Fight back the tiers: The fading hopes for tier-two firms in the UK

Novibet, bet-at-home, SportNation and RedZone. The latest roll call for tier-two operators to vacate the UK market in 2022 for a variety of reasons. The darkening macroeconomic climate, misplaced strategies, the challenge of boring out a justifiable market share in a field of giants and impending increased regulation have all combined to make a difficult cocktail to swallow.

It doesn’t come as too much of a surprise in a market dominated by a few but represented by many. According to the latest UK Gambling Commission figures, there are 31.9 million active customer accounts in the UK, resulting in a combined £6.4bn in online gross gambling yield for licensed operators. It’s a tantalising prospect to dive into Europe’s largest market and make some cash, yet the reality, as is often the case, is not as golden as the dream.

“The UK is a competitive market – but it’s also a huge one, and if you have the right product marketed in the right way you can attract and, more importantly, retain players,” says LeoVegas chief commercial officer Chris Welch. Having the right product and the reach is obviously key in a saturated market for challenger brands, but it isn’t as simple as this. Even the biggest firms in the UK are facing struggles and, if we are to believe in the power of trickle-down economics, if those at the top are being starved, those at the bottom may well be emancipated.

Flutter recently posted a 4% rise in UK and Ireland online revenue for Q3, offset against an 11% dip in sports betting revenue alone. CEO Peter Jackson barely touched on the group’s UK performance, which encompasses Paddy Power, Betfair, Sky Betting & Gaming and Tombola, during his subsequent presentations, instead focusing on the money-making FanDuel venture in the US.

SportNation and RedZone parent company Esports Entertainment Group (EEG) withdrew the brands at the end of November, citing the “economics of operating a small igaming business” after it had previously noted 2023 would bring about continued losses due to the “high levels of competition in the UK market and high regulatory burdens”.

If the likes of Flutter are only recording 4% yearly jumps in revenue, albeit at much higher scale in terms of real figures, the hope for smaller firms is looking ever slimmer. The white paper into the Gambling Act 2005 review could have much to do with the apathy towards the UK, something which Richard Bradley, partner at Poppleston Allen, highlights as a key component for those pulling out, alongside weak performance and limited success in the market.

Bradley says: “One factor is likely to be that the cost of compliance has been rising for some time and it is now at the point it is making it difficult for smaller operators to compete with larger operators. It isn’t simply a matter of whether or not they can afford to hire the additional staff needed to deal with the ever-stricter compliance, but also whether or not they can find them given the industry has a skills shortage in this area.”

This compliance requirement also heralded the exit of FL Entertainment’s bet-at-home brand, which surrendered its licence days after having it suspended by the UKGC over suspected failings in its social responsibility and anti-money laundering (AML) practices.

The impact on the player is as important to recognise as the operators. Those who have placed ante-post bets on potential Premier League champions with smaller bookmakers, who then see these companies disappear and bets voided, erodes at the trust they have with the industry. This happened when BetBright folded in 2019 and refunded outstanding bets, leaving punters with ante-post slips likely to turn a profit up in arms. In the end, BetVictor stepped in to honour these bets, while 888 bought the business and its tech for £15m and agreed to honour ante-post bets on the Cheltenham Festival as a goodwill gesture. Similarly, Betfred acquired MoPlay’s UK-facing database of 45,000 active accounts in 2020 after parent company Addison Global went out of business in what was another high-profile collapse.

Shining light 

Despite the seemingly bleak outlook, with either minimal growth or having to pull out of the market altogether, there are some spots of light on the horizon. For a market as consolidated and mature as the UK, one might follow the adage of being either brave or stupid. But for those brave enough to take the plunge, and follow that up with a capital injection, plus product and personnel to match, there could be a chance to eke out some success.

TalkSPORT has partnered with BetVictor on a white-label agreement to launch talkSPORT BET, banking on its three million weekly listeners as a springboard from which to jump. TalkSPORT betting and gaming director Gareth Williams said the partnership showed the brand’s “power and reach” in venturing into sports betting, in a bullish set of comments following the platform’s launch. BetVictor has seen success with Parimatch and Heart Bingo in the UK on similar white-label agreements, with this latest venture now also looking to achieve cut through.

A tier-two operator that has started to make significant waves in the stagnant pond is LeoVegas-owned BetUK. Having initially launched in 2013 as a casino operation, which LeoVegas acquired in 2018, BetUK debuted as LeoVegas’ UK-facing sports betting brand. In the four years since, BetUK has made meaningful progress, with Welch telling EGR it is now one of the “strongest performing brands” within LeoVegas.

He continues: “We are extremely pleased to see record numbers in new players, returning players and deposits. It’s fair to say we have more than doubled our business and player base in the last 12 months, and we have ambitious plans for the future.”

And as is the case in the industry, it may seem a simple proposition. Everyone rushed to the US to head into the money pit, but the reality of turning a profit is a lot harder than investors expected. Similarly in the UK, the largest betting market in the world, surely everyone can have a slice of the pie? Once again, the reality shows this not to be the case. Regulation, tough competition and now the macroeconomic crisis have knocked the stuffing out of most success stories. BetUK remains somewhat of an anomaly, and Welch points to two key pillars of growth: product and marketing.

The brand boasts sponsorship agreements with Premier League champions Manchester City and the Arena Racing Company, while having brand ambassador deals in place with former England striker Teddy Sheringham and ex-champion jockeys Kieren Fallon and Peter Scudamore, with all of these deals coming during the last 12 months.

Hailing the strategy, Welch says: “All of these raise the brand profile and help us better engage with potential and current players. It also brings new partners and commercial opportunities to our door.”

On product, Welch doesn’t pull his punches when talking about fellow smaller sports betting operators, arguing those built on “generic white labels […] don’t offer the punters anything different than the giants”. Welch notes the investment into BetUK’s platform, along with bolt-on additions such as live streaming, and pricing flexibility gives the operator a chance to stand out.

“We’ve invested heavily in our product, and we honestly believe we have a competitive offering,” he remarks. “We offer live streaming on over 40,000 races from around the world, along with over 60,000 dog races. We recently added French live streaming which has proven popular. We compete on price where we can, offering market-leading offers on many events.”

Elsewhere, LiveScore Group has also shown that tapping into a niche can result in positive returns and a sustainable outlook. The firm, divested out of Gamesys Group in 2019 and led by CEO Sam Sadi, operates the LiveScore Bet and Virgin Bet brands in the UK, along with its sports media arm LiveScore.

The group has seen hockey-stick growth since the divestment, with annual revenue leaping from £10m to around £80m and employee headcount rising from 200 to more than 700 people. Sadi is confident on the new ecosystem, including the group’s media arm and its sports betting proposition as a symbiotic pair, with the tunnelling effect of users being pushed towards sports betting as its main acquisition tool.

Speaking to EGR, Sadi says: “Our business model is very different from where you need to continue to spend to acquire new users or even retarget new users. We have our users, millions of them in our ecosystem. And we’re adding more engagement into it with different types of content. We have a business model where we can monetise our sports audience with direct B2C sports betting, so no intermediaries, no affiliates and no leakage in the funnel,” he adds.

For Sadi, entering the UK without a significantly different business model or a recognised brand is a recipe for an early bath, but there are wider meta conditions that have to be taken into account, as Poppleston Allen’s Bradley notes: “The macroeconomic environment is certainly challenging. We continue to see betting shops close, albeit at a lower rate than before, and there’s no doubt the cost-of-living crisis is being felt across the country, so I’d say it is a genuine concern.”

All or nothing 

Alongside the macroeconomic conditions and intense battle for market share, the looming spectre of the white paper hangs low over the UK. Committed to in the Conservative Party’s 2019 manifesto, the document is still waiting to see the light of day, three Prime Ministers, four Culture Secretaries and three de facto gambling ministers later. Reports suggest Paul Scully, Parliamentary Under Secretary of State at the Department for Digital, Culture, Media and Sport, wants to see the document out of the door before Christmas, although the likelihood of this remains to be seen. Prime Minister Rishi Sunak has reportedly given the green light to affordability measures and a threshold on online slots stake limits, while an ombudsman is also set to be introduced.

Affordability limits have been a real thorn in the side of the industry, after initial calls for a paltry £100 a month were dismissed, although the topic has remained on the tip of the tongues of stakeholders as the regulatory battle heats up. These measures, along with so-called safer gambling initiatives, have seen larger operators take blows in recent months. Entain CFO Rob Wood confirmed the implementation of affordability measures in the UK had already impacted year-on-year growth in the market for the FTSE 100 operator. And if major firms are feeling the pressure, smaller operators with skeletal crews will be hampered even more so.

Bradley comments: “Changes to the Gambling Act 2005 will affect everyone in the market, but it seems likely they will have a disproportionate impact on smaller operators if greater compliance demands are introduced as they will have fewer resources to deal with them.”

It is interesting to note the importance of having a properly funded business plan when approaching the market, with the need to abate fears of costs as a smaller operator with a potential backstop. Welch points to the absorbability of BetUK’s costs as part of the LeoVegas Group, which has now also been acquired by US casino giant MGM Resorts International in a deal worth more than $600m. Therefore, despite being labelled as a tier-two firm and the connotations that come with it, BetUK has capital at the ready to deploy, in theory.

Welch continues: “The white paper hasn’t been published yet, so ultimately, we will have to wait and see. It’s worth noting BetUK is part of the large LeoVegas Group, and we are well positioned to adapt to any changes the white paper leads to. For small operators that don’t have staff and the internal resources we have, it may prove more of a struggle.”

Ultimately, money talks. SportNation and Redzone parent company EEG’s share price is hovering around the $0.10 mark after a 52-week high of $5.25. Bet-at-home has had to slash costs by culling staff in Germany and Austria this year, and Novibet is heading to the US and Latam as part of its reverse SPAC merger and pulling out of the UK as a cost-cutting measure. Those challenger brands with the cash are those pegged to succeed.

But what does success look like in a market that barely gets a mention these days on investor calls? People are essentially bored of the UK, a mirror effect of the global community, where calcification and dominance of major firms has led to statis, with little to shout about. As the recession looks to be a prolonged one and with regulation becoming stricter, more and more smaller firms could up sticks and look for success elsewhere.

Central and Eastern Europe as well as Latam continues to grow in prevalence and importance in quarterly results, yet for Old Blighty it seems like its rock and roll days are over and a slow march to aged stability is the only route, with a few upstarts clinging on for the ride.