Igaming Focus: From ground control to total control By Jake Pollard, CDC Gaming Reports April 12, 2022 at 10:00 am The B2B gaming space is fraught with pitfalls, but Pala Interactive, and most recently IGT and iSoftBet, once again show how important tech control is to U.S. corporates. At the highest level, the online betting and gaming space in the U.S. is about control: Control of the technology, of the value chain, of the infrastructure that underpins all the different components and enables them to interact with each other and offer players an interface that works seamlessly and is up at all the key moments of peak traffic and intense action. In the U.S., the ultimate objective for companies like DraftKings, Caesars or Penn National Gaming is to control 100% of the revenues generated by their online platforms — and that, to a large extent, is why Boyd Gaming announced its agreement to acquire Pala Interactive for $170m a couple of weeks ago. Vital cog in the machine Boyd Gaming differs from the operators previously mentioned in that it is a gaming operator first and foremost and that is also Pala’s focus. Its new acquisition means it now has its own casino, poker and social gaming platforms, but also and importantly from the perspective of owning all the key components of an igaming platform, a player account management (PAM) system. In many ways the PAM is the vital cog that enables an online operation to function as it runs all payments, customer and retention management campaigns, loyalty and bonusing programs. Pala is licensed for B2B services in eight states and has consumer-facing operations in New Jersey and Canada, and its most prominent client is Kindred, which operates the Unibet brand. But those details are not what interested Boyd when it agreed to the deal. As Boyd Gaming CEO Kevin Smith commented: “Given our nationwide geographic distribution, significant database and established loyalty program, it makes sense for us to pursue a direct approach with our igaming operations.” Nationwide opportunity For Smith, Boyd’s brick-and-mortar reach and ability to coordinate an icasino operation with its regional outlets to enact a true omni-channel operation, in the same way BetMGM or Caesars are doing, is where the opportunity lies. As a result, Boyd will transfer its icasino operations from FanDuel and they will be fronted by its Stardust casino brand, but OSB will keep being operated by the bookmaker, in which Boyd has a 5% stake. The fact that all those brands have sizable networks of land-based casinos also means they have the assets with which to maximize their reach towards their players and easily cross-sell across online and offline resorts. This point was also made by Bobby Soper, International President at Mohegan Gaming & Entertainment at ICE this week. Soper said that as U.S. gambling brands launch their omni-channel strategies, land-based casinos would have to “tie their land-based products to online verticals through loyalty programs and cross-over offers”. He added: “Players like elements of both, over time there will be more integration between online and land-based experiences.” GAN’s tough outlook GAN meanwhile has had a tough few weeks. Its results published mid-March were below expectations, and CEO Dermot Smurfit said this was because “the current state of the US B2B market is having a short-term impact on our business.” What Smurfit meant is that operators have been scaling back on marketing and recruiting less players, which affects GAN’s anticipated share of revenues from those operators. Market fragmentation has also been slower to evolve than the group expected, and states have not regulated online casino as quickly as sports betting legislation. GAN has been unlucky in that Churchill Downs, its biggest B2B client, decided to cease all its online betting and gaming in the U.S. With regard to market fragmentation, however, Smurfit is banking on the many local and tribal casinos that are or might become GAN clients to drive online sports bettors and casino players to their websites and provide meaningful long term revenues. But this hasn’t happened so far and it’s unclear when or if it will. Suspicious minds There are a number of reasons for this. It’s not a secret that those operators generally don’t look kindly on online gambling, and even if they now accept that further online regulation is inevitable, the priority of smaller tribes in particular has always been their brick-and-mortar resorts. And if they had it their way, that is how it would stay. And while online casino might have more appeal, for obvious reasons they have no particular wish to see it regulated in their states, while a major tribal brand like Mohegan has less to lose than a small or midsize tribal casino in the Midwest when it comes to entering the online gambling space. Thus the predicted wave of icasino regulation that was set to sweep through the country is not happening, and there is no certainty that it will ever happen. Bad deals for suppliers On the B2B side of the business, the structure of many of the deals struck by smaller casinos or tribes oftentimes is not to a supplier’s advantage. Again this is because those operators are not overly focused on developing consistent online revenue streams in the same way and with the same focus digital brands like Rush Street Interactive, Pointsbet or even gaming-focused brands like Resorts would be. In addition, online sports betting is not a vertical they are particularly interested in or that they plan to market in a significant way. In practice this means they will have a sports betting tab on their website but will not put much marketing effort behind it. The revenue agreements will also often seem highly generous to suppliers. For example, the casinos might agree that 90% or more of the revenue share will go to the suppliers. The reality, however, is that the tech providers are left with all the costs and risk, while the operators have little incentive to seriously get behind the project since they have virtually no skin in the game; and trying to compete against a FanDuel or Caesars might seem a bit pointless. Nonetheless GAN should not be written off because of one set of bad results. The group needs to execute better on its strategy, but as Pala and iSoftBet have shown, bigger operators or suppliers want their own tech stacks — and that makes GAN an attractive target acquisition for companies wanting to achieve total control.