Industry predictions for 2020 – a private equity take-out and Asian expansion

New year predictions are always notoriously flaky. It’s easy to get swept away by short-term trends and forget how slow the pace of change often is – even in an industry as dynamic as online gambling – and make wild pronouncements on the use of voice commands, smart watches or augmented reality. The reality is usually a lot more prosaic, but in the spirit of these lists let’s try and make some bold claims for what’s to come.

Things will continue to get worse

If you think this has been a bad year for regulation and the image of the online gambling sector then it’s probably best you don’t get too excited for the new year coming. The UK has a slate of potential regulatory changes pending, with all likely to have an impact on revenues and some possibly causing some existential shifts.

We may see a new Gambling Act, and we will probably see a ban on credit cards, but affordability will be the key question here. In what form that takes is harder to define, but it’s a conversation that will be had over the year and may well be one picked up in other markets. For it is not just the UK that looks problematic.

We have the ever-confusing German market that looks poised between disaster and success for online gambling with every point in between a non-zero probability. A real ban on online casino would be hugely impactful, while limitations on the sports betting product could also cause some serious headaches.

Then we have Italy and Spain with their governments increasingly opposed to the gaming industry and with advertising restrictions abounding, not to mention Sweden and Denmark trying to reinvent responsible gambling on the fly. And all this comes against a backdrop of a maturing market where natural consumer spend growth is looking harder to find.

Happy new year everyone!

This will be the year that scale really matters

It feels like the financial sector and a handful of CEOs have been saying this for a decade now, but the stars really are beginning to align for the scale operators. A rise in tax costs, in regulatory compliance costs, a hike in streaming and data fees and an ever more demanding public with higher expectations on product and promotions is creating a real squeeze on bottom line.

At the same time regulation is trimming ARPU, reducing marketing opportunities and wider secular growth is slowing notably to make the top line look considerably less pretty. What we’re seeing is the cost of playing the game rising at a rapid rate and making life extremely difficult for the tier 2 firms with more limited benefits of scale.

The opportunity for the scale firms? To ramp up the pressure and force out the smaller players. You could argue that bet365 has been playing this game for some time now, and you’d be at least partly right, but 2020 is likely to be different in execution and tone. In the major markets of the UK, Italy, Sweden and Denmark the days of a mass media advertising onslaught are, if not at an end then coming to one.

Operators may be forced to invest more in promotional spend, pricing and other softer marketing tools to compete as well as what is likely to be an increasingly ugly bunfight in digital marketing. And that, more than any major TV or sponsorship spend, will really put the squeeze on the smaller guys.

The centre of gravity will continue to move away from the UK

The UK is still by some way the largest and most important online gambling market in Europe and is the home of some of its leading players, but its position as the centre of gravity for online gambling is becoming harder to justify. It’s arguable that the likes of Flutter and William Hill exert the same influence on the sector they once did and we’ve seen a number of operators pull out of the market in 2019 citing bigger opportunities elsewhere.

Crucially it seems the UK-focused operators agree and they are all looking further afield in 2020. The UK won’t suddenly become an irrelevance, but the idea that you have to be in the UK to be taken seriously just doesn’t wash anymore. So who are the new power players? The likes of Superbet, STS, Fortuna, tipico, the newly privatised FDJ and the Italian giants are just some of the big players who are looking increasingly internationally for future growth.

For some this is a focus on adjacent markets, for others it’s much farther afield, but you will struggle to put together a coherent growth strategy for regulated Europe without butting heads against one of them. And you sense you will be hearing a lot more about them all during 2020.

There will be innovation

After a year where it felt like almost nothing happened in terms of product or UX innovation there are big hopes for 2020 to begin to push things forward once more. That’s not to say we will see the next cash out, or request-a-bet or live casino, but after a long period of behind-the-scenes platform and integration work at most of the major operators, there is the sense that 2020 will be when we start to see some more consumer-facing innovation and experimentation across the verticals.

Sports betting feels the most ripe for this, with the Euro 2020 tournament coming in the summer and a more restricted advertising environment. The battle for recreational customers will need to be fought in terms of product as well as brand and marketing. The casino sector has continued to see innovative game content coming out from the wealth of games studios that now exist, but it feels like the broader user experience hasn’t really seen much innovation since Casumo.

And have we really seen the first made-for-mobile type casino product yet? In a sector where advertising is increasingly limited a focus on product could be a hugely important area in the new year. Will anyone be brave enough to take the leap?

We will see one big PE takeout

This is probably the simplest prediction of the lot. Valuations are low, business models are still fundamentally sound, cash generation is good and prospects – with a little aggression and the ability to fail for a couple of quarters – are good. Why struggle under the glare of the public markets when you can focus on what you do best, save costs and attack some of the near-term opportunities?

The firm can then ride out the next couple of years of regulatory upheaval and emerge the other side. And with the possible exception of the to-be-merged FlutterStars there are few firms who are of a scale they could not be taken out without breaking a sweat.

One of the big boys will take on Asia

This is perhaps the one that is most uncertain but feels the most likely when faced with the wider pressures and lack of growth opportunities for some previously very growth-focused operators. The sprawling and complex Asian market presents a wealth of opportunities for operators willing to get their hands a bit dirty and take on some reputational and operational risk.

China and Japan are the main markets in question, of course, but they are far from the only ones where money can be made and it will be surprising if some of the major firms continue to ignore what is powering the growth at some of their rivals.