Are there growing pains at GVC?

From the outside looking in, there seems to have been a real exodus of top-level talent at GVC Holdings since the turn of the year. In September 2018, CEO Kenny Alexander told EGR Intel he had finally assembled the perfect management team. Fast forward to the present day, and three of the seven managers Alexander namechecked as part of his dream team have moved on.

Former director of trading Jim Humberstone’s Turkey basting – and not the Christmas dinner kind – meant he was the first to leave GVC back in January. The exit of former CFO Paul Bowtell went through in March, while ex-Ladbrokes Coral chief Andy Hornby made way for the top job at Wagamama in May.

Humberstone’s trading expertise was undoubtedly a significant loss to the business. Bowtell’s exit was well-flagged and GVC had already appointed an able successor in Rob Wood, while Hornby wanted to be a CEO and landed on his feet at another FTSE 250 firm.

But turnover continued on the rungs below Alexander’s able executive team. GVC shut down its Tel Aviv office in April and appointed a new CMO for Ladbrokes Coral before Ladbrokes Coral MD Mark Kemp left to join the Tote in May. Alexander looked within the business and decided that Adam Lewis and Mark Chambers could fill the voids left by Hornby and Kemp.

Since then, casino execs Andy Whitworth and Rob Fell have left to kickstart NetEnt’s UK business, Liron Snir has moved into a revamped CPO role, and Alexis Zamboglou quit Ladbrokes Coral amid a marketing reshuffle in Gibraltar.

The acquisition axe

GVC’s revolving office door at London’s One New Change needs oiling. But is this supposed exodus being overstated? Staff turnover is bound to look dramatic when listed in black-and-white chronological order, but would it really be any different if GVC’s key competitors William Hill and Paddy Power went under the microscope?

GVC will say it’s just the natural progression of an acquisition bedding in following last year’s £4bn mega-merger with Ladbrokes Coral. There is often duplication of roles in the initial phase, meaning people move on quite quickly, which tends to happen in online gaming anyway. Once you shift a few positions around, a little reshuffle occurs naturally. And merging two businesses the size of GVC and Ladbrokes Coral was always bound to result in staff casualties. These deals are designed to meet synergies and having two people doing the same job – or co-heads as the industry delightfully labels them – is the opposite of efficient. If Flutter Entertainment’s bid for The Stars Group clears CMA scrutiny, you would expect staff turnover there to go through the roof.

Ladbrokes Coral was an underperforming UK retail-focused betting business before it was acquired by GVC. It goes without saying that the buck for underperformance stops with those in charge, so why should GVC keep them on board if intending to spark a turnaround?

“Kenny thinks the biggest differentiation in businesses is people, so it stands to reason that you will let people go that you’ve acquired,” a source, speaking on the condition of anonymity, tells EGR Intel. “There will always be exceptions to those rules but Kenny is a very loyal person. Unless somebody in that matrix of senior managers has underperformed, he is not going to just get rid of somebody on a whim. He will give people a chance to prove themselves,” he adds.

Kenny Alexander, GVC CEO

GVC no longer reports revenue generated by its specific brands, but H1 online net gaming revenue in the UK increased by 13% and has been at least double-digits in every quarterly report to date. Alexander previously dubbed Ladbrokes Coral a sleeping giant, and the group has successfully awoken it from its slumber and dragged it into the 21st century. While the numbers are good, there are those who argue Ladbrokes Coral was coming from such a low base that, in the words of Yazz, the only way was up.

“Ladbrokes decided to join the trend [of online gambling] but these digital-first or purely digital businesses came along, and it was like cars driving down the motorway,” the source adds. “They have just zoomed straight past them. Ladbrokes was like the little old lady in the inside lane going along at 60 miles per hour, while the others were in a Ferrari.” He adds: “There are a lot of changes occurring but the proof is in the pudding, and the numbers coming out of Ladbrokes Coral’s digital offering are phenomenal.”

King Kenny

It would be remiss to analyse the staff at a London-listed FTSE 250 company without taking a closer look at the man in charge. Alexander is, in the market’s eyes at least, intrinsically linked with the success of GVC. After cutting his teeth at Sportingbet following five years in accounting, Alexander became GVC CEO in 2007 and has overseen its transformation from £26m AIM minnow to global betting giant, and the Scot was responsible for many of the deals that inspired that growth story.

Alexander is always extremely bullish while on calls with analysts and investors and is reportedly known as the “roll-up king” in some circles due to his taste for acquisitions. But he is also modest and surprisingly introverted. The market well and truly freaked out in March 2019 when Alexander sold 75% of his shares in the London-listed firm for £13.7m – just three days after its full-year results were announced, in which revenues climbed 9% to £3.6bn.

The sale came out of nowhere and was poorly communicated, according to analysts, who then had to second-guess the motives behind the sale, in which outgoing GVC chairman Lee Feldman also ditched 900,000 shares for £6m. The pair are supposedly thick as thieves and Feldman has a hands-on role in the day-to-day running of the business.

Sources close to GVC say Alexander thought he was well within his rights to sell the shares, and he simply did not anticipate the reaction the market was going to have. The operator will claim that people put two and two together and came up with five, and the rumour mill went into overdrive that he was about to leave the business.

The debacle ended when GVC felt forced to issue a public statement on the dealing, reiterating Alexander’s commitment to the firm for the next three years as a minimum. He said: “We have both held large personal shareholdings in GVC for a long time and continue to do so. Both of us remain fully committed to GVC and, while I continue to have the support of our shareholders, I’m here for the long term and at the very least I have a current plan that will take three-plus years to accomplish. While we continue at GVC, we will not reduce our holdings below the current levels.”

For the next three years at least, the market can sit safe in the knowledge that Alexander will remain at the helm. But what will happen when he does decide to move on? “What the share sale clearly showed him is that he is inextricably linked in the market’s eyes with the success of the firm, so how do you exit?” asks a City source. “The market’s reaction made him think: how am I ever going to leave this place? Because the day he leaves he’s going to destroy 20% of his net wealth.” He adds: “Kenny has built up a very good team that he believes in but nobody quite believes that the business will be okay without Kenny.”

It’s an intriguing thought. Sky Betting & Gaming (SBG) under Richard Flint is a similar example, where one person is so influential over the success and identity of a betting behemoth. Flint was given the perfect ‘out’ after SBG’s tie-up with The Stars Group (TSG), with TSG CEO Rafi Ashkenazi able to take up the reins as CEO of the combined group with the future of this industry ever more reliant on the US. It is difficult to see a similar situation arising for Alexander. He is the man who makes the deals. You have to speculate to accumulate and, should MGM seek to buy GVC several years from now – depending on US performance – the combined entity would likely still want Alexander in charge to run the rule over US sports betting.

What we have now though are concrete facts. Alexander seems committed to GVC for another three years at least and he loves his job. The other truths are that he will have to retire at some point, and a chronic back issue looked like accelerating that inevitability earlier this year before a successful op.

In April 2019, EGR asked Alexander if he still had the appetite. “One hundred percent,” he replied. “As long as you are winning, it is always fun, isn’t it? It is the same as poker. Who doesn’t like winning?”

Pushy Playtech

If Alexander was to leave any time soon, COO Shay Segev could be the most likely to step into his shoes as GVC CEO. The no-nonsense Israeli occupied the COO position at Playtech for more than six years, before switching to the operator side of the business with Coral as chief strategy officer in June 2015. While Kenny’s expertise lies in sports betting and his passion burns for poker, casino is taken care of by Segev.

Segev engineered Coral’s casino content deal with Playtech and was instrumental in securing GVC’s revised contract with the supplier until 2025, which saw Playtech’s portfolio of slots content go live on GVC’s proprietary bwin and PartyCasino brands for the very first time. The renewal between GVC and Playtech was seen as the removal of a major stumbling block at the time, but not everybody is convinced that being bound by Playtech’s revenue targets is best for business.

GVC COO Shay Segev

“There’s pressure from Playtech on GVC to do certain things that were agreed, and it’s to the detriment of a lot of other things that are driving revenue,” an off-the-record source tells EGR Intel. “We had targets like the percentage of total casino numbers that had to be Playtech, as well as stipulations on the casino slot table, R&G table games and live that all had to be different percentages of the total.”

He adds: “You’ve got Playtech saying you’re at 7% of 25%, you need to do more, and that is taking up the time of people in the marketing and product departments as they need to do more for them, and it is categorised over and above doing anything else.

“You’ve got the worst of both worlds there with casino being controlled directly by Shay’s relationship with Playtech and their own commitments to the City. Then you’ve got Kenny bringing his own boys in for the sportsbook and wider marketing management side.”

In response, GVC would point to the fact the Playtech deal was announced in February while H1 NGR rose by 18%. As people keep on saying – the proof is in the pudding.

It will be interesting to see GVC’s gaming revenues a year from now, and whether selling its soul to Playtech has any material effect on the numbers. It stands to reason that employees who have become accustomed to generating revenues in a specific way will feel aggrieved at being told to do the opposite.

Arguably, that is the cost of doing business. You can please some of the people all of the time and you can please all of the people some of the time, but you can’t please all of the people all of the time.