This article originally appeared in the July/August edition of Gambling Insider magazine: Tim Poole looks into the effects of heated industry rivalries, while assessing the potential of this competition inadvertently leading to M&A.
Everyone loves a rivalry. Ali vs Frazier, Red Sox vs Yankees, Alien vs Predator. Classic rivalries stand out amid a sea of regularity. Ask a Tottenham Hotspur footballer how they’ll prepare for a Premier League match and they’ll utter the bog-standard cliché “we take it one game at a time”. Until they face Arsenal, when months of pent-up emotion – and in many cases hatred – rise to the surface for a fixture singled out above all others on the calendar.
The intensity of a rivalry is not just restricted to London derbies, nor sport itself. The Cold War fascinates many historians, while the political fundamentals behind USA vs USSR stem from a very basic rivalry in itself: capitalism vs communism. In the current climate, political life exudes bitter rivalry every day: left vs right, Brexit vs remain, Donald Trump supporters vs the rest of the world.
In business, and gaming in particular, things are no different. A land-based casino in the US, however, will have little reason to declare a turf war against a sports betting supplier based in Eastern Europe, but two UK-based sports betting operators competing for the same target market are far likelier to tread on each other’s toes. This is a hypothetical example but, at Gambling Insider, we’ve seen true stories over the years of companies with such heated relationships they have refused to sit at the same table at awards ceremonies.
Provided there are no underhand tactics or overzealous personal grudges, is intense competition between rivals a bad thing? The best tennis players in history will remember their greatest rivals and how much they raised their game for them; they may not even remember some of their other career opponents. Former prime ministers and presidents often owe their biggest adversaries debts of gratitude when they reflect on their tenures. Unless a rivalry spills over to an unusually extreme degree, there is usually mutual respect after the event, or a knowledge that one’s performance was exponentially boosted simply to get one over a rival.
The M&A angle
Examples of gaming companies being at loggerheads are still plentiful within the industry. Besides what goes on behind the scenes, a recent example was Sportsbet’s legal case in Australia, when it sued rival operator Sportsbetting.com.au over claims its name violated intellectual property rights. Where intense competition may perhaps become an incestuous concept, however, is when potential M&A becomes a genuine prospect.
What happens to close competitors when there is a chance enemies could forge an alliance? Employees at Ladbrokes and Coral will know the feeling, so too soon will workers at Flutter Entertainment and The Stars Group. And though the landscape is very different now, it was once a possibility for stakeholders at DraftKings and FanDuel.
David McLeish, partner at London-based legal firm Wiggin, which acts on a number of deals within the gaming sector, says leadership and personality are key influencers when it comes to the marriage of two erstwhile opponents. As historical precedent shows, the anticipated outcome of joint leadership may undermine any prospective “dream combinations”, although the ownership structure of an organisation will also play a part.
McLeish tells Gambling Insider: “One of the key dynamics with mega mergers is the make-up of the leadership team of the combined business. You can go back to Bwin and PartyGaming going down the route of co-CEOs and I don’t see that being repeated. You need real leadership to make deals that look good on paper work in practice and, if you’ve got two former rivals, who’s going to end up in the driving seat? Is one CEO going to stand aside or is one CEO really going to want to report to the other? That decision may come down to personalities or, more often, which business is bigger. It could also depend on the ownership dynamics of the companies involved and the level of equity held by management.”
If anyone reading this is worried about sharing an office with those they have tirelessly competed against, McLeish believes the recent Flutter-Stars merger may act as an indicator moving forward. A key consideration of a merger or acquisition, as he explains, is on the anti-trust side. But if market share is viewed on a product-by-product basis, rather than as an overall share of the online segment, more leeway exists. “A key early focus on deals is around the competition aspects,” he adds. “For example, when Ladbrokes and Coral merged, they had to sell off a substantial number of shops, which ended up going to Betfred.
“The online gambling product-by-product analysis applied by UK Competition and Markets Authority on the Flutter-Stars deal, with Stars holding no retail interests, surprised some and will be a helpful guide for future deals in the online space – but you still have to look at it on a case-by-case basis.”
McLeish believes that M&A can lend itself perfectly to a growth strategy if a potential acquire or merger partner offers one or more means of access to proprietary technology, a diversification of product offering, or an extended geographical reach. While share price and underlying company performance are obvious dictators of destiny, these drivers are key and have played a part in B2B and B2C firms crossing paths, best exemplified by DraftKings’ purchase of sportsbook supplier SBTech, and Playtech’s acquisition of Italian operator Snai.
“Some of it comes down to companies, particularly operators, gaining their own technology foothold and realising economies of scale,” says McLeish. “It makes sense for DraftKings to acquire SBTech on the basis it allows them to control their technology roadmap in the US market, which is effectively like 50 different countries that all have their own peculiarities from a licensing and technical perspective.”
Let battle commence
The overall movement of industry M&A towards these kinds of cross-market – or B2B to B2C – combinations may ultimately act to intensify direct rivalries even further. If you’re a sports betting operator, for instance, a greater chance of success presents itself by looking to acquire an operator in another vertical, or a software provider. Your closest rivals, therefore, will not only remain in competition with you over market share, they may even become competitors in the field of M&A itself.
For that reason, inter-sector rivalries remain an important facet of the gaming industry. And while they may incite emotional negativity, they can certainly drive positive economics in terms of competition, performance and, ultimately, provide the player with the best possible experience.