Talking shop: Lottomatica on retail’s resilience in Italy and platform migration gains

The performance of the online business has been extraordinary,” declares Alessandro Fiumara, managing director of digital and betting Italy for Lottomatica. The figures speak for themselves as group revenue in H1 2022 hit €801m, up from €178.2m in H1 2021, while H1 2022 EBITDA reached €233.5m, a 6x jump on H1 2021’s €37.8m and more than 40% up on H1 2019 pro forma of €177.3m (pre-Covid). Online accounted for 39% of total EBITDA in H1 2022, up from 16% in 2019.

Lottomatica, which held a GGR market share of 33.1% in retail in September, counts GoldBet among its portfolio, boasting a physical network of over 990 betting shops and a concession of online games. Its other brands include retail sports betting brand Better and retail-only brand Intralot.

Fuelling the online surge for the Italian operator has been the business’ organic growth which started before 2020, driven by product expansion, including a live sports betting offering, virtual betting and new casino titles. Another pillar of growth is the improvement of the customer experience with Lottomatica’s digital assets adopting functionalities from the e-commerce world to speed up the playing experience online. Lastly, the conversion of retail players into omni-channel players has also contributed to the positive financial performance.

In terms of the change in market share between Q1 2020 (pre-Covid) and Q2 2022 (post-Covid), the group has gained two percentage points in online betting and 1.1 percentage points in online casino, all while increasing its retail leadership position. Last month, Lottomatica topped the charts for sports betting with a 15.3% market share, according to Italian regulator agipro.

“The outstanding results in terms of EBITDA that we have achieved in the first half of this year are also the consequence of the Italian market growing materially, with the retail channel recovering to the level of 2019. Online is growing at a very fast speed and we expect it to be twice the value it was in 2019,” adds Fiumara.

Strength in numbers

Italy is dominated by land-based gambling with just a 20%+ online share of total gambling market revenue despite having the second largest total gambling market revenue of over €12bn in Europe, according to H2 Gambling Capital’s figures in November 2021. Italy is behind the UK, which holds the largest total gambling market revenue of €16bn while possessing a much larger 59.3% online share of total gambling market revenue.

One of the standout factors behind Lottomatica’s EBITDA growth and online performance is the conversion of retail players to online during Covid. While omni-channel was already a trend, it became even more relevant during the pandemic as new users tried online gambling for the first time throughout the lockdown periods. More than half of those customers have stuck with it and are playing online and in retail settings, which has compelled the Italian operator to align the customer experience across both. According to Fiumara, over 50% of retail transactions are performed at a digital touchpoint, self-service betting terminal or external cashier.

Despite the six-month closure of shops in 2020 and 2021, retail demonstrated a strong resilience in H1 2022 and is trending at 2019 levels. Part of that resilience is due to players wanting to have a social and entertaining experience in person.

“Omni-channel is now more and more important also to support the online growth because retail has become an acquisition channel for online customers. The good thing is that during Covid and the lockdowns, retailers changed their approach to online. They used to see online as a threat but now they look at it as an opportunity,” Fiumara says.

The operator’s retail portfolio in Italy comprising 3,000 betting shops and corners, 1,400 gaming halls and 130 proprietary gaming venues gives it an extensive shop window for advertising opportunities amid the country’s ad ban. The Decreto Dignità, which came into force on 14 July 2018, bans gambling brands from advertising via the media (including TV, radio, internet and social media platforms) on billboards and at sport or cultural events.

Fiumara highlights the distinct advantage Lottomatica has over pure online operators due to its multi-channel model. “The retail presence is an invaluable asset. It has always been key in this market that has a big presence of retail shops, and where retail is still a big chunk of the overall value of this business,” he mentions.

In terms of alternative mediums for advertising, the Italy MD says one way is to advertise odds comparisons during TV shows or on digital media. The other is investment in SEO which is key to organically acquire customers.

While Fiumara acknowledges the ad ban has indirectly helped the black market grow during Covid shutdowns, the majority of customers returned to the legal channel because the level of experience, trust and security from licensed operators is unrivalled.

Concerted effort

Lottomatica is now reaping the rewards of Gamenet’s €1.1bn acquisition of Lottomatica’s Scommesse (sports betting) and Lottomatica Videolot Rete (gaming machine units) from IGT, which completed in May 2021. After the acquisition, Gamenet Group was renamed Lottomatica. The new target run-rate synergies stand at €80m from the previous €78m, with €77m expected to be secured by full-year 2022.

Commenting on the synergies so far, Fiumara says: “We leveraged the merger of the former IGT assets with the Gamenet assets to launch, and have almost finished, a comprehensive synergy programme, leveraging process optimisation, supplier negotiation and cost management best practices that’s given us better profitability of our business.”

The largest project for the new Lottomatica group over the last 12 months has been the full platform migration following the acquisition of the IGT assets. This entailed the merger of digital and retail on to a single platform (Lottomatica Scommesse and GoldBet) as well as the rollout of the GoldBet virtual betting product in shops and corners.

Fiumara tells EGR Intel it was a challenging period but the whole organisation worked hard to achieve the results in a limited timeframe, with the retail migration taking place in June-August 2022 and online in June-July 2022. “We are currently on a new platform that is our proprietary platform, fully internally developed and managed by our IT department. This platform is proven to be reliable and scalable. And it will obviously allow us to develop or integrate new features and providers in a much faster way,” he explains.

The project involved the migration of 1,300 points of sale of the Better network to the new platform and more than 800,000 game accounts on Lottomatica.it and apps. Having experienced very few technical issues, Lottomatica’s MD for Italy expresses his immense pleasure with the outcome. “We are really satisfied by the results so far. We have already recovered the level of business we had before the migration. And this is true, both in terms of number of customers and the volumes we are experiencing week after week.”

In relation to product developments, the Rome-based operator has been expanding live markets, especially on player props, on the sports betting side. Cash out, which is currently prohibited in Italy, is expected to be launched in the country in the next few months so Lottomatica is working on providing this functionality to its players. Other sports betting offerings such as bet builders, which are available in other markets, may be allowed in Italy in the future, says Fiumara. For online casino, the firm will continue integrating with new game providers, launch new titles on a monthly basis and has recently changed its poker platform to Playtech to enjoy a much bigger liquidity.

Sustainable future

In its H1 2022 results presentation, Lottomatica highlighted a vision of “ESG at the core” of the business, bolstered by its 10.2 ESG rating from Sustainanalytics, an ESG research and data provider that assesses the ESG performance of the world’s leading institutional investors and corporations in relation to industry peers. The rating places Lottomatica at low risk of suffering financial impacts from ESG factors. The operator ranked first among 90 companies evaluated in the casino and gaming sector and second among 500+ organisations in the consumer services industry.

This year, Lottomatica also detailed an extensive sustainability plan based on three strategic pillars: responsibility, people, community and environment. In essence, the Italian firm wants to act responsibly as an operator, offer its people opportunities for growth, involvement and fulfilment, and collaborate to create shared value for partners and communities while respecting the environment.

As part of this, selected targets include at least two-thirds of suppliers to be assessed by the end of 2022, people growth programmes (eg professional development, diversity and inclusion, equal opportunities) coverage up 20% year on year and -20% CO2 emissions from business travel (versus 2021).

From a responsible gambling (RG) perspective, the business has been continuously investing resources, time and efforts into this area. Among the safer gambling measures, there are a number of controls and processes implemented on the gaming platform to guarantee a certain level of control for the player.

There are also RG initiatives and programmes running for employees and for customers. Internally, staff working in customer support and CRM are provided with specific RG training. Externally, Lottomatica’s institutional website, gaming site and mobile platforms have a large section dedicated to player protection. Its online gaming platforms, GoldBet.it and Lottomatica.it, have both achieved G4 accreditation for responsible gaming. Developed by the Global Gambling Guidance Group (G4), G4’s goal is to reduce the impact of problem gambling on communities and individuals.

During its earnings call in August 2022, CFO Laurence Van Lancker said the company was actively monitoring M&A opportunities. And while Lottomatica has reached quite a material size in its home country, Fiumara confirms M&A continues to be a key part of its growth strategy. “While we continue to monitor the Italian market for bolt-ons, we have a clear objective of internationalisation. To do this, our main way to enter new geographies and new markets is through M&A. We continue to monitor several markets to assess different opportunities to expand outside,” he clarifies.

Looking ahead, Lottomatica wants to keep growing organically in Italy by continuing to innovate the customer experience and expanding its product offering across verticals. Fiumara also reveals plans to drive forward content hyper-personalisation. “We have and are developing tools of artificial intelligence and advanced analytics to better profile our customers and be more effective in communicating and providing them with content. And if new product opportunities come to market in the next 12 months, we will be ready to take advantage of it,” he adds.

For Lottomatica, the emphasis now is on reinforcing its leadership position in retail as well as pushing its Better brand following the tech upgrade while growing the online business. Despite being a 100% Italy-focused operator, Lottomatica is on the lookout for new markets. The best could be yet to come.