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IN-DEPTH 12 February 2019
Lies, damned lies and board reports
Industry veteran Kevin Dale offers tips to get the most out of revenue reporting in the boardroom
By Gambling Insider

Even if you’ve had a shocking month, there’s always something to shout about. To avoid the probing of your revenue or customer metrics, you might selectively highlight the favourable results and downplay the rest. If all else fails, you emphasise progress in the product pipeline. After all, board meetings are supposed to be upbeat, growth-trumpeting, forward-looking affairs, aren’t they? Behind the bedroom door, a variation on the following conversation might play out:

Director: “Great news folks, see page 1 of the board report. Gross gaming revenue (GGR) is up for the second month in a row.”

Board: “Yes, but looking at page 8, stakes don’t seem to have risen by anywhere near the same level as GGR. In fact, they’ve plateaued this last month.”

Director: “Not up so much, but still healthy and we have done very well on margin this month.”

Board: “I’m not sure that results going in our favour is necessarily the same as us doing well. Look at page 4 in your Appendices – if I compare stakes to last year, this should have been a bumper month for us: the football season has just started and stakes are plenty down on the same month last year.”

Director: “Ah, well we’ve been pricing our sports a bit higher recently because you were worried about our margin levels last time - that might have something to do with it. Also, on games margin, we launched 3D American roulette too with the double zero. This seems to be popular. Did you see the gaming margin improvement on page 2?”

Board: “I thought you said somewhere that gaming margin had improved because of the two new high rollers on blackjack who dropped a fair bit with us. Besides, they’ve only taken our VIP business up to the levels it hit back in May.”

Director: “Yes, they play blackjack mostly, but also a bit of roulette. The new VIP rewards programme has been well received by all VIPs. Also, you mentioned last month we shouldn’t be over reliant on such a small number of users, so we’ve focused more on acquiring new players to reduce that dependence too. Did you see our new player acquisition numbers on page 2?”

Board: “Yes, I did notice that and it is certainly a good sign, but I think some of your marketing costs seem to have risen too. Am I right in saying net gaming revenue (NGR), i.e after bonus costs but before acquisition costs, hasn’t grown much in the last couple of months?”

Director: “Last month, we agreed to a big push for the new season and so invested quite heavily in our welcome offers. We do though believe this is money well spent. We should be able to retain the players nicely, especially with our new bet-builder product and the live casino we’re about to launch.”

Board: “The new products look great, but now that you mention it, how is retention tracking?”

Faced with some tricky numbers? We’ve all been there. A strategy of highlighting the positives while promising jam tomorrow is fairly common. Healthy GGR numbers might benefit from a temporary margin improvement one month, while a new-season boost could be your saving grace the next. But how do you survive the perfect storm of poor margin in the off-season, for example? Given the complexities of our business models, you could forgive the odd non-exec for glazing over midway through these results presentations.

But they’re not daft either. How long will it take your board to see through the smoke and mirrors? A positive approach isn’t necessarily wrong as such, but we shouldn’t delude ourselves in the process. It’s forgivable to distract from the weakest indicators, but not to ignore or misread them. We really do need to know why some of our metrics are looking a bit forlorn, but for that to happen, we first need to communicate them clearly.

Gaming results can be skewed by a whole number of factors and if we don’t filter these out, none of us will be any the wiser. Here are some tips below to help get you through revenue reporting.

Gaming is a unique sector in which financial performance is heavily influenced by chance and the volatility of results; much like our own customers’ ups and downs. A string of winning favourites, for example, is all it takes sometimes to transform what would otherwise be a healthy performance.

By presenting stakes and comparing these to GGR, we can net out part of the difference here. This is obvious maybe - but surprisingly uncommon. Margin is further complicated by the fact it is not only a function of player luck and sporting outcomes, but also our own product and pricing strategies. If we really have made product mix, takeout or over-round changes recently, then normalise the data or map theoretical margins against those you achieve. Without stake reports and margin analysis, GGR reporting can be meaningless. Whether or not the board decide on optimal margin levels is a whole other issue.

Similarly, any change to your bonusing and incentive offers can potentially make a bigger difference to NGR than any other factors. Tell the NGR story separately to the GGR one but with a good handle on promotional cost breakdowns and how they relate to acquisitions, conversion rates and retention levels.

You often see reports comparing revenues to the previous month and yet ours is a seasonal business. This is less so in gaming than in sports, but it’s still a factor, especially as sporting events are typically used for acquiring customers, who are then cross-sold into gaming products.

It might look good comparing results to the previous month a few times a year, but you have to ask yourself (before someone else does), what these comparisons really mean. Year-on-year charts tell a better story, but if last year’s numbers are a bit iffy, then benchmark your results against seasonal metrics for the industry. Better yet, my previous Chairman Nigel Payne insists on 12-month moving averages which flatten out seasonality completely - leaving nowhere to hide. If you’re not comparing apples to apples then, as certain as whoever made the little green things, we all end up confused.

Whales are a key part of our ecosystem. They help justify the high acquisition costs we face and drive up revenues per user, or ARPUs; but they can also distort results. Enhance your board reports with VIP summaries, median and mode ARPUs, or present your results without the impact of VIPs - and not just when they’re winning. Whether you want to reduce the volatility of your VIP business though is a different issue again.

Gross and net revenues are also intertwined with your customer metrics. There are a whole range of these you could present, but it shouldn’t be a case of cherry picking the best each month.

Acquisition numbers and costs (CPAs), active players, retention rates and ARPU all belong in every board report. If you know your business model well enough, you’ll also know a big spike in acquisition numbers will normally be accompanied by lower ARPUs in the same month.

First, they didn’t all join at the beginning of the month and second, your averages will be watered down by a higher proportion of one-off visitors. Similarly, you’ll also know, for example, a spate of bonus abuse might flatter your acquisition numbers today, but you should be forewarning of an ARPU decline next month. By netting out the impact of margin, seasonality, bonus costs, VIPs and some customer metrics, monthly reports will start to make a bit more sense – not just for your board, but for you too.

Amid the quagmire of interdependencies, creative reporting only serves to invite doubt or forensic analysis. Ideally, we should be completely familiar with our business model and be able to present the true picture, regardless of the ugly numbers that crop up. If you present it warts ‘n’ all, while setting out the plans to correct any issues identified, you’ll net the rewards.

Finally, pictures really do tell a thousand words, so serve up dashboards over spreadsheets every time. It speeds up the process of communicating performance. Imagine the conversation above without chart support, for example. Have a few extra charts at hand for the inevitable drill-down questions as to why that metric has gone south. Tell a clear story and don the rose-tinted specs by all means, but ditch the blinkers.

Kevin Dale has spent the last 20 years in digital business, including roles as CEO of Gameaccount Network (GAN plc), and Marketing Director of Eurobet, Sportingbet and Betfair.
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.