Was Playtech late to the party in the USA?

The big winners in the post-PASPA land-grab have arguably been providers rather than operators. The likes of SBTech, Kambi, and more recently Betgenius and Sportradar, have secured major deals with top-tier domestic partners including professional sports leagues and casino groups, while European operators outside of William Hill are largely still on their way to market. The notable exception to this rule is Playtech.

The London-listed giant and one of the largest online gambling companies in the world has so far been conspicuous by its absence from the US. When asked about this absence, the firm says it has been simply working through the large amount of paperwork needed to rubber stamp such a huge company with all the relevant execs and shareholders. Indeed, it’s fair to say the company has had plenty on its plate in 2018, not least the issuance of two profit warnings thanks to a slumping Asian business, and a resulting crash in the share price.

Some suggest the delay was because the business was unsure whether it would be able to secure licenses. Yet regardless, Playtech has recently become much more vocal about its US ambitions. Back in August, it emerged the provider has added former Sportech CEO Ian Penrose to its board to help plan for US expansion, while H1 results released in the same month highlighted the US as a major opportunity.

More recently, Playtech founder Teddy Sagi sold off his remaining 4.8% stake in the business for some $88m. The sale, according to activist investor Jason Ader, who had lobbied for the move, was a boon for Playtech’s US ambitions, specifically for the speed of licensure in New Jersey. “Having gone through the process of licensing when I was involved with Las Vegas Sands, I know it is a fairly intrusive process and it certainly would have taken a lot of time for Teddy to get licensed,” Ader told EGR. He said Playtech stood a good chance of getting a license in New Jersey in the first quarter of 2019.

Sagi, for his part, denies that Ader’s pressure had anything to do with his divestment. A spokesperson told EGR: “Mr Sagi’s businesses are strictly regulated and have a proven governance track record. His shareholding divestment is in no way linked to Ader’s claims. The final sale of Playtech was part of a strategy – to diversify his wealth by moving to real estate, co-working, e-commerce and new technology ventures – planned as long ago as 2016, a point which was covered by the press at the time.”

We have lift off

Regardless of the reason behind the sale, the prevailing spirit within the market is that its full steam ahead for Playtech in the US. There is likely to be a significant appetite in the market for its games, while the provider has existing relationships with William Hill and Caesars, suggesting it could hit the ground running. However, the major sportsbook supply deals in New Jersey and Nevada at least, have long been snapped up. And it’s perhaps telling that CEO Mor Weizer said during the H1 results that Playtech’s ambitions went way beyond New Jersey and it was looking for a much larger footprint.

The key to its approach will be retail and appealing to the land-based casinos. Weizer explained: “The capabilities of [retail betting subsidiary] PBS, position Playtech with a compelling offering. Playtech’s sportsbook is ready now and is already one of the largest traders in US sports due to our activity in Mexico whose most popular markets are the US sports markets.” Weizer said PBS was particularly suited to the fragmented US market because it is “extremely scalable” on a state-by-state basis. A smaller casino looking to get into the market could use PBS as a kind of off-the-shelf option rather than starting from scratch.

Gavin Kelleher, an analyst at Irish broker Goodbody, agrees that Playtech’s self-service betting terminals (SSBTs) made it well placed to capitalize on the US. “Playtech is widely recognized as having the best self-service betting terminals in the market, and with retail betting likely to be exclusively allowed in a number of states, there is a significant market opportunity,” Kelleher said. “Added to this, omni-channel is likely to be more important in the US than other markets, and Playtech’s omni-channel offering is market leading.”

No substitute for scale

However, some industry insiders suggest Playtech might be naturally forced towards those smaller regional deals, with the larger B2B and market-access partnerships already off the table. One exec from a rival provider, speaking off the record, also points to Playtech’s lack of headway in sports betting in Europe, and questioned whether its sports product was up to scratch.

“A few years ago, Mor [Weizer] was saying they’d be number one in sportsbook but that hasn’t happened purely because what they offer online isn’t very good,” says the exec. “They obviously improved in retail with the BGT acquisition but how that translates in US retail and sports remains to be seen because it’s largely a UK-centric product.”

Indeed, the source draws a parallel with Scientific Games and its acquisition of Don Best in a bid to ‘Americanize’ the product. “Don Best would have been a great acquisition for them but without that they are left with a below-par online product and no real US sports heritage,” he adds. Julian Buhagiar, the co-founder of RB Capital, take a similar tack, suggesting Playtech should be focused on some low-cap acquisitions to boost localized portfolio offerings, “just like Scientific did a few months ago”.

However, there aren’t necessarily any similar assets to Don Best left on the table, suggesting Playtech may struggle to find a local flavor. Metric Gaming was put forward by one source as a potential target, who added: “Playtech has a history of mopping up things like that.” Simon Davies, an analyst at Canaccord Genuity, suggests a merger with Scientific Games could make sense, with a combined firm benefitting from huge cost savings, US market access and the ability to build on relationships with state lotteries.

 Invest in yourself

Ader claims Playtech doesn’t need any bolt-on M&A to conquer the US, arguing the best use of the company’s free cash flow is a share buyback program. “I believe a stock buyback is the number one option for them relative to everything else out there,” Ader says.

He believes that by buying back its own assets, the company and the management team sends a message to the market about their belief in the future of the business. Reducing the share count also making existing shares – including Ader’s reported $100m stake – more valuable.

“You look at someone like DraftKings,” Ader says, “they raised funds recently at a big valuation, but it continues to be a massive money loser. I’m not advocating in any way for Playtech to buy that business. You look at Paddy Power Betfair and FanDuel. It may have made some strategic sense but since they’ve owned it it’s just been a drain on their financials.”

More to life than sports

Taken as a whole then, it seems Playtech would face something of an uphill battle if it were competing on sports alone, but the growing wisdom is that online gaming and poker will be swept into legalization on the coattails of betting; two areas where Playtech could have inherent advantages.

“For me, their chances rest on the expansion of online gaming in the US, which is where their real expertise lays,” the rival exec says. “Perhaps if they package that up with a sportsbook in a ‘one-stop-shop’ style, they may make some headway, particularly with single-state operators who may be more receptive to a single third-party solution.”

Davies echoes that sentiment, adding: “This is the perfect opportunity for Playtech to roll out an omni-channel proposition for the land-based casino operators, along with an integrated online platform across betting and gaming, to target some of the bigger states that will legalize both. Pennsylvania, of course, has already legalized online gaming and poker, and major states like Michigan are expected to move on this in 2019 as well, presenting near-term targets.

Playtech’s iPoker network presents another relatively unique tool, with poker likely to be a much important vertical in the US than in Europe. If Playtech can tell a local Pennsylvania operator it will operate online poker, casino and sports for it and pay a minimum revenue guarantee, that could be an appealing proposition and something that no other supplier could necessarily match.

So, Playtech is undoubtedly faced with a litany of obstacles in the US, starting with the fact it is arriving a little more than fashionably late. “In an ideal world Playtech would have secured a New Jersey license six months ago,” says Davies, “but we are in the early stages of what is going to be a significant long-term growth market.”

There are also significant questions about its sports product; whether it is up to scratch online and whether it can be optimized for the US market, organically or otherwise. That said, there are also plenty of opportunities left on the table, with the breadth of the Playtech offering – covering all three verticals and retail products – opening plenty of doors that might be closed to other firms. As Davies puts it: “They may be late to the party, but the party is definitely not over.”