You will struggle to meet a more candid CEO than Parimatch’s Sergey Portnov.
The Ukrainian is unafraid to speak his mind, loves a vivid analogy and isn’t short of bold predictions. Read on for Gambling Insider's exclusive chat with the Parimatch CEO in Central London, covering the company’s journey from offline to online, the CIS region and MMA betting.
There’s also a convincing argument about the future of esports. A cynic might say it’s all hype; but certainly not Portnov.
In the past, you’ve talked about Parimatch’s switch from a primarily offline business to an online one. What exactly did this involve?
Whenever you implement the transformation of a company, the most important thing is not just to follow the trend. That’s not enough if the team implementing change does not have that intrinsic understanding and culture of being online. “Being online” means you are multi-tasking like crazy and are super adaptive. You keep on guessing where the exit is in the labyrinth, because there are so many opportunities in the digital world.
You have a chance to experiment; I’m an entrepreneur, which means I have commercial sense and an appetite for risk. Online is a good match for this. Once I entered the company, I brought in people who are like me and we started identifying the assets in the company which we can enhance by moving it online. At that point, the online sphere in 2011 required trust. Nowadays, you trust online more than retail because of the power of online brands, such as Amazon and Ebay.
When you buy from them, you feel they are more reliable than a shop on the corner. But, 10 years ago, no way: you worried about your card data being stolen online. Having a brand that already existed in the market for 17 years gave us an advantage back then. Having that trust, we started amplifying the brand with user experience and marketing campaigns. The people behind the project were the perfect fit to drive an online business.
This must have presented some challenges?
There were multiple challenges. The key challenge was and still is the platform. Once you start thinking digital, it means you need to take a completely different angle with your IT. It needs to be scalable, agile and stable. We were running on a legacy platform which was built for retail needs. Essentially, as our train moved, we needed to rebuild it into a boat. We had to do this on the move, which makes it 10 times harder. Now, we’re on a boat but, trust me, half the boat is still a train. The process of cutting out legacy and replacing it with something new was by far the biggest challenge.
The second challenge was the people running the business being retail oriented. Changing the mindset of people is the most difficult thing you can do. If someone is young, it’s possible. But if people are 45 or 50 and you have to say please stop dealing with the past and think of the future, it’s hard. We spent a year or two trying to rebuild the business mindset. Unfortunately, we wasted our time; we should have agreed to split with some top managers, which is what eventually happened.
A new breed of people came in and replaced the existing team on all levels of management. The challenge was agreeing a split in the nicest possible way. These people were at the company for several years but were unfit to run the company and continue growth anymore. Emotionally, this was the toughest challenge; business-wise, IT was the biggest challenge.
Something else you’ve previously mentioned is the company’s “no working hours” approach. What exactly does this mean?
Here, I’m implying you do not distinguish between life and work. In the UK, I know people who work in the gambling industry; CEOs of big gambling firms or marketing managers in solid companies have this mindset of 9am-6pm and we’ll figure it out tomorrow. This approach is only viable if the company is fully stable and tomorrow is predictable.
When you know that the parameters constantly change, it requires 24/7 vigilance. Always be alert; there is no way to delegate tasks. You have to work extra. Management at Parimatch works weekends, when our best meetings are. Everyone works, works, works and hardly has holidays. But it’s a culture. If someone introduced this in the UK, people would leave the company. If you make a sudden shift, there will be a crisis.
If this is a natural culture from the beginning, however, people can’t complain as they entered the culture and have to accept the game. This game exists for management but personnel in operations have clear shifts and timings. Management lives the company; I can call them at any time, everyone is always available.
Is there not a danger of burnout with this kind of approach?
This is a huge danger. There is a danger of being drained. That’s why a company with this kind of approach has to invest heavily in emotional motivation. This means you have to be connected to your management; you cannot be distant. You have to hang out with them; you have to do amazing corporate events. You have to pay properly and give revenue share. We invest a lot into the ideology of the company, treating people fairly. The hierarchy is very open door; you can come and discuss any topic. People value that and this allows them to recover from burnout quicker.
You primarily operate in the CIS region (Russia, Ukraine, Kazakhstan and Belarus). What exactly is the regulatory state of play in these markets?
In the CIS region, Russia is regulated and Belarus is regulated as tightly as the UK. Kazakhstan and Ukraine are regulated but the regulation is very prohibitive. Russia recently made a huge push towards regulation. Now, it’s regulated and, on the one hand it’s transparent but, at the same time, it’s not. The law is ambiguous; it can always be interpreted in different ways. But still regulation is better than an absence of regulation and Russia is a high-priority market for Parimatch.
How popular is betting in the CIS region?
These markets are obviously huge; those four countries combined have over 200 million people. Their propensity to gamble is moderate. Countries like China, Turkey and Georgia have a higher propensity to gamble. The CIS region has a moderate, perhaps even below moderate, propensity and consumers are quite rational. The people love sports and the market size from those four countries combined in gross gaming revenue terms, I would say is slightly below $2bn, with Russia being 60% of this.
Are you looking at any new markets; the US, for example?
The US for us is like utopia. It’s a dream to be in the US but, realistically speaking, it’s just not our game. It’s a game for big guys; it’s a game for the elite of the gambling business, which is formed of public companies, like Paddy Power Betfair, GVC, William Hill and The Stars Group. They have contacts and leverage marketing and licensing. They have access to everything, not only capital. They will dominate the market first and, for smaller guys like Parimatch, we can only take the leftovers. I would say it’s unlikely to become a priority in the company, even though it definitely improves your image.
For us, money can be made in the areas where our natural disposition matches the context. We are effective in markets where everything can change tomorrow and we are constantly adapting. Europe is too stable and competitive. Africa, Latin America and Asia are great areas for us. We don’t have exact plans in those areas this year but we are definitely looking at them.
With Parimatch having partnered with the UFC, what kind of handle is UFC betting generating right now?
MMA betting is my favourite topic! Since signing our contract with the UFC, the figures have changed dramatically. The turnovers we receive for UFC events have grown six times in less than a year. So there’s definitely a trend. The funny thing is football turnovers have also grown three or four times so there is general growth in the company.
UFC is growing the second-fastest in Parimatch. You can guess what the fastest-growing is: esports. But it’s hard to make money in UFC betting. Our strategy is to use the UFC as brand amplification and re-enhancement. We give super competitive odds with only a 1-2% margin. We are driving volumes into UFC betting to redirect them into other sports.
How successful is this drive into other sports?
We haven’t recently run an analysis on what they are betting on but, for sure, players are betting on other things. What we have measured is our branding with UFC and Conor McGregor means we are trending. People talk about us and we are catching that viral effect. That’s what matters because those viral effects help us acquire new players. Someone who bets on McGregor might recommend Parimatch to their friend and they might only ever bet on Barcelona. But people are still spreading the word.
Esports is certainly trending within the gambling industry right now; but do you truly believe it could one day surpass football betting?
Now, it’s in the top six sports and is 5% of our turnover. I believe next year it could be 8%. In five years, it could easily be 20%. Will it beat football? In 10 years, if I had to bet blindly, I would say if esports progresses and becomes even more immersive for players and spectators – like in the film Ready Player One – young audiences will always favour it over traditional sports when they are old enough to bet. Today, youngsters prefer esports to football. So, in 10 years’ time, it has a chance to beat football.
The hype is there; the budgets are there. There is so much money being put into this industry. The current Generation Z (the generation after Millennials) live in the digital world. Why would they go to a stadium and watch Inter Milan against Juventus? They prefer to chat and play esports.
Basically, we’re betting on the prediction that young people will not jump into traditional sports. It’s a static whale; it’s huge but do they innovate? What do clubs currently do to attract youngsters? Esports invests a lot digitally and football cannot compete in the online world; only in the physical world. Even youngsters will prefer to bet on FIFA (esports) than actual football. I predict Generation Z would bet more on bloggers playing Manchester United v Chelsea on FIFA in five years than Manchester v Chelsea in real life.
Were these the major driving forces behind Parimatch’s recent rebrand?
It was a historic moment for the company. The last rebranding was 10 or 11 years ago. This rebranding is called the Phoenix project internally. Parimatch is an old company but we’ve given it a pill to make it young. Not just the logo has changed. Internally, the whole feeling of the company has changed. This includes partnering with Conor McGregor. He conveys what we are as a brand. Youngsters are taking pictures with McGregor; we attract a younger audience now.
We no longer alienate esports fans but we can also attract our senior audiences, so it’s a perfect balance. Parimatch is reliable but we are not there yet with our esports product. In marketing, we are making huge efforts for esports betting. One of the most important things is bloggers and streamers talking about esports; they are our brand ambassadors and can naturally promote our product.
What are your main targets for Parimatch in the next five years?
That’s a question I get from all my managers! As an adaptive firm, we prefer not to have long-term goals. But this is just a justification for our failure to create those goals. If I had to answer, I would like to find a better balance between our entrepreneurial skills and our IT. Our business acumen runs further than our ability to absorb those opportunities. We are behind where we would like to be on operational IT but far ahead on marketing, driving players and knowing where to invest and who to invest with.
We are like a boxer in the UFC; Parimatch can knock out a few people boxing but our kicking and wrestling are exposed. We need to become proper, overall MMA fighters, relying less on our hands. Otherwise, we’ll get knocked out.