32Red exploits "sweet-spot" in UK market

32Red plans to significantly increase marketing spend in 2016 as the operator looks to exploit what chief executive Ed Ware (pictured) describes as a “sweet-spot” in the UK market.

Speaking to eGaming Review following the release of its preliminary results last week, Ware said the operator has been able to benefit from a change in market conditions prompted by the Point of Consumption (PoC) tax, which was introduced in December 2014.

Many commentators expected 32Red to struggle as a result of the 15% levy, however, the operator last week posted a 51% rise in net gaming revenues and is also expected to post a similar level of EBITDA compared to 2014, despite having to pay roughly ?4m to the UK Exchequer.

“There is a scenario whereby, due to the size and shape of our business, the PoC regime may actually be of benefit to 32Red because the market dynamics will change enormously,” Ware said.

“There will be less players in the market while the bigger players may be less prone to throw their marketing spend around as they’ve got to keep their profits to offset the tax – and I’ll say that’s what has happened.”

Ware said the 32Red business has found itself in something of a “sweet-spot” whereby more than 200 brands of a smaller size have left the UK market as a result of licensing requirements and PoC tax, while larger operators have either held steady on marketing investment or reduced spend to offset the levy.

“These factors have definitely helped us either indirectly or directly”, Ware said. “It’s not that the bigger players don’t want to grow UK market share but it’s very expensive to go from 15% to 20% or 20% to 25% as acquisition marketing then gets really expensive – it’s a judgement call.”

As a consequence, 32Red has pounced on the opportunity presented by the change in environment and increased its marketing spend from ?8m in 2014 to ?13m last year. And this is likely to grow to approximately ?20m across the next 12 months.

The firm also believes it is investing the cash more wisely than before and has introduced an improved method of monitoring the effectiveness of its spend – having moved away from CPAs to focus on ROI.

In 2014, 32Red’s ROI was roughly two-and-half times marketing spend and Ware said 2015 was on track to exceed that multiple.

“And this is despite the fact we spent more money and as a rule you’d expect the ROI to fall as revenues increase,” Ware said. “So the signs are we can continue to grow marketing spend while still maintaining our ROI levels. I believe we have a long way to go on the curve before we see a decline in our ROI metrics,” he added.

Earlier PoC concerns had seen the 32Red share price dip to as low as 45p in March but, having seemingly proved its post-PoC business model, now stands at a much more healthy 149p.