ComeOn CEO on regulated markets: "Go big or go home"

Joining the likes of Betsson and 188Bet, last month Malta-based operator ComeOn took the decision to withdraw from the UK market due to the “highly competitive” nature of the sector and the declining “symbolic value” of a UK licence.

According to CEO Lahcene Merzoug, who has been at ComeOn since July 2018, the firm decided to pull out of the UK to focus on more “favourable” markets. For the firm, which has held a UK licence since 2014 for brands like ComeOn, MobileBet and Get Lucky, it was a case of “go big or go home”, Merzoug explains.
Going big is definitely Merzoug’s philosophy in the Swedish market, where he says ComeOn is the largest international operator as of this summer. He attributes ComeOn’s success in the country to its multi-brand strategy and the success of its Pay N Play products.

EGR Intel chats to ComeOn’s chief executive about the decision to pull out of the UK market and to get his take on the Swedish regulatory landscape, the role of trade bodies and the channelisation rate.

ComeOn CEO Lahcene Merzoug

EGR Intel: ComeOn has withdrawn from the UK market, can you tell me why you made that decision and why now?

Lahcene Merzoug (LM): The UK was never a big market for us, so it was a strategic decision to just focus elsewhere. As the most regulated market, there’s always the risk of things like fines and even the most serious operators will make mistakes. It could be technical bugs or human errors. Although we, as an industry, have invested a lot in compliance, I think in the long term it is impossible to be flawless.

We launched in the UK in 2014 and we’ve never had a fine, but there’s always the risk. If you are a big player in the market, then you can take that risk because you have the revenues to cover it and it is worth the investment. But for us it wasn’t worth it.

EGR Intel: Do you think other operators might do the same as what you’ve done in the UK and withdraw due to the competitiveness and compliance costs?

LM: We see operators leaving quite often. If I were to speculate, I guess there would only be about 20 big operators left at the very end. That’s good for the regulators since it’s easier to keep tabs on operators and in a sense is even good for the players in terms of player protection. But there is also a downside for the players as there will be less competition in the form of offerings and the variation will be less. So there are pros and cons.

EGR Intel: Are there any lessons you can take from the UK with regards to the Swedish market?

LM: As in most regulated markets, I think it’s a case of go big or go home. You have to make a proper push for it and become a key player. As of this summer, ComeOn is the biggest international operator in Sweden but it takes a lot of effort for the organisation. As always, when entering a regulated market, the bottom line will always suffer a bit, but in general ComeOn is a strong believer in regulation. In Sweden, we have seen how marketing spend from the operators is going down if we compare it to Q1.

I think it’s just a matter of time before a few companies either give up because of the regulatory pressure or get acquired. So, in that sense, many of the regulator’s initial fears will be solved by the market itself.

EGR Intel: How did you prepare for the Swedish market? Have you spent a lot on marketing?

LM: The key to our success is the multi-brand strategy where our brands compete openly, even with each other. It’s a very entrepreneurial approach, I would say, and it allows us to move quite quickly.

In an industry where the products we are selling are quite similar, we believe that the brand itself plays a major role. We have brands in Sweden that target many different audiences but even though the brand teams work completely independently, we still have central functions for compliance, legal, AML and responsible gaming. It allows those teams to get a good overview of players that could need help so we can act quickly to protect them.

It also gives us a real edge when working on AML because we can easily make an overall evaluation. In general, I think the multi-brand strategy is not only good to drive revenues, but it also makes us overperform when it comes to the compliance requirements. And as we spoke about before, that’s absolutely key to survive in a regulated environment.

EGR Intel: How many brands and licences do you have in Sweden? Do they all have a different proposition in targeting different customers?

LM: We have eight licensed brands now. We have some Pay N Play brands that are focused on the casual player who wants to go in and play quickly. But we also have a very local Swedish brand called Casinostugan, which has a moose as an ambassador. So they are quite different from each other. Our flagship brand is ComeOn and behind that is probably Snabbare, which is our very first Pay N Play brand that we launched back in 2017.

ComeOn’s local Swedish brand, Casinostugan

EGR Intel: The Swedish Gambling Authority (SGA) has come under a lot of criticism for revoking licences and not having a good dialogue with operators. How has your relationship been with the regulator?

LM: There are parts that I think could have been done better. And as you mentioned, the communication with the authorities and the industry hasn’t been great, but I don’t think it’s necessarily one party’s fault. The SGA’s workload this year must have been massive. As an industry, we have also been bad at speaking with one voice and really getting the facts out there to the regulator and to the general public.

There’s a good example that I used to mention quite often. In Sweden, the number of people considered to be problem gamblers has actually decreased over the last 10 years, from 2.2% of the population in 2008 to 1.3% of the population in 2018, according to the Public Health Agency of Sweden. And all this while marketing investment is six times greater now than then.

But nevertheless, Swedish people believe that gambling addiction is growing rapidly in Sweden, and many people would never even dare to play a slots machine. I think that, in combination with a worry from our politicians that the industry is not doing enough to protect problem gamblers, this has led to the now quite troubling debate of further restrictions for some of our industry’s most important verticals.

EGR Intel: Is the industry coming together a lot more in Sweden now?

LM: We actually have two different trade bodies in Sweden: Sper and BOS. I think in the end we need to unite them somehow to get an even stronger voice, but they also have different agendas and the members push on different topics. So we’re not very well united yet, but it’s going in the right direction.

EGR Intel: ComeOn received a couple of fines recently for offering bets on games involving under 18s and that seems to have happened a few times now with other operators too. Some of those fines seemed quite harsh but what was your take on it?

LM: It was an issue with a third-party supplier. I agree with you, I think it was harsh. Should it have been a warning or a lower fine? This is the problem with an immature market. The SGA is just trying to follow the law and making their interpretation. But before it’s been really tested in a court of law, no one knows, not even the SGA, exactly where the line should be drawn.

EGR Intel: Gaming Innovation Group pulled its B2C sportsbook brand from the Swedish market to avoid risking any fines. Have you ever thought about pulling any of your brands to mitigate the risks?

LM: I saw that happened but I think the revenue from their sportsbook wasn’t very big so they could easily make that decision. For us, we are trying to solve the issue and, until it’s tested in the court, we have to adapt to what the SGA is saying now and implement checks, double checks and triple checks to make sure we’re following the rules that are out there now.

EGR Intel: Is there a worry that there might be a bigger black market or lower channelisation in Sweden than initially expected?

LM: I’ve seen some estimates that Sweden reached 91% channelisation in July, and that must be considered really good but I don’t know how accurate those figures are. In other regulated and more mature markets, we can see much, much lower rates of channelisation. Similar to the UK, I think we will end up with fewer but bigger operators in the market, which I said before is good for player protection. Going forward, I think it’s dependent on the value that the regulated operators will get.

EGR Intel: Svenska Spel and ATG have done really well in the market so far and haven’t really been caught by the regulator yet. Have they been given a free ride?

LM: I don’t know. Svenska Spel is actually losing some ground if we look at the latest tax figures. ATG is doing incredibly well but they also have almost 100% of the regulated revenue from horseracing and have a huge potential on cross-selling.

When it comes to an easy ride, the regulators did not write the law but there are parts of the law where the state-owned operators still have exclusivity on certain verticals. And in the long run, I still think it would be better if the now state-owned operators will be privately run because that would even take away the reason to ask a question like that. So, for the interest of the industry, I think that would be the way to go.

EGR Intel: Are you doing anything particularly interesting from a product perspective or have any innovations coming up?

LM: We have a few really interesting projects but I can’t go into details. The industry has been lacking innovation for a while, especially on the product side, and we have a few in the pipeline that we will see being launched mid-2020.

EGR Intel: Why do you think it has slowed down? Has there been too much prioritisation around compliance and responsible gaming?

LM: It could be, but also the industry didn’t really need to because it’s been going so well for so long. Now we are seeing profit margins decreasing in the industry because operators are going into more regulated markets. At the same time, the growth rate for the total industry is also decreasing a bit because the movements from offline to online is slowing down. So obviously, we all need to find new angles and try to better ourselves.

EGR Intel: How is life as part of a private company now?

LM: It always depends on who the buyer is. I’m happy to say that I have a very committed and experienced board where everyone is 100% focused on doing good long-term business and to be privately owned does provide more freedom, especially on the compliance side. There is also the opportunity to plan and do just that good long-term business when we don’t have the pressure of the quarterly results. And I think that is especially important now when the industry is changing. But now we need opportunities to grow and to take market share from operators that have a hard time coping within the new landscape and the increased regulatory pressure.