Coining it: Tim Heath discusses the rise of Coingaming Group

The cryptocurrency phenomenon, spearheaded by hype surrounding bitcoin and its spectacular rise and fall in value in late 2017 and early 2018, brought the digital asset and alternate coins – or altcoins – to full mainstream attention. These days, some 1,400 cryptocurrencies exist and are invariably used in tandem with blockchain technology, a decentralised public ledger, to allow for speedier and secure peer-to-peer payment methods, among other benefits. This is a particularly attractive proposition, albeit a largely unregulated one for both operators and bettors, yet few firms have managed to harness the power of bitcoin quite like the Coingaming Group.

The group, overseen by CEO Tim Heath, has its headquarters in tech hotbed Tallinn, Estonia, with a growing presence in Ukraine and the Philippines. Heath positioned himself in Eastern Europe in 2002, waiting patiently for online poker to arrive in this part of the world, going against the grain of his Australian compatriots who typically head to England post university.

He helped manage poker clubs in Ukraine, Estonia, Latvia and Russia, and built software to host huge tournaments while developing a complementary poker affiliate business at the same time. The affiliate network grew significantly, evolving into a network of poker skins, until the business nearly collapsed in 2012 when Cake Poker Network failed to reconcile funds owed from other skins on the network. “We were on our knees financially and had no one left apart from a small group of really smart people, and I thought, ‘just because a poker network can’t pay us, it doesn’t mean that we should close the business’,” Heath recalls.

Speculate to accumulate

It was at this point he took a gamble, and not for the first time. He had invested in bitcoin as an experiment and decided to put the cryptocurrency into the existing poker network. To increase engagement on the site, the group also integrated some casino suppliers, such as Betsoft and Gameart, who were willing to take a punt on this new gambling unit. Almost immediately, players were ignoring the poker to play exclusively on the casino games. More players arrived, which led Heath and his team to scrap the poker room, instead choosing to concentrate solely on improving the bitcoin casino offering.

Thus, the Coingaming Group’s biggest revenue-generating product, Bitcasino.io, was born. The brand generated GGR of more than €30m in Q1 2018 after a remarkable annual increase of 194%. And the live dealer offering performs particularly well, to the point where 2018 revenues already far outweigh full year 2017 figures. Based on Heath’s experience as a punter, the group is run on five principles and a complete focus on the customer. The experience has to be fun, fast and fair, they should control the ecosystem, disrupt and innovate, think long term, and the customer must be at the centre of the universe. They run deep throughout the core of the group, and new employees are urged to learn them as quickly as possible.

Customer care has become an industry buzzword, but you can sense it still means a lot to Heath, who speaks fondly of the late American gambling icon and mob boss Benny Binion, who owned Las Vegas’ Binion’s Horseshoe casino and created the annual World Series of Poker. “You have to run a fair casino,” he says. “If you win, we pay you immediately [all withdrawals are processed, on average, under two minutes], but if you lose, just like at the Horseshoe casino, the customer will leave after they’ve enjoyed a steak and eggs on the house. If the group sticks to the five principles, I’m frankly scared of what we can achieve.”

Tim Heath, CEO of Coingaming Group

The group has experienced rapid growth over the last 18 months, with the headcount rising from 30 to 215. A new 3,500 square meter office is currently being built on Tallinn’s harbourfront, and there is talk of an office dog becoming employee number 216. Bitcasino.io is the group’s biggest brand, hosting games from all the usual suspects, including Yggdrasil, Quickfire and NetEnt. The suppliers’ games are integrated onto the casino platform through another Coingaming Group product, Hub88.io, which acts as an aggregator of suppliers for all of the group’s B2C products, but also allows hub88 to grow its external revenues by supplying other B2B operators outside of the Group.

But it is Bitcasino’s Evolution Gaming offering which has experienced the most significant growth. The casino site is one of Evolution’s biggest partners in the Far East and is approximately 60% Asian-facing, with a heavy focus on Japan, China, Korea, India, Indonesia, Thailand and Vietnam. “The Vietnamese market is one of the fastest growing gambling markets in the world. Traditionally, everyone was scared of Vietnam because of bonus abuse, credit card fraud and whatnot, but bitcoin is a push transaction,” Heath says.

“The customer has to push the money to us – we don’t pull it from their accounts, hence, in the Vietnamese market, there are no chargebacks or fraud. If people want to play, then they have to send us the money, which is irreversible, and if they win then we pay them fast. It is that simple.” Interestingly, the group’s finance team have completely removed the line entry “payment fraud costs” from their P&L reports.

For the Coingaming Group’s fast-growing bitcoin sportsbook brand, Sportsbet.io, the two biggest player markets are South America – particularly Argentina, Brazil, Venezuela – and India. Heath says the group considered entering the UK, but the market is too crowded. When Nordic operators the size of Betsson struggle to make an impact in the UK to the point of cutting off marketing spend in the country, it is easy to see why the more embryonic sportsbook brands choose to ignore the market in favour of more profitable, albeit greyer areas.

“We looked at a UK licence, but the market is just too saturated,” Heath says. “There is no value in that market at all in our eyes. Now everyone is looking at the opening American market and saying what an opportunity Pennsylvania opening up is going to be. If it’s going to be a 36% tax on GGR, you are going to have to give the customer a really terrible user experience, especially in terms of betting lines, to even break even.

“I’d be really happy for everyone to fully focus on the American market and consider that the goldmine,” he adds, indicating the firm’s strategic focus will remain on Asia and South America.

Fade to grey

This focus on grey markets is what makes bitcoin so attractive as a currency because established banking and payment methods are not as prevalent in emerging markets. As Heath alluded to, bitcoins have to be pushed to the operator on the blockchain, the transaction is pseudo-anonymous and can be completed instantly. Data can still be analysed, by reviewing the historical transactions on the blockchain to ascertain spending habits, which can be valuable in terms of responsible gambling procedures, but the actual individual behind the account will need to pass traditional KYC checks, as per the group’s Estonian and Curacao gaming licences.

The segmentation and analysis of a pseudo-anonymous account from the point of the first deposit, regardless of the deposit size, is invaluable. “Imagine the marketing possibilities a land-based casino would have if they could see with x-ray vision exactly how much money a player has in their wallet or account when they first step inside a casino”, says Heath, with a smile on his face.
Other crypto-entrepreneurs in the gambling industry have criticised bitcoin in the past, including CashBet CEO Mike Reaves. His firm was set up to increase the speed of pay-outs so that a transaction can occur without any banking middlemen costs that you see with traditional payment methods. He told EGR in May that bitcoin transactions had become too slow to serve their purpose. When asked this question, Heath said: “There was an issue late last year with the huge hype around bitcoin. Only a certain amount of transactions is allowed per block, and basically you had to pay more money to ensure that you were part of that next block – that slowed things down.”

Sportsbet.io’s sportsbook director, Joe McCallum

This is where the Coingaming Group was able to utilise the talents of Estonia’s most proficient developers. One member of staff is working on the open-source development of the bitcoin protocols and has even written a white paper on the code that was well received in scientific circles. “The programmers went out and did their stuff and helped fix it up,” Heath laughs. “We are employing people like him that aren’t necessarily making money for the company, but are improving the blockchain, the technology and the protocols. There are some really smart people here, and while they don’t make money on the frontline for the group, they certainly improve the open-source code, which is critical for increased adoption of cryptocurrency throughout the world.”

There is that famous Steve Jobs quote: “It doesn’t make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what to do.” And that rings as true at Coingaming Group as it does at Apple. “You can’t tell a programmer what to do, but you have to make sure they are aiming for the right goals for the company. You have to build a framework and ask them, ‘well how do we get to here’? And let them get to that end point, but if you say, ‘here is a micro-managed task for you to do today’, they will get bored,” Heath says. “Quite often, mid-level management don’t know or aren’t technical enough in the first place, so how are they going to be able to instruct them to code? They need freedom to be able to do it.”

The ecosystem

This be-your-own-boss attitude has created a competitive ecosystem within the company. The Coingaming Group is made up of 31 brands at present, all of which have been built organically – from Sportsbet.io to Hub88 to Comms88, which is an in-house-built CRM system. These all started as ideas under the Coingaming umbrella before being developed and honed into successful, standalone brands. In 2017, the group launched a venture capital fund in Malta to invest into like-minded businesses which complement the ecosystem.

Heath believes the key to this in-house development model is a lack of restrictions. Many major gambling operators are publicly listed, and he argues that creates a culture of fear. The big players are too afraid to make vast changes because it could affect share price in the short term. “The problem with the industry is that nothing has changed in 15 years. Everyone is too scared to take that first step because they are too scared to make a mistake that might ruin their profit forecasts, so they’ve got to maintain the status quo and hope to hell that they can still keep their employees enthusiastic.”

“Sometimes at big corporates, people always say that the customer is the centre of the universe, but it gets lost”

This view is supported by Sportsbet.io’s sportsbook director, Joe McCallum. McCallum spent 31 years at UK legacy operator William Hill, working his way from the retail ranks to Gibraltar before joining the Coingaming team in Tallinn in 2016. “Sometimes at big corporates, people always say that the customer is the centre of the universe, but it gets lost. I’ve always been a great believer that the customer’s experience goes right across the company, and at big companies you are only as good as your weakest element. The biggest difference for me is quick decision-making. From my perspective, we are rapidly catching up with the big sportsbooks in terms of functionality, so the next phase I am really looking forward to is innovation.”

The competition

Bet365 has dominated the online gambling industry for the best part of a decade, and Heath thinks the only way to break that monopoly and challenge Denise Coates’ operation is through efficient scale and growth. Everything reverts back to the idea of the company ecosystem. Like many tech-savvy gambling firms, Coingaming staff take part in hackathons. In fact, 24 days of the year are devoted to independent projects, ranging from the development of the elixir programming language to building a betting bot using the open API on messaging app Telegram, or building their own internal accounting system.

“If their idea works, I’ll provide the market economy and distribution for them as our goal is to completely control our own ecosystem, and the person or team who ends up building something successful will have a stake in the game,” says Heath. “All of a sudden, everybody in the business is no longer just a paid employee on a payroll, but they become an entrepreneur. I want people to have this chance, because it is bloody hard work being an entrepreneur and building everything from a dollar, but I know what that journey is like. I know how fulfilling it can be, so why not give everyone the chance?” he asks.

Heath originally planned to stay in Estonia for two years back in 2002. Sixteen years later, he still resides there, and the city has become something of a gambling mecca due to the technical proficiency of the population. Children are taught coding in school – the country has a lack of natural resources, so its biggest selling point is its human intelligence, which has been extremely well supported by a progressive and IT-literate government which decided to create a digital society after soviet rule. There is fibre optic broadband throughout the whole country, public Wi-Fi even in church gardens and 97% of Estonia’s citizens use internet banking. It is the birthplace of Skype and there is even a downloadable app to pay for car parking. Ironically, there might be no coins in sight. Well, except one.