Jeeve explains why it’s good to tread carefully when squaring up to emerging markets
‘Trying to fit a square peg into round hole’ is a popular turn of phrase, used colloquially when suggesting that a particular approach to a problem is ill-conceived. That very analogy describes well the UK launch of the infamous Sunbets product in August 2016. From the outside, the project appeared to have a better than average chance of making a splash in the UK marketplace. The News UK owned brand is synonymous in Britain with a demographic that historically pairs well with igaming. With popular pre-existing verticals in Sun Bingo and Dream Team, there looked to be a ready-made customer base ripe for the cross sell into sports betting.
Such was the expectation, that a ten-year agreement was signed between News UK and its chosen developers, the Australian betting and gaming giant, Tabcorp. A multi-million-pound marketing campaign was launched via print, digital, radio and TV and a highly skilled and respected team was assembled in the London-based office headquarters. However, even with the best tools it is a struggle to build solid foundations without key fundamentals in place, understanding the marketplace is a critical component of that mix. While Sunbets made some astute hires in the UK the Australian overlords maintained a firm grip on the experienced staff, tethering them to the Tabcorp proprietary platform, which was wholly untested outside of the antipodean nation. This, allied to an incredibly uninspiring product launch into a saturated market, meant that Tabcorp paid the best part of £40M to News UK to exit the deal less than two years after launch. With total losses marked at upwards of £51M, including a very embarrassing integrity scandal dubbed ‘Piegate’, that ended in an £84k fine, it is fair to determine that this particular peg was most certainly, square.
This story should serve as a warning for anyone looking to dive into new markets without immersing in the pervading gambling culture. It is crucial for any operator looking to enter a new or emerging market that the leadership understands the nuances of that particular market. It is naive to think that because a market is deemed new, or emerging, that gambling has never occurred inside its shores.
The USA is a marked case in point, the rush to market led by the European-based sportsbooks has been unrelenting. Such is the fervour, akin to the 1840’s Gold Rush, that one wonders if there has been enough consideration given to understanding the residing marketplace, before attempting to hammer home a very different style of offering.
The offshore business in the USA may have initially felt threatened by the repeal of PASPA, but a few years on, recent reports suggest that the offshore market is still thriving, despite the rapid state-by-state adoption of sportsbetting. One of the reasons put forth to explain why there has been failings in channelisation, is that the product simply does not cater to the experience the typical US punter is accustomed to. Analysed further, we can suggest that ‘vig’ and limits are key friction points. The ‘soft-book’ European model is far removed from the high turnover, low margin products available ‘offshore’. That type of operation is alien in Europe, yet the leading European ‘books and platform providers felt sure they could imprint the same blueprint upon the denizens of the US.
Other, more nuanced issues still persist and continue to drive business offshore. Odds ladders have become something of a battleground, with platforms designed to run with digital odds settlement coming unstuck with rounding issues when settling bets struck using American odds, for example -105. The digital representation is 1.95, but the difference in pay-out for a $1050 wager between -105 and 1.95 is $2.50. Little time has been spent trying to overcome such a difference and more than the loss of earnings, it feels almost like a middle finger to the culture of betting in the US.
Similar issues have afflicted bookmakers trying their hand in other jurisdictions- India, for example, highly favour an exchange-based UI. This is easily obtained, and yet there have been a number of failed efforts to enter this somewhat opaque marketplace, where many all-singing, all dancing sportsbooks have failed.
Another factor to consider when moving into a new or emerging territory, especially for listed companies, is the impact local governance can have on business and share prices. Take, for example the impact of China’s crackdown on foreign business, the latest proposal suggests that the government will take a more direct approach to supervise gaming companies operating in Macau. The stocks of MGM Resorts International, Las Vegas Sands, Melco Resorts and Wynn Resorts were hit hard as the news broke, in September. The impact of a heavy hit on share price cannot be understated in such as wildly predatory market as the current gambling sector. Potential acquisitions are liable to be cancelled, while the threat of a hostile takeover increases as shares dip lower.
Equally frustrating is the Japanese government’s reticence to introduce the long-awaited Integrated Resorts (IR) project. Delay after delay, with little certainty that anything will actually happen, plus spiralling costs, has meant that western casino giants, Wynn Resorts, Las Vegas Sands and Caesar’s have all pulled out of the bidding process. Once again, the threat of being targeted by the Chinese government, and being placed on a blacklist, potentially causing issues for the all-important Macau business, may have dissuaded some of those operators from pushing ahead with a bid.
Of course, markets and marketplaces evolve, the European sportsbook did not always appear as it now does, and likewise who is to say which direction the US sportsbook will eventually flow, though while there are still billions of dollars being ‘lost’ to offshore books it cannot be claimed that the current adoption has been entirely successful. Perhaps the lessons learned will transpose better into the nascent Canadian legal market where Justin Trudeau is celebrating his third win at the polls, will this stability provide the best platform from which to build those much-needed square holes?