Lost in translation: Why local knowledge is priceless

It was supposed to be easy. The Italian market opening up to foreign competition, inviting in the best from the online gambling world to compete on an even footing with local operators wasn’t expected to be a fair fight. But around a decade after the market began it’s the egaming sector that has been dealt more knockout blows and the local operators who are definitely ahead on points.

Sky Bet’s tactical retreat from the Italian market can be looked at as a failure of that business to translate its model to a non-UK market or an indicator of just how tough the Italian market is to break into, even with a large local media tie-in. Sky Bet’s owner The Stars Group has fared better and the combined business may well be finally crack the code, but Sky Bet is not alone with Unibet another operator with a less than single digit market share – although it should be noted 888’s sports betting business has broken the 1% mark.

The largest sports betting operator in Italy is bet365, but behind it you have SKS365, Eurobet, SNAI, Sisal, Goldbet and Lottomatica before you get to the likes of William Hill, bwin and Betfair with low single digit shares, Paddy Power having withdrawn from the market in 2017. Casino is a little different, with The Stars Group at the top, then Lottomatica, Sisal, Eurobet and SNAI, with bwin, 888 and William Hill making up the next few slots. The conclusion? Breaking new regulated markets is not easy.

Managing the transition

Few of the major firms have managed to seamlessly transition into new regulated markets, with the exceptions generally being bet365 and The Stars Group who are not averse to throwing marketing money at a problem. Those two operators also have such a stranglehold on their respective core business areas, sports betting and poker, and such strong existing player bases from most markets they enter that the comparison is not really accurate, and the trend instead for local brands to gain a large share is consistent across Europe.

Spain is perhaps the exception that proves the rule with 888 grabbing a large share, and The Stars Group and bet365 all holding double-digit market-share positions, although there we can see the likes of the Cirsa-backed Sportium brand and Codere beginning to gain momentum. And even in the early days of Sweden’s regulated gambling market we can see the number one app in the sports section of the App Store is Oddset, the sports betting app from Svenska Spel.

Over in Denmark the ex-monopoly operator Danske Spil’s own Oddset app is regularly the leading download in that market and beyond this we see operators with a land-based presence and local identity regularly leading the local markets from Germany through most of Eastern Europe. The rise of more restrictive protectionist regulation is only exacerbating this trend, with Portugal a good example of local firms benefitting from the removal of bet365 and other foreign operators from the market.

But it’s incorrect to say this new protectionism is the only factor at play. The depth of local knowledge required to run a successful online sports betting operation shouldn’t be underestimated, nor should the value of a local trusted brand or the ability to get cash into the system relatively easily. Local market expertise counts for a lot still. And even for those operators who have found success in non-core markets there is frequently an acquired brand or local partnership underlying that success.

Lessons for further afield

And so it feels there is a lesson here for the US, the next big market the industry is looking at with wide eyes and expectations. This is a market almost exceptional local in outlook, with a long history of land-based gambling and tight restrictive regulatory frameworks that favour those operators. It’s also a market that has created nearly all of the biggest disruptors in the technology sector, however, so there is some cause for optimism, but the signs are not immediately positive for the European egaming world even considering some early successes.

GVC, Kambi, SBTech, Paddy Power Betfair and William Hill have all made great starts to the big US invasion, and it’s notable the latter made so much of its US ambitions in a recent trading update despite it being a small proportion of group revenues at the current time. GVC also flagged up the US as a big opportunity in its end of year trading update. Both groups have smartly signed up alliances with major US casino groups and this will be crucial to remaining competitive in those markets.

So far in New Jersey it’s been DraftKings who have captured all of the early momentum and are already being talked up as the new leaders in sports betting, but this is the very early stage of the US market and the major land-based groups are yet, truly, to play their hand as others have noted. Both buy and build options remain on the table for some of these enormous gambling groups and it will be fascinating if some of the big media groups get involved as expected, not least if any of them partner with TSG.

There is the temptation in online gambling to be constantly looking towards the next big opportunity and dismissing the results of the more near-term results. But there are lessons to be learned from Italy and the rest of regulated Europe on how markets with big existing land-based industries can shape up. And this probably needs to be borne in mind as we gaze on the huge new opportunity that is the US market.