The great tech tussle: Are operators rushing into acquiring tech platforms in the US?

The truly American ethos that “everything is for sale if the price is right” really embodies the States’ spirit for business, and certainly rings true in today’s online gaming industry in the US. If someone were to travel back in time 10 years, walk into former William Hill CEO Ralph Topping’s office at the company’s London headquarters and tell him the British brick-and-mortar betting empire would be bought by one of its clients in the US and have its European and UK businesses sold off, he would have laughed them out of the building. And yet here we are today, waiting on casino giant Caesars to hash out the terms of its $3.7bn bid for William Hill as the fate of its European and UK businesses remains uncertain. DraftKings, Bally’s, GAN, and Wynn Resorts have all followed Caesars in acquiring betting platforms to support their lofty US ambitions. And there is no doubt that DraftKings stock’s meteoric rise is largely due to the operator’s efforts to own its entire tech stack. “We view ourselves as being able to differentiate over the long term by being the most innovative and being able to really lead in terms of having the best product and the best offering in the market,” DraftKings co-founder and CEO Jason Robins told EGR in a recent interview. “The thought of trying to do that while relying on a third party, regardless of who it was, didn’t make sense to us because even though it was a great partnership, Kambi, and any third-party provider, is going to have to balance what they prioritize across their whole client base. They never could and never should do 100% of what we say and ignore everyone else. So, we were never going to have the degree of control and make sure that things we wanted to do were the only important priorities,” he insisted. The online gaming industry has long been plagued by the age-old question of whether it is worth bringing one’s tech entirely in-house. But it appears the US facet of the sector has staunchly decided that it is a necessary requirement to win the great North American sports betting battle. While the consensus seems to be that those intending to make it into the top tier need to be able to differentiate on product, some stakeholders believe operators can be selective with what they bring in-house, as long as they maintain control of the customer-facing front-end technology. Kresimir Spajic, an industry veteran and former SVP for online gaming and betting at Hard Rock International, highlights the leading operator and majority owner of FanDuel as an example. “Flutter owns almost all its technology, except the sports betting engine, and they build their own trading tools on top of this. These companies are not solely focused on the US as they operate globally and sometimes the tech is not separated across different markets. They have some historical hardware that needs to be taken into consideration,” Spajic notes. “The future for national leaders and national players is to have almost full technology in-house with maybe only strategic pieces outsourced, either due to historical reasons or some specific circumstances within the company.” Similarly, president for Rush Street Interactive (RSI) Richard Schwartz told EGR North America in November that many industry folks underestimated the power of a good proprietary Player Account Management (PAM) system to differentiate their offering. “I feel the quality differences between platforms is under-appreciated as it seems many in the industry feel like all PAMs perform similar functions so will perform similarly,” Schwartz said. RSI’s sports wagering product, BetRivers, is powered by Kambi’s betting engine, as is Penn National Gaming’s (PNG) Barstool Sportsbook, which is quickly stealing market share in Pennsylvania and Michigan. Barstool Sportsbook has made rapid market share gains despite it offering up largely the same betting lines as other Kambi-powered peers. But Omer Dor, CEO for AI-driven odds compiler Sports IQ Analytics, is quick to remind us that PNG is the exception and not the rule, and its branding carries huge value among US sports fans. Long-term, Dor says, the real differentiator for betting operators will be in personalized products and services, once the battle of the brands and promotions has ended. Despite the potential for a bidding war over the remaining platform suppliers, PNG CEO Jay Snowden told analysts in January that he was in no rush for PNG to acquire its own resources. “I have to say I could not be happier with our partners at White Hat Gaming and Kambi,” Snowden said. “It doesn’t mean we won’t ever think about being more vertical on the tech stack down the road, it just means there are pros and cons to both [routes] and we feel really good about being the most important client they have in the US. We move their needle and we have their attention. We have a lot of great resources and the relationship is in a great place. “I don’t feel like we have a gun to our head to figure that out in the next week or month, we’ve got time and we’ll be thoughtful and judicious if we decide to do something because we feel we havea lot of great options in front of us,” Snowden said. Comparatively, DraftKings, Caesars, Bally’s, Wynn, and GAN have all moved relatively quickly to secure platform acquisitions. Sports IQ Analytics agrees that the industry is still incredibly nascent, with Dor suggesting legal sports betting is barely in its first inning. “We’re still in training camp,” he admits.

Lessons from across the pond

While industry consolidation across the Atlantic in the UK has transpired at a somewhat steadier rate over the years, the opportunity is believed to be so great in the US that legacy casino operators are moving quickly and are willing to use significant financial firepower to back up their ambitions. But former SimpleBet and Kambi executive Francesco Borgosano warns that lessons from Europe have taught us that platform integrations between two different businesses can be long-winded and extremely costly when considering inevitable complications. “To be honest, I think the industry is a graveyard of failed integrations when it comes to platform technology,” Borgosano remarks, having spent time at Ladbrokes and The Stars Group while they pursued M&A and large-scale tech integrations with Gala Coral and Sky Betting & Gaming respectively. “There are two main challenges and reasons why those integrations are very difficult,” he adds. “First, you are acquiring a technology that has been built and designed for a different use case and for a different team. Then there is the learning process of doing a deep dive into the tech and really understanding all the details, and how that platform has been designed and architected. It’s a really massive effort.” In Borgosano’s eyes, product differentiation is not reason enough to cause such a significant disruption to the business. “Everybody is obsessed with the idea of product differentiation and they believe that acquiring your technology will unlock that differentiation, which is true to a certain extent, in the sense that the providers out there don’t offer that [beyond the standard] level of customization that operators expect from them. But that reason on its own doesn’t really justify the acquisition of a platform,” he says. “In some cases, that can actually backfire and can be a risky and expensive move that doesn’t really pay off in terms of return on investment. “If you look at what happened with Stars Group and Sky Bet, the former acquired the latter in 2018 and over the course of two years Flutter acquired The Stars Group, which was still involved in that integration with Sky Bet, so that was never actually completed because now they are migrating to Flutter,” he reflects. Although these experiences are valuable to learn from, Borgosano acknowledges that legacy casinos are facing unique situations in having only operated land-based technologies and services in the past. “Bally’s and other casino groups don’t necessarily have the domain knowledge, so now they’re acquiring digital assets but there is a mismatch in terms of core skills and competency of the team that is acquiring that technology. I understand why certain decisions are being made and time will tell but I think some of those moves may be terribly risky,” Borgosano warns. Another element steering the desire for platform acquisitions is pricing in sports wagering. As US consumers become more betting savvy, they will no doubt start to expect more varied lines and sports markets which those operating a third-party betting engine cannot provide without their own trading and risk management team. But from experience in other markets, this user behaviour is not likely to happen imminently. For now, bettors are distracted by branding and promotions, but Spajic believes they will mature once operators shift their focus from geographical expansion to product development and pricing. Spajic says: “Once the US is much larger and many more states open up and mature in five or six years, operators are going to start generating more customers that are more experienced and are smart enough to understand and compare pricing and products. I would say it will be two or three years before the pricing is really going to matter.” However, Borgosano does not expect pricing to play a significant role in the US: “Something that came up quite a few times when I was working in the US was this concern within operators that the pricing may not be that accurate. There is a concern around the accuracy of pricing but not different pricing, just the quality of it,” he says. “Though I don’t think it’s going to be a major factor that will differentiate operators because at the end of the day price tends to level out in a mature market and they are all very similar.”

Who’s next?

Nevada brick-and-mortar stalwart Las Vegas Sands (LVS) is the latest firm to throw its hat into the online gaming ring. Former CEO and founder Sheldon Adelson lobbied for years against the legalization of online gambling before and after online gaming launched in New Jersey in 2013. Yet in its Q4 2020 earnings call, LVS’ new CEO, Rob Goldstein, told analysts the operator was “exploring opportunities [and] looking at what might be out there,” subsequently sparking the rumor that it was courting London-listed online operator 888 Holdings. And while hearsay spreads quickly in online gambling, it is often the case that there is no smoke without fire. City analysts Peel Hunt put out a note in January suggesting that “888 is not its only option, but it would bring market-leading know-how, technology, and a great brand, for Sands China in particular.” 888 is one of the few B2C operators with its own tech to not yet have been snapped up by a larger group. It ended 2020 on a high as group-wide revenue superseded expectations, and news in January that US Court of Appeals for the First Circuit deemed that the Wire Act only related to sports betting left the operator in a good position to take the lead in the case of widespread legalization of online poker in the US. 888 has not spoken publicly about the LVS rumors and, although it has never hinted at the possibility of a takeover, it certainly could be swayed for the right price. “If they want to talk to us, they know where we are,” head of US for 888 Yaniv Sherman recently told EGR NA. Bally’s has continued its acquisition spree to include DFS platform Monkey Knife Fight and free-to-play customer acquisition specialists SportCaller, to complement the newly formed Bally’s Interactive division. “It feels to me like Bally’s’ is a strategy that could become highly successful,” Propus Partners’ Marc Thomas notes. “They’re not only buying pure tech; they’re looking outside for providers of additional content or services that can be bolted on. In this capacity, I think suppliers who are within the sports betting ecosystem, whether they have products live in the US or products that can be shifted to work in the US, will become attractive as well.” But in the midst of this landgrab, Thomas insists there are smaller betting suppliers that very much want to attack the market by themselves and build out organically as they stand to gain a significant piece of the pie once the US market matures. The value of these independent companies will continue to rise as demand grows and the selection shrinks. “This really is a seller’s market at the moment. If you are one of the lucky few that has got a platform that works, or you’ve got a product or service that is – or can be – US-focused, and you’re looking for investment or a sale, there’s probably five or six interested parties rather than two or three. You can get them all in a bidding war and you’re probably going to be adding a nought onto your value – if not more,” Thomas adds. One unnamed operator new to the US has gained considerable attention from its competitors for owning its own tech. Although it is adamant it will take on private investment and tackle the market alone, an executive for the firm speaking off the record said Caesars had expressed interest in investing. “Last year we finalized an investment round that we opened up mostly for existing investors, but we see a lot of interest from investors in the US, too. We spoke to a few companies that do investments in the space and they said that we are one of the last independent assets when it comes to sports betting in the US because other firms are aligned with bigger companies already,” the exec reveals to EGR NA. Outside of merging with larger groups, companies on both sides of the supply chain are also faced with the opportunity to go public via a SPAC and fund growth internally. There is no shortage of industry SPACs as a handful have materialized in recent months, often supported by Wall Street pros. The race is well and truly on and the appetite for expertise is only growing. Spajic points out that with Covid-19 teaching businesses how to operate truly remotely, the scope for securing talent has expanded and businesses can explore further afield, as Wynn has done with its acquisition of UK-based social betting offering BetBull. Propus Partners’ Thomas adds: “If you look at why these decisions are being made, it’s a bit like kids in a sweet shop or the bar is closing. In both of those situations, decisions are sometimes made which might not turn out to be well thought out or correct. But when an inch can generate millions, if not billions, of revenues, then paying over the odds for very small increases in product or services might turn out to be the best thing in the world,” Thomas concludes, admitting that, ultimately, there is no one-size-fits-all approach.