Game plan: Why operators are increasingly looking to craft in-house casino titles

It will be 10 years in November since Paddy Power made the industry sit up and take notice by snapping up a small, two-year-old casino games developer, CT Networks, otherwise known as Cayetano, for an undisclosed sum. Headquartered in the Isle of Man and with its software developers and graphic designers based 1,500 miles away in Bulgaria’s capital, Sofia, Cayetano was primarily acquired to boost the operator’s in-house games content capabilities. Just four years after the deal was announced, the studio had built and launched more than 100 titles on Paddy Power Games, including leprechaun-themed Paddy Power Gold, which went on to become the Irish bookmaker’s most-played slot ever. Fast forward to 2021 and online gambling operators are still generating headlines for whipping out their cheque books to purchase third-party suppliers, or instead opting to build in-house studios as a way of standing out in what remains a homogenous sector. “It’s the same slots, the same roulette and same live casino everywhere,” says Marc Thomas of Propus Partners on the point about the ubiquity of me-too casino products. And, of course, those operators that opt to go down this route avoid having to hand over the usual cut of revenue, typically around the 10% mark, on any of their exclusive games. US operator Penn National Gaming (PNG), the company behind Barstool Sportsbook, revealed in early May that it had acquired HitPoint Studios and its spun-off real-money gaming business, LuckyPoint, to accelerate the launch of Penn Game Studios. The goal is to create exclusive casino content and maximise cross-sell with customised Barstool-branded content. Meanwhile, LeoVegas Mobile Gaming Group unveiled plans the same month to start Blue Guru Games, with the aim to develop exclusive games for the Stockholm-listed firm’s LeoVegas brand and for other operators. LeoVegas will hold an 85% stake in the studio. At least 20 games are slated to be released in the next two years, the first of which should be completed in Q4.

LeoVegas said in the accompanying press release that this was about being able to “effectively control a larger share of the gambling industry’s value chain”. The firm also highlighted how owning the IP provides greater flexibility in how characters and games may be used. LeoVegas currently takes content from 60 suppliers, yet CEO Gustaf Hagman sees obvious benefits of creating games. He explains to EGR Intel: “There’s a clear reason for it: first of all, you collect all the player data as an operator, and you understand what your players and your customers would like to play. Then, you can create games based on data, [so] tailormade games, meaning that you can serve your customers with what is a better experience.”

Core values

Justin Chamberlain has first-hand experience of an operator having a games content studio in its crosshairs after his previous company, West Midlands-based CORE Gaming, was acquired by Sky Betting & Gaming in 2016, again for an undisclosed fee. The HTML5 casino content developer had been crafting exclusive games for Sky Vegas and, therefore, the purchase was a logical fit. For Chamberlain, who oversaw the creation of 250 online casino titles prior to establishing studio HungryBear Gaming in 2020, these acquisitions are ostensibly about operators being in full control of, as he puts it, “games they want to develop”. “Operators invest in their own studios [because] I think they’re all getting a bit more savvy to building more bespoke content tailored to their players, or their future players. So, it gives the operator the chance to develop and hold onto that content, and benefit from the financial aspects of that being in-house content.” 888 has been building its own games for its brands since the company was founded way back in 1997. Its dedicated in-house studio, known as Section8, crafts everything from slots and table games to video poker and scratchcards. Formed four years ago, Section8 employs 30 people encompassing developers, visual artists, sound experts, testers and product managers. Exclusives to complement 888’s 2,000+ third-party games include branded games such as the recently released Mad Max Fury Road and hit titles like Safari Riches. In 2020, 80% of 888 players tried Section8 games. “Section8 games are consistently some of the best performers across 888’s games portfolio, which reflects the high-quality content that we are able to produce in-house,” says studio manager Ofir Gal-Mor. In fact, Gal-Mor draws comparisons between offering a mix of exclusive and third-party games and popular subscription TV platforms. “We see the games choice for customers as similar to how platforms like Netflix and Sky operate. They offer customers a wide range of content from third parties, including the big-branded content studios. “Alongside that, they create their own unique content that is only available on their own platforms – that provides differentiation and reasons to choose their platform. This is very similar to our approach to gaming content, where we can offer the best third-party content, as well as our exclusive in-house games. The rich data that we get from our own games also helps us to source the best third-party games.” In-house content capabilities are not just the preserve of the major players, though. Between Finland and Sweden in the Baltic Sea lie the Åland Islands, an autonomous archipelago belonging to Finland that is the headquarters of land, cruise ship and online operator Paf. The firm first went online in 1999, although slots content was limited at the time and so Paf began creating its own games out of necessity. Today, the boutique studio is still going strong, employing 15-20 people. “We have kept it over the years because it is a unique asset to have,” Paf’s chief gaming officer, Kim Johansson, says via Google Meet from his home office in the Åland Islands. “You have so much more freedom when you can decide what games to do – if you want to do a branded game or if you want to do something specific for a market that you are in. That’s why we have it and have kept it.” For instance, Paf has developed localised games for the Estonian market based on a well-known political TV show in the Baltic state. There have also been slots with hunting and fishing themes to appeal to Nordic players, while flagship game Cash & Carry, based around shopping, has been a big hit for Paf over the years. A video poker game and tropical-themed Tidal Drift also continue to perform well. “We have tried all sorts of themes,” Johansson says.

On an equal footing

Across the Atlantic, PNG’s decision to establish Penn Game Studios may well have been influenced to some degree by the success rival online operator DraftKings has enjoyed with its own RNG games. The Boston-based outfit threw its hat into the online casino ring with a single blackjack game for the New Jersey market in December 2018, yet its first homegrown games were unleashed nine months later. During the firm’s Investor Day presentation in March, it was revealed that $14.2bn had hitherto been wagered on DraftKings’ casino products. More than half of this amount was staked on its expanding stable of in-house games. Besides rolling out a dedicated igaming app last year, 26 games were built in-house in 2019 and 2020, and the goal is to launch at least 20 more in 2021. In fact, more than a dozen blackjack games have been created up until now, including Draft-Kings-exclusive Spanish 21. Furthermore, DraftKings said proprietary marketing technology like leader boards and autonomous gaming credits have driven customer engagement. With 57% of DraftKings’ online sportsbook users placing a casino bet in 2020, the Nasdaq-listed gambling giant has sought to fuse sports with gaming. For instance, Slider Blackjack allows users to glide between the popular table game and DraftKings Sportsbook by simply swiping up and down on a mobile device. Another example is March Mania Roulette. This title, released to coincide with college hoops’ March Madness, features a roulette wheel and table on a basketball court. A minigame involves taking shots at the basket. Jason March, VP of gaming at DraftKings, says exclusive games have been “instrumental” in the success of the casino product to date, and that the in-house studio allows “creative freedom you can’t always get from suppliers”. He adds: “Our approach has been to hone in on areas where we feel we can improve the overall player experience, notably table games, and those efforts have been largely reflected in player data. So much of the industry’s focus has remained on slots, which is due in part to the challenges associated with building table games, but also that there are quite literally thousands of slot themes to build. Data and feedback continually indicate that as customers try their hand at our games, they are both satisfied with their experience and express an appetite for non-traditional games, which has really influenced our upcoming, exciting roadmap involving creativity and innovative game play.”

Operators are very reluctant to share player data. Game devel­opers almost sit in the dark developing content they think the operator and the players might want without any analytics – Justin Chamberlain, HungryBear Gaming

Eilers & Krejcik Gaming (EKG) pointed out in a note recently that, much like Europe, US operators such as DraftKings are increasingly bringing their table games in-house to drive US sports betting cross-sell. When it comes to slots, however, the analyst firm suggested there is a “baked-in” reliance on third-party suppliers in the US. That’s largely because online casino players cluster around a small group of land-based titles like 88 Fortunes and Cleopatra that they expect to find on any site. March says: “There will always be a need for third-party providers, however, to offer players a greater variety of options including more familiar games typically found in land-based casinos. The US market is still in its early days, so to remain competitive operators must offer the gamut of regulated and certified games from all angles.” BetMGM, the joint venture between MGM Resorts and Entain that has an estimated igaming market share in the US of 27% based on GGR, is equally reliant on its own games to stand out. Interestingly, the operator recently revealed that while it offers nearly 700 unique slot, table and instant-win games, 71% of its igaming players in the US played its in-house games in March in the states where the company offers online casino. Exclusive games help to “create a competitive moat”, BetMGM suggested. “It’s one of our key pillars of differentiation,” says Matthew Sunderland, VP of gaming at BetMGM. “We can react to what our VIPs tell us and build content to order for those customers.” He adds: “We don’t necessarily lack quantity as an industry as a whole, but we lack quality.” And talking of Entain, it has also highlighted the importance of proprietary titles. The FTSE 100 gambling heavyweight, which records in excess of 100 million slot spins a day across all its brands, revealed last November that while it takes content from more than 130 suppliers, it boasts an impressive roster of 550 in-house games.

Ideas factory

It typically takes Entain’s internal development teams seven weeks to take a game from the drawing board to the finished article. Meanwhile, 888 produces around 15 games a year (10-12 will be video slots), which means the operator spends, on average, three-and-a-half weeks building each one. The more complex games take far longer, though. Gal-Mor says: “Currently, 888 focuses on high-production-value video slots that integrate elaborate game design, progressive jackpots and strong visuals, challenging ourselves to expand our games portfolio and differentiate our offering from competitors. The end-to-end process of such a game can span nearly one year, from concept to production deployment across all regulated markets where 888casino is live. Conversely, a medium production clone of a legacy game can be fully deployed in half the time.” Certain leading operators add dozens of games a week from various suppliers to their bulging games libraries. There is a need for a constant supply to keep players interested and coming back. As Chamberlain puts it, the consumer “just burns through this content”. “New product, new product, new product, does it stick? No, move on. There is just too much choice now,” he remarks while slowing his voice to emphasise the point. “There were 250 content developers the last time I counted. Every providers’ game ends up on every operators’ site. There’s very little USP or exclusivity for an operator.” An operator can pay for exclusivity for a few weeks or months for a particularly sought-after game, yet that title will eventually appear everywhere. “The only way the provider can survive is by mass distribution,” says Chamberlain. “So, the operator knows that even if they buy exclusivity on the game, within a month it will be across all their competitor sites.” Furthermore, he says the earnings potential for providers has been eroded over the years by all the competition, as well as more rigorous compliance and regulations. It goes some way to explaining the blockbuster M&A in the space, with NetEnt acquiring online slots supplier Red Tiger Gaming for £200m in 2019, only for live dealer giant Evolution to devour NetEnt and Red Tiger the following year for around £1.7bn. And in April, Evolution picked off Big Time Gaming, the supplier behind the Megaways game mechanic incorporated into over 200 slots titles from multiple providers, in a deal worth up to £389m. The environment for the smaller, independent games studios has become increasingly challenging, underlining the need for them to produce great content and have solid distribution routes and deep relationships with operators.

DIY development

For the operators that decide to take the plunge with in-house games, often buying a small studio is the logical play. Thomas from Propus Partners explored the option of creating games in-house around a decade ago when he was head of product development at Sportingbet, but soon discovered a problem at the time: a dearth of talent. In the intervening years, he says the non-gambling gaming sector has “exploded so much” that games developers and designers have become more plentiful. “The pool of talent has massively increased. Game design, game development and game artwork are things that lots of people in lots of countries are getting involved with. “Now, it doesn’t mean that you can just put a sign outside the shop and say, ‘I want 20 game developers’. The market for the really good developers and game designers is incredibly difficult.” Chamberlain, however, questions the ability of any operator to form an in-house games operation from scratch, even today. “Most of the deals being done are operators buying existing studios. Some you may never have heard of, but they would have existed in some form already and [are] then repurposed and brought in-house. I think it will be difficult for an operator to start an in-house operation because the skillset just isn’t there. Most deals are acquisitions first, and then repurposing those businesses to be in-house studios.” Chamberlain says the most “highly prized and highly paid” team members of any slots studio are the mathematicians. Put simply, if you can’t convert game ideas into a workable math model, the game is a non-starter. In addition, having people who are enthusiastic about slots is a must. Two employees at HungryBear Gaming play slots during work hours as part of testing and research and continue to spin reels in their leisure time after they clock off, he reveals. This helps with creating games that, hopefully, will be popular as you get into the mindset of the players. On the topic of striving to build hit games, Johansson of Paf admits: “It’s really, really difficult. A good portion of luck is involved as well, ironically.” Indeed, this process isn’t a precise science. There is still no magic formula here. Well, that’s what Chamberlain insists, adding that slots development is a “dark art”. “Nobody knows but everyone claims to know. There isn’t a secret sauce. There are good ideas that are hit upon like Megaways, which is a great one and a once-in-a-20-year event. [Big Time Gaming CEO] Nik [Robinson] hit upon a very solid idea and he’s very successfully commercialised it, but he was going four or five years before that.” 888 has traditionally found that game themes featuring animals or ancient Egyptian content to be universally popular. More recently, fishing-based slots games have emerged as a surprise hit. Often it can be a case of chucking darts at a board and hoping one lands in the bullseye, perhaps giving a developer the next Starburst. Chamberlain expresses frustration at the fact, he says, suppliers play a guessing game trying to anticipate what operators’ customers want. “It’s a strange industry – operators are very reluctant to share player analytics and data with third-party game providers. Game developers almost sit in the dark developing content they think the operator and the players might want without any analytics or specific data. So, it’s hit or miss.” This could explain why online casino is accused of lacking innovation as suppliers stick to successful formulas. “As with everything, there are lots of middle-of-the-road games being developed and lots of cut-and-paste jobs,” says Thomas. “But there are some really good games and engaging content, like the ones being built specifically for cross-sell into sports and sports into games.” With many tier-two and tier-three operators not having the resources or interest in bringing their games development in-house, there will always be a need for third-party providers to serve up content, particularly the blockbuster titles that players expect to find on a site or app. And the tier-one firms will still need these games to match both the online and land-based offerings elsewhere, as March of DraftKings highlighted before. Yet it does seem clear that the major operators will increasingly look to depend upon internal games development pipelines to stand out. And reduce revenue share payments. “I do expect that trend to continue, and I think it will grow stronger and stronger among the larger operators,” LeoVegas’ Hagman concludes.