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IN-DEPTH 12 July 2018
Harald Neumann: Focusing on the future
Harald Neumann is the CEO of NOVOMATIC, one of the world’s largest gaming technology providers and casino operators. He explains how this duality differentiates the business, and shares his exciting plans for expansion in the US
By Gambling Insider

How would you sum up 2017 in terms of performance for the group?

Overall, we took a big step forward. We continued our growth with revenues up more than 11% to over €1.2bn in the first half of 2017, largely thanks to a couple of European acquisitions. Furthermore, this development is primarily the result of a sharp increase in the number of electronic casinos operated by NOVOMATIC around the world. Compared to the same period last year, the number of self-operated locations – including casinos, sports betting outlets and bingo facilities – rose from around 1,800 to nearly 2,100. We also achieved a new all-time high for the number of gaming devices operated – an increase of around 9,000 to a total of around 70,700 devices was achieved in the reporting period compared to the first half of 2016.

You have mentioned in previous interviews your focus on the US. Will your acquisition of a 52% stake in Ainsworth play a part in your growth in this market? How is the merger and integration going?

The acquisition represents another milestone in the corporate history of NOVOMATIC and is of major strategic importance, as it paves the way to access the enormously important North American market, a region with almost one million operated gaming machines. The combination of being a manufacturer and operator, however, is only possible in Europe, South America and maybe Africa. Not in the US, where we must take local market legislation into account. In most of the US states, a developer of machines cannot be licensed as an operator at the same time. So we only sell or rent out technology there. But this is where Ainsworth comes in – our eventual goal is to push new products into the US market together.

It’s been reported that the plan is to keep the NOVOMATIC and Ainsworth brands separate, so what did the acquisition add to NOVOMATIC that you didn’t already have?

Just for clarification purposes: The transaction is not a full acquisition of Ainsworth Game Technology. NOVOMATIC AG purchased Len Ainsworth’s shares and become the majority shareholder of AGT. But even now the deal is not closed yet, there is an ongoing integration of both companies. A noticeable amount of teamwork has already happened, especially in the R&D space. Also, we are preparing distribution for when the deal is closed. This cooperation demonstrates our future.

Do you feel NOVOMATIC now has a good handle on the particular nuances or eccentricities of US gaming?

The European and US markets are completely different. You have an AWP market on the one hand and a casino market on the other. That is what makes Ainsworth so important to us, due to the company’s distribution network in the US as well as an R&D and production centre in Nevada. Ainsworth is licensed in all the states and understands US customers. We know that the right products for this market will not be developed overnight, but we have said all along that winning the race in the US is about patience and market expertise. Thanks to Ainsworth we now have both.

The US tribal gaming market has shown strong growth in 2017. What is NOVOMATIC’s strategy for fulfilling this customer group’s needs?

This customer set has especially high expectations regarding innovation and convenience, and that’s what we focus on. High levels of innovation continue to remain a central component of our strategy. We established ourselves as a trendsetter in the world of gaming equipment, in particular through investment in research and development that goes above and beyond the industry average. Our 27 R&D centers in 15 countries, and 14 production locations in ten countries, all play a crucial role in the development of innovative technologies, system solutions and promising products for the online, mobile and social gaming segments.

Do you have any plans to offer a US sportsbook product given the impending legalisation of sports betting there?

We are observing a major growth in sports betting through NOVOMATIC Sports Betting Solutions (NSBS). And obviously there is going to be a huge sports betting market in the US, once the legalisation of it is finalised. Clearly, we want to participate and will definitely consider all possibilities in this field.

The company is currently in private ownership, and the mooted IPO has been shelved for now. Given the acquisitive nature of NOVOMATIC, how do you plan to raise funds for acquisitions in the future? How far away is the business from an eventual IPO?

As we had already mentioned in the past, it is customary for the management board of a company of the size of Novomatic Group to regularly evaluate different financing alternatives and financing options - as we did in the past several weeks and months. We have completed more than 150 acquisitions during the past few years, and will continue to grow organically and through acquisitions in the coming years. Although from today's perspective our business activities are currently fully financed, we will continue to opportunistically monitor additional financing alternatives, including capital markets transactions and possibly also an IPO. Our decision will be based, among other things, on our financing needs, industry specific regulatory developments in our core markets, as well as the general capital markets environment.

How much cross-over is there in terms of the two sides of the business (game development and operations)? Would you say this is an advantage over other game developers?

The duality of our business as both producer and operator certainly provides synergistic relationships between operations and technology. We are following this so-called dual strategy as a full-service provider of all kinds of gaming technology – land-based and online – while operating more than 2,100 gaming locations, mainly in Europe, from large casinos to single-site operations. This is what makes us unique and is a strength of ours, as it provides a learning factor from both sides and offers lots of synergies.

What is he benefit of having your software developers spread over a number of geographies rather than a central resource?

We currently have more than 1,200 software developers in nearly thirty software centres. NOVOMATIC is a major international player with locations in 45 countries and more than 25,000 staff members worldwide. One of our principles is to expand, especially in North and Latin America. Accordingly, our target audience is rather broad and diverse. To meet their individual needs, it is important to have our experts on the ground. We have recently established a new headquarters in Illinois, and opened a product development studio at the facility alongside a recruitment drive for local developers. This has been a significant investment that will start to pay off this year as we begin to introduce our products to the market. It allows us to adapt NOVOMATIC games to meet US player tastes as well as create bespoke US games in line with player preferences.

Given the growth in online gaming across Europe, how important is the Greentube part of the business?

According to research by GBGC, global online gaming revenue had reached $40bn in 2016. This confirms the increasing importance of online gaming and so-called skill-games in particular. As a result, our current focus is on the expansion of server-based and server-supported gaming throughout Europe. More territories are deregulating online gaming and Greentube is poised to bring omni-channel solutions and leading interactive content to these markets. There are also new VLT opportunities on the horizon in the US and Canada, as well as growth in the B2B social casino space for Greentube to accelerate its drive into the pay-to-play social casino and apps market. The successful launch of Foxwoods’ social casino last year has made operators turn to the Greentube Pro social casino platform as a complete solution that features best-in-class NOVOMATIC content.

Do you feel that social gaming has risen in importance for online gaming operators?

Social gaming has definitely risen in importance. Greentube is spearheading our development of all online gaming solutions for the NOVOMATIC Group. AbZorba Games, a company specialising in social gaming apps, complements our already broad range of products. We also took over BlueBat, a social gaming specialist from Vancouver, in 2015. So we are constantly increasing our portfolio of more than 200 slot, AWP and casino game titles. We have developed one of the most sophisticated and truly social private-label solutions for casinos in the US. This retention marketing tool allows any land-based retail operator, small- to large-scale, to compete with the ever-growing competition of social gaming apps offered by the likes of Apple and Google. We will be adding more features and functionality to our product, which has proven to be highly successful with our first customers, Foxwoods Casino Resort in Connecticut, Treasure Island in Minnesota, as well as with Mount Airy in Pennsylvania. Initial results have seen the player base pass 10,000 individuals in the first three months of operation with strong monthly revenue growth.

What are your predictions for the development of the European land-based market in 2018?

Our experience has shown so far that the player profile of a customer who frequents land-based gaming venues is quite different to that of the typical online player. Therefore, we are sure that there is room for both market segments in the future and that an innovative product offer will allow us to achieve interesting growth rates in the land-based segment as well. After all, online and land-based gaming can hardly be compared. A guest can spend a couple of hours in a casino, eat, drink and enjoy the company of others.

What would be the one piece of advice you would give to an up and coming CEO in the gaming industry?

Unfortunately, there is no magic formula. The main thing is to set and follow goals with lots of commitment and stamina. While it is impossible to be a specialist in every field, it is necessary to be able to understand or even discover relevant future trends. The secret of success is teamwork, communication and empowerment. The gaming business is very local, especially in Europe where it is a fragmented market with more than 100 technical requirements and so on. You need local people that understand the individual markets, and you have to empower them.
IN-DEPTH 16 August 2019
Roundtable: David vs Goliath – Can startups really disrupt the industry?

(AL) Alexander Levchenko – CEO, Evoplay Entertainment

Alexander Levchenko is CEO of innovative game development studio Evoplay Entertainment. He has overseen the rapid expansion of the company since it was founded in early 2017 with the vision of revolutionising the player experience.

(RL) Ruben Loeches – CMO, R Franco

Rubén Loeches is CMO at R. Franco Group, Spain’s most established multinational gaming supplier and solutions provider. With over 10 years working in the gambling, betting and online gaming industries, he is skilled in operations management and marketing strategy.

(JB) Julian Buhagiar – Co-Founder, RB Capital:

Julian Buhagiar is an investor, CEO & board director to multiple ventures in gaming, fintech & media markets. He has lead investments, M & As and exits to date in excess of $370m.

(DM) Dominic Mansour – CEO, Bragg Gaming Group:

Dominic Mansour has an extensive background of nearly 20 years in the gaming and lottery industry. He has a deep understanding of the lottery secto,r having been CEO at the UK-based Health Lottery, as well as building from scratch, which he sold to NetPlay TV plc.

What does it take for a startup to make waves in gaming?

DM: On the one hand, it’s a bit like brand marketing; you build an identity, a reputation and a strategy. When you know what you stand for, you then do your best to get heard. That doesn’t necessarily require a TV commercial but ensuring whatever you do stands out from the crowd. Then you have to get out there and talk to people about it. 

AL: Being better than the competition is no longer enough; if you’re small, new and want to make a difference – you have to turn the industry on its head. Those looking to make waves need to come up with a new concept or a ground-breaking solution. Take Elon Musk, he didn’t found Tesla to improve the existing electric cars on the market, he founded it to create the industry’s first mass-market electric sports car. It’s the same for online gaming; if you want to make waves as a startup, you have to bring something revolutionary to the table.

JB: Unique IP is key, particularly in emerging (non-EU) markets. As does the ability to release products on time, with minimal downtime and/or turnaround time when issues inevitably occur. A good salesforce capable of rapidly striking partnerships with the right players is vital, as is not getting bogged down too early on in legal, operational and admin red tape.

How easy it for startups to bring their ideas to life? How do they attract capital?

AL: It depends on the people and ideas behind the startup. Of course – the wave of ‘unicorns’ is not what it used to be. Some time ago the hype was a lot greater in terms of investing in startups, but that’s changed now. Investors now want more detail – and even more importantly, to evaluate whether the startup has the capacity (as well as the vision) to solve the problem it set out to address. That’s not to say investors are no longer interested in startups – they certainly are – but now more than ever, it’s important for startups to understand their audience as well as dreaming big.

JB: To get to market quickly, you need a great but small, team. If slots or sportsbook, the mathematical engine and UX/UI are crucial. Having a lean, agile dev team that can rapidly turn wire framing and mathematical logic into product is essential. Paying more for the right team is sometimes necessary, especially when good resources are scarce (here’s looking at you, Malta and Gibraltar).

Building capital is a different beast altogether. You won’t be able to secure any funding until you have a working proof of concept and, even then, capital is likely to be drip fed. Be prepared to get a family and friends round early on to deliver a ‘kick-ass’ demo, then start looking at early-stage VCs that specialise in growth-stage assets.

How do you react when you see startups coming in with their plan for disruption?

RL: We welcome the innovation and fresh thinking startups bring. This is particularly the case in Latin America, with a market still in its infancy. One area we’d especially like to see startups making waves is in the slot development sector. Latin America is a young market that needs local innovation suited to its unique conditions – especially in regard to mobile gaming.

Operators eyeing the market have Europe‐focused core products, which creates a struggle to work to the requirements of players and regulators. To succeed there, it has become more important than ever to work with those with a knowhow of the local area to adapt products and games to besuitable from the off; we welcome the chance for local talent to develop and grow.

Do you think it’s easier for established companies to innovate and establish new ideas? 

AL: From a financial perspective, yes. It is without a doubt easier for incumbent companies to establish a pipeline of innovation via their R & D departments, as well as having the tools to hand for data gathering and analysis.

But it stops there. Startups hold court in every other way. Not only are they flexible, they can easily switch from one idea to another, change strategy instantly as the market demands and easily move team members around. Established companies know this – and this is why we’re seeing an emerging trend for established companies to acquire small, innovative online gaming start-ups. They have the right resources and unique ideas, as well as the ability to bring a fresh approach to businesses’ thinking.

RL: For me, it’s always going to be established companies. Only with the resources, industry experience and know‐how can a company apply technology and services that truly make a difference. Of course there are exceptions. But when it comes to providing a platform that can be approved by regulators across multiple markets – as well as suiting an operators’ multiple jurisdictions – it is simply impossible for a couple of young bright minds with a few million behind them to get this done.

DM: I actually think it’s harder for established companies. It’s key to differentiate between having a good idea and executing one. That’s where the big corporates struggle most. They’re full of amazing people with all sorts of great ideas but getting them through systems and processes is nearly impossible.

Is it essential to patent-protect innovative products?

AL: It’s a very interesting subject. If we take IT for example – patents can actually become a block to the evolutionary process within the industry. Of course, getting a patent future proofs yourself from the competition copying your concept but, having said that, if you’re looking to protect yourself from someone more creative, smarter and agile, you’ve probably lost the battle already!

In our industry everything is moving faster and research takes less time than the development itself. No matter how good you are at copy pasting, you can’t copy Google or Netflix. The most important thing is not the tech itself but rather its ‘use-case’ – or in other words, does it solve what it’s meant to solve? Competition is healthy and the key to innovation. If you spend your whole time looking behind you, you’ll never be able move forwards.

JB: Tricky question, and one that depends on what and where you launch this IP. It can be difficult to patent mathematical engines and logic, mostly because they’re re-treading prior art. Branding, artwork and UX is more important and can easily be copied, but the territories you launch will determine how protectable your IP will be once patented. US/EU/Japan is easy but expensive to protect in. But China/South East Asia is a nightmare to cover adequately. Specialised patent lawyers with experience in software, and ideally gaming, can help you better.