Month: August 2022

Revenue was up by 1.1% compared to Q2 2021. LeoVegas said that excluding the Netherlands, the revenue was up 9%.

Reflecting on the quarter, LeoVegas said MGM’s acquisition of the business is going “according to plan”, and that the acceptance period for the deal will end on 30 August.

MGM Resorts agreed to acquire LeoVegas in May, in a deal worth an estimated $607m. This is going ahead, despite the Swedish Economic Crime Authority launching an investigation into insider trading of LeoVegas’ shares the following month.

“In the beginning of May, US company MGM announced a takeover bid for all shares in LeoVegas,” said Gustaf Hagman, president and CEO of the operator.

“It seems likely that the bid will be accepted, which would lead to the company’s shares being delisted from Nasdaq Stockholm later in the year,” noted Hagman, while clarifying that LeoVegas’ US expansion had been put on hold until the MGM deal was accepted.

“The expansion project in the US and New Jersey was paused at the end of the quarter due to the ongoing bid and the initiatives and obligations that MGM already has in the US market,” said Hagman.

“The assessment is therefore that the most responsible course of action is to pause the expansion until we know whether the bid on LeoVegas will be accepted. If a launch is made possible in the future, we will be able to resume the US expansion with a short start-up period.”

Also during the quarter, LeoVegas launched in Ontario when its market opened on 4 April.

Hagman added that LeoVegas had applied for a licence in the Netherlands, and that the operator is planning to launch there in autumn. LeoVegas withdrew from the Netherlands in September last year, to comply with rules outlined by the country’s regulator.

Negative impact

Looking at its Q2 results, LeoVegas said that its customer base – specifically its new depositing customers (NDC) and returning depositing customers (RDC) – was “negatively impacted” by its withdrawal from the Netherlands.

The business had 158,149 new depositing customers, down by 10.9%, while returning depositing customers ticked slightly up.

Cost of sales were €15.3m for the quarter, down by €1.5m year-on-year.

Gaming duties came to €17.3m, leaving the gross profit at €65.2m, similar to the figure a year earlier.

Marketing expenses made up the highest operating cost for the quarter at €31m, though this was a decrease of 17.4%. Other operating expenses came to €17.2m, while personnel costs were €16.1m. After considering these costs, and taking into account €4.2m and €306,000 of capitalised development and other income respectively, earnings before interest, tax, depreciation and amortisation (EBITDA) was €5.3m, down 45.1% year-on-year.

Following depreciation and amortisation costs at €4.8m, the operating profit was €570,000. Financial costs and profit shares after tax at a combined €773,000 brought the pre-tax profit to a loss of €203,000.

Income tax totalled €204,000, bringing the total net profit for the second quarter to €407,000 – down by 62.4%.

For the six months ended 30 June, revenue was €196.4m, an increase of 1.5%.

Gross profit is €131.7m for the half year, while EBITDA has been halved year-on-year from €43.3m to €20.2m.

Following financial losses and income tax, the total net profit for the half year is €4.6m, down by 70.5%.

Instant tickets remains Pollard Banknote’s largest business, but increases in the prices of key inputs such as paper, ink and freight, coupled with ongoing significant demand from lottery customers, have led to increased spending.

Pollard Banknote said the nature of instant ticket contracts includes longer terms, averaging at four years, with primarily fixed prices for the entirety of the term, which in turn makes it difficult to pass on large input cost increases immediately.

Co-chief executive John Pollard said one strategy to offset costs will be to increase selling prices during contract extensions and requests for proposals (RFPs) as they come up for bid, but as these contracts do not start immediately, it could be some time before an impact is seen.

Furthermore, Pollard Banknote noted that instant ticket production volume in Q2 fell short of budget by approximately 8-10%. This was put down to continuing challenges recruiting and retaining entry level staff, increased staffing challenges with a higher number of call-outs and absences, and a higher number of unexpected mechanical and production issues.

“Our sales volumes were also lower than budget reflecting the lower production volume, further negatively impacting our margins,” Pollard said.

“We are focused on increasing our production volumes going forward as this is one of our best levers to help mitigate the higher input costs associated with our instant tickets. We believe a number of initiatives we have implemented will address the issues experienced in the second quarter and expect our production numbers to be higher in the third quarter and beyond.”

Breaking down the Q2 performance, revenue was up 2.2% at $115.9m (£95.0m/€112.7m), with the provider highlighting particularly high demand for both its charitable gaming and egaming operations.

The provider also noted its share in revenue from the NeoPollard Interactive joint venture with NeoGames, which also reported its results this week, more than doubled from $2.5m to $5.1m.

Cost of sales increased 4.6% to $94.7m, while administration and selling expenses were also up year-on-year.

After also taking into account finance-related costs and tax, it ended the quarter with a net profit of $2.5m, a 67.5% drop from $7.7m in 2021. In addition, adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) slipped 16.4% to $18.9m.

“We remain very excited about our business and the opportunities before us,” Pollard said. “While it will take time to absorb our unprecedented key input cost increases and return our instant ticket margins to their historic levels through higher selling prices, we have already seen the market accepting higher pricing during contract extensions and RFP’s and we believe this will continue. 

“And our remaining businesses including charitable gaming, egaming systems and ilottery remain extremely strong with expectations this will continue to provide growth in the future.”

Meanwhile, Pollard Banknote has reappointed Jerry Gray as an independent director. Gray previously served as a director of Pollard and its preceding businesses from the time of the initial IPO in 2005 until his retirement in 2021. 

He has been reappointed to the board of directors on an interim basis until a permanent director is elected. This is anticipated to occur at the annual general meeting in May 2023.

TalkSport Bet will integrate BetVictor’s sports betting software and TalkSport editorial branding.

The new brand will also be featured on TalkSport show sponsorships, advertising and affiliate partnerships.

“We’re delighted to be partnering with such a well-respected sports brand, ” said Brent Almeida, CCO of BetVictor. “TalkSport Bet will take the great things about TalkSport radio and add a betting experience to offer players more ways to enjoy sport and engage with their favourite sporting events.”

“We are fully committed to creating a safe and entertaining gambling experience with everything a sports fan could want in a betting brand.”

This is BetVictor’s most recent white label deal, following on from partnerships with Parimatch, Heart Bingo, and BildBet- its venture with newspaper Bild in Germany.

“TalkSport is the world’s biggest sports radio station with a loyal community of listeners,” said Gareth Williams, betting and gaming director at TalkSport. This partnership showcases the power and reach of the talkSPORT brand across its audio and digital properties.

“As well as the potential for on-air commercial partnerships, talkSPORT BET will be able to access our digital audiences through creative online activations such as odds integrations and betting widgets.”

The new body will take over following the passage of the Casino Legislation Amendment Bill 2022 yesterday (10 August).

This law outlines a number of new requirements for the state’s two land-based casinos, including enhanced anti-money laundering checks, and outlining exactly what type of training is expected for staff.

“This marks a new era in the way casinos in NSW are allowed to operate, with new comprehensive measures targeting key issues such as money laundering and other criminal activity.” State Minister for Hospitality and Racing Kevin Anderson said.

“This essential reset will give the people of NSW confidence that the State’s casino operators will be held to the highest possible standards.”

The new rules will be enforced by the NICC, rather than the New South Wales Department of Liquor and Gaming.

NSW Liquor and Gaming said that the body “will have unprecedented powers to monitor casino activities, and take strong disciplinary action against operators and individuals who engage in misconduct”.

The first task for the regulator will be to consider the findings of a review into The Star Sydney, relating to anti-money laundering procedures and practices, as well as connections to junkets with alleged criminal ties. The body will ultimately decide on the kind of regulatory action that may be taken against The Star. The Star faces a similar review in Queensland.

At the same time, the NICC will also review the opening of gaming activity at Crown’s resort in the state. Crown faced a number of reviews of its own in recent years for similar reasons, with the review in New South Wales leading to a delay in opening the casino at its new Sydney location as it was found to be an unsuitable licensee. However, it ultimately gained approval in June to begin gaming operations for VIP customers last week.

Although it did not specify which company it was aiming to acquire, Acroud estimates the potential acquisition would contribute €9m to the company’s revenues and €4m to the business’s EBITDA annually.

The business noted that this would have the effect of increasing Acroud’s earnings per share.

Acroud said the deal would also help it hit other financial goals by improving profitability, increasing cash flow and reducing Acroud’s leverage going forward.

It added that if the acquisition materialises, Acroud will invest approximately €1m in shares and €4.5m in cash.

Next Steps

Robert Andersson, company CEO and president, outlined the acquisition plans.

“To complement this strong organic growth, we are currently considering an accretive opportunity to acquire 60% shareholding in an affiliation and media company, comprising of affiliation assets and technology within the igaming market.”

Andersson continued by expanding on the deal’s potential synergies with the current business model.

“The transaction will further solidify our efforts to develop a low-risk, high-growth business based on intelligent solutions, as the acquired assets leverage intelligent media buying capabilities (IMBC) rather than relying on SEO algorithms.”

“I am happy to share that the M&A process is progressing well. The transaction is subject to final board approval and the parties entering into a definitive purchase agreement.”

Acroud has made a number of acquisitions of the last few years, notably with PMG Group in 2021, in that case purchasing their news and direct comparison operations as well as its igaming B2B division.

Q2 growth

In financial terms the business saw growth across the board, with year-on-year revenues increasing from €6.2m to €7.2m for the three-month period ending June 30 – a 16.1% increase.

Earnings before interest, tax, depreciation and amortisation (EBITDA) in the three-month period, adjusted to ensure comparability, was €1.8m compared to €1.5m the previous year, a 20.1% increase.

Acroud AB have stated their goal was to have their total EBITDA for the year fall between €8m and €10m.   

Corvex made a splash when it announced it had acquired a 10% stake in Kindred, and then immediately called on the board to pursue a sale.

iGB understands that the Kindred board did then reach out to other operators and private equity businesses, but were unable to find an interested buyer at the current price.

Sources told iGB that prospective buyers viewed Kindred as too slow to adapt to an increasing focus on locally regulated markets.

Now, Corvex has upped its stake in Kindred to 15.0%, overtaking fellow investment business The Capital Group to become the largest Kindred shareholder. 

With its larger stake, Corvex said it now intends to take part in the process of nominating Kindred directors.

“As Kindred’s largest shareholder, we intend to formally express our interest in participating in the nomination committee, which we understand will be formed at or shortly after the end of August,” Corvex founder Keith Meister said.

“We look forward to working on the newly comprised nomination committee with representatives of Kindred’s other largest shareholders and Kindred chairman Evert Carlsson. In our view, the committee should seek to nominate directors with a mandate to maximize long-term, risk-adjusted value for all Kindred shareholders.”

Meister also reiterated his belief that a sale would make sense, and outlined that he would push to elect a board that also holds that belief.

“We are excited to be a significant investor in the company and believe that Kindred is worth substantially more than the value implied by the current trading price for Kindred’s shares,” he said.

“As stated in our 4 May  press release, we continue to believe Kindred should study all potential strategic alternatives, including a sale of the company. A board that is fully informed and aligned with shareholder interests will be best positioned to weigh potential alternatives against the company’s status quo business plan.”

Duelbits launched in 2020 and has a gaming licence from Dutch Caribbean island of Curaçao.

In Great Britain, where cryptocurrency gambling is not permitted, it is allowed to operate on a white label licence held by TGP Europe, a frequent white label provider for English football sponsors. However, this site is not currently active. Great Britain is the only European market in which DuelBits is licensed.

Its site is available in some other European countries, though it is also not licensed in these jurisdictions.

The deal will allow for Duelbits branding on pitch-side LED boards during games at the club’s home at Villa Park despite the inability of local fans to access the site.

Aston Villa described Duelbits as a “crypto casino” in announcing the launch, and cited the url of the Curaçao-licensed crypto gambling site, despite its crypto products and the site in general not being permitted in Great Britain.

Nicola Ibbetson, chief commercial officer at Aston Villa said she was “pleased” with the new partnership.  

“It was clear from our first conversations that their ambition to challenge and to grow matches our own. We look forward to working together this season,” he said.

Marco Pinnisi, chief marketing officer at Duelbits said the business was determined to work with well-known clubs.

“We felt it was the right time to give the brand the visibility it deserved and we couldn’t see a better way than sponsoring one of the most well-known Premier League clubs. This partnership underlines Duelbits’ desire to work with the most prestigious sports brands.”

Aston Villa have previously experimented with cryptocurrency through the launch of Socios-powered “Aston Villa Token”. More than 70% of the token’s value has been wiped off from its peak in December 2021.

Aston Villa has previously been sponsored by other gaming operators including three Asian-facing brands: W88, LT and OB sports. All three held white-label licences for the GB market, but were more popular in Asia.

The revenue figure for the period – ended June 30 – was up by 27.1% when compared to the same quarter a year earlier.

During the quarter, Mohegan broke its quarterly record for adjusted earnings before interest, tax, depreciation and amortisation (EBITDA), which came to $120.0m. Raymond Pineault, CEO of Mohegan, says this was because Q3 2022 was the first quarter free of Covid-19 restrictions for its Niagara location in Canada since the pandemic began.

Read the full story on iGB North America.

Dopamine is responsible for the pleasure arising from any ‘feel-good’ activity, such as exercising, music and indeed gaming. In video games, dopamine is released when players receive a reward for participation and/or skill, such as achieving a kill, scoring a goal or opening a loot box. Casinos know this mechanism works in gambling, through hitting a jackpot or hearing the sound of a slot machine. 

One crucial question we ask when looking at both gaming and wagering products is “Will the product be exciting for the customer? Is there a thrill?” In gaming, that thrill might be large jackpots or small but frequent rewards. There has to be a feature keeping the player engaged.

Changing the game

There are 3 billion video gamers globally and 54% of frequent gamers believe that gaming helps them connect with their friends, according to a survey from the Entertainment Software Association (ESA).

The first PlayStation was released in 1994 and the first Xbox followed in 2001. Runescape was released in 2001, paving the way for the growth of MMORPG (Massively Multiplayer Online Role Playing Games), allowing millions of players to connect, chat and compete together. 

When PC and console gaming increased in popularity in the 1990s, developers derived their entire revenue from the upfront sales of the games and no additional content was added to the game after its initial creation. CDs were typically sold for $40 (£32.70/€38.70) and that was the end of the relationship between the player and the game developer.

As technology advanced, online stores emerged, such as the Xbox Live Marketplace, where gamers can complete software updates, buy additional games and make in-game purchases. 

Technology advances combined with the popularity of the MMORPG to support the proliferation of ‘live services games’. In live services games, new content is added to a game post-launch to increase the amount of time and engagement a player has with each game, whilst significantly increasing the game developer’s revenue per player. Companies recognised the significant revenue opportunity in live services games as early as 2010. 

“I used to buy a whole bunch of titles and play them for three weeks and move on and never look at them again… the business model needs to evolve and recognise a little bit that there’s a big service component.” – John Riccitiello, Electronic Arts’ ex-CEO (2010).

Live services games, such as Fortnite and GTA V, introduce new weapons, skins, maps, player clothes, missions, NFTs… The possibilities are endless. We touched on the incredible value of the ‘virtual worlds’ in games in our August 2021 newsletter. For example, nine years after its 2013 launch, GTA V (owned by Take-Two Interactive) continues to generate over US$250 million of revenue per quarter.

Electronic Arts (EA): it’s in the game

Founded in 1982, EA is one of the largest digital entertainment companies, delivering games, content and services to 580 million active players, across consoles, PCs, mobiles and tablets. The US$36 billion company owns a portfolio of the highest-quality brands, including Apex Legends, Battlefield, FIFA, F1, Madden NFL, Need for Speed, Plants vs Zombies and The Sims.

 ‘Live Services and Other’ is EA’ fastest growing and largest segment, representing 71% of total revenue in FY2022, compared to 59% in FY2017. This has been primarily driven by FIFA Ultimate Team and Apex Legends. 

Apex Legends is among the top live services games in the industry, with more than 113 million active players, including 28 million new players who joined in the year ended 31 March of this year. FIFA is the largest and most popular sports video game franchise in the world, having sold more than 325 million copies since its launch in 1993. The franchise has far outsold all other popular sports video game franchises.

FranchiseNumber of Games Sold (millions)Pro Evolution Soccer111NBA 2K118Madden NFL130FIFA325

EA’s mobile opportunity 

In 2021, EA CEO Andrew Wilson said that he expected EA to more than double its mobile business to US$2 billion in annual net bookings by 2024. This vision is supported by the global adoption of mobile devices, which has particularly increased the popularity of mobile free-to-play games. 

The live services business model allows consumers to play these games free of charge and monetises them through in-game purchases. For example, EA has developed the FIFA franchise to include FIFA Mobile, a free-to-play mobile offering. In its most recent quarter, FIFA Mobile recorded its largest quarter ever by revenue, with unique new players increasing nearly 80% over the prior year.

Loot boxes, an element of chance

Players purchase loot boxes with real money to reveal the contents of in-game ‘mystery boxes’, which are unknown items that can be used in games, such as skins, new player features or upgraded weapons.

Loot boxes have been prevalent since around 2010 but have come under particularly strong scrutiny recently for their gambling-like attributes, considering that real money is used to purchase an unknown virtual item. In March, EA successfully appealed a fine it faced in the Netherlands over loot boxes in FIFA Ultimate Team. The reason for the decision came down to the court’s definition of FIFA Ultimate Team as primarily “a game of skill”, with loot boxes that “add an element of chance”. It said that a central factor in determining that the products were not gambling was that the prizes available were only in-game objects rather than a product that could be available separate to the game.

While loot boxes improve the player experience and undoubtedly contribute to the release of dopamine, video game companies must always ensure that they are not a central feature of games. Loot boxes are only a viable revenue source for video game companies if they are integrated ethically and seamlessly.

Valuation metrics

EA is highly cash generative, with operating cash flow of US$1.9 billion in 2022, funding around US$1.5 billion of share buybacks and dividends in 2022. The business is currently valued at 11.4x EBITDA compared to its peer group’s 17.4x median EBITDA multiple. 

Company5 year EPS CAGR (%pa)Current EV/EBITDACurrent free cash flow yield (%)Activision Blizzard+11.117.43.5Bandai Namco+14.413.50.0Capcom+30.019.44.3CD Projekt SA-4.622.10.1Keywords Studios+36.219.33.3Konami Group+17.79.86.8Nexon+41.024.03.4Nintendo+42.910.50.0Paradox Interactive+0.519.10.6Square Enix Holdings+18.19.40.0Take-Two Interactive Software+17.422.80.6Ubisoft Entertainment+9.85.311.7Electronic Arts+12.411.44.7Median+17.417.43.3Source: Sentieo 

All the best,

Tom

Since inception in August 2019, Waterhouse VC has achieved a total return of 1,957% as at 31 July 2022, assuming the reinvestment of all distributions. See our long-term performance table below:

Please note the above information in relation to Activision Blizzard, Bandai Namco, Capcom, CD Projekt SA, Keywords Studios, Konami Group, Nexon, Nintendo, Paradox Interactive, Square Enix Holdings, Take-Two Interactive Software, Ubisoft Entertainment and Electronic Arts is based on publicly available information in relation to the company and should not be considered nor construed as financial product advice. Waterhouse VC has a position in Electronic Arts. The information provided in this document is general information only and does not constitute investment or other advice. Readers should consult and rely on professional investment advice specific to their individual circumstances.

RushBet will serve as LaLiga’s exclusive wagering partner throughout the continent, building on a partnership agreed in November 2021, under which RushBet had been serving as the league’s partner in Colombia.

The agreement will run for three seasons and grant RushBet intellectual property rights for the league’s top two LaLiga divisions. These rights will include use of team names, shields, players’ pictures and competition logos.

RushBet will also gain access to ex-LaLiga players, while its sportsbook customers will have the chance to participate in exclusive experiences such as meet-and-greets with former players.

Other aspects of the deal include RushBet receiving merchandise such as jerseys and balls to give away at special events, as well as access to speciality hospitality packages. In addition, RushBet will work with LaLiga on a range of social media initiatives.

“This new expanded agreement will bring LaLiga even closer to our fans, sharing all the excitement and emotion that LaLiga has to offer,” LaLiga executive director Oscar Mayo said. 

“As our fans know we have played with passion for many years; now, we are thrilled to share all the adrenaline of LaLiga with RushBet’s customers in Colombia and other countries.”

RSI Colombia general manager Valentin Birnstein added: “LaLiga is one of the most popular leagues across the globe, and we are thrilled to be able to bring our valued customers up close to this important league. 

“We are committed to providing RushBet players with top-tier content and high-quality entertainment and expanding our partnership with LaLiga helps to achieve those objectives.”