Bwin.party looks to rectify merger mistakes

Bwin.party’s 2014 results revealed a company still struggling to regain its fate and a business in the midst of huge and fundamental change to its core structure. Revenues and EBITDA were both down 6% to €611.9 and €101.2m respectively, with a non-cash impairment charge of €104m pushing the operator into the red to the tune of €94.3m.

The firm acknowledged that drastic action was required, and said it had undertaken a major restructuring of its operating units in a move that will both reduce costs and improve the speed of its decision making. And perhaps most interestingly, it will substantially increase its M&A options.

The operator attributed its poor results to the full-year impact of ISP blocking in Greece, plus the declining global online poker market. But in a call to investors yesterday, chief exec Norbert Teufelberger admitted that some of the firm’s more deeply rooted problems date back to the merger of bwin and Party Gaming in 2011.

Teufelberger said the merger resulted in a “fairly complex” matrix organisation that just didn’t work. “It was too complex and decision making was too slow; there were inherent conflicts of interest in the way we organised ourselves across product lines. The idea and intent at the beginning was correct, but the implementation and execution of the strategy failed,” he added.

Increasing optionality

The firm announced a major restructuring back in August aiming to simplify its business into five key operating units, serviced by a corporate center that will provide HR, legal, finance and communications. The company is now split into bwin Labels (bwin and gamebookers.com), Games Labels (partypoker, partycasino, gioco digitale, and Foxy), US (partypoker, Borgata and the World Poker Tour), Studios (PMU.fr, Danske Spil, Fortuna) and Non-core (Kalixa).

The decision to restructure the company is two-fold. Teufelberger said they have been able to take out substantial costs by going through a “whole catalogue” of services and removing what each brand “didn’t really want or need”. But perhaps more significantly, the new structure makes it much easier for bwin.party to sell off one or more of its individual operating units, with chairman Philip Yea confirming yesterday that sales talks were ongoing.

“Everything we are doing by organising ourselves into individual business units increases optionality,” Teufelberger said. “We are in industry consolidation talks, and we will see what they come out with. But what we are building at the same time is a stronger business in itself with separate and distinct business units which we could potentially spin out.” If its business had been split as above, 2014 revenues would have been €365.3m for bwin Labels, €196m, for Gaming Labels, €19.7m for US, €7.9m for Studios, and €23m for Non-core.

Playing catch-up

While the restructuring aims to harness and maximise bwin.party’s stable of brands, the firm also acknowledged the need to focus on improving its products. Close attention has been paid to mobile – which accounted for €153.2m (25%) of total revenues last year – and in particular mobile casino with the recent launch of its bwin Stadium product.

Teufelberger said mobile casino was the area where bwin.party had the “biggest deficiency and weakness” over its UK rivals. “They [bwin.party’s competitors] had a great run in 2014 and very early launched great mobile games for casino, but we were really late. In mid-2014 we only had six games available on mobile casino, and nothing really modern or innovative,” he added.

The firm said that bwin Stadium had been produced by a small start-up company in Israel which it identified about four months ago. The games have already been fully integrated into the bwin platform, and can be personalized for the firm’s strategic sponsorship partners, with a Manchester United-branded bwin Stadium Casino slated for launch next week.

But Teufelberger conceded that bwin Stadium is “a test” and that the operator doesn’t “know the outcome yet”. “It is great technology and it’s really flexible, and it only takes a few days for us to skin it. So if it’s successful we will strive to roll it out with substantially more partners across Europe,” he added.

A sporting chance

Bwin has also overhauled its mobile sportsbook, with the channel accounting for 45% of total sportsbook revenues (€237.1m) last year. The firm has developed and patented ‘slider games’, a new product that allows players to swipe between sportsbook and blackjack and roulette games, with additional slider slot games planned in the coming months.

Teufelberger said slider games had been test-launched in Austria and had also been rolled out to bwin’s .com markets, but that it would “take a little bit longer” to bring the product to regulated markets due to regulatory approval. The firm also plans to roll out its new ‘Protektor’ feature, which allows players to insure their stake against a certain amount of lost picks in a multi bet.

“We have been looking for how we can differentiate our offer from our competitors, and how we can build features which are not that easy to copy if you don’t own and control your own technology, and which features would fit well to our brand proposition. Bwin is a casual brand and we have been looking at how we can enforce the product offer, and offer consumers something which others don’t have,” Teufelberger added.

Whether bwin.party’s major restructuring and product improvement will be enough to arrest decline and drive growth, only time will tell. But with the operator entering “further stage discussions” with a number of interested parties, the main focus is likely to be on ensuring a sale can be finalised. And if this process continues to drag on the firm may continue to lose ground in what is an increasingly competitive European egaming market.

The next six months will be crucial for bwin, and it needs to continue to push hard in mobile and continue to bolster its share of non-German revenues to future-proof it both from changing consumer behaviours and an evolving regulatory environment. But you can’t help feeling with investor sentiment so reliant on the results of M&A talks, it remains not fully in control of its own destiny. And maybe the only thing we can say with any certainty is bwin.party will look very different this time next year, one way or another.