Origin of the specious
Regulatory risk outweighs rewards for Evolution, say analysts
Evolution’s similarity to Playtech’s Asian dilemma is striking.
In +More: Novomatic goes French.
Analyst takes: Macquarie takes a stab at the cannibalization debate.
BettorWatch, SlotCycle and Letzz are among the growth company names.
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Natural selection
Survival of the grayest: The licensing review instigated by the UK Gambling Commission highlights the risks investors in Evolution are "potentially assuming” in exchange for buying into the iCasino supplier’s superior financial rewards, according to the analysts at Redburn Atlantic.
The live and online slot games giant may be “increasingly forced into a strategic choice” between regulated vs. unregulated markets, the analysts argued.
A Christmas cracker: The report follows on from the news at the end of December that Evolution is under a license review in the UK. The company said at the time that the UK was only worth 3% of total revenues, adding it was “committed” to “preventing unlicensed traffic.”
The news caused a 10% drop in the share price the day after the announcement.
Banana splits: The Redburn team said the UK review was a potential “game-changer” and that the “direction of travel” of increased regulatory scrutiny made the dynamic of straddling gray and white markets “increasingly untenable.”
You’ve been Playtech’d: The analysts warned that Evolution was in danger of following down the same path as Playtech as regards to exposure to revenue emanating from Asia.
The team pointed out that when Playtech made a strategic pivot away from Asia and the supply of other unregulated markets, its B2B margins “experienced a structural rebasing.”
This saw EBITDA margins drop precipitously from 50% to 27% between 2016 and 2023.
The East India company: Evolution is even more exposed to Asia than Playtech was back in 2016 in terms of revenues and, arguably, EBITDA margins. For the first nine months of 2024, Asia contributed 61% of Evolution’s total revenues of €1.53bn or €933m.
Over the same period, its EBITDA margins remained at elevated levels, at 68.5%.
Attack, attack, attack: Notably, Evolution said at the time of its Q3 earnings that its Asian business had suffered from cyberattacks.
“Cyber criminals use advanced technology to intercept our video feed, manipulate it and redistribute it without authorization, which leads to loss of revenue,” CEO Martin Carlesund said on the Q3 call.
Like for dislike: The company said that in response to the attacks it was “increasing [its] efforts to prevent these thefts.” But the Redburn team said it was likely the transitory headwind of cyberattacks might be “replaced by more structural, regulatory ones.”
“This makes a return to these previous growth rates less attainable,” the team added.
Beset by troubles: The UK Gambling Commission licensing review and the problems in Asia are not the only negatives surrounding Evolution. In the past year it has also suffered from industrial strife at its studios in Georgia.
It has left the share price wilting, down nearly 31% in the past year.
🍿 Diary date: Evolution is scheduled to report its Q4 earnings next Thursday, January 30.
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+More
Filling the gap: Novomatic is to buy Falaise-based casino operator Vikings Casino, the operator of 10 casinos throughout France for an undisclosed sum.
Stefan Krenn, executive board member at Novomatic, said the “strategic move” was a part of the company’s international growth plan.
“With this step, we have successfully laid the foundation for further sustainable growth in France,” he added.
Bally’s has completed its second rollover election period for shareholders related to its upcoming merger with The Queen Casino & Entertainment. The deal will close in Q1.
Penn Entertainment has announced that ESPN Bet is now live in Washington DC, making 20 jurisdictions in all.
Affiliate marketing compliance provider Rightlander has acquired Mitigatr, a fellow affiliate compliance firm specializing in regulatory monitoring for the iGaming and affiliate industries.
Allwyn has partnered with payments provider Bottomline to enhance its digital payment solution for the UK National Lottery. Prizes between £500 and £50,000 will now be directly deposited into the winner’s bank account within 24 hours.
Earnings in brief: EveryMatrix generated €101m of EBITDA in 2024, up 70% YoY from revenues of €181m, up 59%. Q4 revenue rose 51% YoY to €55m with EBITDA of €30m, up 49% YoY.
The company said the revenue and profit uplifts were driven by large-scale customer launches and deal wins as well as continued growth in its core sports and casino business units.
By the numbers
The brutalist: The OSB operators in Michigan made a grand total of $226k in NGR after deducting promo spending of $19.9m from the GGR total of $20.2m. The GGR total represented a 67% YoY decline as hold cratered to 3.4%, down over 700 bps from December last year.
In Q4, GGR fell over 20% on handle that rose 7.3% while Q4 NGR was also down 20%, with promos as a percentage of handle flailing to 3.6% vs. 4.8% in Q423.
Brighter news for the online operators came from iCasino, which rose 34.5% YoY in December and 34% over the fourth quarter.
Massachusetts: GGR of $59.4m represented a 4.4% YoY decline on handle that rose 20% to $788m, implying an aggregate gross hold rate of 7.5%. DraftKings maintained market leadership with 52% of GGR.
North Carolina: December OSB revenue fell 54% to $35.7m on handle excluding promos down 4% to $613m.
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Analyst takes
Another bite of the cherry: Like a zombie, the debate over cannibalization refuses to die and the latest to have a crack at weighing up the costs and benefits of adding iCasino to a previously B&M-only state are the team at Macquarie.
Based on the data from last year, the team showed that in states with regulated iCasino, average land-based GGR per capita decreased by $14 while B&M-only states enjoyed a per capita increase of $49.
Respectively, this represented a 4% decrease vs. the 2019 number and a 17% increase over the same period.
However, the team added, when combining B&M and iCasino GGR, states with legalized iCasino saw a $219 increase in GGR per capita in 2024 vs 2019 or +60% vs 2018.
“Put another way, we estimate iGaming causes a ~15% cannibalization to land casinos in the initial years,” the analysts said.
“But after around three to four years the combined GGR is ~40% higher than a land-only scenario, creating $169 of incremental GGR per capita vs land-only states.”
As the Macquarie team suggested, this data supports the idea that states have an incentive to introduce iCasino. But crucially, perhaps, the team added that “whether this is to the benefit of brick-and-mortar casinos is still up for debate.”
Moreover, it is “largely dependent on favorable legislation in the form of exclusive skins to casinos and other retail gaming operations.”
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Venture playground
Funding news
Get on board: In its annual letter to investors, Yolo Investments said its €100m Fund II announced last year was now 90% committed with the final closing likely in Q1. As its first open offer to strategic investors, Yolo said it had welcomed on board a “significant” number of LPs.
“Our primary objectives in opening the fund to outside investors is to build a community of like-minded industry leaders, where collaboration and shared expertise benefit all parties involved,” Yolo said.
The new fund has invested in seven companies to date across both the gaming and fintech sectors. In gaming these include fantasy sports operators Dabble and ParlayPlay as well as sports media business Forever Network.
Fintech investments include crypto payments gateway BoomFi, digital assets marketplace CoinMena, and crypto-based open banking providers Mesh and Pave Bank.
What to look out for: Themes of interest to the Yolo team include embedded iGaming (the company cites Whale’s native integration to Telegram here), hybrid gaming, alternative products (citing prediction markets), the one-stop shop and “uniqueness.”
“In an industry defined by sameness, differentiation is critical,” they added.
Wheels within wheels: Gaming equipment marketplace SlotCycle has announced a $5.6m funding round led by Discerning Capital, with its MD Davis Catlin joining SlotCycle’s board of directors.
The Las Vegas-based SlotCycle will use the new money to enhance its “white-glove consignment services,” where machines are serviced for resale, and to grow its digital marketplace, SlotCycle.com.
Time saver: Compliance tech provider Letzz has announced it has secured a “significant investment” from Henrik Tjärnström, the former CEO of Kindred.
Letzz claims the time compliance teams spend on regulatory research and change management can be cut by up to 90% via centralised repositories of expert-validated regulatory info and the aggregation of regulatory updates.
Growth company focus – BettorWatch
Who are you? BettorWatch is a Colorado-based responsible gambling technology company that is emerging from a period of incubation from Discerning Capital. Its main focus is to supply the industry with cutting-edge technology to accomplish all RG initiatives within one platform.
Bryan Price will serve as the CEO of BettorWatch, joining from iProtekt which he co-founded, and the leadership team will include gaming industry veterans Davis Catlin as chair, David Williams as CFO and Jonathan Michaels as a senior strategic advisor.
What’s the big idea? “Ultimately, our goal is to build a solution that provides a holistic view of player behavior, helping operators identify potentially risky behavior at scale,” says Price.
“We aim to be the independent provider of RG solutions to fit the needs of operators in the gaming industry in their efforts to build a sustainable online gaming industry here in the US.
He adds that the industry “needs an independent hub to put together the different spokes required to effectively limit harm while continuing to grow the industry.”
KPIs: Price says that initially BettorWatch intends to demonstrate its capabilities and “fortify its self-exclusion solution” as the industry’s trusted provider.
“We have been proactive in developing technology that accomplishes robust self-exclusion processes and management, risk management identification through our iPulse solution, and state-specific compliance and unified reporting,” Price adds.
Funding backgrounder: BettorWatch agreed to acquire iProtekt, Inc. for an undisclosed amount in Q4 of this past year and the company has secured funding through its partners that give it access to capital as it grows and scales.
Growth company news
Previous startup focus GamePLAI is providing its localized betting content to Betsson’s portfolio of brands, including pre-game, in-play player prop and micro-markets, as well as cross-league and head-to-head markets across a variety of sports.
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Events calendar
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Feb 23-25: SIGMA, Eurasia Summit, Dubai
Feb 25-27: SBC Summit, Rio de Janeiro
Mar 12-13: Next: NYC 25, New York
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