Tim Poole sits down with LeoVegas CEO Gustaf Hagman, who provides his take on consolidation, regulation and the future of the gaming industry.
One job aside, LeoVegas CEO Gustaf Hagman has never been hired in his entire career. That job? Hagman worked at McDonald’s during weekends in the ninth grade. Apart from this “fun and humbling” experience, the serial entrepreneur has been starting, growing, selling and liquidating companies all his life. It’s a path that has enabled him to truly shape gaming companies and achieve real influence within our industry. There is no better example than LeoVegas, the mobile-first operator Hagman co-founded in 2011, and he’s never looked back since. Sitting down for an hour-long Zoom call with Gambling Insider from Stockholm, Hagman tells us the LeoVegas story and discusses a sector that is changing, he hopes, for the better.
“Most of all, I am a pure entrepreneur,” Hagman summarises, recalling his early gaming career. An economics graduate from Stockholm Business School, the executive’s first venture came in 1999, creating VSMarket.com. Today, you can still find a 2001 Forbes article named “Betting the House” about this creative business model, which read in part: “Leave it to four guys from Europe’s most left-leaning country to make a Vegas-like grab for a pot of gold.” Hagman tells us: “It was a game where you could bet on stocks, primarily on the Nasdaq, hence the name versus the market. We were putting up odds on shares and stocks increasing or decreasing in value, where you could bet on one-day, three-day or week-long periods of time. The lowest bet you could place was $1 at that time.”
Existing before the Federal Wire Act, which effectively outlawed online betting in the US, Hagman recalls having a sizeable audience. August 2001 saw VSMarket.com’s largest-ever turnover, although another event would soon shut the business down – and it had nothing to do with the Wire Act. Indeed, the terrorist attacks of 11 September, 2001, served a big hit to a gambling business based on the stock market. VSMarket.com never recovered and was liquidated in 2003. What Hagman and his business partners were able to do, though, was sell the pool engine the company had built, to the likes of Kindred Group (at that time Unibet) and others. The engine still forms part of the buyers’ software today.
“That was my first involvement in gaming and that was over 21 years ago,” Hagman reflects. Despite liquidation, VSMarket.com provided the base he would use to branch further out into gaming. His next steps were to learn the industry and make early contact with several of the sector’s other entrepreneurs. This involved companies such as Traction Poker Network, OnGame and Boss Media, which have all since been acquired and now exist in different forms. In 2004, Hagman and a friend attained a license in the Nordics for Eurobet. The operator was owned by Coral at the time, before Coral was acquired by UK bingo operator Gala in 2005. The newly formed Gala Coral, though, wanted control of all Eurobet’s markets, and so bought the 15-year license Hagman co-owned, ending this particular chapter in his career.
After Eurobet, Hagman founded Net Gaming. He explains: “We were primarily doing consolidation within the poker market at that time. So we consolidated on the OnGame network and on the Traction network, consolidating smaller skins, taking their databases and throwing it into our database. That way we grew a few brands within Net Gaming and then I listed it on a small stock exchange in Sweden in 2009. Around 2011, I saw all the trend movements go towards mobile and started to discuss this with Robin Ramm-Ericson, an old friend who was also with me on the VSMarket venture.”
Quite quickly, we found other operators were trying to squeeze their desktop offering onto the mobile UX,” he says. “But we figured if we built everything day one from mobile, that’s going to make sense. So we did
The rest was history, with Ramm-Ericson and Hagman going on to co-found LeoVegas, the three-time Global Gaming Award-winning online casino operator. Hagman left his role as Net Gaming CEO in the summer of 2011, and recalls having Ramm-Ericson (who became chairman of the board) and his family over for a barbeque. There, they discussed Hagman’s first iPhone 3GS and the idea of creating “an operator that is mobile from day one”.
“Quite quickly, we found other operators were trying to squeeze their desktop offering onto the mobile UX,” he says. “But we figured if we built everything day one from mobile, that’s going to make sense. So we did. In May-June 2011, we founded the company, got the first funding and everything was done before mid-summer. We started to build directly after in July. We set a goal to go live either right before Christmas or right after, and went out looking for the best system architects and programmers we could find, and then we started to build LeoVegas.”
Despite it being “extremely hectic” to get suppliers, payments providers and all the other necessary components on board, LeoVegas went live at 12pm on 12 January 2012. (“12-12-12!” Hagman laughs.) The brand name itself was devised quickly: “Leo means lion in Latin and Vegas is the city of dreams.” Teaming up with a major news corporation in the Nordics, the company conducted one of the largest mobile campaigns in history at the time.
The operator started with just six or seven games as reliable, purely mobile suppliers were at a premium, unlike today’s market where such providers are in their thousands. Hagman recalls: “Back then, we had the ones from NetEnt: Gonzo’s Quest, Jack Hammer, Blackjack, Starburst and a few others but that was it. After around a month, we had 20 to 25 games. We went live in Sweden and quite quickly other countries followed. We got a license in the UK in 2014, Denmark 2016 and so on.”
It was, however, the decision for LeoVegas to build its own platform that Hagman singles out as one of the organisation’s most important milestones. The firm realised very soon after going live its own platform would become a necessity. Hagman recalls using the NYX platform, which later integrated into Scientific Games, and acknowledges LeoVegas was not one of the “prioritised operators on the platform, so to speak”. He adds: “We were small and mobile, and no one really knew mobile was going to fly, which is amazing as it was only eight years ago.” Work began on the LeoVegas system in the spring of 2013, before it went live in June 2015, giving the operator the ability to “steer our own destiny”. When Gambling Insider asks whether LeoVegas has ever considered becoming a B2B supplier of this software, Hagman acknowledges this is a realistic future prospect but that’s a topic for a future discussion.
The regulation has failed. I think that’s a quite strong statement but it’s the truth. The purpose of the regulation was customer care and to bring tax revenue to Sweden. If you look at the first point, with customer care and the protection of vulnerable Swedish players, clearly it’s been the opposite
A sign of any company’s interest in online gaming these days is a move to Malta and, for LeoVegas, that migration came in 2012. For Hagman personally, it came in 2013, when he and his family moved there, where they lived for two and a half years, helping build LeoVegas out of Malta. Now, he says, LeoVegas has around 900 employees, up to 450 of which are in Malta; the operator has a headcount of over 250 in Sweden and around 100 in the UK, with the rest of its employees spread between Milan, Copenhagen, Berlin and other key locations. In fact, given recent industry history, LeoVegas has now reached a size that could make it a prime target for M&A. The company recently finalised a bond issuance of SEK 500m ($58.6m), leaving it with a strong balance sheet. With that in mind, Hagman confirms a greater interest for European companies from across the pond. “There are a lot of companies out there: the smaller operators are trying to get acquired and the larger ones are looking at mid-sized companies with a unique position,” he remarks. “With US investors moving into Europe now, we see more of them in our holdings and we can see their presence increasing all the time. I think that will also drive M&A in upcoming years. Definitely in a couple of years there will only be larger and larger operators.”
In 2020 as predominantly an online casino operator, LeoVegas has not been affected by the COVID-19 pandemic anywhere near as much as any land-based casino or pure sports betting operator. So much so that if there was one interview Gambling Insider could skip discussing the pandemic, it would’ve been this one. That said, LeoVegas was still impacted by the global nature of the coronavirus spread, with all Maltese and UK employees following Government restrictions and transitioning to remote work. From the business side, Hagman says revenue streams are growing faster in some countries than others. Yet restrictions in certain markets have “put a little bit of a stop to the overall growth of our database.” One market in particular is a topic very high on LeoVegas’ agenda: Sweden.
During the COVID-19 pandemic, the Swedish Government implemented new limits to combat a potential rise in homebound problem gambling. These restrictions included a maximum weekly deposit limit of SEK 5,000 for online casino players and a SEK 100 limit for bonus offers. The restrictions were originally designed to last until the end of the year but the Swedish Minister for Social Security extended the measures until at least 30 June, 2021. Speaking to Gambling Insider, Kindred called this move a step in the wrong direction, while LeoVegas CMO Dersim Sylwan also told us channelisation will only suffer as a result.
All this intrigue adds to a market that was only re-regulated on 1 January, 2019, and had already caused much debate among its stakeholders. Consistent fines from the Swedish Gambling Authority have been met by operator claims that the rules are not at all clear, while there appears to be friction rather than an open dialogue between policymakers and companies. For Hagman, there are no two ways about it: “The regulation has failed. I think that’s a quite strong statement but it’s the truth.
“The purpose of the regulation was customer care and to bring tax revenue to Sweden,” he continues. “If you look at the first point, with customer care and the protection of vulnerable Swedish players, clearly it’s been the opposite. And the channelisation is down to between 55% and 65%. There’s a huge black market and today it’s so easy for unlicensed or black-market operators to get hold of players in Sweden that want to have a new bonus or play outside the system. All in all, that means less tax for the Swedish authorities so clearly there is a failure in the system. All these attempts to prohibit and add new restrictions clamp down on licensed operators, meaning the market will be even easier for unlicensed operators.”
I think the perception from public opinion is more that gambling is something that’s really bad, that people are losing their houses. We need to turn that perception into: nope, gambling is actually something that’s been around for thousands of years. And it’s entertainment more than anything else
Hagman concedes Swedish politicians have now begun to discuss mitigating the effect of the black market, although “there’s a lot of talk and not really anyone doing anything.” The two greatest obstacles the LeoVegas CEO singles out here are politicians failing to understand the market, as well as a negative public mood towards gambling. It’s extremely easy for a minister to kick the industry, Hagman says, due to the heavy media coverage of individual cases where gamblers have become addicted and, for example, lost their homes. He believes those stories simply feed populist ministers rather than present a balanced view of gambling as a whole. “We need a dialogue,” he says, “because otherwise we can’t educate the Government.”
This is an issue Hagman feels particularly passionately about. When we ask him what his future aims as an executive are, for instance, he sets out one of his primary goals as transforming the perception of the gaming industry. More and more, Hagman says, gaming is becoming a form of entertainment, and he believes he has the figures to prove it. “I think the perception from public opinion is more that gambling is something that’s really bad, that people are losing their houses,” he explains. “We need to turn that perception into: nope, gambling is actually something that’s been around for thousands of years. And it’s entertainment more than anything else. Now we can start showing that with the numbers, that €65 [or $79.84] is the average monthly spend. Just a few years ago, that number was a lot higher.”
It’s an emphasis not just used by Hagman, but industry-wide. GVC Holdings rebranded to Entain in December, while Paddy Power Betfair became Flutter Entertainment in May 2019, with both names having obvious connotations to casual, light-hearted pastimes. “It becomes a more sustainable database during these times,” Hagman continues. “There are a lot of new players who play for less. The industry is quickly turning into an entertainment industry, which I personally think is just awesome. Our monthly player spend is not more than a restaurant visit or a couple of beers, or going to the movies once or twice a month. I think that tells us something. It’s more average spenders that would like to enjoy a moment of casino, be able to win a large jackpot, play some blackjack, a little bit of roulette or a couple of slots. It’s more about entertainment than anything else, and I think that’s extremely healthy.”