Our 2022 strategic review was about determining our position in the world and what was going to be the most investor value for the organisation. Part of that review was looking at the grey market versus white-market trajectories. AskGamblers was a fabulous product, but it was in a world that was a completely grey world.
We had been receiving letters from markets that were slowly shutting down or moving towards white, which is what the world is going to be doing more and more of. For example, Australia, Sweden, the Netherlands and Canada, were all sending out information that these were becoming not grey markets anymore, but black. We don’t operate in black markets so it made sense for us to start looking for what we were going to do.
First questions are, can you take AskGamblers and make it a US product? It’s very different. It’s a directory style product made for a large number of operators, which is not the US or North American portfolio. It might work in Latin America, but Latin America is now also regulating into a fewer number of operators; probably in a regulated environment, so it didn’t work. The strongest thing there was the consumer base, which went there to complain about issues with operators and get help recovering money – also not necessary in regulated markets – so it didn’t fit within our portfolio moving towards a regulated focus, because we were going to be in conflict with ourselves. We decided it was best to remove that asset.
Curaçao is one of the largest markets for grey-market operators. There are 800 operators operating under five licences there. A large number of grey operators means that those are probably being served by directory services like that product, so at some point that all may go away. That seems like a risk that we should be proactive about versus reactive to, because even if those operators open up in other markets, if that’s a rev-share product, they already know the highest-value players and they’ll just directly take them versus work through an affiliate again. Therefore, it would make sense for us to look at other options for that and invest. It worked well with someone else’s portfolio and what their strategy is, so it's good that it could work for the team and the product.
What were the other outcomes of your strategic review?
And so with that payment stream, we can then do some other things which were part of our strategic review, which were focused on maximising investor value in these more uncertain economic environments. So for us, it was about how do we create shareholder value? And that is making sure we have reached a position where debt is no longer a massive driver of interest payments. We have millions and we have a small amount of debt compared to some of those out there in today’s world, but interest payments are expensive as they were. Going forward, they’re going to be more expensive as everybody reaches points of refinancing.
Our view was, it was best to take said capital and reinvest it into the shareholder by reducing the amount of debt – looking at them - can we do share buybacks? Maybe dividends will come on the table? Other things include M&A in a more contained way, because again, it’s just making sure that you can see the returns on that versus the cost of the capital to do so. That was part of the strategic review. The other part was then post-strategic review. We announced we would probably
be looking at divesting other potential parts of the European business. There are markets that are still less certain in terms of, now the UK has come out with the White Paper, so that’s a little better. But there were markets that were uncertain. So we said let’s focus on the core markets for us in Europe, Italy and the UK. Let’s look at what to do with the rest of those assets – and maybe if in UK and Italy – if the numbers are right and the teams find a good home like we did for AskGamblers, maybe it makes sense to take that value now and invest it into either our shareholders – maximising the value of the organisation – or M&A without taking on more interest and debt in the Americas. Since we know North America has a faster growth rate over the next 10 years and Latin America as well. And then you saw us engage Carnegie, which was also part of this, so our team, internally, we’re pretty good at operations I would argue. Particularly on SEO organic, which is our forte in the affiliate space today.
However, being able to make the best assessment for our investors of what the future should hold if someone were to come forward with an interesting offer on acquiring some, or all of the assets of the organisation, or those that we weren’t currently considering selling, how do we assess that for what is best for our investors, our essential owners, for the medium and long term? My management team wasn’t in the place to do that by themselves and those sorts of things became a massive distraction. Engaging Carnegie and spending some time getting them up to speed on the state of the business allows us as those things come along; we have an external adviser now who’s familiar with us that we can utilise to help assess those things. So, while some say the strategic review is still going on, my view is we are done with the strategic review. These are outtakes of it to help us be set up for what the world may bear that’s in or outside of our control going forward in terms of, we may pursue something, or we may be pursued; and both of those are slightly different scenarios on what you need to do to and to be in the best mindset to understand it.
Can you see a future where Catena is 100% Americas – and there is no European side of the business?
So let’s not first discount APAC. We have operations in Japan. It is now our only grey market and there are questions about the features of the grey market there. I’ve been in gaming now for 20 years – land-based and online – and I think I entered the space when they were talking about opening casinos in Japan. So it’s a slow-to-change market, but it is a market that will change. Since they’re moving towards regulated land-based, it means online will move towards regulated over time. We may be in a good position for that transition, or it may require considering: is it something that needed to be shifted in strategy later? But again, it’s very slow-moving. But APAC has been a small contributor, bigger during Covid times, when it blossomed; again it has gone back to its slower growth trajectory. But there is still potentially a growth area for us.
However, yes, I could potentially see if the market conditions are right in the Americas and that is the best use of capital and growth, that we would potentially deprecate further the European operations in favour of the Americas. However, that would be on the business side, the operational unit side. We are a global organisation.
There are exceptional skills in Europe for affiliates from people and technology. Now let’s face it, it’s three times or more, to have someone work in North America than it is globally. So why would we put all of our resources into North America? You can expect us to be a global company regardless of at which point we choose which markets we’re going to draw revenues from.
You reported your Q1 results recently. Upon reflection, revenue was slightly down. I think the point about New York launching last year does explain a lot of that. Is this because of your focus on North America and also your strength in New York? Does that explain why it was tough to compete when New York launched this year?
Yes, so we have been ahead of our competitors in North America. There’s been a series of acquisitions and other moves by competitors to enter the space over the last year or so, where they’re starting to see those gains from things we didn’t do on the M&A front because of the cost of those things, or the positioning of ourselves, so we did exceptionally well in New York last year.
We did two acquisitions prior to New York and we did say when we did those acquisitions that we did them because of their strength in certain markets that were coming up – New York being one of those. New York was a very strong launch for us. Per capita, Ohio was better this year, so it was our strongest launch per capita. But per capita, it doesn’t make up for the eight million person difference between Ohio and New York, and then the small edition of Louisiana of the previous year. So it was a very hard competitive number for us to come up to, so I was satisfied. I will never be happy if we are not growing year over year.
But per capita, it doesn’t make up for the eight million person difference between Ohio and New York and then the small edition of Louisiana of the previous year
we can then do some other things which were part of our strategic review, which were focused on maximising investor value in these more uncertain economic environments
