Into the lion's den: Gustaf Hagman charts the history of LeoVegas over the past decade

Anyone who owned an early version of Apple’s iPhone will probably recall how it was built with the back of the handset being rounded in design. It wasn’t until the fourth iteration that the Cupertino, California-based tech giant ditched the device’s bulbous derrière in favour of a squarer, more uniform appearance. Back in 2011, Gustaf Hagman had an iPhone 3Gs when he invited former high school pal Robin Ramm-Ericson and his family over for a barbecue at his new house outside Stockholm. Later that May evening, which was particularly bright due to the Swedish capital’s northernly position on the globe, Hagman was subconsciously spinning his iPhone face up on the table. “I had a bad habit of playing with it, so I was turning it,” he reminisces from LeoVegas’ chic videoconferencing room at the firm’s Stockholm HQ. Hagman and Ramm-Ericson, who were both 36 at the time, were discussing the possibility of teaming up to launch an online casino targeting the Swedish market when they noticed that the rotating iPhone mimicked the circular motion of a roulette wheel. It was a lightbulb moment for Hagman, although Ramm-Ericson being a fanboy of that portable email workhorse issued to executives – the BlackBerry – meant he needed a little more convincing of the merits of creating a mobile-first casino for Apple’s flagship device. “This is touch, I told him, and that’s more interactive […] we started to discuss how it was more of an entertainment device and that we should build a mobile-only casino. You’d have a casino in your pocket,” says Hagman. At the time, Ramm-Ericson was working for Neteller, although he’d previously served as head of product development at Sweden’s horseracing operator, ATG. Hagman was running igaming affiliate Net Gaming (now Acroud) as CEO. He says: “I went to my board the day after and told them I needed SEK25m to create the best mobile experience to transform this company into a mobile gaming company, or I needed to do it myself. So, I quit and joined forces with Robin.” The pair drew up a business plan and initial financing of SEK12m (or roughly £1m at the time) was secured by the last week of June. “From the handshake [with Robin] to the first financing took a month.” As for the name for their new venture, they chose Leo as it is Latin for lion and Vegas is obviously shorthand for the US gambling Mecca Las Vegas.

The mane draw

Besides hiring four developers to build the front-end, a copywriter was recruited to convey the brand’s messaging to players in marketing and CRM materials. “Language was important,” Hagman explains. “We wanted it to be fun and friendly with a lion […] we wanted to be king of the jungle.” After many long days in late 2011 building the product, culminating in a nerve-wracking launch night where the team refuelled on soft drinks interspersed with glasses of Moët, LeoVegas went live on 12 January 2012, running on the platform belonging to a prominent supplier at the time, NYX Gaming Group (acquired by Scientific Games in 2018). Keen to make a splash, Hagman bought a “really, really large” newspaper ad campaign from day one. “This is not how you do it; normally you have a soft launch, you correct things and you listen to your users. We had a strong belief in our product and that it was going to work.” It didn’t take long for Swedes to start opening accounts, and soon revenue was doubling month-on-month. “Every day we could see the numbers picking up. People were depositing money and withdrawing to see if it works, and they can trust you.” This start-up launched with around half-a-dozen games – roulette, blackjack and a few slots titles – from NetEnt, yet the offering rose to over 20 after two months of being live. However, Hagman and Ramm-Ericson were imploring suppliers to create more titles optimised for mobile rather than scaling down desktop versions for handheld devices. In fact, LeoVegas’ mobile-first mindset meant the duo was invited by suppliers to provide input on tailoring game design for smartphones and tablets. “We were sitting in a lot of innovation hubs at Microgaming, IGT and NetEnt building the best mobile games, both native and wrapper games. Because of that, we got the games two weeks before everyone else. We didn’t ask for money. Our customers realised that LeoVegas was first with the latest games.” On LeoVegas’ attention to detail regarding mobile’s UI, Hagman says: “You need larger buttons, you need to try things to make it work. If you have a big thumb, it should [still] work. What others did was try and squeeze the desktop into the mobile, which meant people needed to expand webpages in the beginning. It was a huge difference from LeoVegas; we were born out of an iPhone, and we built [the product] tailormade for the iPhone from day one.” There was also an obsession with the customer journey being as frictionless as possible. This included pre-populating customer sign-up forms, while LeoVegas was one of the first operators to allow users to take a photo of their bank card to save having to tap in numbers on a dinky 3.5-inch screen. Speedy withdrawals were also a differentiator at the time. “The best guys back then did withdrawals in two to three bank days. Our claim to fame was to do it within 24 hours. Of course, that’s instant now but this was 10 years ago,” Hagman comments. “We got really good ambassadors in our customers early on – they loved LeoVegas.” Being a user-friendly casino nailing the mobile UX didn’t go unnoticed; in June 2013 LeoVegas scooped the innovation in casino accolade at the EGR Innovation Awards. Twelve months later, this challenger brand bagged two trophies: mobile casino product of the year and innovation in mobile and tablet. “We were a little bit like rockstars in this industry. We were everywhere on loads of panels and [doing] interviews.” On a roll, LeoVegas looked to replicate its success in Sweden by expanding into neighbouring monopoly markets Norway and Finland. Later, in 2014, a licence was acquired in the world’s largest regulated online market, the UK. But to take the business to the next level, the founders were aware from the get-go that they needed to build their own tech stack. Moreover, they needed their own highly scalable platform and PAM instead of relying on third parties. Work began on this in the second half of 2013 with €1.1m invested in the project. “We could deploy things whenever we needed to – we didn’t have to wait in line behind nine other operators,” the CEO says about the decision to build in-house. “We could steer our own destiny.” The proprietary platform, dubbed Rhino, finally rolled out in June 2015, almost two years after work started on it. By now, LeoVegas’ growth was really accelerating. In the fourth quarter there were 100,000 depositing customers helped by a marketing blitz that year, while full-year 2015 revenue came in at €83m – a 124% increase over 2014’s €37m. The Nordics and the UK accounted for around 86% of 2015 revenue. Meanwhile, LeoVegas boasted almost 700 online games and its headcount had grown to 228, of whom 180 were based in Malta, by the beginning of 2016. Shortly after that, in February 2016, LeoVegas IPO’d. “We started thinking [about going public] in 2014,” Hagman recalls. “When we launched Rhino in 2015 and saw the strength of the platform and the ability to integrate more games and payment suppliers, we said, ‘We need to grab this opportunity to IPO the company’.”

Float to the top

The result of the oversubscribed IPO was that LeoVegas shares began trading under the ticker ‘LEO’ on the Nasdaq First North Premier on 17 March 2016 at SEK32 each. That meant the company had a market cap of roughly SEK3.2bn, or around £250m going by today’s exchange rate. “It was a quality stamp for the organisation,” Hagman says when remembering the “awesome moment” of getting to ring the opening bell alongside Ramm-Ericson. “It brought a lot of positives, one of them being it was easier to hire people. When you’re a listed company, everything becomes a little bit more professional.” As the workforce expanded, LeoVegas’ management looked at tech companies in Silicon Valley to replicate their global hubs for staff and less of a hierarchical set-up. “More sorts of teams within the company working quite independently and who are quite entrepreneurial-driven,” the Swede explains. And like the West Coast of the US, innovation continued to be an important pillar of the company’s ethos. For instance, LeoVegas was one of the first operators to introduce fingerprint login for its mobile product. There were also game-specific apps developed and even a watered-down roulette game created for Apple Watch, when wearables were perceived to be the next big thing. In May 2016, the business expanded into sports betting with a Kambi-powered sportsbook, following the industry trend at the time whereby operators realised that only offering one or two verticals was leaving money on the table. LeoVegas also opened its wallet as consolidation began to grip the sector amid increased regulation. Italian gaming operator Winga.it was acquired for the modest cash sum of €6.1m in February 2017 and rebranded to LeoVegas. This deal provided a foothold in Italy. Later that year, Royal Panda was snapped up for an upfront fee of €60m and a maximum earnout of another €60m. Then, there was the £65m acquisition of the parent company of Pink Casino, 21.co.uk, Bet UK and Slot Boss. Rocket X was formed to manage the services of these UK-facing brands on behalf of the expanding group. Another notable deal occurred in 2021 with the purchase of Expekt assets from Betclic Group. Once a well-known name in sports betting in the Nordics, Expekt had suffered an ignominious fall from grace since its glory days of the early 2000s. So much so that LeoVegas was able to pick up Expekt for just €5m. Net gaming revenue for Q4 2020 was just €1.6m, of which 91% was derived from the Swedish market, meaning the purchase price represented a revenue multiple of just 0.7x on FY 2020 revenue of €6.9m. Indeed, Mr Green co-founder Mikael Pawlo tweeted at the time of the acquisition that €5m was “a steal” and that Expekt was “once the shining jewel of the Nordics”. LeoVegas’ management vowed to “restore Expekt to its former glory” and give this part of the group’s product mix a boost. Sports betting accounted for 9% of group revenue in Q4 2020, and in the latest set of results for 2021 its share had experienced an uptick to 12%. “It’s been an extremely good acquisition for us,” Hagman notes. “Back in the early 2000s, Unibet and Expekt were kind of equal,” he says to illustrate the brand’s former standing in Sweden. He adds: “The customer group who were around in the early 2000s are 40-something today and they have plenty of money.” In fact, Hagman says buying Expekt was a “no brainer”. So, was he surprised acquiring Swedish-licensed Expekt, albeit not any of its technology, ‘only’ cost €5m? “Yes, definitely,” he confirmed. And is LeoVegas inspecting other potential targets? “We are, but it’s kind of tough because smaller companies are led by entrepreneurs and those guys, since I’m one myself, always value their companies too highly,” he replies. “But maybe the right time is coming because they can’t stand the competition, and size matters in this industry. We are definitely looking – every month there are between one and four [companies] that we look at. We’d rather look at local champions, companies that are similar to Expekt in that they are good in a couple of countries and not worldwide.” LeoVegas also invests in promising start-ups through its LeoVentures division. The portfolio currently comprises of casino streaming platform CasinoGrounds, esports betting site Pixel.bet, and studio Blue Guru Games, which creates exclusive titles for LeoVegas besides games for the wider industry. Rounding out the quartet is BeyondPlay, a platform allowing solo online players to play together with others, founded by Karolina Pelc who was employee 101 at LeoVegas when she was hired as head of casino. “Approaching LeoVentures for investment wasn’t just a random decision,” says Pelc. “They were always top of our list because of the culture and the values that the company as a whole represents. “Combining investment with a strategic operator client backing was a key priority for us, especially given their proven track of success in capitalising on trends, investing and growing innovative businesses and most importantly, executing on launching product innovation to the market.” Live casino supplier Authentic Gaming was part of LeoVentures until the business was sold to Genting in 2019 for €15m. Discussing the rationale behind LeoVentures, Hagman says: “Since LeoVegas is an innovator in mobile and casino, there were a lot of people working here knocking on the door with ideas. Sometimes those ideas didn’t fit inside the core business, but we could see that it was something that really could fly. So, we decided to kick off LeoVentures to be able to keep these good guys within the group instead of them leaving us.”

Euro division

When LeoVegas launched a decade ago, many EU markets were unregulated or in the process of regulating. With regulation, along with subsequent increased rules to toughen laws, compliance is far more stringent than in 2012. For example, Sweden has had its much-publicised challenges for licensed operators since the country re-regulated gambling in 2019 due to the regulations and restrictions there. Hagman believes channelisation in Sweden was around 70% towards the end of 2021, yet he says there is cause for optimism with temporary deposits being removed, Swedish fintech firm Trustly recently halting deposits to unlicensed sites, and the regulator’s plans to license B2B companies. “Channelisation is moving in the right direction. If someone was to measure [Sweden] now, it is probably up to 80%.” Germany is a different story though, due to not being able to offer table games, an insurmountable 5.3% turnover tax on slots (hence 90% RTPs), and a €1 limit per spin. “Germany is like 80% gone for us,” Hagman says, palpably frustrated by the hit his business has sustained in what is Europe’s largest economy. “It’s just 20% left. Germany was one of the largest markets for LeoVegas and then it got wiped out with the really bad transition period where the authorities didn’t understand anything about this industry. “You have a huge black market now in Germany […] it’s a great example of how you should not do it. The purpose of having a regulation is to give local authorities control of the market, and to make sure operators engage in safer gambling. Unfortunately, many Germans today probably play with black, unlicensed, operators that have no obligation at all to help at-risk customers with safer gambling tools. This partially defeats the purpose of having a licensing system.” In addition, LeoVegas, like many other international operators, was forced to retreat from the newly regulated Netherlands, a market that accounted for 6% of group revenue. In an ideal world, Hagman would like to see EU-wide regulation rather than a patchwork of laws. The same applies to the US where the plan is to release the LeoVegas brand initially in New Jersey in Q2 2022. “That’s going to be a big hassle for us to comply differently in every state. It would be much easier if we had unified regulations across the US, but it is what it is.” Despite the regulatory headwinds, Hagman says LeoVegas is experiencing growth. The Nordics, Italy, Spain, Canada and New Zealand are a few parts of the world he picks out as “doing really well”. LeoVegas Mobile Gaming Group, as it is known officially due to its smorgasbord of brands, has come an awfully long way since that twilight barbecue and a spinning smartphone in late May 2011. During its journey, over 24 million people have opened accounts worldwide and, today, the workforce totals almost 900. Not bad for a company that began with no customers and a completely unknown brand. “I’m so proud of all the great people who have built LeoVegas, turning this lion cub into almost a teenager. I love to see the teams and people grow and see how happy they are when they succeed.” Despite all this, Hagman admits he still views LeoVegas as a “small company”. “There are larger ones out there,” he states when pressed on this observation. “We are the largest private operator in Sweden; in Denmark we are the second or third largest but there are many countries where we are not even in the top 10. So, there is plenty of growth for us.”