Bwin,PartyGaming

The merger of Bwin and PartyGaming makes perfect sense in the current gaming climate. Markets are opening up across Europe ““ and potentially even in the United States ““ but the increased access to legal markets comes at a substantial cost.

If you want to operate in these new territories then there are going to be huge set-up, legal and compliance costs and scale is crucial. And to top it all off, working under a government-licensed regime is going to severely squeeze margins as the taxman takes his considerable cut. Why have Party and Bwin each paid an army of consultants and lawyers when they could have simply merged and shared those costs?

For smaller operators the decision to enter the French or Italian markets may eat up all their annual profits or even more, with no guarantee of a decent return. For the newly combined £2.5bn entity it is not exactly a rounding error if things go wrong in one particular territory but it’s not going to put them out of business either.

The key thing is that Bwin/Party is going to be on top of any shopping list of any government inviting private operators for a chat about online gambling in their country. By putting two of the largest operators together into one entity, they become a company that is automatically on every shortlist for a gaming operator contract. They also become the obvious number one acquisition target for Harrahs and its Las Vegas rivals should online gambling become legal in the United States.

For 888, Sportingbet, Unibet and countless other mid-sized operators, this is going to be a wake-up call to their boardrooms. Gaming companies are often complemented for their ability to be nimble and fast moving in comparison with their rather slothful rivals in the ‘real’ world of gaming. But that simply won’t be good enough. I suspect the theme for the next couple of years will be one that worried gaming executives in the past ““ size definitely matters.