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NEWS 1 August 2019

Kambi CCO: US operators like Penn National should get the foundations in place first

By Matthew Enderby

Max Meltzer, CCO at Kambi, discusses the supplier’s new partnership with Penn National Gaming exclusively with Gambling Insider.

What makes Penn National Gaming an ideal partner for Kambi?

From day one of moving into the US, Penn National was among the top targets for us to approach. The fundamental reason for that is the market access they have - 19 states and 40 properties.

If they believed in owning their own brands and destiny, were able to utilise their own database correctly, and knew what it took to work with the right sportsbook partner, we really believed it to be a company that could succeed. As it turned out, Penn National stepped back and watched as other people made decisions, such as the GVC-MGM merger, and they decided on their own strategy.

For us, that was seen as a pioneering approach and that’s the kind of tier-one operator we want to partner with. I’ve said this before; I think there have been some rushed decisions in the US, some that have already failed and some that are really struggling. Bet365 wasn’t the first in the global marketplace, but they’ve ended up being one of the most successful.

As part of their strategic approach, what Penn National has done is bring in the right people in-house first, the right kind of executive leadership. Those people understand venture building and sportsbook, and that’s helped massively in their approach. Sometimes it’s best to get the foundations in place first. At the same time, there are different approaches and I think in this case they have found one which works for them.  

What can you tell us of the selection process? How does that work?

In Penn National, you’ve got an organisation that analysed everything. Alongside the B2B selection process, it also considered if it should go down the B2C route. You can see from Penn National’s larger press release the organisation has tried to figure out how it can succeed and own its brand and technology at the same time as doing skin deals. It has balanced that out really well.

Penn National obviously understood whether it should have a B2B plan, and that’s where the selection process began. It decided it doesn’t want to just do a joint venture or skin deals, and figured out there is extra value you can have by owning your space, brand and database and having your own technology. That’s where they’ve made the first decision in the process. 

Then it comes down to the usual suspects in a B2B process that are partnering with operators in the US, our competitors. What stood out for us was taking the first bet in New Jersey, the first bet in Pennsylvania, which is obviously where Penn National originate from.

Most recently we took the first bet in New York. They recognised our integrity and how we focused on corporate probity, and why we have good relationships with the regulators. They also believe in the vision we have moving forward with our Philadelphia office and building that out to be a sizeable contingent in the US.

Is either of the solutions, retail or online, more appealing than the other?

It depends on the state. Certain states may only go with retail first, potentially with mobile on premises. I think, within Kambi's sports betting data, we see retail is still a really important part in many aspects of driving interaction.

There’s no doubt we think the online market will be bigger, but we can deliver a retail solution, particularly in those states that need a retail bump. With our omni-channel capability we need to make sure players have a really good experience across both. But there’s no doubt we believe, and I’m sure everyone in the industry accepts this, online is where the bulk of revenue will ultimately come from. 

The plan is to focus on retail in Iowa and Indiana first; what is the thinking behind that strategy?

They are in good locations; they are great places for us to start in. For a little taster, Penn National wants to build a front-end using our API technology, which is ongoing at the moment.

What Penn National wants to do is wait for the right time to launch it all together. These launches in retail enable us to get started, get us working together and get the process running early in those states. Then, when Penn National is ready, we will bring more to the market.

How many states is this deal likely to encompass overall?

The deal encompasses all 19 states where Penn National operates – when and where we go live depends on regulations in those states.

Are there any other talks with tier-one operators ongoing you could tell us about today?

We continue to talk to them. As I mentioned earlier, I think there are those that made bad decisions in the past that want to explore their options. We can’t talk about specifics, but rest assured we are very keen on speaking with other organisations and prospects around the world.

In Penn National’s press release on the deal, it also detailed agreements with other operators, DraftKings for one. Does your agreement with DraftKings work hand-in-hand with Penn National’s or are they completely separate arrangements?

These are separate agreements; our partnership with one doesn’t have an impact on the other.

There have been recent reports DraftKings will acquire SBTech; how would that affect Kambi’s involvement with both Penn National and DraftKings?

There’s not much I can say about what DraftKings are doing with their corporate strategy, or any of our partners. I wouldn’t speak to what they want to do on that level. But it has no implications on our agreement with Penn National and we are continuing to work closely with DraftKings as we build on its successes so far.

RELATED TAGS: Online | Land-Based | Industry | Sports Betting | Legal & Regulatory
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.