 list, “GVC continues to benefit from going against the grain in terms of its market focus”. The report placed GVC at 24th and noted: “Its turnaround of the loss-making Sportingbet business it acquired in March surprised many. With growing revenues it will potentially be a player in M&A activity, making it one to watch.” This was certainly the case with GVC using its base of predominately grey market revenues to secure funding to acquire the struggling bwin.party business that had slipped even further from its already weakened position of fifth in 2013.

Kenny Alexander’s GVC has climbed from 24th to second in the EGR Power 50 in the last five years

“The operator has undoubtedly suffered for its lack of a strong mobile proposition and delays to key technology projects,” the report noted at the time, and really it was only following GVC’s takeover in 2017 that this began to turn around.

What’s interesting is how the GVC business that sits at number two in the 2018 Power 50 is not a collection of the leading lights in the sector as per the PPB merger, but a slightly disparate collection of strong brands and struggling businesses it has pulled together. Back in 2013 you wouldn’t have said the combination of 23rd-placed Ladbrokes with 17th-placed Gala Coral tied into fifth placed bwin.party and 24th-placed GVC Holdings would be a world beater. Ladbrokes in particular looked in a world of trouble in 2013, with the report noting: “Ladbrokes has been making headlines for the wrong reasons over the past 12 months and it looks likely to get worse before improving.”

But in 2018, GVC looks like the one to rule them all and this is in no small part due to its hugely diverse revenue base in terms of products and markets. The only other operator who can really rival this is The Stars Group at this point, both having benefited immensely from grey market revenues in the previous five years. This was not, we were told, how success was supposed to come in the listed sector. What we were told by the industry at the time was how social media, mobile and the US were going to change the game for everyone. And it’s fair to say only one of those three is yet to come true. And Gamesys’ position of sixth in the 2013 list is perhaps proof of both of these.

The more things stay the same

Gamesys has since split into Jackpotjoy (11th in 2018), which acquired a number of its brands, and the original business (36th in 2018) that now leads with the Virgin Games brand in the UK. Both retain a lot of strengths, but you sense there is a touch of what-might-have-been about it. In 2013, the private operator was one of the surprises in the expansion into New Jersey, while it was pushing onto Facebook with the launch of social slots and a debut on Facebook’s RMG platform. But as social and RMG’s crossover became something of a false dawn and the great American experiment stalled, it was overtaken by those adopting a bit more of a prosaic route to the top.

While five years ago there was a sense the industry was about to break wide open and some revolutionary products and markets were just over the horizon, the reality was a little less exciting. A focus on a clean and mobile-focused user experience and growth through mass market advertising and acquisition in the core European markets has remained the core growth strategy from 2013 to 2018. Those who have ascended up the ranks have achieved most of their growth in the UK and the Nordics and have done so using fairly traditional products and methods. If anything those firms that felt the most “modern” at the time now look the most outdated in 2018. And perhaps what’s most surprising in all of this is how little has actually changed in five years.

While the measure of scale has shifted and our perceptions of power have been upscaled, the business remains broadly similar. The UK retains a position of disproportionate importance, and those with high market share within it are still the market leaders to a large extent. The US could, in time, alter this picture dramatically. As could the continued fractured rollout of regulated Europe and the continued cheap debt fuelling M&A, allowing operators or private equity backed funds to build new powerhouses by picking off assets from the wider European or Asian markets. And the likes of Fortuna and Tipico should not be dismissed easily as future leaders. But for now it still feels a very UK-heavy industry.

From the power players there is still a lot of talk about international expansion and diversification, but outside of acquisition, it appears to be a goal out of most firms’ reach. We’re only now starting to see the emergence of truly internationally diverse and platform-independent firms to challenge bet365 in the shape of TSG and GVC. This combination of a broad international and diversified revenue base including a mix of grey and regulated markets still provides the best balance for success. But an easy-to-use product, control over your technology stack and doing the basics right is the key to tying all this together. So perhaps it’s no surprise that the only operator
really able to do all these things remains at the top of the tree.