CEO interview: Fabrizio D'Aloia, Microgame
Fabrizio D'Aloia, chief executive of Microgame, talks totems, tax and future growth with eGR's Stephen Carter.
Until recently, if you mentioned the name of Italy’s largest poker network, the majority of eGR readers would ask if you were mistakenly referring to an Isle of Man-based supplier with a near-identical title.
This, however, changed in late June when Microgame’s court challenge to the legitimacy of the Italian government’s cash games decree for poker and casino, linked to fundraising for the earthquake-stricken Abruzzo region, brought arguably this year’s most exciting market opening to a juddering halt.
With Europe’s leading operators forced into a holding pattern, Microgame’s name was suddenly known to a much wider network of people outside its home territory.
The impact on the rest of the market to the decrees issued by Italian regulator AAMS however, does not concern Fabrizio D’Aloia, Microgame’s founder and now chief executive. “Formally, the challenger is only Microgame, but in reality, we are acting on behalf of all the small- and medium-sized operators in the Italian market, of which there are over 120,” he tells eGR.
Microgame’s huge multi-product People’s Network, the poker platform of which commands a hefty 30% market share in Italy, is the central hub for more than 60 local brands, the majority largely unheard of outside Italy. The network’s aggregated customer base, estimated by D’Aloia to be 1.7 million players, transact not just through home PCs but also through public gaming terminals known as ‘totems’ that continue to thrive in many of Italy’s cafés and retailers.
Totems have been the subject of a series of test cases involving the Italian authorities. These networks are legal but seen as a problem by AAMS after complaints from operators that despite investing heavily in licensing and marketing, new entrants that do not have network access are unable to gain market share. PokerStars is the only non-local brand to have carved a substantial niche among these local brands to date. Shop assistants are also able to collect bets on behalf of clients and place them through totems in their shops, in breach of Italian criminal laws.
When the Italian gaming authority issued a circular bulletin in May clarifying totems were prohibited and could only be installed for the offer of fixed odds betting games, legal experts told eGR this could deal a potentially devastating blow to Microgame, as it relies heavily on totems for its business. The suggestion that a market-leading business could be wiped out overnight must have made for uncomfortable reading for the company’s private equity investors “ Cambria, Monitor Clipper Partners and Texas Pacific Group “ which entered the stock capital from 2007.
“This is absolutely not true,” D’Aloia says. “First, totems are not banned. The legality of totems has been confirmed several times by Italian courts and due to the cancellation of previous laws the totem can be used for all online games. [Totems represent] less than 4% of turnover. It is just a marketing tool for the introduction of players to the online game. It is not part of the business in terms of the day-to-day operations.”
Despite the Italian Gaming Authority banning totems in the most recent version of the cash games decree submitted to the European Commission, D’Aloia says: “Microgame is confi dent [this regulation] will not be enforced, given the precedents already set by the Italian courts.”
So will operators on Microgame’s network be able to offer poker via totems once the cash games decree goes through? “Yes, of course. We have a specific interface for totems and poker cash tables, to allow the player to play cash poker and tournament poker in shops.”
This acquisition channel has helped Microgame, which posted a 150% (11.8m) increase in profits last year (up from 4.7m) on the back of tournament poker regulation, to continue to grow its market share. “We are still continuing to grow with over 2,000 new players per day, using a wide range of land-based promoters which are able to introduce new players with a small cost of acquisition and a high level of retention,” explains D’Aloia.
But further problems for the Italian player could lie ahead with the extra certifications (for elements such as the gaming platform and every single game) introduced by AAMS into the cash games decree, and which also appear in the new version of the decree submitted for review to the EC in mid-July. “All these certifications are expensive, and introduce barriers to entry into the Italian market for new and small operators,” says D’Aloia.
Indeed, with these certifications potentially imposing extra costs of 100,000 on small operators, according to sources, those being enacted would penalise Microgame and its operators compared with the rest of the market. The next biggest poker provider, Playtech, has four brands on its network “ Snai, Sisal, Eurobet and Cogetech “ wealthy giants compared to most on Microgame’s network. As D’Aloia points out, this could risk it “losing the interest of our network and serviced operators”.
Microgame is discussing with AAMS to agree “a very light certification” based only on hosting the random number generator (RNG) and without the need to deposit the source codes of gaming software to the gaming authority. “This is not possible for small operators, operating and licensing the software,” he says. “We are disappointed the authority didn’t want to review the rules in co-operation with the main operators and that there is the possibility of further delays. The authority can change the rules at any time, avoiding this delay,” he adds.
Microgame is also requesting “a special procedure to guarantee to all operators the same time to market regarding cash poker, so the actual market share can be guaranteed in the introduction of cash poker”.
While the launch date for poker ring games has been put back to mid-October “ when Microgame’s case will be heard and the statutory review period for the new decree expires “ and casino games until Q1 2011, it appears further delays are possible. This news is hardly likely to elevate its popularity among the other networks and operators, which have spent many millions preparing for these openings.
Marching on
Meanwhile, Microgame and its licensees are themselves preparing their own platforms and products for the openings, when they finally happen. Microgame has adapted its platform for cash poker and inked a deal with NetEntertainment for casino games. Its open platform will also allow operators to sign up other suppliers.
The focus for growth in the business for the rest of 2010, D’Aloia says, will be “bingo, and of course, the continued growth of the poker tournaments”. The latter will be supported by Microgame’s People’s Poker Tour, featured on Italian TV through a deal with Dutch television giant Endemol, makers of Big Brother. It will also be open to online qualifiers from rooms outside the People’s Poker Network.
In terms of product development, Microgame will focus on creating an Italian betting exchange network, rolling this out to its 1.7 million player base, attempting to steal a march on Betfair, licensed and in the market “but without a large customer base”, claims D’Aloia. A new platform for betting on virtual sports, “a new market for Italy”, is also in the pipeline he says.
Microgame expects “to introduce this business model within other regulated markets whenever possible”. D’Aloia calls France “an interesting market”, revealing the company expects to submit authorisation process documents in August. He admits this will be a longer-term play. “Probably the French market will not be so profitable for us in the first stage, for a couple of years, because the taxation is very high.”
Microgame will also not have first-mover advantage and its unique land-based B2B model to rely on, which it appears to be facing a fight to hold on to in Italy. And with operators in Europe’s most valuable egaming market hanging on the outcome of Microgame’s dealings with the regulators, D’Aloia’s time in the spotlight could just be beginning.
Fabrizio D’Aloia CV
Company: Microgame
Brands: People’s Poker, People’s Poker Tour, People’s Bingo, People’s Blackjack. All skill games, poker and bingo share the liquidity of the People’s Network, the operators on which have more than 1.7 million registered gaming accounts.
History: Established in 1996 by D’Aloia to develop and market web applications. Entered online betting market in 2002, becoming largest service provider for remote gaming in Italy. In 2007, became a stock company and opened its stock capital to external investors. Private equity funds Monitor Clipper Partner (MCP) and TPG Growth are principal stockholders.
Career: M.Data System, programmer, 1982-84; SIED Informatica, information technology consultant, 1984-89; SOFT.Lab, information technology consultant, 1989-2006; Gruppo Sequenza, project manager, 2000-01.