Lion's share: How Roar Digital will make up ground with its latest capital injection

GVC Holdings, one half of US betting and gaming JV of Roar Digital, dominated the news in July as its famously vociferous chief executive Kenny Alexander retired from his post. In true Alexander fashion, he closed off his chapter with a bang, including GVC and partner MGM Resorts announcing a $250m injection of fresh capital into the vastly expanding Roar Digital business in an effort to push it further up the US betting and gaming food chain to compete with the big boys.

“The kid gloves are off,” Alexander repeated in a call with investors, detailing GVC and MGM Resorts’ latest investment efforts into Roar. The gist of the call was a promise to grow market share for the BetMGM brand and further tap into MGM’s far-reaching M life loyalty program.

As keenly emphasized by both Alexander and his successor, longstanding GVC COO and former Playtech exec Shay Segev, the US is GVC’s number one priority and the market’s potential for huge gains is not to be underestimated.

Leading from the top

Alexander is known for his bold and calculated moves, having facilitated major consolidation of the UK market by merging Ladbrokes Coral into its business only a few years ago.

And while its US competitors DraftKings, Golden Nugget, William Hill and Flutter conclude their own significant investment efforts as they seek to cement market-leading positions, Roar is adamant it will not be outmaneuvered. And it certainly appears the FTSE 100 firm has changed its tune on the US, having previously focused on profitability over market share, Numis analyst Richard Stuber wrote in a recent note.

“We think this change reflects the market valuation of DraftKings on 14x FY 2021 revenue (and the re-rating of Flutter driven by FanDuel, its US division) and management’s acknowledgement that ‘there is nowhere better to invest’ than in this JV to drive shareholder value,” Stuber wrote.

Speaking to EGR North America on the back of the investment announcement, Roar CEO Adam Greenblatt said: “I think that DraftKings having been received so overwhelmingly positively is good for all of us because the impact of that [deal] has been to crystallize the importance of Roar’s success for both GVC and MGM.

“The success of Roar is the single biggest lever, I think, for share price accretion for both GVC and MGM. And what I’ve seen is so much alignment between GVC and MGM as a result. Our ambition is not to accept the status quo at all, and you’ll see us much more visible and much more aggressive as we look to the second half of the year,” he says, with a hint of Alexander’s tenacity.

Greenblatt’s point is interesting when considering Eilers and Krejcik Gaming’s recent placement of Roar’s betting brands in its New Jersey market share breakdown for the twelve months to May 2020, giving it an estimated 4% against DraftKings and FanDuel’s combined share of 73%.

For igaming (excluding poker), Eilers and Krejcik Gaming estimated Roar’s BetMGM, Borgata and partypoker brands combined to make up 13.17% of the Garden State’s market in 2019, placing it narrowly behind Golden Nugget and FanDuel’s Betfair Casino.

Weeks ago, Alexander told investors the firm’s cut of the igaming pie had shot up to 18% in recent months, and Greenblatt is insistent Roar is now the biggest online casino operator in New Jersey.

“Our BetMGM brand, we believe, has been the fastest growing over the last 12 months in May 2020 versus May 2019. I’m just delighted with the performance of that casino business. Poker has been tough as you know, but we’ve been able to maintain our market share broadly,” the chief executive notes.

And while New Jersey may be the best example of market leadership in the US for now, Greenblatt points out it only represents a very small portion of the population and potential gaming market in the US.

“New Jersey represents 3% of the US population. While clearly it gets a lot of attention from analysts and reporters, there’s a much bigger story,” Greenblatt notes. “The first part of this year allowed us to extend our addressable market much more broadly, and that will continue. As we look to the future, we will be investing heavily in our focus markets, with the intention of being the leading player in the long term. I think the days of slow and steady are behind us.”

Adam Greenblatt is bullish on Roar and BetMGM’s expansion as he eyes Pennsylvania next

Big in PA

On the back of this progression, Greenblatt believes the BetMGM brand can establish a leading position within the burgeoning Pennsylvania igaming landscape, which recorded record online casino revenue of $56m in May.

Although Roar prides itself on its early entry into some states, namely Colorado, where it set its sportsbook live on day one of legal betting in the Centennial State, it has faced a number of setbacks in gaining a license in Pennsylvania, the second largest online casino state.

“We weren’t in that [initial] wave of approval and the PGCB then got bogged down. They stopped issuing those temporary licenses and returned to their normal, more extended process and then Covid-19 hit. It’s taken some time to work through that process, it’s not for lack of appetite or credibility,” Greenblatt says.

However, Pennsylvania regulator the PGCB said in a recent public meeting that the operator’s partner MGM had gone against its regulations and hired an ex-PGCB employee, resulting in its BetMGM license being held-off temporarily while the firm paid a small fine.

Regardless of the reasoning behind Roar entering the Keystone State over a year after its betting and gaming launches, Greenblatt is bullish on the opportunity, particularly in poker which is dominated by the only available platform in the market – PokerStars.

“We combine the strength of the Borgata brand and the fact that many of our [Atlantic City] Borgata players are based in Pennsylvania, with access to the M life database,” says the seasoned CEO.

Poker will undoubtedly be a key vertical for Roar, more so than many others in the competitive landscape, as its core GVC technology has produced a widely successful poker offering across Europe under its partypoker brand.

There has been some talk by Greenblatt in the past of the company’s plans for poker, particularly after it gained access to Nevada’s poker network last year, but with the restrictions of the federal Wire Act and the lack of a real multistate liquidity opportunity, it has not been a priority for Roar.

It currently operates poker in New Jersey via its Borgata, BetMGM and partypoker brands but some within the industry were under the impression it would consolidate its efforts under one brand going forward.

Greenblatt is quick to dismiss this suggestion: “In a state where only one skin and one brand is possible, BetMGM is our hero brand. BetMGM is our primary brand for sports, and that’s where the majority of our investment attention is going to go.

“To the extent that we can supplement that in a market because of skin availability, we will do so with the partypoker brand. In the case that it is not available, then it will be BetMGM poker in that space. The end game, as is the case in New Jersey, is that each of our brands share liquidity.”

When asked whether the Covid-19-related poker boom had sped up its poker launch plans in Nevada, he notes that while player levels were still elevated, they are certainly not at the level they were three months ago during the height of the US lockdown.

“Having said that, we recently successfully completed our biggest poker tournament ever,” he adds. “We are now progressing licensing of our poker product in Nevada with an eye to shared liquidity among what hopefully in six to nine months’ time will be a New Jersey business, a Pennsylvania poker business, and Michigan, West Virginia and then of course Nevada.”

But what about sports? Well, according to Greenblatt, the betting audience has been a much tougher nut to crack, particularly when faced with heavy competition and many of its peers presenting players with “eye-watering incentives.”

By comparison, Greenblatt says the operator has been “careful” with its incentives and pricing, and although the industry at large hit a snag when Covid- 19 struck and professional sports were disrupted, BetMGM’s market share had been steadily increasing.

And as many others have said before him, Greenblatt believes in the power of proprietary technology and an in-house trading and risk management department. But unlike some others in the States, GVC has been in the trading game for a long time and has relocated a number of its prized trading staffers to assist in building out an all-star team in the US.

“We’re feeling very, very good about two things: one is the state of the product and its fit for the US market, and [two is] the rate of progress. There are two things to look at: one is are you competitive, and two is what does the future look like?” Greenblatt asks.

“Because we are the only US operator using that GVC platform, GVC is able to focus all of its attention and resources relevant to the US on us. I feel very confident that our product is moving faster than anybody else’s.”

A BetMGM sportsbook in Las Vegas

An all-star line up

Roar’s most recent addition is former GVC trading director Glynn Carroll, who has taken on the role of VP of sportsbook in New Jersey. Other big names to have made the move to the US business include ex-Ladbrokes Australia CEO Jason Scott, Coral’s head of marketing Ray Doyle, and Greenblatt himself, who spent many years as Ladbrokes’ chief corporate development officer before taking on a similar role for the wider group when GVC acquired Ladbrokes Coral.

Both Greenblatt and Alexander have hinted that sports and the BetMGM brand will be at the forefront of Roar’s developments from now on. And, like competing casino group Penn National Gaming, it will tap into MGM’s brick-and- mortar player base via its M life loyalty program, which currently holds 38 million members.

Eighteen percent are in states where the operator expects to be live with betting by 2022. On the back of the new investment and the potential of the M life database, City analyst firm Peel Hunt says BetMGM’s ambitions to take leadership in the US seem “eminently plausible” thanks to the financial and technical resources at its disposal.

And let’s not forget about its partnership with Yahoo Sports, which grants it access to the site’s large fantasy database that generates 64 million unique active users each month.

Where does Yahoo fit into all of this?

The deal has been criticized within the industry for a lack of deep integration into the betting world on Yahoo’s part. And while Greenblatt remains tight-lipped about whether the partnership has proved a worthy monetary investment until now, he highlights the level of alignment between the two firms and insists a deeper product integration is on the cards as the Roar product team works on streamlining the customer journey between the Yahoo Sports and BetMGM apps.

“For things like single sign-on to lower the bar of customers moving to become a sports bettor, a lot of the work is done. We’ve planned out a multi-phase project with progressively tight integration.

“The objective is to bring the sportsbook as close to what the customer is already doing as possible and using the technology to facilitate that,” says Greenblatt.

And although BetMGM and Yahoo’s big debut together, which was primed for March Madness, was disrupted by coronavirus, the firm will likely debut something of interest ahead of the upcoming NFL season.

Where the partnership faces some pushback is in regulation. As Yahoo is not a licensed betting operator, the duo face restrictions in how linked their products can be and Roar has to ensure the commercial integration also aligns with regulatory control considerations.

“We are the gaming operator; Yahoo is not. How we integrate needs to follow those guidelines. We have regular product checkpoints. You know, it’s a bi-weekly arrangement. We have a steering committee and so everything we plan we plan together. We obviously show them what’s coming, and we work together on the customer journeys [and] what the creative looks like, so it’s very much a collaborative effort,” the CEO explains.

In the last six months or so, Roar has been bullish on its entry in to as many legal betting states as possible, with BetMGM even slinking into lottery monopoly state Oregon via a tribal casino partnership that Greenblatt is optimistic could turn into a state-wide mobile betting opportunity if regulation shifts.

But there is no doubt this aggressive approach to expansion is costly when considering market-access expenses, licensing costs, securing localized marketing expertise, appropriate sports sponsorships, the list goes on.

However, Greenblatt considers the operator is much more cost-effective than its competitors in its expansion efforts, particularly as its partner MGM has access to many states in which it owns properties, and brand and technology licensing costs are subsidized within the partnership.

Despite Roar incurring losses of $16.2m in expansion and high marketing costs in 2019, he expects profitability to come sooner for his firm than other major players in the sector: “Profitability will certainly come; our cost structure is more favorable than we believe anybody else’s in the sector is because of the combination of the assets contributed by GVC and MGM to the joint venture.

“On a combined basis, we expect to deliver industry-leading margins. Of course, you’ve heard that from others, but if you look at the combination of factors, I think we’re in a pretty good place,” he says.

But the timeline of regulation in states with huge populations also plays a significant role in this profitability timeline with Texas, New York and California’s lack of opportunity hugely restricting the potential for growth and widespread adoption of the BetMGM product.

“[Profitability] could really depend on the big states. You will have heard this from others and us in the past. We are looking to achieve positive contribution at a state level from about year three,” the chief executive confirms.

So, what’s next for the aggressive operator and its increased investment? Continued expansion, of course. Greenblatt has set his sights on Pennsylvania, West Virginia’s igaming landscape, Tennessee, New Mexico, Michigan and even Virginia, which is now in the process of establishing its legal betting framework.

Greenblatt says the list goes on forever. “While there are commercially viable markets coming through, we’re in this race. And it is a race, it’s an arms race. And we’re in a very good position,” says Greenblatt as he offers up another glimmer from inside the Alexander playbook.

What is clear is Roar’s determination to be considered alongside the likes of DraftKings, FanDuel and Golden Nugget, and with GVC and MGM promising to arm the operator with whatever it needs to win, the race is on.

Roar Digital has almost 300 staff across offices in New Jersey and Nevada