32Red no gamble as marketing strategy pays dividends

When the UK Point of Consumption (PoC) levy was introduced in December 2014, 32Red was often cited as one of the firms expected to struggle in the newly taxed and ultra-competitive environment.

Yet almost two years on and chief commercial officer Matt Booth tells EGR the firm has “never been stronger” and, after releasing its 2016 interim results last week, it would be difficult to disagree with that upbeat summary.

The firm’s 32Red.com brand posted net gaming revenues of £23.5m for the six months to 30 June, a 32% increase on the comparable period in 2015 and 60% ahead of the £14.7m posted the prior year – which came just ahead PoC’s introduction.

When bolting on 32Red’s improving Italy-facing business and last year’s acquisition of Roxy Palace, total H1 revenues were up 63% to £30.4m with EBITDA more than trebling to £4.5m and a cash (and equivalents) balance of approximately £8m.

Winning streak

All of which means 32Red is a business brimming with confidence, a mood reflected in the firm’s recent three-year deal to replace William Hill as the headline sponsor of the prestigious Boxing Day King George VI Chase at Kempton Park.

Not that 32Red’s recent success means likeable chief executive Ed Ware, who owns roughly 23% of the business, is getting carried away.

Ware admits, wisely, the firm still has “much more to do”, particularly considering the recent renewal of its long-term relationship with technology supplier Microgaming has placed third-party casino content on the table for the very first time.

The agreement only serves to underline the positivity within the 32Red camp – that it is ready to take more control of its own destiny, and this deal is just the latest example the operator doing precisely that.

In-house rules

Perhaps 32Red’s boldest move was taking the decision to build its own front-end platform, which was released in April this year. As well as offering customers greater UX, particularly on mobile, the platform enables the firm to market directly to customers on-site, in-play and in real-time.

Although still early days, both Booth and Ware are more than satisfied with the early results – new player activity, new player deposits, retention to second month of play and average revenue per player day all increasing post launch.

In short, they’ve managed to create a far stickier product, giving them increased confidence to further accelerate marketing spend – 32Red is on course to spend north of £20m in marketing this year, a 60% hike on last year’s outlay.

Aside from the King George deal, 32Red continues to be one of horseracing’s biggest backers, perhaps boosted further by the ABP stand-off between British Racing and the high-street betting giants.

The firm is also the most prominent online casino on UK TV screens, a presence to be bolstered by an extended relationship with both Sky Sports and ITV, while it recently added Leeds United to a football portfolio that includes Rangers FC.

Proof’s in the pudding

But are these deals and the firm’s general marketing investment delivering? The short answer is yes. Despite higher levels of spend, 32Red says it remains focused on cash generation and therefore only invests where it believes it can recoup spend relatively quickly.

Booth sets himself the target of generating returns with 14-day, 90-day and 365-day periods. As an example, in H1 2015 the firm invested £5.3m into marketing which delivered returns of £3.1m (59%), £6.4m (121%) and £11.1m (210%) during the respective periods.

So far this year, investment in H1 of £8.2m returned £4.2m (52%) after 14 days, £8.9m (109%) after 90 days and £11.3m (137%) after 365 days – although it must be stressed that the final two periods don’t mature until 28 September 2016 and 30 June 2017 respectively, so those returns will increase, the latter considerably so.

It is also worth highlighting that the above numbers are in respect to new customers acquired during those periods only, so doesn’t include the stimulation of existing customers.

More to come

So there can be little doubt that 32Red has not only managed to survive but thrive under the PoC regime – although the firm may have to contend with the dreaded free spins and bonuses tax, or PoC 2 as it has been dubbed, next year.

The firm is now more profitable than ever before, admittedly assisted by a pullback in marketing spend from some of the bigger players and a disappearance from the market of some of the lesser lights.

But it is the firm’s results-based and data-driven marketing strategy, coupled with greater brand awareness, which has become the backbone of success. The potential to throw in some of the casino’s market leading games, provided by the likes of NetEnt, Relax and Yggdrasil, will only increase its appeal and retention.

And with plenty of headroom to grow in Italy, increased cross-sell potential from its Kambi-powered sportsbook and the same analytical approach to be rolled out across the Roxy Palace database, there are a number of reasons to be positive for the remainder of the year.

The 4% H2-to-date revenue growth figure should be no cause for alarm with it set against tough comparatives and margins expected to normalise during the next three months. The firm is in rude health, the share price has risen roughly 9% in recent days, and the management team is confident there is more to come.