Making sense of the Scientific Games/NYX deal

Scientific Games’ £465m acquisition of NYX was greeted with a mixture of contemplation and confusion by the European online gambling sector. The move to snap up one of the stalwarts of the egaming sector was variously seen as a sign of ambition in the US and overreaction to the European online space by the major US giant.

NYX’s value is two-fold to Scientic Games (SG). The first aspect is the existing NYX casino platform and content, which is one of the fastest growing platforms on the market with a large pipeline of operators due to come on board. The second is the larger Openbet business NYX acquired just over a year ago. Openbet is the key sportsbook, and in some cases casino, supplier to William Hill, Sky Bet, Ladbrokes, Coral, Paddy Power and Betfair and, crucially, opens the door to servicing any emerging US sports betting sector.

There is a quiet revolution taking place in its core US market with the move towards some form of wider legalised sports betting looking more and more likely with each passing month and SG is very keen to be involved. And the ability for SG to take on major land-based sports betting contracts in North America and beyond is viewed by many analysts as the key driver of the deal.

Finding its feet

There are very few sportsbook solutions that can operate at large scale on a multi-channel basis and that are proven in the global market. Openbet is one of those and already has existing deals with the BCLC in Canada and with one of its major international competitors, Playtech, unlikely to bid for major US deals, it looks in a strong position to be a supplier for integrated multi-channel solutions if any market comes to pass across the pond. That remains a big if at this stage, but the ultimate prize for SG is very significant indeed.

However, there is still a waiting game to play and there is no guarantee a US sports betting sector will ever arrive in a meaningful way. And in the meantime then SG needs to maintain and grow value from the existing NYX business, which comprises some hugely important contracts with some of the UK’s largest operators.

SG, of course, already has a relationship with most of these as its content comprises some of the top performing games in the European, and particularly UK, market including the ubiquitous Rainbow Riches and the full library or WMS and Barcrest games. Its profile, however, in the European supplier sector is still some way behind its core competition and this is a step-change in that sense.

NYX is one of the few genuine platform suppliers in the industry and it can offer Openbet sportsbook customers, new clients and existing RGS customers a truly comprehensive solution with a modern casino platform, a huge range of content and, perhaps crucially, a market leading sportsbook solution. But, as ever, it’s not quite that simple.

Shifting the value chains

Openbet has seen its role in the value chain reduced over the past decade from an end-to-end supplier to a predominantly back-office supplier as operators have taken the front-end functionality in-house or outsourced to different third-party suppliers. And they are far from alone in the supplier world in this regard. The move from black-box style platforms to modular solutions taking in elements from a number of suppliers has been the direction of trend in the egaming sector for some time now. And it raises some challenging issues for the major suppliers.

One of the core value propositions from the Opennbet acquisition for NYX was the potential to integrate the two platforms and this is far from a simple task with two very different systems built in different times. It’s not, yet, the case that SG will be able to offer an integrated all-in-one solution to clients and it’s not even clear if that is what the industry wants.

Suppliers are increasingly not competing for broad contracts with major suppliers but fighting harder for ever smaller parts of the value chain as operators begin to more closely resemble technology firms. Taking Paddy Power Betfair, a key NYX/Openbet customer as an example, its analyst presentation shows very few components of its technology stack as third-party supplied with the customer facing gaming content, the sportsbook and gaming “modules” the only components not dealt with in-house. And this is both good and bad news for SG and NYX.

What happens next?

From the one perspective you can look at this as offering NYX the ability to keep its feet firmly under the table. Replacing the core sportsbook and gaming modules is by no means a simple task and this is clearly functionality operators can’t do without or easily afford to replace. In effect then Openbet is locked in with the major operators. But from another perspective it could easily be said to be in the most vulnerable position for the years ahead.

Over the past five years we’ve seen the emergence of a number of new sportsbook solutions and platforms and it was notable that one of Openbet’s most loyal clients in Sky Betting & Gaming opted for SBTech for its Germany sportsbook launch. We’ve also seen the return to in-house solutions at both major and start-up operators and the breakout of some of the sportsbook functionality with elements increasingly outsourced in part or in whole.

The future then will look very different to the present. And this is where the challenge comes for SG in terms of making the acquisition pay off. Sustaining its current market share in the B2B egaming sector may be as much of a task as growing the business. While in the meantime the wait for progress in the US sports betting sector will be more keenly watched than ever.