End of an era: what Kenny Alexander’s exit could mean for an industry poised for huge change

It’s fair to say there have been better weeks for GVC. The sudden departure of talismanic CEO Kenny Alexander on Friday followed by the news of an investigation into its old Turkish-facing business has seen its share price drop 15% in a week. The change at the top saw a small wobble, but while the eulogies for King Kenny rolled in for a few days, soon people were talking about its US ambitions and the potential of its highly rated new chief Shay Segev. That mood, however, has rapidly turned sour and questions are being asked about just how much of GVC’s past will continue to dictate its future.

The Stars Group in its old guise of Amaya found it harder than expected to just shake off the legacy of a decade in grey markets, and bwin.party spent much of its first few years on the public markets dealing with its own ghosts. GVC still has regulatory changes in Germany and the Netherlands to navigate, as well as the pending revamp of the UK market to contend with and perhaps there couldn’t have been a better time for a change. Because Alexander’s departure is not just the end of a chapter, but the end of something much bigger.

This is not due to anything Kenny has or hasn’t done. It’s because of what is happening around him in the wider sector. This isn’t the same industry he started in and it’s incredibly unlikely to return to that state in the next decade. It feels lazy to call this a turning point, but maybe that is exactly what it is. Gambling teaches you to avoid packaging data up into neat parcels that fit a narrative. Instead we’re taught to look at the long term and a sense of an ever-changing but continuous flow of time, money and variance. Every ending is just a comma, not a full stop. But sometimes, it really doesn’t feel that way.

Last of the old school

You could argue Kenny is the last of the old school CEOs in online gambling, but that would suggest there were several of them in the first place. Since the first stock market boom in the early 2000s, the sector has tended to lean towards CEOs that understand the financial markets more than the betting markets, and Kenny was always the exception rather than the rule. He played poker, he bet on football and horses, he owned racehorses and he had the mix of discretion and swagger that is prevalent in pro gamblers. That ability to be modest and arrogant all at the same time.

Betting for its many flaws is a great way to understand the true value of control and confidence and an even better, and usually harder, way to learn about variance and value. Because few things teach you how hard you have to work to get easy wins, and how often you have to stare down the barrel of a big loss, uncertain as to whether you made a mistake or not, than gambling. And in many ways, Alexander played the industry like an old school poker player, waiting for a value spot and then betting big.

For those that understand poker terminology, he would hit a combo draw and then bomb every street. For those that don’t, he would wait for a good opportunity where he was a favourite but far from guaranteed to succeed and bet aggressively until he either ran out of chips or won the lot. And what is remarkable is how often he hit. It’s extraordinary how often what looked like an over bet was value. Because in an industry where investment kept rising and the costs of entry kept rising, nobody was folding.

Let’s take a key example from the early days. The deal that was arguably the real making of GVC was the acquisition of Sportingbet back in 2013. The deal was a joint acquisition with William Hill taking what were arguably the glamour bits of the business, the Australian and Spanish segments, and GVC taking on the sprawling remainder with a mix of regulated, grey and very grey markets and a technology platform nobody really wanted as it was running on last decade’s software of choice. What GVC did next was remarkable.

The making of a monster

GVC essentially took Sportingbet back to basics and ignored the glare of the public markets and the call for white market revenue over all else. They ran it almost like a private business with a lean structure, focused operations and a desire to drive dividend value. They got stuck into Latin America, unregulated Europe and further restructured the Turkish-facing business they acquired from Sportingbet in 2011 with a new B2B supply deal. The end result was turning a fading, loss-making business back into a profitable one with strong international reach. In 2013, they grew revenue by 69% and in 2014 they grew NGR by a further 23%.

What they had proven was GVC’s ability to turn around an inflated publicly listed gambling business by focusing on fundamentals and not giving a f**k what anyone else thought about the model. It gave both the business, and more importantly the City, the confidence he could repeat the trick when the next much bigger opportunity came around with bwin.party in late 2015. Here was another ex-market leader in a state of disrepair, but one that looked far more challenging to turn around and restore to former glories. But that in essence is exactly what they did, once more focusing on the strengths of the business itself and not worrying about what everyone else was doing.

Bwin.party was about Germany, poker and in-house technology first and foremost. GVC focused on all of those at a time where amazingly few firms were doing the same. It was another phenomenal success story, with much of 2016 spent integrating and improving the business with single-digit revenue growth, but 26% EBITDA improvement as both accelerated into 2017. And while it scaled and began to look a little more like a standard egaming PLC, it remained resolutely different. They started to trim off some of the darker grey business but remained completely committed and unapologetic about those grey markets they remained active in.

But being a true gambler, Kenny couldn’t resist another big bet when a value opportunity presented itself. Perhaps his adviser was named Max Kelly, but acquiring Ladbrokes Coral was a near heroically aggressive move. To take a business that had just completed two huge integrations and managed to avoid disaster either operationally or financially while riding the waves of regulation and the financial markets into a lot more debt for a very wobbly, but clearly underperforming retail and online monster in Ladbrokes Coral, was easily the most aggressive bet to-date.

The last big gamble

While it’s looking like a smart bet, it’s still not entirely clear if the Ladbrokes Coral deal was a winning one for the firm. The integration and move off the Playtech platform is only just completed, and even post-Covid, the business has to navigate its way through the pending Gambling Act review in the UK and the looming threat of Flutter to its digital business and its US ambitions, both of which are crucial to future shareholder value. And perhaps the most interesting aspect of all of those is just how different a problem they present to those facing Alexander for most of his career.

These aren’t problems that can easily be solved by a focus on fundamentals, or by ignoring externalities and concentrating on what the company does best. Taking on regulation requires some form of collaborative approach within the industry and taking on the US requires not just a joint venture but really a complete reappraisal of what an online, or indeed omni-channel gambling business, really needs to be. And that’s before we even look at the rapidly changing regulatory and operational picture within most of Europe.

There is an argument that while everything has become more complex, more nuanced and more driven by technology, the heart and soul of the online gambling business has remained broadly the same over the past decade or two. But that’s not the world we’re entering into now. This is a business where doing what was right for the business has to be permanently weighted against regulatory demands and increasingly public and legislative perception. It’s a business that is under the spotlight more than ever and is operating at a scale where every mistake is analysed in excruciating detail, and the short term is more important than the long term.

The GVC investigation is perhaps a one-off, but there are more than a few skeletons lurking in closets of the past at many other firms and managing public image and reputation will become more of a key skill than ever. It’s a business where the opportunities for growth are tied to big investment, not big ideas, and where risks are for the customers not the operators. So, is the online gambling sector at the PLC level even a business that favours a risk-tolerant gambling mentality anymore? Perhaps it’s better suited to a trader, hedging liabilities and greening up wherever possible?

Perhaps it’s best suited to someone who doesn’t view everything through the lens of gambling at all. Either way, you sense the departure of Kenny is reflective of a moment where the game seems to be changing and working out where future value lies will require a very different mindset. It may not be why he is leaving, but it certainly is why others might. As the old saying goes, sometimes the best bet is the one you don’t make.