Looking to the future

The first mega-merger has occurred. While widely expected, the behemoth that will be PartyGaming and Bwin looks set to tick many of the boxes for investors: four legs under the table (betting, poker, casino and bingo/skill), multiple touch points with customers (strong brands in both a B2C and B2B context) and financial clout (enabling marketing spend to be spread across high-priority geographies).

To take advantage of the shifting market, management teams should ask themselves three questions: First, who are the logical parties to partner or consolidate? We believe both B2B and B2C operators should focus on providing a full product suite and not underestimate the ability to cross-sell and leverage key competencies. All other M&A activity can then focus on ensuring products are differentiated and new markets accessed.

Second, what is the next geographic market to enter? Italy has proven the potential that exists when a new market liberalises in a regulated manner and the success of several operators will ensure France and other markets are increasingly competitive from day one. The potential exists for individual US jurisdictions to liberalise by Christmas, though the end game may not be fully realised for two years. However, this will be a significant event, so planning for all eventualities is recommended.

Third, what business model will provide the appropriate risk-return? While blurring the lines, particularly when compared with the land-based market, the ability to provide both a B2B and B2C service provides strong flexibility in entering new markets. However, this isn’t an easy line to follow and operators need to be wary of execution risk, particularly if significant expansion and consolidation is already happening in the organisation.

Despite the weight of these issues, online gaming is a healthy business and that will undoubtedly grow over the next few years. The fun bit (and importantly the value bit) is figuring out where, when and how.