ZEAL of approval: ZEAL Network’s CEO on its follow-up licence to broker lotteries in Germany

ZEAL Network, which was founded back in 1999 as a lottery broker with the launch of Tipp24, has recovered from a difficult jackpot year in 2021 to achieve a solid start to 2022 as Q1 revenue plus jackpot insurance rose 10.9% year-on-year to €25.1m and EBITDA almost doubled to €8.9m. Furthermore, monthly active users (MAUs) eclipsed one million, while average billings, or stakes per user, were in excess of €58 for Q1. It’s been a busy period of late for the Frankfurt-listed firm, including paying out its largest-ever prize last year – a cool €49m to a player from Bavaria – while ZEAL was recently granted a follow-up licence to broker lotteries in Germany for subsidiary LOTTO24. Meanwhile, there has been a concerted effort to branch out beyond its core brokerage business with the rollout of its second charity lottery, the German Dream House Lottery, in collaboration with non-profit organisation Bildungs-Chancen, to go along with freiheit+ released in 2020. A B2B deal for instant win games has also been signed with LOTTO Hessen. Speaking to EGR Intel, CEO Helmut Becker details how ZEAL has adapted to change in the near quarter of a century the company has been active in the market, the core values of ZEAL Network and where he sees the German market going following the recent regulatory change.

EGR Intel: ZEAL has been granted a follow-up licence to broker the German National Lottery. What does this award mean for the company?

Helmut Becker (HB): It’s important. Before now it’s been a five-year licence, so our core business is to resell or broker lottery products to our customers and, for that, we needed the licence. So, we believe we were awarded this licence because of our reputation for being very compliant and trustworthy. We also believe this is the reason why the licence has been extended to seven years up until 2029.

EGR Intel: ZEAL streamlined its marketing costs in 2021 due to a poorer jackpot market, yet now things are hopefully picking back up again. Will we see a more aggressive marketing strategy for the rest of 2022?

HB: Jackpots drive billings and they drive customer acquisition. We look very closely at our KPIs and the efficiency of our marketing investments, and we dial up and dial down our investments in accordance with the jackpot situation. 2021 was a poor jackpot year. We had only six out of 49 jackpots, which were on average 19% lower than the previous year, and we did not have a single one with a mandatory payout. We had a similar situation with the EuroJackpot, which on average was 22% down and only reached €90m three times; the previous year it was six times. That is why we have dialled back our marketing investments in 2021. If there is a normal jackpot situation, or maybe if we’re lucky, even an above-average jackpot situation in 2022, we will dial up our marketing investment. We expect to invest €30m in 2022.

EGR Intel: It has been mentioned that marketing around freiheit+ was the reason for increased cost per lead (CPL) in Q1. As we are nearing the end of Q2, have you noticed a reduction in CPL?

HB: When looking at the cost per lead, you always have to dig a little deeper. In Q1, we made an upfront investment into acquisition campaigns for freiheit+ that will pay back later. This is why you see some costs in Q1 but don’t see all of the corresponding customer acquisition. That’s also the explanation for the slightly higher cost per lead in Q1. I expect this to normalise again over the course of 2022.

EGR Intel: ZEAL launched a second charity lottery in the German Dream House Lottery at the beginning of this year and it is quite a unique concept in that players could win the opportunity to build their home. What was the thinking behind this lottery?

HB: I believe we know our target audience quite well. We researched their needs; we researched their dreams. We understand that dreaming of house ownership is a very common and relevant dream, even more so in the current market environment for our customers. So, we came up with the idea to build a product that gives our customers the chance to win a dream house [worth €1m every week].

EGR Intel: What has the uptake of this new product been among your players?

HB: We have a sizeable fan base within our customer base who play the Dream House Lottery. We are now focused on acquiring additional players from our customer base and attracting new players, even players who haven’t played the traditional lottery before. We have been working with celebrity home improvement presenter Eva Brenner on this product and we have found that this has lent trust to the lottery because Eva is a respected and trustworthy celebrity who is engaged in the whole house improvement world.

EGR Intel: Since the launch of instant win games with LOTTO Hessen in February, have you seen a positive response from the player base?

HB: Lottery players and our player base like games. We’ve offered games in the past and we know from looking at many other markets such as the UK and Spain that games are very successful. We have built a strong portfolio of in-house games, about 60 games at last count. In addition, we have signed a deal with LOTTO Hessen to provide them with our gaming service and games. We’ve started with games that we know our lottery players love and they are performing very well. LOTTO Hessen is very happy, both with the games’ performance and the technical service.

EGR Intel: How do you feel the company has developed in recent years, especially given the Covid-19 pandemic?

HB: I don’t think it affected us as much as it did some other companies because our technologies and ways of working were already modernised and ready for remote work. We didn’t skip a beat in terms of innovation and collaboration during the pandemic; if anything, we saw a small surge in online demand. However, that extra online demand has mostly come down to normal levels again, which is what we expected to happen. We continue to follow our growth playbook and make investments in customer acquisition and in product development that fuel our long-term growth.

EGR Intel: ZEAL has kept its financial forecast of at least €105m in revenue and EBITDA of at least €30m for FY 2022 unchanged following the end of Q1 2022. Do you think the market has returned to some form of normality?

HB: We had a very successful Q1 and, as such, we have not changed our forecast for 2022. I think the market has returned to normal regarding the pandemic situation. Of course, there have been some effects related to the Ukraine crisis and inflation, but given our solid performance in Q1, we believe we will make our guidance in 2022.

EGR Intel: Have you noticed any changes in the German market since the Fourth State Treaty came into effect last year?

HB: We’re happy that after years of regulatory turmoil, legal fights and political debate, Germany has now introduced a licensing model for all gaming verticals. We hope and expect that this change will bring peace to the debate, regulate and channel the market, as well as enable enforcement against players who do not comply with the rules. However, we are a bit concerned about delays in some areas like the licensing of online games or online slots, for example. We applied for a licence last summer and are currently still waiting. We get the impression that the current regulator, Saxony-Anhalt, is willing to put these licences out but has issues due to having to deal with 16 states, which seems to slow down the process. It’s important that Germany and the regulator now execute these new licences and that companies like us, which have been compliant and have been in line with the regulation for years, are not discriminated against compared to other industry players who are still in the market on the basis of EU licences.

EGR Intel: Do you think enough is done to protect players and what is ZEAL’s policy on player protection?

HB: We pride ourselves on being a market leader when it comes to implementing the rules that the law and the regulator have put in place. We have a great track record for compliance and consider it important that the regulator supports operators who comply. We believe that, based on this new regulation, there should be effective enforcement against companies that do not follow the rules. We are already linked to the new gambling regulatory body system and comply with everything they stipulate. We take player protection very seriously.

EGR Intel: What do you think is key to achieving success in the lottery sector?

HB: You need to know your target audience very well and understand the customer’s needs. That involves a combination of market research, talking to customers and finding out about their needs and dreams, almost psychologically, as well as having good data capabilities. You also have to have an innovation muscle that builds on customer understanding. There also needs to be a level of entrepreneurship, creativity and ownership. Finally, you must have the right people on your team who want to build new products and new businesses. In short, you need to understand the lottery market in-depth, but you also need to have excellent e-commerce skills as well. So that is how we see ZEAL: a lottery company that can also be qualified as an e-commerce company.

EGR Intel: What growth opportunities do you think there are in the lottery sector?

HB: I don’t think it is a ZEAL-specific opportunity but an opportunity for the whole sector. Currently, the online share in the lottery sector in Germany is only 21%. Compare this to other lottery markets such as the UK and Scandinavia, which are around 50%. Even if you compare it to other industries such as ticketing, banking or travel in Germany, which also have upwards of 50% or more online penetration, you can see the potential for the online lottery business. If you look at the market at the highest level – and I’m not talking about investment in customer acquisition or marketing or building new products, just looking at where this market is going – then the German market will, over time, reach those levels of 40% and 50% online penetration, which is a huge growth potential for us as the market leader in online.

EGR Intel: As we approach the end of H1, what has ZEAL achieved so far?

HB: Let’s start with our users because we’ve just witnessed an extraordinary situation. Our LOTTO24 users won the biggest lottery jackpot in the history of Germany. They won the €110m jackpot. It was won by a lottery club of five players from North-Rhine Westphalia, and they won this jackpot thanks to the lottery club we created. I consider this a big achievement for ZEAL. This has been our strength over the last couple of years: building products like scratchcards, lottery clubs and charity lotteries that lottery players love. We’ve not only done this with the lottery club that made five people very happy; we have also done it with the German Dream House Lottery we launched earlier this year and the freiheit+ charity lottery, which was our first charity lottery.

EGR Intel: Looking ahead to H2 2022, what can we expect to see from ZEAL?

HB: We’re very much looking forward to launching instant win games on the German sites we run. We’ve applied for a licence and are in the process of receiving it. We expect this to happen very soon. It will be another big achievement for us and an important growth opportunity going forward. ZEAL continues to want to invest in customer acquisition and we intend to launch more games. Lastly, we want to grow our charity lotteries further.