How the small can succeed

Following the article Size Matters by Joe Saumarez Smith which appeared on eGaming Review regarding the Bwin-Party merger I thought I’d comment on what it is like to be a small player these days.

As region-by-region licensing comes in, are small gaming companies destined for two years of running around looking for a quick sale or a merger as their value inevitably falls and their customer base declines?

The answer is probably not. If you have a degree of control over your own platform these are actually very interesting times. The ability to partner, white label and effectively become a B2B player of sorts opens many doors that were previously closed to internet gaming companies. There are also joint venture opportunities pouring out from land based operations, similar size companies with a different regional focus aiming to form commercial partnerships and co-fund licences.

As a small company, getting a licence in a market such as Romania or Spain is really interesting as it opens up media channels and partnership opportunities that did not previously exist. So size does matter, but it’s not always about scale. In this case, small means flexible.

Offsidegaming for instance has just entered its first joint venture, where we are providing back-end services to another licensed operator with a local internet licence. We predict this will become a major growth area as experienced operators look to trade in their operational and technical expertise for access to a market without any investment.

Some of the traditional offshore licensing jurisdictions are also doing interesting things in terms of streamlining with the major European licensed jurisdictions. Alderney, for example, is likely to remain a technical hub with agreements in place all over Europe that would make licensing on a country-by-country basis reasonably straightforward. The whole area of licensing could become much simpler in two to three years than it appears today, with hub jurisdictions giving access to many markets subject to the usual due diligence.

Of course, licensing means higher operating costs, and that may be an issue for some lean offshore operations, but these need to be looked at in terms of business value. If it means moving towards valuations of x10 plus earnings as opposed to 2-3x earnings plus cash as an offshore, it is well worth examing. My advice to any smaller operators out there is don’t panic, pick your partners carefully and choose which battles you wish to fight.