Analysis: Playtech and an industry transforming

In the midst of so much transformation in the egaming sector it’s easy to overlook the huge changes taking place at one of the industry’s most significant players. Playtech reported total revenue rose by 54% to €1.2b in 2018 due to its acquisition of Italian operator Snaitech with underlying revenue falling 12% in the same period. It followed up just a few days later with an announcement it had restructured its deal with GVC in a new long-term agreement that has significant implications for the future of both businesses.

The deal was described as a win-win for GVC and Playtech, but you sense the degree of winning is not equally shared. For Playtech while there is large new audience for its casino content, not least live, it speaks to its bigger issue of finding a new role in a developing egaming sector. Playtech is one of the most complex businesses in online gambling with sports, B2C and B2B gaming, marketing services, financial trading and now the large Snaitech business all part of its sprawling whole. But arguably it’s the B2B casino business that remains the most interesting part.

B2B casino revenues were €320.1m in 2018, down 21% from 2017 but still by far the largest B2B component of the business and larger than sports, services, bingo and poker combined. The drop in B2B casino was mainly due a 41% fall in Asian revenues with 12% growth in regulated market revenues, which represented 43% of casino revenues in the period. But there is no doubt this is a rapidly changing market Playtech is now operating in. The rise of smaller content houses, aggregator suppliers and a greater need for differentiation among the larger operators has created different market dynamics.

While it’s not true to say the industry began with the rise of Playtech in the mid 2000s, there is some truth that the modern egaming sector grew up at the same time and so the shifts in fortunes for both tells its own story. Operators want more control and more in-house technology and the constant need for new content means a never-ending hunt for the hottest new supplier. For Playtech this is a really significant period where it is adjusting to a radically changing industry and trying to remain both relevant and leading within it.

The rise and stall of Playtech

Playtech is used to winning. It’s used to being dominant. It’s used to being required. In the period where Playtech first emerged as a power player the software firms held all the cards, the operators couldn’t really work without them and as a result revenue share rates were as much as 25% and brands had to prove their worth to suppliers to even get a deal. Playtech came in to this world like a bull in a china shop, slashing rates and signing deals left right and centre. In a fairly short space of time it had built deep relationships with major firms and became the go-to provider for casino.

This scale-up period saw the Playtech model develop, where their casino content existed on its own tab with no competition, was powered by its IMS and in some cases its wallet and back-end, and it continued to grow and expand to other areas. Soon it was the one-stop-shop for all gaming, the leading player in omni-channel and its technological and marketing muscle was tough for anyone to compete with. But the times are changing. What we have seen in the sector over the past few years is a reshaping of the operator supplier relationship.

The growth of modular solutions, of more niche suppliers and of the RGS model in casino in particular is a shift back to operator control with content, platform and services taken on as needed and slotted into the mid-layer of the tech stack. The IMS system now has rivals both from other suppliers and specific CRM solutions, while the huge breadth of content and RGS integrations, the rise of Live casino and Evolution in particular and the rising importance of sports to the product mix has created a new environment.

Playtech has responded to this by building out sports, and moving towards different models for its platform, including the GPAS solution that allows content houses to build on its platform for both online and retail. It’s also become more of an aggregator itself through the Playtech Open Platform and is now offering partners on that access to the IMS and its CRM toolkit. The broader move is towards a more modular and flexible offering to its customers rather than the take it all or leave it approach of old. Those all-in-one deals still exist, not least for its major land-based clients, but it has seen the industry changing and has changed with it.

The self-supporting model

But perhaps what’s most interesting of all in this sense is how Playtech deals with its biggest new customer, itself.  Snaitech is a curious mix of old and new opportunities for Playtech. On the surface the deal looks transformational, turning Playtech into a major European omni-channel operator in one of the largest regulated markets in the world. It could be argued that’s long what it has been as the power behind first Coral and latterly Ladbrokes’ growth in recent years. Snaitech is taking that to its logical conclusion and really pushing the boundaries of what it can do with a fully joined-up approach to VLTs, omni-channel sports betting, virtuals and online gaming.

There are other firms who partially resemble this model, such as Novomatic, IGT or even some of the newer suppliers, but it’s never a straightforward model to operate. But then again the Playtech business has never been a simple one. And another complex issue around this is the firm’s grey market exposure, not least the very large Asian business. If it is now competing in a sector where regulatory scrutiny is ever higher and reputational risk is even larger then we may see more attrition from its historic business partners. It was interesting to note a line in the results that the “company’s strategy to focus on regulated markets, shifting away from unregulated markets, has been the most pronounced in the Services revenue line”. In 2018 Services revenue declined 9% at constant currency.

To replace those deals it appears looking outside of the core egaming markets and towards land-based sports betting in particular may be the solution not least as new regulated markets open up. Sports saw a 12% increase in 2018 to €98m with some of the largest successes coming from what Playtech describes as its “key target market” of Latin America. Its deal with Caliente in Mexico is a major part of this although the group also noted deals with Sportium Colombia and Codere in Mexico, Colombia and Panama. And it’s these type of emerging market sports betting deals where it could really make an impact, especially as it begins to add on its well proven online gambling products to the mix.

But beyond all the opportunities, and there are many, it’s hard to ignore the threats facing the Playtech business at the present time. As one executive commented off the record: “It’s secret sauce is beginning to get rival recipes,” in terms of products that resemble the IMS. It’s rivals are now doing what Playtech once did to the likes of Cryptologic, offering solutions at lower rates and with promises of greater flexibility. And it now finds itself competing on various fronts and needing to be both large and nimble.

And all this is before we’ve even mentioned the US, or some of its other verticals. Playtech is a business with so many moving parts it’s hard to keep track, but in egaming at least it appears to be trying to meet the challenge head on in what is sure to be a hugely important year. The industry has changed enormously over the past decade and it will be interesting to see if one of the firms that led the way can re-invent itself in its own image.