M&A in America: What European firms should be looking for

Europe’s gambling industry was dealt a pair of aces by a widely watched court hearing in the U.S. on Monday, 14th May. The outcome has transformed the prospects of the industry overnight. We have already seen the first of what will be increased activity in significant cross-border mergers, acquisitions and strategic partnerships among the leading European online and US land-based gaming operators as they roll the dice on a massive opportunity.

The decision has opened up one of the largest sports betting markets in the world. In the U.S. today, experts estimate between $150 billion and $400 billion of illegal wagers are placed on sporting events by Americans each year in the black market. Assuming an average win rate for sports bookmakers at the long-term average for Nevada sportsbooks implies the potential for gross gaming revenues of c.$10 billion to c. $25 billion annually should legalised sports betting become fully adopted across all 50 U.S. states.

Now that there is clarity, CEOs and boards of gaming operators will be looking to capitalise on the enormous opportunity. The success they achieve is likely to be based on three key considerations.

First, operators must deliver distribution through multi-state market access. This means gaming operators will be required to attain a license or “market access” through an existing license on a state-by-state basis. This will make large, regional gaming companies which operate in multi-jurisdictions across the U.S. the likely first choice for the major UK/European bookmakers, with smaller, regional casino operators a close second especially in key states.

The next component is ensuring a best-in-class product. Over decades, gaming operators in the UK and Europe have continuously innovated their products, enhanced their algorithms and evolved their trading capabilities to remain relevant, profitable and compliant. Whether it is In-Play betting or Cash-out features, success in the U.S. will require operators to offer customers a product on par with the leading UK/European bookmakers while also delivering risk management, regulatory and responsible gambling compliance.

That said, it will not be as easy as simply airlifting the best-of-breed products in the UK and Europe and dropping them off in states like New Jersey, New York and Pennsylvania. Americans bet differently than many other parts of the world and this will need to be front and centre as operators adapt their consumer offering. In fact, many would compellingly argue that the product which dominates the U.S. market will look nothing like its counterparts globally. No matter the outcome, American operators should not discount the head start their UK and European peers have had in this market and the opportunities that exist in partnering with deeply entrenched operators from across the Atlantic.

Finally, the most critical piece of the puzzle is brand. If online gaming in the State of New Jersey is a test case, UK/European operators have learned their lesson. Americans love and trust brands they know. Nearly 75% of the online gaming market in New Jersey, which includes online casino and online poker, is dominated by the local brands such as Golden Nugget, Borgata, Tropicana and Caesars. These brands have dominated on name recognition alone, with only one European brand (Betfair) in the top 10 by market share.

Although incredibly valuable in the markets in which they operate, brands like Bet365, Betfair, Betsson, Bwin, BetVictor, Paddy Power, SkyBet, Stars, William Hill, Unibet and 888 will have little-to-no connection with the majority of Americans. On the contrary, brands like ABC, Caesars, CBS, DraftKings, ESPN, FanDuel, FOX, MGM, NBC, among others, already have a home in the American psyche when it comes to sports and/or gambling. Add the word “Bet” to any one of these brands and you could have a formidable nationally-recognized sports betting brand literally overnight.

First mover advantage will be crucial if UK/European gaming companies are to establish a position in a market that could materially impact their bottom line. With success hinging on the ability to deliver broad distribution, world-class product and a nationally-recognized brand we can expect corporate activity to follow. Leading gaming companies will now engage in a frenzy of deal activity, big and small, including simple market access deals, complicated joint venture partnerships, transformative acquisitions, mega mergers and everything in between.

In less than 10 days from the SCOTUS decision, three cross-border transactions have already been announced.

Speed dating is over … it is time to pick your partner and place your bet.

Analysis: the action to date

On 16 May Churchill Downs Incorporated (CDI), a US-based racing, gaming and online entertainment company anchored by the iconic flagship event – The Kentucky Derby, announced a long-term agreement with SBTech, a leading B2B gaming technology supplier, to provide SBTech’s integrated technology platform for sports betting and online gaming solutions across the US.

On 17 May Rush Street Interactive, an affiliate of Rush Street Gaming, a US-based gaming company with casinos in New York, Pennsylvania and Illinois, entered into a partnership with Nasdaq Stockholm-listed Kambi Group plc, a global supplier of sports betting services, to integrate Kambi’s sportsbook technology into Rush Street Interactive’s proprietary online gaming platform.

On 23 May Paddy Power Betfair plc, one of the largest online gaming powerhouses in the world, announced a definitive agreement to combine its US business (Betfair US) with FanDuel, a leading US daily fantasy sports operator with one of the most recognised brands among sports enthusiasts in the US. The combination creates the industry’s largest online gaming company in the US, with a large sports-focused customer base and wide-reaching nationwide footprint.

Ramy Ibrahim is a managing director at investment bank Moelis & Company, and specialises in leisure and gaming.