Ready for action: Mr Green on the Swedish opportunity

Sweden is the country on everyone’s lips at the moment and as the official licensing window is two months from launch, Nordic-facing operators are scrambling to prepare themselves and ensure they adhere to the stringent technical requirements outlined by parliament in April. At the forefront is a requirement for operators to provide intelligent and responsible gambling tools able to predict player behaviours and ensure they are sufficiently protected from developing gambling addictions.

Mr Green CEO Per Norman firmly believes the operator has found itself on the front foot in the race to enter the Swedish market after having launched its Green Gaming technology in September. The AI-powered tool permits players to track their actions and fits the bill for the demand of Swedish regulator (Lotteriinspektionen) for a digital tool that controls gaming behaviours. “It might cause problems for [our] competitors,” Norman comments earnestly. “We note that from the interest for the tool here in Sweden from a lot of different stake holders, the increased social responsibility will play in our favour.”

In an analyst note following the operator’s Q1 results, Regulus Partners shed light on the potential for future revenues to be offset by costs incurred by stringent social responsibility requirements. But Norman shrugs it off, instead relaying his fiercely optimistic view of the market. He hints at the possibility of the operator offering its Green Gaming technology as a B2B solution for others also keen to enter the jurisdiction. “You never know, [but] for the moment we’re 100% focused on securing a large number of opted-in customers and then to implement it into the Evoke brands.”

According to Stockholm-based tech analysts Redeye, Sweden accounted for approximately 16% of the operator’s overall revenues during Q1. For the first time, the operator broke down its revenue share into regulated markets, soon-to-be-regulated markets, and markets the group pays VAT or betting duties for, including Austria and Germany. Interestingly, the latter accounted for a sizable 43.2% of the group’s income, which explains the operator’s unceasing battle with the Austrian regulator to establish a more foreign operator-friendly framework that does not favour the monopoly so blatantly.

Feeling the pinch

Betting duties for the quarter rose 41.9% to SEK62m (£5.3m). Specific costs attributed to Austria amounted to 10% of overall revenues. In the firm’s 2017 annual report, Norman insisted the market was hugely important for Mr Green as it operated one of the three largest online casinos in the country. “We, and several of our competitors, contest the obligation to pay betting duties, with reference to such instruments as the Austrian constitution and EU legislation. We are driving an appeal process in Austria, which has passed the first instance, where we lost as expected,” Norman wrote to investors.

In light of the complex regulatory outlook in both Austria and Germany, Regulus Partners, which estimated Germany accounted for 20% of revenues, believes the operator is exposed to “significant regulatory risk” and questions its ability to avoid significant regulatory disruption in the next 12 months.

Yet Norman has a plan in place for the two potential outcomes of the Austria case: “If we were to lose the dispute, we anticipate having a payment plan of two years and to pay from cash flow. If we win, there are several scenarios, such as the rate of tax being lower than we have provided for,” he told investors.

And with regulated revenues making up a mere 13% of the pie for Q1, it is entirely possible the operator could take another shot at an acquisition in coming months. Speaking to EGR, Norman is certain any future M&A attempts would focus on core and soon-to-be-regulated markets. “With regulations coming up we see a lot of companies are up for sale and we are frequently being contacted regarding different opportunities. However, to find something that fits us and has a fair price is a completely different story. The answer to your question is, yes, we are looking for further acquisitions, but whether that’s going to happen this year or next year, that’s hard to say.”

Taking a back seat

Having completed the acquisition of Evoke and brands such as Redbet, MamaMia Bingo and Bertil in February, Norman is wary of the delicate balance required for his strict “selective multi-brand strategy”. In his experience, maintaining too many brands can cause a company to over invest in marketing. “One of the main reasons for the Evoke acquisition was to have a sportsbook that complemented Mr Green and that would give us the benefit of two strong brands. We will deploy Redbet in the markets we’re already in.”

On marketing, Norman hails the efficiency of the company’s renewed marketing approach. With a razor-sharp focus on digital advertising, marketing costs in relation to revenue for Q1 dropped 27% on the previous year and Norman attributes this to digital marketing being a much more effective channel for customer acquisition and retention. “You see companies that spend a huge share of marketing and also grow a lot, but the important part is to ensure that the growth is sustainable,” the CEO explains.

This point is further highlighted by the Q1 customer acquisition figures, as new depositing customers grew 75.5% on the previous year to 80,691 and returning customers were up 45.4%. Norman is certain the fresh interest from players is the result of the renewed marketing policy and “communicating a broader product mix with number games and sportsbook”.

Redeye analyst Kristoffer Lindström notes the firm’s push to improve its digital marketing and in a recent report said profitability should continue to improve as marketing campaigns yield more impact. Sweden specifically has reaped the rewards of a more concise marketing strategy from Mr Green. Across the wider industry, the first quarter of 2018 has seen revenues in Sweden (particularly for casino) perform relatively poorly compared to previous years, with Kindred Group reporting slowed-revenue growth of 8% for the Nordics. Kindred’s Nordics revenue share also dropped 9% on the previous year to 36%.

Betsson Group also reported a relatively slow quarter with 8% growth in the Nordics. But for Mr Green, income for the region was up 29.8% on its “much more precise marketing [approach]” says Norman. Once the regulated Swedish market opens in 2019, Norman is of the opinion that the 18% tax rate will be offset by new marketing channels opening as operators will have access to the country’s largest television station, TV4, and Facebook and Google advertising.

In February, the local media shed light on the aggressive marketing plays made by operators, with the Swedish Advertising Association (Sverige Annonsorer) revealing LeoVegas, Svenska Spel and Kindred Group were among the top 20 companies in the entire country to up their investment in local advertising by up to 83% in 2017. The scramble to boost brand awareness and get themselves known ahead of the market opening has been brutal thus far and competing Swedish-operator Global Gaming also reported a 590% increase in marketing spend in Sweden for Q1.

On the impending legislation, Norman says: “As you’re aware, in the UK, TV has so much gambling marketing that the impact doesn’t come through. The more spread out it will be, the more impact it will have. I’m sure it will reduce the marketing cost and increase the efficiency of it.

“Sweden is important,” he continues, “due to the fact that it’s a very competitive market and therefore it really shows if your product is good and if your marketing is efficient.” Last year, Norman publicly stated that Sweden was a priority for the company and solid growth would be the marker to determine whether it was successfully gaining loyal customers and living up to its brand.

Moving forward

And with a handful of new brands under the Evoke Gaming umbrella, much of the business’ energy has been injected into ensuring a smooth transition of operations and services following the Evoke acquisition. Norman says the operator underwent a major transitional period as all four brands, including Redbet and Mama Mia, were shifted onto new back-end platforms.

“That was the main reason [for the company’s] decline [in revenues last year],” says Norman. He is pleased to reveal that Q1 was one of growth for Evoke, despite the major changes in operational management and its physical move into Mr Green’s offices in Malta. And with the appointments of former Hero Gaming CEO Magnus Alebo as MD for Mr Green, and Evoke CEO and Mr Green veteran Fredric Staël von Holstein as MD for the Evoke brands, Norman insists the firm is now very well staffed for continued growth and “taking further steps”.

One standout note in the Q1 report was the additional synergies of £500,000 between Mr Green and Evoke. According to Norman, the team has discovered the two businesses share games, payments and platform providers, which could result in synergies between the two reaching €4m. But the transitional process is not without its stumbling blocks and a handful of staff members have had to be let go to ensure there is no overlap between roles, particularly as much of Evoke’s operations are being consolidated into Mr Green.

“Some brands have been completely integrated into the Mr Green team and others are being kept because we want to maintain the flavours of the brand. Other people are still running the different brands with different hats on,” Norman notes. “To acquire a company and to merge two companies and cultures is always a challenge, but I think this process has worked out extremely well. I think the Evoke staff also wanted to be part of a bigger context with a long-term owner.”

Product played a significant role in boosting player acquisition for the first quarter of 2018. Having launched its Live Beyond Live casino product at ICE in February, revenues for the product have already surpassed revenues accrued by NetEnt’s entire live casino portfolio on the Mr Green website in 2017. Built in conjunction with NetEnt, it pledged to refresh the live casino vertical with a virtually-enhanced offering that incorporates a number of interactive layers of UI with gamblers able to play on different tables in one ‘room’.

“It is growing very quickly, and now we’re looking forward to the launch of the desktop version because it’s only been available on mobile,” Norman says whilst reiterating the importance of a strong product offering in seizing market share and maintaining customers. It certainly seems Mr Green is well prepared to continue its period of growth, despite a relatively murky regulatory outlook in two of its biggest markets –Germany and Austria. And with preparations for entering Sweden almost fully in place, revenues in Sweden could well increase its market share and boost regulated revenues significantly.