New deals: Why M&A in the supplier sector is heating up

In the midst of M&A mania, the supplier sector has been fairly resistant to the forces of consolidation over the past few years. While we’ve seen the organic emergence of some new power players, and some big deals in the US, over in Europe there has not been the same rush to scale as we’ve seen on the operator side. Playtech was the only player in the game for a long time, mopping up sports betting suppliers and game studios but slowly that has begun to change. First, we had NYX’s acquisition of OpenBet and then SG’s move for NYX, and in recent months we’ve seen a lot more activity and perhaps a recognition from the sector that bigger is perhaps better for suppliers.

The value of scale is obvious, not just in Europe where rising tax costs continue to eat into margins, but also when faced with the prospect of cracking the US market. SG’s acquisition of NYX last year was well-discussed at the time and in terms of positioning itself for US sports betting expansion makes perfect sense. But what is interesting is that outside of them it’s not the obvious players taking part in the recent spate of M&A activity, with Genius Sports, Bede, SBTech and FDJ Gaming Solutions all making the headlines for deals in various stages of completeness. Although the only one to make it over the line at the time of writing is FDJ’s acquisition of Sporting Solutions.

The biggest rumoured deal is the takeover of SBTech by DraftKings, which has been reported on by news sources on both sides of the channel at the time of writing with a valuation of $600m mooted for the sports betting provider. It would be a huge move from DraftKings and create an entirely new dynamic in the supplier sector, but it feels a bit more of a path well-trodden in terms of a major operator looking to have its own platform technology. What is perhaps a more subtle trend is one that is seen from reports of other deals, not least that from FDJ. Being a part of the value chain no longer seems to be enough for suppliers, they want to have it all.

FDJ and Sporting Solutions

In the case of the French betting and gaming operator, it is looking to complete its sports betting offering for the B2B market by adding pricing and trading expertise to its existing platform technology. Xavier Etienne, CEO at FDJ Gaming Solutions, said it underlined FDJ’s ambition in the B2B sports betting sector. FDJ noted the new combination would “provide operators in regulated territories a […] proven, fully flexible, multi-channel Advanced Betting Platform and a customised pricing, trading and risk management service”. It added the new product, called ‘Advanced Betting Services’, will be commercialised to lotteries under the FDJ Gaming Solutions brand and to other gambling operators under the Sporting Solutions brand, with Sporting Solutions’ current partner and supplier relationships continuing unaffected.

From the outside it’s an interesting combination, not least as the deal includes the B2C spread betting business of Sporting Index and the proprietary modelling and trading business Touchbet, which was acquired by Sporting Solutions in 2017 while under the ownership of Touchbet founder Magnus Hedman. How the government-owned FDJ works out how these two elements fits into its wider plans for regulated betting market growth with major tier-one operators will be interesting to watch, as will how it adjusts to markets that are wildly different to the unique French dynamics where it holds more than a small competitive advantage. Some negative feedback from the industry around the competitiveness of the Sporting Solutions offering is also interesting to note. But what’s undeniable is they’ve acquired one of the few providers capable of giving a broad out of the box pricing and trading service, in a sector where this feels like an increasingly important area of differentiation.

Simon Trim, Sporting Group CEO

Simon Trim, CEO of the Sporting Group, noted: ‘It is clear we have a shared vision on the future shape and evolution of the industry, in particular the important role that expert risk management and price differentiation will play going forward. As new markets open up and as growth rates slow in maturing markets, the ability to squeeze that extra bit of value and provide a product that gives the customer the best experience within regulatory and operational restrictions will be dictated at least partly by trading ability over the next few years. FDJ talked up Sporting Solutions’ ability to offer “unique risk management” allowing operators to adjust prices based on their exposure and risk appetite and this level of flexibility will, you sense, be increasingly important in a number of international markets.

Offering something different

What we’ve seen in the UK in particular is an increasing conformity of pricing from a small subset of suppliers feeding into a much larger pool of operators, who then try to compete solely on brand and marketing expertise. This is not an easy task in the UK or indeed any major market facing both huge competitive pressures and advertising crackdowns. While a sudden rush to trading differentiation is not on the cards, there is every chance there will be a subtle move in this direction and the suppliers who can move with this might remain ahead of the market. And there are plenty out there trying beyond the Kambi/SBTech axis that seems to dominate all sports betting platform discussions at the moment.

SG Digital’s acquisition of Don Best and the establishment of its first notable managed trading services division is a key part of its plan to expand in the US market and beyond. Sportradar is making more moves towards becoming a more complete supplier, although it feels like it’s at least one acquisition away from this goal. We’ve seen Playtech really ramp up its trading capabilities following the Best Gaming Technology acquisition and the Caliente deal in Mexico. Another interesting contender here is Genius Sports, which has been trying hard to make a lot of noise in the sports betting platform sector and is rumoured to be close to what could be a transformational acquisition.

EGR reported back in May that Genius Sports was lining up a bid for back-end platform supplier Bede. Genius Sports, which itself was acquired last year by private equity firm Apax Partners in a deal thought to be worth north of £200m, is believed to be making a move to shore up its platform capabilities ahead of a concerted push into the supplier market. EGR reported the deal would see Bede’s gaming and account management platform merged with the Betgenius sports offering to create a full-service platform. And when combined with Betgenius’ pricing, risk management and. by no means least its data services, it would on paper at least be a compelling offering.

Genius Sports has held discussions about an acquisition of Bede Gaming

Genius Sports CEO Mark Locke said, at the time of the Apax deal, the goal was “becoming the most trusted and most respected sports data technology company in the world” and offering a full-service platform to tier-one clients would certainly help cement its position in the value chain. You can see Sportradar trying to position itself similarly and an acquisition from them in future would be no huge surprise, although targets there are beginning to run out. But a firm that offers truly end-to-end offerings in the sports betting sector, combined with some exclusive must-have services such as data and streaming, looks very well set for a future that looks increasingly uncertain and difficult to navigate from the B2B side.

Who holds the power?

Because what this is really about is control. The operators want more and the suppliers need to find new ways to remain relevant and add value. In truth, the supplier sector has consistently been the real power behind the industry, dictating how products are offered and embedding itself so deeply in operationally complex aspects of the business the whole thing falls apart if it’s taken out. But gradually over the last decade operators have been chipping away at the walls the B2B sector has built around itself. First, they took back the front-end, then gradually and arduously the back-end wallet has been brought more in-house and suppliers have had to take on much more of a role as an add-on service supplying games, data or player management tools that look far easier to swap in and out. Even where the suppliers look extremely hard to shift, such as the sports betting platforms, we’ve seen real push-back from the big firms.

Because the battle isn’t for small or mid-tier customers as this is a segment of the market that will always require support, but for the big tier-one firms who will increasingly drive a larger and larger portion of the revenues from regulated markets. The worry is that this will increasingly be through in-house products and platforms, with the likes of GVC, bet365, The Stars Group, Kindred, Betsson, 888 and Jackpotjoy all investing heavily in proprietary tech and the model of owning your own technology the one both investors and execs have bought heavily into. In a world of declining share for the mid-tier and lower-tier players, where content has been opened up to a wide variety of suppliers and where so much is being taken in-house by the big boys, where do the future B2B opportunities lie?

The answer likely lies in the margins and around the edges of what currently exists and for products that require scale and investment. The areas of data, in-play and live services such as visualisations, streaming and live gaming content seem the biggest ones to focus on, along with cost-intensive content to develop such as virtuals. And this need for scale to ever be more than just an API integration partner will continue to drive M&A. Certain products need the benefits of scale to be profitable, such as sports, data or perhaps virtuals and live casino and this is where we’re likely to see more consolidation. Although there will always be new opportunities. While operators have the resource to replace and upgrade existing technology, they don’t always have the time, resource or culture to create entirely new products, markets and add-on services.

But beyond this the most obvious targets remain, as they have been for some time for the big suppliers, the major lotteries and monopoly betting and gaming operators around the world. A single major deal can make or break a year, and we’ve seen some big fights for major contracts over the past few years. Scaling up the offering to include every and all services, especially in the currently hot area of sports betting then is what is required to take on the next RFP battle. And we should expect more consolidation ahead as suppliers look to lock in their place in the value chain and shut-out those who can’t afford to play at that level. It’s the same story we’ve seen on the B2C side for some time now, but just with a different set of players and an entirely different set of conditions. And the final score is very much to be decided.