Tipping the scales: What Jackpotjoy plc does next

In June 2016, the board of bingo-led firm Intertain sat down to weigh up its options on how best to make a fresh start. The Intertain name had come under fire in a highly sensationalist and arguably baseless report by a short seller, which criticised the firm’s incentive payments to executives and the executives themselves.

The report, which Intertain strongly refuted and said was filled with inaccuracies and non-existent sources, triggered a panicked sell-off of Intertain shares with the value of the company falling by a third in two days of trading in December 2015. This benefited the report’s author, who had taken a massive short position.

CEO John Kennedy Fitzgerald announced his resignation in February 2016, but the damage had arguably been done. It was unsurprising then when the firm announced a few months later it was upping sticks, relisting in London and adopting a new corporate name. Its choice was Jackpotjoy plc (JPJ) after its core bingo brand Jackpotjoy, which makes up around 70% of group revenues and is unequivocally its premium asset.

Take over control

The Jackpotjoy brand is relatively unique in the UK bingo sector thanks to its size and the content-led nature of the business. But until recently a slice of the pie had been going elsewhere – to platform provider Gamesys, from whom JPJ purchased the brand in 2015.

However, in June,  JPJ finished its non-Spanish earn-out payments to Gamesys and took strategic control of the business for the first time. JPJ is now setting the budget and strategy for its core brand and has designs on ramping up the firm’s current 22% UK market share.

The first step was appointing Irina Cornides, a former Mandalay and Intertain executive, as chief executive of the Jackpotjoy division. And one of her first projects was the return of Jackpotjoy to TV screens, with Paddy McGuinness replacing Barbara Windsor as the brand’s chief ambassador.

Jackpotjoy brand CEO Irina Cornides

“I’m confident that the campaign will help elevate Jackpotjoy to new heights and solidify our position as market leader,” Cornides said when launching the campaign. And indeed the importance of TV marketing is growing all the time, as other forms of acquisition become increasingly fraught with danger. Affiliates in particular have come under fire in the UK, with renegade marketers drawing regulatory scrutiny and fines onto the operators they were meant to be.

Affiliates “constitute a small part” of the Jackpotjoy business, according to Cornides, suggesting that recent regulatory changes as well as the new bonus tax  could benefit Jackpotjoy. “We can compete on much more than just sign up offers,” she says. “Jackpotjoy has a strong brand, great software, exclusive games, fantastic support and a unique customer experience.”

X marks the spot

Another early focus for Cornides will be cross selling. According to group CEO Andy McIver, data is currently being loaded from Jackpotjoy, Mandalay and Vera&John to a common data warehouse. The aim is to create an automated system that analyses the data. For instance, the system would be able to identify two players that behave similarly and then direct Player A to games and sites that Player B likes. The data will also help the firm predict lifetime values, churn rate and customer behaviour.

“No matter how compelling a single brand is, players are going to be tempted to try something else,” explains Cornides. “That’s why we are cross selling to players that we’ve detected may be receptive to a new experience. By making them aware of other ecosystem choices, we mitigate the risk of losing them to a competitor.”

The focus on retaining an existing customer rather than acquiring a new one is a core belief at Jackpotjoy, which can feasibly claim to be a market leader in market retention. The firm is clear in its aim of capturing customers for life rather the high-churn approach adopted – perhaps out of necessity – by some rivals.

It means the ARPU is relatively low on the platform at around £89 per month but retention is among the best in the industry – limiting the need to wade into the bonusing battle amid skyrocketing CPAs.

Shifting sands

And while Jackpotjoy has proven itself to be operationally sound, the market around it appears to be playing directly into its hands. Top of the list is the impending bonus tax, where gaming operators are required to pay the point of consumption tax on gross rather than net gaming revenues which therefore includes bonuses.

While the bill containing that change has yet to be passed by the UK Parliament, the Treasury has informed operators to start accounting for it from 1 August 2017.

The real world impact for Jackpotjoy UK is relatively minimal – around a 3-4% hit on margin, according to CFO Keith Laslop – because the firm is relatively bonus-light and instead relies more on brand, TV marketing and content to acquire players. It also operated on a 47% profit margin in Q2, suggesting it has room to absorb such a hit. However, the impact of the tax on the smaller firms in the market, who do rely heavily on bonusing, could be dramatic.

“I think that the new tax on bonuses will be a mid to long term benefit for Jackpotjoy UK,” said Laslop after the firm’s Q2 results. “The UK bingo market is very saturated, with well over 350 brands.

“A lot of those players are very small.  Without access to large marketing budgets, these brands often turn to heavy bonusing to attract new customers. The new tax is rendering this strategy much less profitable. If these players start cutting bonuses, it will likely impact their growth. This is something that Jackpotjoy can benefit from in the medium to long term. ”

Size matters

Another form of regulation yet to be passed could also help Jackpotjoy build market share, in the form of potential restrictions on gambling advertising in the day. Bingo is the only gaming product that can currently be advertised pre-watershed. And while the outcome of the Triennial review is as yet unknown, it’s considered a done deal some new restrictions on advertising will be added. Yet again however, Jackpotjoy’s scale and brand will likely lift it above competitors.

Paddy McGuinness is the brand’s new chief ambassador

“[A ban on daytime advertising] should favour JPJ, given that its brand is established, customer loyalty is extremely high and new client acquisitions mostly derive from social media,” Berenberg’s Roberta Ciaccia wrote in a recent analyst note. Ciaccia added she thinks it is “possible at some stage” the government will increase the PoC (currently at 15%).

“Every taxation change will reduce JPJ’s profitability, but we expect market share gains to counterbalance that (in our view, all of the 350 UK-facing bingo companies cannot possibly clear all of these hurdles),” she writes.

Elsewhere, the Gambling Commission’s recent record fine levied on 888 for self-exclusion failures in its Dragonfish bingo segment will also help shape a market that favours Jackpotjoy.

One senior bingo executive speaking off the record, said the fine was the “death knell” for white labellers. In short, companies that power multiple brands from a single licence, like Dragonfish, risk losing their licence if a customer self-excludes from one site then is able to sign up and carry on playing on another site on the same network.

“I think you’ll see the smaller players turned off and the bigger players get stronger,” says the exec. “Remember GTech closed down their bingo network, Playtech Virtue Fusion are not taking anyone unless there a massive size and they’ve turned a lot of sites off. Dragonfish has got to be having internal questions after the fine. Cozy will have been hit hard by the bonus tax and that’s pretty much the market.”

The exec also points to new data protection laws that come into force next year where players will have to specifically opt-in to be eligible to receive marketing communications. Given the multi-million pound fines threatened for non-compliance, white labellers again face massive risk by running vast networks. “At some point they’re just going to ask whether all the risk is worth the upside” the exec adds.

Ahead of the game

But beyond the potential demise of the hundreds of small brands populating the UK bingo market, some of Jackpotjoy’s larger rivals also struggling. Sun Bingo for instance was third in the UK with a 12% market share and is rumoured to have lost up to 60% of its customers following its migration to Playtech.

Meanwhile Ciaccia points out that Gala and Mecca are “performing below expectations”. It all means Jackpotjoy grew 16% to £103m in H1 with the UK appearing to deliver a consistent circa 8-9% growth across both quarters to £69m. And as McIver pointed out, much like betting exchanges, the bigger a bingo operator gets, the more momentum its gains.

“As you know, we have a 22% UK market share and size matters,” McIver said. “More customers mean a more attractive offering in terms of jackpots, jackpot frequency, the build of progressive jackpots and the most vibrant chat rooms and bingo choice.”

After a relatively tumultuous year then, Jackpotjoy appears to be building towards critical mass. While rivals are struggling to adapt to new platforms and changing regulatory requirements, Jackpotjoy has a new strategic focus and unparalleled resources for marketing. It also has material upside to come in the form of cross-selling, and is projecting at least 10% growth across the Jackpotjoy brands for 2017. It seems then that the spectre of Intertain is fast becoming a distant memory as Jackpotjoy moves on to bigger and better things.