Is Rank wise to be betting big on bingo?

After a rather public rebuffing from William Hill then 888 in turn, Rank has finally sounded the gong on its first big M&A deal with a £115m offer to acquire bingo operator Stride Gaming. The relatively new operator, itself a product of aggressive M&A activity at a smaller scale, gives Rank a proprietary tech platform and more bingo brands than it likely knows what to do with. But does it really give it a competitive advantage in what remains a frequently overlooked segment of the egaming industry?

On the face of it the deal seems strategically sound. Rank, one of the largest bingo operators in the UK market, will increase its market share, absorb a major competitor and give itself more platform independence. Stride on the other hand can escape from increasing regulatory pressures at a pretty healthy-looking EBITDA multiple at a time when its revenues are declining and the route out looks a tough one. So it’s a win win for everyone then? Well not exactly.

The regulatory revamp and the wider weak performance of the bingo vertical in the UK has caused issues for Stride, and a number of bingo operators accustomed to low CPAs and light touch regulation. It’s arguable that the multi-brand low-APRU model in the bingo market has had its day, not least as you add in more KYC requirements on both the front and back-end of the customer lifecycle. But it’s possible the worst is over and if it could ride out the worst of the market conditions it may have come out the other side with some competitive advantages of its own.

What’s in it for Rank?

For Rank on the other hand there is the question of whether it’s overpaid for an asset that would have had relatively limited appeal to its peer group, and if it can effectively manage what appears to be a substantial integration task over the next couple of years. A platform migration, not long after it has completed its move to Bede, and the shift from a single brand strategy to the mother of all multi-brand are no small tasks to accomplish. And the question is what does it gain from all these labours? A larger share of a market that has more than its fair share of issues.

The first and most obvious is the lack of meaningful growth for some years now. Is it a sector that can ever recapture its earlier momentum? 888 reported bingo revenues as flat year-on-year in its recent trading update that saw a 13% increase in casino revenues, albeit a 28% decline in poker revenues. The operator remains committed to the bingo sector having spent £18m acquiring the underperforming Costa Bingo brand from its rival Jackpotjoy in February.

Costa and its sister brands were operating on 888’s Dragonfish bingo network and at the time 888 said the deal would “support and further strengthen the Group’s position in the UK online bingo market”. A market that is harder than ever to define. Bingo is a confusing market to the casual industry observer. The Gambling Commission data shows it as a £177.6m revenue market in its latest results, or a single digit percentage of the wider online gaming market, but that’s far from the whole story.

Bingo as per the Gambling Commission numbers is just about the revenues from the core game, but for operators it is mostly about slots and side-game play with this representing as much as 80% of “bingo” revenue at some operators. Jackpotjoy, which is one of the few operators still committed to the so-called bingo-led model, implies this market is actually closer to £800m in annual revenue. There are nonetheless though relatively few players competing for a slice of this fairly large pie.

What next for Bingo?

Several of the tier 1 operators have continued to pour resource into bingo, not least Playtech with its Sun Bingo operations, and we’ve seen a real attempt at differentiation after years of commoditised offerings on one of two networks. GVC’s Gala brand, Rank’s Mecca, Tombola, 888 and Playtech’s Sun Bingo are the main contenders, but none are exactly flying at this point. There are signs of life, however, and GVC reported growth in its Gala brands in its latest update and none of the big players are giving up on a sector that still retains some strong advantages not least in the core UK market. How long those survive on the other hand remains to be seen.

Bingo’s strength is its ability to tap into a demographic that is adjacent to but different from a traditional casino audience at a lower CPA with a product that provides far easier and cheaper retention capabilities. For this reason it will remain a part of any multi-vertical operator’s offering for as long as the commercials make sense and this will depend on acquisition costs remaining relatively low. Partly this is due to the wildly differing regulatory treatment afforded to the sector with a carve-out allowing daytime TV advertising for bingo sites that feels increasingly unsustainable in the current environment.

Is it realistic for a product vertical so reliant on slots play for its commercial success to be advertised so widely when other verticals face so much pressure for restraint? And can bingo retain that light, entertainment feel amid a market that is starting to view gambling ever more as a vice? Perhaps it can, and there is no current suggestion of change being forthcoming, but in the current fast-moving environment it may not be something you would want to place a large bet on.