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NEWS 18 July 2019

Analysis: New Jersey numbers show what Europe has been missing all along

By David Cook

In most businesses, there is often some kind of struggle in maintaining a strong performance across the summer months. It's likely most sales staff will have experienced some frustration about how the exec who was about to sign off on the deal of the century has gone on holiday with the family for three weeks. Employers often have to lose some staff taking their own holiday, and that's not to mention productivity issues when it's so hot outside that you find parts of your body being stuck to the office chair.

One sector that is certainly not struggling across the summer as some may have predicted is the New Jersey gaming market. For June, with the NFL away on its own summer vacation, plus the NBA and NHL seasons coming to an end, there were of course fears the honeymoon period that has been enjoyed since the PASPA repeal in May 2018 may well be over. Despite the volume of matches played in MLB, it would be wishful thinking to believe this could compensate for the absence of the other three leagues all on its own.

Gaming win keeps rising

Sports betting revenue for June did decrease month-on-month, going down to $9.7m from $15.5m. However, casino win improved 14% year-on-year to $236m, while internet gaming win ascended 68% to $38.1m.

That's only one month, but there is clear proof that sports betting in its own way must have boosted other areas of gaming. Can it really be a coincidence that casino win has improved year-on-year in all 13 months where New Jersey has had regulated sports betting, after declining or near enough flat-lining year-on-year in all of the prior six months?

For anyone that was around the industry five years ago, it was difficult to foresee the current position New Jersey finds itself in. In 2014, a third of Atlantic City's casinos closed, leaving it with a total of eight – this was before Trump Taj Mahal closed in 2016 and Ocean Resort and Hard Rock both opened in 2018. More than 8,000 Atlantic City casino staff lost their jobs that year. From memory of writing about the Garden State at the time, there didn't seem to be too many solutions on the table about how to combat the issues of new competitors in Pennsylvania, Atlantic City casinos failing to innovate and annual gaming win that had declined $2.47bn across eight years.

That was the same year Chris Christie, then Governor of the state, failed to legalise sports betting at racetracks and casinos as planned, due to opposition from the major leagues and NCAA.

Fast forward five years, and what is the general narrative now? The casino market has right-sized, neighbouring states are not expected to swallow up business and not only are the leagues now in favour of sports betting, some of them even want a piece of it, with MLB passionately asking to be paid integrity fees by operators for use of its data.

Why is Europe so different?

New Jersey's success with casino and sports betting at the moment ties in with previous debates held by the editorial team here at Gambling Insider about the differences between the US and European markets and about how sports betting and casino seems to work better hand-in-hand across the pond (see episode 2 of the GI Huddle podcast for more).

Even this week, we've already started to see some of the effects of the FOBT maximum stake cut to £2 ($2.48) on UK retail revenue, with GVC Holdings, owner of Ladbrokes Coral, reporting a 19% year-on-year reduction in UK retail for Q2 2019 and a 10% drop for H1. The chances of any other UK operator reporting anything much more positive than this are pretty slim.

It would be naive to believe the FOBT maximum stake cut came about just as a result of operators not addressing that specific issue sooner. Betting shops have had a negative and frankly seedy reputation for some time, but did the operators learn anything from the way casinos had established themselves as a more safe, classy form of entertainment that could encompass more than just gaming?

Sports betting lounges aren't considered 'the done thing' so much over here in Europe, and while admittedly I have never been in charge of a land-based casino's floorplan or budget, you can't help but feel as though if designated sports betting areas are good enough for the likes of Caesars Entertainment and Las Vegas Sands, then why shouldn't they be good enough for the European casino giants? There must surely be some way of utilising the positive aspects of both, but up until now, there seems to have been an impasse of sorts, where casino operators and sports betting operators have turned a blind eye to the types of opportunities we're seeing being exploited in the US.

The European operators may need to see some precedent to entertain the idea of boosting casino and sports betting revenue by working together, although Las Vegas has shown the way for some time now.

New Jersey is proving what can be done when collaboration occurs between the verticals, and the numbers are backing it up. It will be a great shame if other markets do not take this on board.

RELATED TAGS: Online | Land-Based | 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 bingos.com 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.

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