Kristian Nylén, CEO of Kambi Group, speaks to Gambling Insider about the supplier's financial results for the second quarter of 2018 and delves into its plans for the US.
This period has been a particularly lucrative one for sports operators and suppliers given the timing of the World Cup and the repeal of the US federal sports wagering ban. Did you factor in these events when forecasting your results?
Our revenues were very much in line with what we forecasted for the Q2 period, so I’m extremely pleased with that, as it was what we expected for that quarter. The timing of the World Cup was obviously an advantage for us, which definitely contributed to the figures. When it comes to the repeal of PASPA (Professional Amateur Sports Protection Act), this presents a number of versatile opportunities and will be a very exciting journey for us as a company looking forward.
While we have so far secured our top targets, as of yet there is no revenue coming from the US, so that will be something we will factor in for the latter part of the year. Even then, I think it will be a while until you see a big jump in revenues from the US, with only very few states regulating the market at present. Regardless, we are very optimistic for the long-term future when it comes to the US. Although, I do have to caution people when I speak to them, explaining it will take some time before the US becomes a real revenue driver for the company.
As you say, the US market is set to be an exciting period for Kambi in terms of growth and expansion, despite it being somewhat of a slow burner. What do you think the process will be like when trying to penetrate an entirely new market? Although it’s still early days, have you faced any challenges as of yet?
While the market is a new one, we are very used to working in environments similar to this. I don't think the set-up in the US is so different to that of the European market, especially when it comes to state-by-state regulation. However, the licence application is far more onerous in the US, but that was always to be expected. It’s definitely a process you will have to learn from, and when you’ve done it the first time it should not be as difficult the second time.
Since the repeal, you’ve already signed with two US customers, DraftKings and Rush Street Gaming, with licence applications in New Jersey and Mississippi. Additionally you are currently in the process of applying for licences in New York, Pennsylvania and West Virginia. Other than these, are there any other states you are keeping an eye out for on the horizon?
As I mentioned earlier, any state that opens up the market will have very onerous regulatory requirements when it comes to taxes or technical demands that are almost impossible to fulfil. Despite these challenges, we will go for more or less every state that commercially makes sense.
We will also have to meet the demands from our customers that will expect us to follow them wherever they go. If you take a company like DraftKings for example, they have a customer base that spans the entirety of the US, so we will need to ensure we are ready to follow them wherever they choose or need to go.
While the market is a new one, we are very used to working in environments similar to this Kristian Nylen
Have you factored in the amount of time and money you will be investing into the US market looking ahead to Q3, Q4 and beyond?
The PASPA repeal happened fairly quickly, but we’d been planning for this event for at least two years now, so I believe that as a company we are in a very advantageous position. In terms of time, we’ve already been investing a great deal of this for quite a while and will of course continue to do so.
When it comes to costs, the big reason these are increasing is due to the legal fees and the costs of being able to operate technically under new regulations, licence fees, etc.
As this has all been part of a prior expectation, our plans to continue to invest in the US market will continue on for the foreseeable future.
DraftKings is expected to launch its Kambi powered sportsbook in Q3 2018. Are you expecting this to have a big impact on your financial results instantly, or do you think it will be more of a prolonged process when generating substantial figures?
It’s hard to predict how quick it will go and what kind of impact it will have on our financial figures straight away. But I would say this, if there were to be any big impact in 2018 I would see this as a very big surprise. I think even looking at early 2019 you would probably only see online betting in New Jersey, and possibly also in Pennsylvania.
I think online in New York and Mississippi will take slightly longer and are unlikely to happen in 2019 either. It’s important to remember that these processes do not happen overnight, but the potential is there. If all the states in the US legalised online sports betting, it would probably be around the same size as the European market in a few years' time.
As you say, it takes a while for you to receive instant gratification from all your hard work when it comes to enterting new markets and securing agreements. Do you think this will be the same with your recent deals in the European market, with companies such as Stanleybet Romania, ATG and Sun International, or is it still too early to say?
At the beginning of June, we launched with Stanleybet Romania, Sun International in South Africa and Rush Street in Colombia. Two of these operators, Stanleybet and Rush Street, start from very low levels, so I do not expect instantaneous results. However, Sun International had a decent-sized business before, so I expect this will have some impact on the results in Q3.
And while ATG will not start operating until the Swedish licence is in place in 2019, this is a particularly interesting deal for us. We recently closed a deal with the operator shortly after the end of Q2. This brand is one of the most recognised brands in the country, with a monopoly on the horse racing and trotting market. If this operator is given the opportunity to launch additional sports betting, this would be a very interesting addition for us.
You have said your forecasted margins have been raised due to the changing nature of the player, whether it’s converting to mobile or the increased usage of higher-margin products. Do you see this trend continuing in the long-term? Do you have any plans to further capitalise on this?
This is actually something we have been talking to investors about for a couple of quarters now, as we were contemplating raising our guidance, and we feel now is the right time to do that. We are learning more about the changing behaviours of players, which is revealing a very interesting shift.
It’s probably the first time I’ve ever seen it in this business, but players are increasingly taking on products with higher margins when we haven’t changed the payback ratios. Of course, this is a definite advantage, but it’s worth remembering that higher than normal margins mean the players are losing more, so that tends to have a stifling impact on turnover.