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NEWS 23 April 2019

One year on: How effective was Paddy Power Betfair’s FanDuel acquisition?

By Tim Poole

"We are confident FanDuel’s nationally recognised sports brand, eight million customers, our group betting expertise, and our market access partnerships position us very well."

Paddy Power Betfair CEO Peter Jackson’s comments during the operator’s 2018 financial report were crystal clear.

"Rather than announcing our plans," he explained, perhaps aiming a message at some of PPB’s competitors, "we have moved quickly to give ourselves the best chance to win in that market."

"Quick" is certainly an accurate description of PPB’s US expansion. Just days after the PASPA repeal the group had announced the acquisition of FanDuel, at the time one of two fantasy sports giants alongside DraftKings.

Nearly one year on, a simple look at the state of New Jersey's sports betting revenue shows you how successful that acquisition has been so far. Legal issues with FanDuel Co-Founder Nigel Eccles aside, it’s difficult not to arrive at the conclusion the deal was a win-win for all involved.

Between January and March 2019, sports wagering revenue at Meadowlands Racetrack in New Jersey, where FanDuel has a sportsbook, totalled $32.7m. The nearest rival was Resorts Digital, which earned $17.9m (mainly generated by DraftKings). After that, Monmouth Park made $5.4m and Ocean Resort $3.9m. Quite the chasm.

Add onto that the $31.4m generated at Meadowlands for 2018 and you have a clear market leader, with Resorts Digital again the nearest competitor on $30.4m.

There have been early teething issues, of course, with a pricing error forcing FanDuel to pay a customer $82,000 in September – when it should have been less than $20. The general industry conversation, though, is already revolving around whether the rest of the field can keep up with FanDuel and DraftKings.

According to FanDuel’s investor presentation in March, PPB currently owns 58% of the company and maintains operational control. This leaves the operator in one of the strongest early positions of big UK-market players looking to test the waters across the Atlantic Ocean.

William Hill, too, has made significant moves in the US, while GVC Holdings has joined forces with MGM Resorts International. It is through FanDuel, however, that PPB has forged a truly unique early position.

It's easy to overlook the fact FanDuel is still huge for fantasy sports, a market which presents a new revenue stream for PPB. Currently legal in far more US states than sports wagering, the vertical generated $163m in revenue for FanDuel in 2018 – a 17% year-on-year rise. Those results are thanks to approximately 40% in market share, according to its investor presentation, this time sitting second behind DraftKings.

Horseracing made a further $131m for FanDuel in 2018, a 12% annual increase, while New Jersey sports betting revenue is "significantly ahead of plan" for the operator, with Q1 2019 revenue expected to be "approximately double" that of Q4 2018.

The silver lining this creates in PPB’s overall balance sheet is plain to see.

Global revenue rose 9% to £1.9bn ($2.47bn) for 2018, with pro forma revenue growing 6%. A challenging year was underlined by an 11% drop in reported profit before tax to £219m and a 5% fall in underlying EBITDA to £451m.

But it was within this environment that US performance stood out, signalling the opportunity for success ahead for PPB and FanDuel. US revenue was up 18% on a pro forma basis by comparison, while even revenue growth in Australia was nowhere near, rising just 6%.

So, when the calendar hits one year on from the day the FanDuel deal was signed in May, the short-term implications can be nothing but positive for PPB.

The test for both companies now turns to long-term durability. GVC’s Roar Digital venture is yet to make its mark in the US, while FanDuel is not guaranteed the same handle and revenue figures in any new sports wagering markets it enters outside New Jersey. As commentators have pointed out time and again, every state has very different individual dynamics.

PPB will be confident moving forward and rightly so. Like Usain Bolt winning a 100-metre sprint, FanDuel has come bursting out of the starting blocks.

It was the world-record setter himself, however, who truly came to life the further the race progressed.

RELATED TAGS: Online | Sports Betting | Feature
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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.