Pollard Banknote continues to feel impact of instant ticket costs in Q3

Pollard first noted inflationary increases in the price of materials such as paper, ink and freight in the later part of 2021, with these having impacted the business throughout 2022. Further rises came into effect in Q3 and while another increase is due in Q4 Pollard said this will be smaller.

As its instant ticket contracts average around four years in length, with primarily fixed prices for the entirety of the term, Pollard said it is difficult to pass on input cost increases in the short term.

However, co-chief executive John Pollard said that despite these issues, the business was able to reach a quarterly production volume record for instant tickets in Q3 and that the business has in place a number of strategies to help offset price increases.

“Our instant ticket business attained a quarterly production volume record; this was a nice return to more efficient production following some challenges in the second quarter, which negatively impacted production,” Pollard said. “Fewer mechanical issues and, while still a challenge, our ability to staff and maintain full operations throughout our production facilities improved in the third quarter.

“One of our key strategies to offset these significant inflationary input cost increases is through raising our selling prices during contract extensions and RFPs as they come up for bid.

“While still early in the process, we have had a number of successes retaining work at higher pricing in new bid situations, reflective of the input cost increases we have to absorb. Indications within the marketplace so far appear to confirm the industry recognises the need to adjust pricing and we believe this will continue.

“Most new contracts are awarded in advance of the end of the existing contract’s term and come into effect sometime in the future. Therefore, most of the price changes we have already negotiated will be implemented throughout 2023.

“However, ultimately, these higher prices will allow us to improve our margins on our instant ticket business. We also continue to diligently review our customer profiles to identify opportunities to focus our efforts on more profitable clients, which may result in lower volumes as we reduce sales to lower margin clients.”

Looking at Pollard’s financial results for the third quarter, revenue was up 7.4% year-on-year to $125.5m (£110.1m/€126.2m), helped by an increase in revenue across both its igaming and charitable gaming segments.

Combined ilottery revenue from its online gambling deal with the Michigan Lottery and its share in the NeoPollard Interactive joint venture with NeoGames amounted to $20.2m, a new quarterly record for the business.

Cost of sales for the quarter were 11.4% higher at $104.9m, while administration expenses also increased 3.3% to $12.5m. Selling costs were level at $4.5m and other expenses were down, but Pollard did note a negative $6.0m impact from equity investment activity.

Foreign exchange loss amounted to $4.7m and interest expense $2.0m, which mean that pre-tax profit was a flat zero. Pollard accounted for $2.9m in tax but benefitted from a deferred reduction of $2.7m, meaning it ended the quarter with a net loss of $200,000, compared to $600,000 last year.

In addition, earnings before interest, tax, depreciation and amortisation fell from $12.3m to $12.1m in the quarter.

“The fundamentals of all of our business lines remain very strong and we are confident that our higher pricing strategy for instant tickets will, over time, allow us to increase our margins back to historic levels,” Pollard said.

“We believe our charitable gaming operations will continue their market leadership and generate excellent results, and the large investments we are making in the digital areas are laying the foundation for further growth, in partnership with our lottery and charitable gaming customers.”

EveryMatrix eyes further US growth after beating Q3 expectations

Gross profit – defined as gross revenue minus direct costs paid to game suppliers – came to €16.8m, up by 33% year-on-year. EveryMatrix noted that prior-year comparative figures no longer include the period before Germany’s Fourth State Treaty on Gambling, the introduction of which had a strong negative effect on earnings.

This total came thanks to record traffic for Everymatrix games during the quarter, resulting in operator GGR surpassing €100m in the month of September alone.

Of this €16.8m total, €7.7m came from the casino unit, up 31% year-on-year.

The business reported earnings before interest, tax, depreciation and amortisation (EBITDA) of €6.4m, which was up by 23.1%.

Future EveryMatrix investment

The business said it would continue to invest in growing across the US and in its games arm. Last month, the business announced its first US launch, through BetMGM.

During the quarter, EveryMatrix won the exclusive tender to supply its casino games to Veikkaus, effectively giving it a monopoly on supplying regulated online casino games in Finland.

“I am pleased to see a fantastic third quarter, with global sales performance and very good financial results,” chief executive Ebbe Groes said. “Even more important, we won two new Tier-1 clients in the quarter, Veikkaus in Finland and Bet-at-home in Germany and international markets.

“EveryMatrix launched with BetMGM in the US and Morroco’s state-owned lottery MDJS. The group’s record gross profit across all business segments clearly underlines our strong market position.”

Malta regulator plans to introduce NFT rules with new consultation

The consultation will run until 14 December and invite input from relevant stakeholders on the MGA’s plans to introduce new rules and regulations regarding these areas.

As part of the consultation process, the MGA will launch a series of “Regulatory Workshops”, with the aim of introducing a more regular and structured touchpoint between industry stakeholders and the MGA and to encourage an informal exchange of views around regulatory topics.

The first of these sessions will take place next month and focus on the regulator’s proposed policies regarding ITAs, VFAs and virtual tokens. The MGA will invite interested stakeholders to participate in this workshop. 

“The ongoing consultation shall give the opportunity to such stakeholders to submit their feedback, if any, regarding the proposed policy,” the MGA said.

The consultation comes after the MGA last month pledged to introduce “detailed player protection guidelines for licensees”, having opened a separate consultation on the subject.

The MGA launched a “closed consultation” in September to cover “licensees’ obligations regarding their responsible gaming policies and procedures and the introduction of five markers of harm that must be considered by licensees when determining effective measures and processes to detect and address problem gambling”.

This, it said, followed a review of its player protection directive by “an expert in the field”, as well as MGA research and the work of its Responsible Gaming Unit.

Bragg revenue up 62% in eventful Q3

Bragg had undergone a number of changes during the quarter. In September, the company consolidated all its businesses under one single brand. Also in September Bragg secured $8.7m in funding from investment entity operator Lind Global and facilitated Kalamba’s entry into Ontario through a partnership.

In July, Bragg appointed Mark Clayton to its board of directors.

Yaniv Sherman, chief executive officer for Bragg, said that the quarter had been successful for the company.

“In the third quarter of 2022, we generated third quarter records for revenue of €20.9m, gross profit of €10.4m, gross profit margin of 50.0% and adjusted EBITDA of €2.2m,” said Sherman. “Our operating momentum has been consistent throughout the year as for the first nine months of 2022 revenue, gross profit and adjusted EBITDA have improved significantly, compared to the same period in 2021.”

Looking ahead

Looking towards the future, Sherman said that adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) – which came to €2.2m – and revenue were both set to grow.

“Our positive adjusted EBITDA, combined with capital we raised in the third quarter positions us to continue to invest to drive further growth,” he continued.

“Looking ahead, we expect our consistent execution against our strategy and growth initiatives will drive further revenue and adjusted EBITDA growth in 2023.”

Unadjusted EBITDA came to €837,000 during the three months.

The cost of revenue for the quarter was €10.4m, a rise of 66.9%, bringing gross profit to €10.4m. This was still a rise of 58.0% year-on-year.

Selling, general and administrative expenses also grew, from €8.8m in Q3 2021 to €12.0m.

This meant the business made an operating loss of €1.6m, an improvement of €579,000 year-on-year. Net interest expense was €246,000, bringing the pre-tax loss to €1.8m.

After an income tax benefit of €114,000, the net loss for the period came to €1.9m – up by €479,000.

For the nine months to date revenue is up by 43.4% to €61.0m. Cost of revenue is €28.9m, bringing the gross profit so far to €32.0m.

The operating loss for the period stands at €990,000 and the loss before income taxes is €1.5m. In total, the net loss for the nine months is €2.6m, down by €3.2m.

Puerto Rico grants seven sports betting licences

The Commission said it accepted the recommendation made by the Sports Betting Bureau to grant licences to seven companies, including five temporary licences.

The sports betting operators Ballers Puerto Rico Sportsbook, Liberman Media Group Gaming (LMG) and CCHPR Hospitality (Casino Metro) have been given temporary licences.

The suppliers Swish Analytics Puerto Rico and US Integrity have been granted permanent licences. Continent 8 Technologies PR LLC and Caesars Digital PR Inc have been given temporary supplier licences.

The executive director of the regulatory body Jaime Rivera Emmanuelli explained that to complete the licensing process, the seven companies will have to pay a fee to the government based on the functions they will perform in the sports betting industry.

Operators will have to pay $50,000, the service suppliers will have to pay $5,000 and the lone technology provider – Caesars Digital PR – will have to pay $15,000.

“The sports betting industry is growing under the regulations and supervision of the Puerto Rico Gaming Commission,” stated Rivera Emmanuelli. “Online betting has the potential of being an important source of jobs and the creation of commercial spaces for entertainment. In the same way, it will generate new income for the treasury.”

Operators and suppliers have been eagerly waiting for the launch of online sports betting in Puerto Rico. As of today, sports bets can only be made in person, but granting the licences will be a key step toward launch.

Genius posts strong revenue growth as US expansion continues

Total group revenue for Genius increased 28% year-on-year in constant currency. On this basis, the business’ three verticals experienced strong growth themselves with betting revenues rising by 13%, media by 41% and sports by 6%.

In adjusted earnings before interest, tax, depreciation and amortisation (EBITDA), the business achieved profitability, reporting $7.7m compared to the $392,000 loss Genius announced the same period the previous year.

“We are pleased to deliver another quarter of growth and group adjusted EBITDA profitability, and we remain on target to achieve our full-year goals set on our investor day at the start of 2022,” said Genius CEO Mark Locke. “This year has been characterised by strong execution as we continue to deploy innovative technology, win new customers and strengthen our key partnerships across the sports, betting, media and broadcasting ecosystem, all with an eye towards cost discipline and profitable growth.”

Beyond EBITDA, Genius reported a wider loss for the business. The company outlined an 87.5% increase in quarter-on-quarter losses from $4.8m to $9m amid continuing revenue growth in US and other markets. However, this increased figure is mostly driven by a combination of currency fluctuations and changes in value of warrants.

The loss is significantly below the $70.7m the company announced in net loss in the same period the previous year, but this was mostly due to lower stock-based costs, after these had been extremely high in 2021.

The company also reported a $150m cash balance in the three-month period with $10m of this total adjusted to account for currency fluctuations. For the whole year, the company is expecting to receive revenues of $340m.

AGA: Q3 US gaming revenue hits record $15bn

This is a 2% increase on the previous record of $14.81bn reached in the preceding quarter. Subsequently, 2022 is set to surpass 2021 as the highest grossing year of gaming revenue, already at 14.7% ahead of the same period the previous year. The total for the first nine months of the year is also ahead of 2019’s full-year revenue.

“While business challenges remain, high consumer demand continues to fuel our industry’s record success,” said AGA president and CEO Bill Miller. “Our sustained momentum in the face of broader economic volatility points to gaming’s overall health today and provides confidence as we look to the future.”

The industry’s year-on-year Q3 growth rate of 8.8% outperformed the broader US economy’s 2.6% growth rate in the same period.

[Read full story on iGaming Business]

New Light & Wonder CEO sets out growth plans for streamlined business

Wilson assumed the roles on a full-time basis in October, having served as interim CEO since August after the departure of Barry Cottle.

Wilson took charge at a transformative time for the group, which sold its lottery business to private equity company Brookfield Business Partners in April in a deal worth $5.8bn.

In August, the business also completed the sale of its OpenBet sports betting platform to Endeavor, while the group in October acquired the assets of loyalty and marketing software and technology provider House Advantage to further strengthen its offering.

With Light & Wonder now operating across three core business segments – gaming, igaming and social gaming with SciPlay – Wilson said this streamlined approach will allow the group to advance in Q4 and beyond and deliver greater value for both shareholders, customers and players.

“Our strategy is in place, and we are taking share with our robust R&D engine and best-in-class talent,” Wilson said during an earnings call. “Our strong balance sheet and operational momentum gives us the ability to leverage our leading industry position, evergreen franchises and unmatched platforms that drive sustainable growth and significant value, fostering a high-performance culture and making disciplined investments in our future while maintaining a laser focus on operations and execution will underpin our success. 

“And that will enable us to unlock our full potential and drive greater value for all of our stakeholders.

“I think strategy will change at the margins over time because markets evolve and things change, so we’ll focus on that over time. But importantly, we know who we are. We know who we want to be, and we have a clear vision. 

“We want to be the leading cross-platform global games company. That’s the mission, that’s the North Star. That’s where we’re headed. And it’s time for us to get on and keep executing against that.”

Turning to the Q3 results and revenue for the three months to the end of September was $648.0m (£568.2m/€645.8m), up 20.2% from $539.0m in the same period last year.

Breaking this down, the group’s gaming business was responsible for the largest portion of revenue, generating $419.0m during the month, a 23.6% increase on Q3 of 2021. This, the group said, was driven by a 47.0% rise in gaming machine sales, coupled with continued growth momentum in gaming operations. 

SciPlay revenue also climbed 16.3% year-on-year to $171.0m, a new quarterly record for the segment that was primarily driven by the core social casino business, coupled with benefit from the Alictus acquisition in March.

In terms of igaming, revenue here was up 9.4% to $58.0m as a result of ongoing growth in the US market, though Light & Wonder said this was partly offset by an unfavourable impact of foreign currency translation due to strengthening of the US dollar.

Looking at spending during the quarter and total operating expenses were 10.7% higher at $559.0m, while the group also noted a further $65.0m in net financial expend. This left a pre-tax profit of $24.0m, compared to a $72.0m loss at the same point last year.

Light & Wonder paid $4.0m in income tax in Q3, which left a $20.0m net profit from the group’s continuing operations, down from $100.0m last year as it received a $172.0m tax benefit in Q3 of 2021.

However, the business also accounted for $315.0m in additional profit from discontinued operations. This included a $362.0m pre-tax gain on the sale of its sports betting business. 

As such, after also accounting for a further $7.0m profit from non-controlling interests, this mean Light & Wonder was able to end the quarter with a net profit of $328.0m, up 80.2% year-on-year. In addition, adjusted earnings before interest, tax, depreciation and amortisation was 15.8% higher at $235.0m.

“Our financial strength, combined with the nucleus of a robust R&D engine and best-in-class talent sets us up well to execute on our strategy and product road map to continue to gain share,” Wilson said.

“As a leader focused on operations, execution and value creation, I’m committed to building on our strong momentum and enhancing value for all stakeholders.”

Raketech commits to long-term investments as revenue rises in Q3

Much of this growth was centred around its operations in the US, where Raketech said it had continued to invest in order to drive further expansion, though the group also noted growth in almost all other operating regions.

Such was the impact of this ongoing strategy that Raketech was able to post an increase not just in group-wide revenue, but also earnings and net profit, while traffic and engagement reached record levels in a number of markets. 

Chief executive Oskar Mühlbach said while many industries are suffering from the negative impact from supply chain problems, fuel price increases and general inflation, igaming has up until now been reasonably resilient, thus allowing Raketech to continue to invest in its wider business.

“We continued to invest in our US business and have during the first nine months of the year been focusing on adding affiliation offerings, exchanging best practice and technical infrastructure between our US assets,” Mühlbach said.

“The effects from this will be shown long term, meaning that a large part of today’s revenues originate from betting advice and subscriptions, which by nature is a bit more volatile compared to affiliation while also having lower margins.

“During Q3 we furthermore onboarded several new sub-affiliates onto AffiliationCloud, totalling 20 partners at the end of the quarter. To accelerate this growth, we have decided to increase investments further to shorten the time to full launch. We aim to have a great product ready to be significantly accelerated during Q1 2023.”

Turning to the Q3 results and revenue for the three months to the end of September was 35.4% higher year-on-year at €13.0m (£11.4m/$13.0m), driven primarily by an increase in sub-affiliation and affiliation marketing in Rest of Europe and Rest of World markets.

Affiliation marketing was responsible for €8.6m of total revenue in the quarter, with sub-affiliation revenue amounting to €3.1m and betting tips and subscription income at €1.3m.

Breaking this down further by gambling type, casing gaming was responsible for €9.7m of all revenue in Q3, while sports betting contributed €3.2m. An additional €46,000 came from other activities within the business.

In terms of geographical performance, the Nordics remained Raketech’s core region with €6.3m worth of revenue, an 8.4% increase on last year. However, it was in the US where the group experienced the most growth, as revenue here rocketed 359.7% to €1.5m.

Elsewhere, Rest of Europe revenue slipped 23.7% to €642,000, though revenue from Rest of World operations increased by 72.3% to €4.5m.

Raketech also noted the number of new depositing customers (NDCs) across the business dropped by 17.4% year-on-year to 39,552.

Looking at costs and total operating expenses were 38.9% higher at €10.0m, while the group also reported €417,00 in finance costs. This left a pre-tax profit of €2.5m, up 25.0% on last year.

After paying €347,000 in tax, Raketech was able to post a net profit of €2.2m, a year-on-year rise of 15.8%.

“We believe that the best way to create shareholder value is to allow ourselves to be adaptable in terms of investments, markets, business areas and acquisitions,” Mühlbach said. 

“And with our strong and stable cash generation, I am very happy to be able to make long term important investments into such areas such as the US market and the AffiliationCloud. Both are examples of strategically important initiatives where we have adapted ourselves to new realities to secure that Raketech continues to thrive also in the future.”

NIESR to see you

First, let us introduce you to the National Institute for Social and Economic Research, or NIESR. They are, as you might have guessed, a research institute in much the same fashion as those recent bogeymen from the short-lived Truss premiership such as the IEA and whatever name 55 Tufton Street goes by.

It is registered as a charity and, naturally as per its charter, says it is independent. So far, so somewhat non-controversial. But while it may not have the free-market edge of an IEA, it is just as much of a lobbying organisation.

Scott Longley

Our interest in NIESR dates back to August 2021 when the UKGC awarded NIESR £140,000 to fund a research project which would look at providing a “new way of measuring the socio-economic effects of gambling through an evaluation of existing evidence on benefits and costs of gambling”.

The money for this came from so-called “voluntary settlements” that are paid by operators in lieu of financial penalties for breaches of licence conditions.

The Commission previously stated that the “sole and critical aim” of money disbursed from voluntary settlements is to “make better and faster progress to reduce gambling harms”. How an exercise in cost-benefit analysis is consistent with this aim is unclear.

Suspicions have been further raised by the Commission’s distinct unwillingness to impart information about this study after it initially denied it had made the award. It was only after NIESR subsequently published details of the project stating clearly that it was funded by the Gambling Commission in January of this year that the regulator disclosed the award.

By this point, the goalposts had already been moved. In the original concept, the study was clear in its aims: it was to “(model) the cost of gambling harm on the economy and society”. However, this later morphed into “measuring the benefits and costs of gambling (with a focus on the costs of gambling-related harm)”.

That is a less than subtle change. In the blurb, NIESR is explicit about the aims of the report: to “establish” the costs and benefits of gambling – but focusing now on harms. It should be obvious that a cost-benefit analysis focused on harms is not in fact a cost-benefit analysis at all. 

What is more, the aims of this cost-cost analysis appear to be overtly political – so that the government can make “informed decisions” ahead of the white paper.

Noyes pollution

Well, forgive the scepticism but the very terms of the explanation here make it plain this is a political exercise being made on behalf of the anti-gambling lobby – and this seems a questionable enterprise for the market regulator to fund. It is no surprise to find the anti-gambling lobbyist James Noyes – he of the unfeasible affordability criteria argument from a while back – is the chair of NIESR’s project advisory board.

Lest we forget, Noyes is also an activist with the Social Market Foundation, a think-tank supported financially by Derek Webb of the Campaign for Fairer Gambling fame.

The idea that the NIESR report would be anything other than extremely partial was confirmed by a tweet sent by the organisation when the research grant was announced.

What damage is #Gambling reeking on our society and on the #Economy? Our new project is set out to measure this cost. Using our unique modelling capacity- we aim to give public health officials a comprehensive economic assessment. @AdrianPabst1 @_maxmosleyhttps://t.co/WBxNqE8lwt

— National Institute of Economic and Social Research (@NIESRorg) February 3, 2022

When asked on Twitter by esteemed gambling sector journalist Andy McCarron whether the study would weigh up the benefits, NIESR’s Max Mosley responded first by agreeing, but then adding that the “benefits of gambling are better documented than the costs”. “Our aim is to provide a more accurate measure of the latter.”

So, not exactly a neutral starting point then. Rather, the study comes with the assumptions that it will “uncover” costs that to date have been ignored by other studies. And yet, as has been well-documented, we do have some (highly contentious) estimates for the costs of gambling already.

A paper produced by Public Health England late last year even put a figure on the costs – £1.27bn. However, this figure is, shall we say, highly speculative. 

Moreover, though, it is the latest in a line of attempts to pin the tail on this particular donkey. We have also seen the 2016 report from the Institute of Public Policy Research published on the “the cost to government associated with people who are problem gamblers in Britain”. 

This was also widely criticised, by the government’s Regulatory Policy Committee among others.

The lobby group Peers for Gambling Reform (also supported by Derek Webb) commissioned an inept report by NERA, an economic think-tank that based some of its calculations on a misunderstanding of how VAT works.

And the Social Market Foundation (them again) also published a paper claiming that the value of any enterprise was to be measured by the length of its supply chain.

Priority

As part of this article, iGB sent a Freedom of Information request in order to try to ascertain the whys and wherefores of the funding of this report and to try and understand why the Commission felt it was necessary to give NIESR funding to do it.

Needless to say, the request wasn’t successful. The reply to the request noted that there were over 1,000 pieces of correspondence related to the NIESR report and then said it would be too expensive to ask someone to go through the documents.

iGB isn’t alone in questioning the Commission’s priorities. A trustee at one charity told us they were also unhappy about the regulator’s willingness to fund yet more cost estimate reports when funds for charities actively engaging in the treatment of problem gambling and other areas of harm reduction are at the same time apparently having difficulties accessing these self-same settlement funds. 

“This is a real kick in the teeth,” said one charity trustee. “It is so upsetting that the Commission appears to prefer funding lobbying projects rather than much-needed treatment and support services.”

Gambling Commission’s opaque process

In fact, the whole process of deciding who gets what and why is unhelpfully opaque. Such is the disquiet that, in private conversations, industry figures question whether the Commission is potentially in breach of the Nolan Principles of Public Life, which like other public bodies it is required to uphold. 

Notably, when looking at the original releases around the NIESR project, it was conceived as a “short six-month pilot”.  However, 14 months after it received funding, we are still yet to see its results.

During an appearance before parliament’s Digital, Culture, Media and Sport select committee in June this year, Gambling Commission CEO Andrew Rhodes came under fire from the chair Julian Knight MP on exactly this issue – the lack of oversight of the distribution of money from voluntary settlements.

“There seems to be money going out the door and no accountability for that money, apart from when you make the award,” he said. “This money just splashes out there and you have no idea in terms of what this impacts with the licensees.

“I am struggling to think precisely as an organisation how you are doing your job, because these seem to be key measures and indicators of whether you are successful.”

The problems keep piling up for Britain’s beleaguered gambling market regulator but there are no signs that it is getting a grip – or even that it recognises that there is anything to get a grip of. 

As Dan Waugh of research firm Regulus Partners says: “Voluntary settlements are paid in lieu of fines and so is quasi-public money. It is not simply the case that the Commission is diverting money away from treatment providers; but also, that it is frivolously spending funds that would otherwise be going to the exchequer. Given the economic crisis, this seems highly questionable.”

The Commission has questions to answer but like much else with UK public policy on gambling right now, no answers are forthcoming.