Back together: Gamesys Group CEO on the post JPJ-acquisition world

The adage “there’s no friend like an old friend” certainly rings true when you talk about the last six months of 2019 and the £490m deal between JPJ Group and Gamesys which brought two online operators together after over four years apart.

In its former guise as Intertain, the JPJ Group bought the Jackpotjoy brand from Gamesys for £735m including earn-outs in 2015, prompting a divergence of the two businesses into different areas. The Intertain business later rebranded to Jackpotjoy plc following the completion of the deal, firstly achieving a listing on the London Stock Exchange before rebranding to JPJ Group in June 2018.

However, it seems as if breaking up was hard to do for the twin operators as they rejoined in 2019 as the Gamesys Group after more than four years apart. The roots of this may stem from the initial 2015 agreement, as part of the deal agreed with Gamesys was to supply platform services and gaming content to allow Intertain to run the Jackpotjoy business for a period of 10 years and 20 years respectively.

At the announcement of the deal, analyst firm Regulus Partners claimed the tie-up signalled the end of JPJ’s “experiment” as an operator, consigning its prior business model into “the dustbin of history”. Regulus further said that JPJ was lucky to buy a large and proven technology firm with a deal which reduced rather than created integration and execution risk.

Giving its own verdict on the move, analyst firm Edison Group said the acquisition “appears to be a neat solution” for JPJ in that it gained control of the Gamesys platform, reduced its reliance on third parties and would further improve the operator’s performance and margins. Whether or not the deal was inevitable at this stage or just opportunity knocking is something of an afterthought, as it has created a company worth almost £800m and one which smashed into the top 10 of EGR’s annual Power 50 rankings for 2019.

The newly enlarged group now features one of the biggest European bingo businesses in Jackpotjoy, several hugely successful well-known brands including Monopoly and Virgin but, more importantly, the business is in full control of its entire technological and business destiny for the first time.

For Gamesys Group CEO Lee Fenton, having that prior connection was “hugely important” in getting through the type of deal which would be beneficial to both businesses, allowing them to effectively step back into the market as one entity without feeling the pinch.

As he explains: “We had a great partnership for four years in the period prior to bringing the group together. So, we already had a successful working relationship established at the time the acquisition took place. Within our various teams themselves, I think having that close relationship has been hugely helpful in keeping the focus on the player as we manage the integration of the two businesses.”

Asked to give his thoughts on what may have happened had the deal not taken shape in the way that it did, Fenton claims the dichotomy of being two closely linked firms while still being distinct would have resulted in both businesses “wasting time” in transitioning staff between Gamesys and the JPJ Group in order to achieve the best combination of business.

“We would have wasted time transitioning staff from Gamesys to JPJ Group which we were contracted to do under the terms of the 2015 deal and ultimately end up competing with each other,” he explains.

Fenton asserts his belief that the acquisition ends this potential competition between the two firms, allowing it to focus on what’s really important: the growth of the combined business and the operator’s relationship with the players it serves. Indeed, Fenton’s assertion regarding the positive aspects of this relationship seemed to be proved accurate when the newly listed enlarged Gamesys Group posted a 20% year-on-year rise in its gaming revenues within its maiden set of financial results during Q3 2019. For his part, Fenton is proud of the progress that the business has made, despite its relatively short lifespan and undertaking a “hugely complicated” transaction at the time.

A sporting chance?

One element of the £490m deal which did raise eyebrows among observers of the egaming market, stockholders and most importantly the EGR team, was the decision to exclude the fledgling Virgin Bet business within the deal.

As part of the transaction, Gamesys Group split the existing trademark licence agreement signed with the Virgin Group so that the business retained the trademark for the casino brand while the now confirmed Anzo Group retained the sportsbook property. Discussing this clearly important decision, Fenton explains that there “wasn’t really an element of choice” to the decision to leave Virgin Bet where it was due to the nature of the business.

“You have to remember that the Virgin Bet business was a pre-revenue business at the time, so it’s very difficult for a public-listed business to put a price on something which doesn’t have a value,” says Fenton. Discussing the potential reacquisition of the business at a later date, à la the acquisition deal, Fenton asserts that you can “never say never” with M&A but cites the recent completion of an eight-month long acquisition process as giving the company enough cause not to return to that arena in the immediate future.

Indeed, in its Q3 2019 financial results call, Gamesys Group executive chair Neil Goulden highlighted the potential launch of a sportsbook offering as part of the group’s long-term strategy going forward, claiming there were no “immediate plans” but it was something the company would consider.

Fenton is keen to add that sports betting is something that the firm is always continuing to look at, due to its high prevalence within many influential and emerging markets in the online gambling space including the US. “It’s not running to the top of the priority list right now. We’ve got lots of things that we want to go and do first. Sports betting is an important entry point into many markets, but for us it’s not at the top of the list at the moment,” he adds.

A complex game

As any egaming or sports betting professional will tell you, keeping your business technologically conversant, compliant with regulations and consistently generating profits can be a precarious thing. However, Fenton believes it is the “constant state of flux and evolution” of technology and regulatory compliance which offer the most challenges for multi-jurisdictional operators.

Highlighting regulations specifically, Fenton asserts his belief that the current rash of operator mergers, shifts and change is the direct result of the state of flux, making it inevitable that this will continue, potentially to Gamesys’
benefit.

“From our perspective, we’re open to buying a new business in the future, but we’ll first have to assess them with the board and see if it fits with where we think the future direction of the group needs to be,” Fenton adds.

When the deal was first announced, five so-called strategic rationales were listed as justifications for the acquisition of the Gamesys business by JPJ Group. These were: delivering attractive financial benefits, a diversified brand portfolio with a view to expansion internationally, an executive team with a good track record, greater operational control, and increased scale and profitability.

Now that the dust has settled on the acquisition process, Gamesys Group’s CEO believes the great challenge is delivering on each of these strategic points, most of which have already begun to materialise. Delving into specifics, he asserts that greater operational control of its business was “always a concern” for the JPJ Group, as Gamesys’ private technology was previously running a “good portion” of JPJ’s revenue-producing assets, something which is now in the hands of the combined group.

The objective of delivering a diversified portfolio together with an increased scale of business were also seemingly achieved with the signing of the deal, something which Fenton believes will “enhance the player experience” at Gamesys going forward. Indeed, Fenton and his former Gamesys colleague Robeson Reeves are the most obvious examples of delivery of one of the other rationales, that of delivering an executive team with a good track record for growth. For Fenton though, it’s all about ensuring the rationale is borne out in the combined group’s results.

As has previously been disclosed, the Gamesys Group enjoyed an underlying 20% revenue spike in its first full set of financial results, with JPJ’s strongest legacy brand Vera&John leading the statistics, generating 57% year-on-year growth. Acquired Gamesys brands also grew by double digits during the same period. The so-called ‘secret sauce’ to this success, Fenton believes, is “keeping things as simple as possible” using effective marketing to build its customer base and focusing on the player experience to develop an understanding of what players enjoy.

“Through that we build deeper, trusting and more enduring relationships with our customers and I think that is one we will definitely look to continue going forward and should form a key underpinning strategy for ongoing growth,” Fenton adds.

Brand power

A key element the business aim of giving players what they enjoy is through the aforementioned diversified brand portfolio, which now includes the hugely successful Virgin and Monopoly brands. Fenton believes these brands offer not only a benefit to the players, but also a responsibility to the business to ensure these are operated fairly in a way that is consistent with their status as trusted brands.

“At the end of the day, we are in the entertainment business. Gambling is our business model and, in this environment, trust is absolutely critical. Players want a safe and fair environment in which to play. When they see global brands such as Monopoly and Virgin, they rightly expect those brands to uphold the highest standards of fairness and customer care,” Fenton explains.

Expanding on this point, Fenton reveals that both Hasbro (the copyright holder of Monopoly) and the Virgin Group make the back testing of these products against consistently high standards demanded by international firms, something which the overall Gamesys business has improved in its efforts to achieve these goals.

Independent of the deal itself, JPJ and Gamesys have both operated successful brands in the past, most notably in JPJ’s Vera&John brand, which has supported the operator’s growth and expansion into new markets such as Sweden and Brazil.

Fenton believes that much of the success of Vera&John is down not only to keeping things as simple as possible, but also to the “resonant” power of the Vera&John brand in these markets. One market where the Vera&John brand has seen high growth is the traditional grey market of Japan, which has yet to regulate online gambling, and which is currently toying with land-based casino regulation.

In its previous guise as the JPJ Group, Gamesys has been involved in the Japanese market in some capacity for more than five years, with both its Vera&John and InterCasino brands enjoying strong success. Speaking about why the group has prospered, Fenton cites the sheer time required to understand the nuances of the Japanese market and developing the best methods of engagement with players as the driving forces.

“We’re learning and improving this all the time and if we maintain the focus areas that I’ve previously talked about, Japan can continue to be a good market for us in the future,” Fenton adds.

The potential of being in on the ground floor of an emerging jurisdiction or group of jurisdictions is something which can be of great benefit to an operator, especially in terms of gaining market share. One such market for the Gamesys Group is the US state of New Jersey, where it has operated an online casino site on behalf of the Tropicana Atlantic City since 2013.

Speaking about the alliance between Tropicana and its Virgin Casino subsidiary, Fenton says that the two have enjoyed an “excellent relationship” in the state over the last six years. Indeed, Gamesys is considering expanding its operations in the US on a state-by-state basis. However, he qualifies this statement highlighting the (current) absence of a sportsbook product from the Gamesys portfolio, something which Fenton believes is essential for this to take place as sports betting is “driving” the move towards legalisation of online casino.

“We do want to progress to more states, but our focus today is casino so we’ll be patient as we need to consider carefully how we can expand our operations in the US, but yes I would like to expand further,” Fenton adds.

Out of the grey?

The enlarged Gamesys Group operates 22% of its business in so-called grey markets, where operators can offer egaming without the presence of a corresponding legal framework, licensing or regulatory process. While some operators have enforced a whiter-than-white only style of operation, dismissing all unregulated markets until regulation arrives, Gamesys is “very comfortable” in operating in grey markets, if legal advice supports such an expansion.

Qualifying this statement, Fenton reveals the company regularly speaks to government officials within grey markets about the benefits of regulation, arguing affirmatively for it but does not believe moving from unregulated to regulated can be altogether damaging for an operator.

“Sixty-five percent of our business is done in the UK market but we are also in Spain and Sweden, which are also regulated. Pivoting away from unregulated markets depends a lot on where you put your focus. If your brands are relevant you can succeed in any market, whether it be regulated or unregulated,” Fenton adds.

Existing UK regulations and the prospect of even more stringent measures going forward have made the headlines within the industry press, most notably in November 2019 when the Gambling Related Harm All Party Parliamentary Group (GRH APPG) called for the introduction of a new £2 stake limit on online casino play.

On this potential cutting blow to the UK online market, Fenton claims Gamesys will only be affected in a “quite minimal” way due to the firm’s customer base, which does not substantively stake more than £2 typically. However, Fenton believes that the GRH APPG’s intention is effectively applying a blunt instrument to a more nuanced problem, an approach which could ultimately push consumers to unregulated sites and change the problem from a quantifiable to a non-quantifiable issue.

“We also have to remember that players like to move up and down through stake sizes during their online gambling, so if stakes were capped, players would likely look for other ways to change their experience such as playing games with differing volatility levels etc,” Fenton adds.

Drawing on his own experiences of managing the need to prevent gambling-related harm, the Gamesys Group chief cites a need for the incorporation of best practice across the industry and more tools giving players control over their gambling. “We also need to get the balance right, not be patronising, be respectful of privacy but have the highest standards of care. It’s a difficult balancing act, but I think it’s one we are getting better and better at, both as Gamesys and as an industry,” he remarks.

Despite the potential for greater restrictions coming down the line, Fenton believes the industry and indeed the UKGC has come on “leaps and bounds” in making the UK industry a better and safer place where players are protected. From a Gamesys perspective, Fenton cites a need to keep this trend going moving forward and that the operator is always looking to improve its practices via the use of research programmes into player entertainment and safety.

Looking ahead

In the run up to the publication of this issue of EGR Intel, much of the focus has been on the UK election, with all three main parties committing to wide-ranging reforms of the UK gambling industry. Chief among these pledges were comments made by both the Conservative and Labour parties that they would review the so-called “analogue” 2005 Gambling Act, claiming to bring it into the digital age.

Whatever the result of the election, gambling has once again found its way to the top of the legislatory agenda, which is something Fenton believes was an inevitability during the next parliamentary term. Fenton affirms his support for the potential amendment of the act but calls for all voices to be heard and that any well-made arguments for doing so are based on strong evidence.

“I think the gambling act could do with updating, without a doubt. The UKGC exists to safeguard players and the wider public, and must ensure gambling is fair and safe, which for me is the right objective, something which could be supported better with a new act,” he says.

Looking at the potential immediate future of Gamesys, Fenton believes a lot of what needs to happen within the business has already been written about, in the strategic rationales outlined during the merger process. Aside from that, he believes it’s about making “smart choices” for the future evolution of the business, including what product verticals and which geographies to operate in, stating his objective of making Gamesys a fun employer for staff going forward.