Will ‘Stutter’ be Peter Jackson’s next blockbuster?

“Deeds will not be less valiant, because they are unpraised.” The Lord of the Rings – JRR Tolkien.

I loved Peter Jackson’s early work. The scale of the Lord of the Rings was truly epic but is a Flutter/The Stars Group (TSG) a blockbuster too far? Or will US box-office be the new, new thing?

This is the deal that puts the rest of the industry on the back foot.  The headlines we’re all used to seeing in terms of industry mega deals can summed up by “bigger is better and scale trumps all…”. But IS bigger better? And what happens to culture? I spoke to mid-senior people in both organisations and the general reaction was big-picture positive but followed with a biiiig sigh and observations around “more of the same battles to the death for people and teams”.

There are some areas that I think are really interesting here.

Does scale support positive culture?

The merger of cultures will be both fascinating and something that will drag on the culture for the next two years. Both companies have been there and done that in terms of mergers – but it’s the foot-soldiers and middle management that will bear the brunt of the cuts and have to struggle through while “synergies” get negotiated. High-level costs and targets will already be known (synergies of £140m) – but I know from experience that Steering Groups will be kicked off, egos will surface and Game of Thrones will have nothing on internal meetings over the next 12 months. Flutter is the boss here. Dublin is now the head office. Dublin has tended to be more of an historical (Full Tilt related) outlier for TSG, and they only introduced a site CEO this year. Scale and reach seems to be the new paradigm for the online gambling industry but there is a big unanswered question – can positive culture or habits be scaled? Particularly in an industry that has struggled with negative newsflow and lots of M&A over the last few years.

Who matters in M&A? Not the end user

This new organisation will be…diffuse. The reality is that 99% of consumers of Stutter brands will have no idea of any corporate change – or won’t care. This is a bigger news story in Ireland, due to Paddy Power’s brand heritage there, than it is in any other territory. The overall brand portfolio now stretches across Paddy Power, Betfair, Adjarabet, PokerStars, Sky Bet, Full Tilt, BetEasy, FanDuel, Fox Bet – as well as various sub-brands. The best brands that I’ve worked on are aligned around a common purpose and mission to do something specific for the customer.

The sheer scale of integration means that brand alignment and resource allocation will be a power game as to who can get what. My own experience is that when people are concerned for their jobs having to compete for shared resources, the focus gets taken off the customer. Only time will tell here – but you feel that there are opportunities for more agile, more aligned rival operators to deliver greater customer focus (and results) in the short to medium term.

Rafi will kill it as COO

I first met Rafi when he was COO of Playtech. He was always viewed as the guy that would give you a straight answer, wouldn’t fuck around and then deliver what he said he would. He knows gambling inside out, and there has always been a general feeling that if you were going to pick an industry COO that he’d be number one.

This is not in opposition to him being CEO of a large public firm – but a case of Rafi being most comfortable being down in the absolute detail of the day to day, and not having to be the “BIG VISION, BIG MISSION” sprinkler of fairy dust on a large organisation. Richard Flint is a great example of someone who combined the ability to inspire internally and have enough charisma and slickness to put an acceptable face on an industry that is struggling with reputational issues. My gut feeling is that Rafi will be more comfortable with an inward-facing role. He’s one of the good ones. I don’t know Peter Jackson but he’s already got a board (e.g Gary McCann) that has ‘been there/done that’ in terms of long-term growth and debt management.

Margin matters, will poker matter?

TSG’s debt weight has been a killer. TSG has consistently delivered some of the best margins in the industry, but over the last few years hasn’t been able to touch it due to the requirement around positive cashflow. The converse of this is that TSG’s marketing spend has been the lowest of its peers as a percentage of its online revenue. The theory is that less drag of debt, deeper pockets and rationalised marketing overheads will allow an increase in the percentage of spend versus revenue – that can help drive top line revenues. However, it’s never as simple as this. I know poker has tended to be at the bottom of the list of priorities for Flutter. Stars has always taken the lead in terms of category-widening for poker – but my gut-feeling is that the Group focus may not allow this and that cross-sell will now be number one, two and three in terms of poker focus.

This probably creates even more of an opportunity for partypoker and GVC in terms of building on the real authenticity that it’s built up in the poker space over the 18 months or so.  Party’s challenge here is to maintain poker authenticity while building more holistic and seamless poker-driven gambling experiences for the more “recreational” type of player. Stars Rewards is a beast at doing this – very interested to see if its model and player experience with Stars Rewards gets used on a wider Stutter group basis.

The US is what matters

Fox Sports and free-to-play. FanDuel and poker. A PokerStars legacy that goes back to the early noughties. Even Full Tilt as a secondary brand? Boots on the ground already in key markets. An exchange in New Jersey. US fantasy sports marketing experts as part of the management team. There is very little not to like about where this positions Stutter in terms of the overall US opportunity.

I’m familiar with the people from TSG that are over there. They are some of the smartest guys in the room and highly motivated to succeed. But there is a question now as to whether there will be organisational challenges that will slow up what they want to do. Decisions that have already been made in terms of budgets and resource allocations will be picked over again. Flutter will want to have some of Peter Jackson’s men up close and personal with everything that’s going on. Trust will have to be built up – at the same time that a 10-figure marketing spend is marching out the door in the pursuit of market share/land grab.

There are still some outstanding questions over who owns what IP that relates to sports betting business processes (e.g cashout) due to how the United States Patent and Trademark office (USPTO) treats IP versus the EU. Firms are circling that one and it could prove expensive. Positive newsflow about the US will is petrol that will drive the engine of the share price here. It’ll be one to watch that’s for sure.

Sports betting platform battle to the death

Trying to see the wood for the trees in terms of technology and market fit is as much of a political game, as it is in terms of the best technology and capability winning. I know that if was Sky Bet, I’d be concerned that my expertise was complementary to a core Paddy one. I know that the trading overhead (in terms of headcount) at TSG was punching well above its weight in terms of markets and scale per trader. Their challenge was market/platform fit due to TSG historically being a poker business. Stutter has the luxury of choice but that brings hard decisions around the big picture. Shoehorning US sports and the required differences in exotics etc is not an overnight job and that’ll be the focus in terms of core platform market development for the long term. If you have a “one territory, horseracing focus” your horizons are…limited.

The industry is a state of flux. Mega deals have become more the norm than not. If it’s a mega deal to simply acquire tech or skillsets (a la Uber, Google or Facebook), it makes sense – as those deals increase capabilities that serve the customer. The mega deals in the gambling industry are driven by synergies, “reduced marketing costs because we can scale more efficiently and greater brand access to territories we don’t currently serve…” and the reality is that – while the drivers are real – the clear outcomes are unproven at scale.

For example, performance marketing is not binary. Just because you own more brands and have a smaller marketing department doesn’t mean that your acquisition costs will go down. You are still competing against your own and competitor brands. Your scale doesn’t mean anything to your end-users other than a greater ability to deliver hygiene factors around security and safety.

Some of the issues already discussed do not suddenly become easier problems to solve, just because you are the biggest. Unfortunately creating scale scales your challenges too.

I’m looking forward to watching how Peter Jackson’s next epic unfolds. It’ll definitely be big box office – but will it be…good?

Liam Casey is The Stars Group’s former head of marketing and now consulting at www.betonliamcasey.com