CEO Interview: Richard Skelhorn, chief executive, Costa Bingo
Despite only launching in June last year, super affiliate Richard Skelhorn's Costa Bingo rode the free bingo wave to become one of the two busiest sites in the UK. He talks to eGaming Review about the shift to operator and why he believes the free bingo model will prove sustainable
OF ALL THE SITES deploying the free bingo model which drove so much adoption and growth in the UK bingo market last year, one stood out in terms of its ability to generate the high volumes of traffic needed. That site was Costa Bingo.
While questions of course surround the sustainability and net profit of free bingo in the longer term, particularly for standalone sites, Costa’s explosive growth in active daily player numbers to become one of the two busiest bingo sites in the UK within just six months of launch in July 2009 took everyone in the sector by surprise.
Costa’s chief executive, Richard Skelhorn, however knows a thing or two about recruiting players, having established one of the UK’s leading casino portals, Casino Choice, back in 2001. Started as a side project while working for a financial affiliate marketing company in Norwich, established operators on the site are now each said to pay in the vicinity of £100,000 a month for prime positioning, according to sources who did not wish to be named.
Skelhorn and business partner Alex Holt, a former affiliate rival to Casino Choice, now oversee a Gibraltar-based business of 20 staff, 40% involved in technical and design, the remainder in operations and marketing for Costa, Casino Choice and newly launched affiliate management platform Ignite Bingo.
As he told EGRMagazine.com in October last year, Skelhorn’s move from affiliate to operator came about more by accident than design. Entering the bingo affiliate space in 2008, operators initially responded to the high levels of traffic they were sending by slashing the cost per acquisition (CPA) rates they were receiving.
Although subsequently offered revenue share deals, Skelhorn looked at the numbers of new depositors established rooms were generating and decided they could compete. The free bingo model was chosen because they were launching into an increasingly saturated space. “We arrived a bit late on the scene, and without free bingo, you would have had to question whether we would have got the same growth rates,” says Skelhorn.
Blurring the lines 
Indeed, with other super affiliates such as Digital Prophets and Bingoport since following Costa into the bingo operator space, Skelhorn says this ongoing blurring of the divide between affiliate and operator is entirely logical.
“Being an affiliate, all you do is recruit players. That’s what we have done, day and night, for eight years. The hardest part of running any gaming operation is getting players in the door at the right value. Our experience in doing that lets us focus on the operational elements we need to improve on, such as CRM, retention. This is a challenge, but knowing how to market to and get players gives us a head start.”
In addition to tweaking the Dragonfish software to enable more effective targeting of tailored promotions to the free players sitting in front of the client, Costa’s harnessing of social media recently led Cashcade’s Simon Collins, who pioneered the free bingo model with Cheeky Bingo, to admit they had “admired and tried to emulate” this strategy.
“We decided to adopt the social networks rather than compete on the television initially, so our technicians modified the bingo software to allow the players to invite friends via social networks. Facebook isn’t cheap when it comes to buying a player, you may pay £100 CPA to get a player in the door. But if they respond to our promotion to bring in one Facebook friend, that halves it,” says Skelhorn.
In common with Collins at Cheeky, Skelhorn cites a steady conversion rate from registration to depositor of around 20%. However, questions still surround the sustainability of the free-bingo-for-cash-prizes model, given how short a time it has been around.
Costa after all gives up to £50 away every 15 minutes to tempt free players into depositing, impacting bingo margins and presumably increasing pressure on marketing of side games to claw this back. “Too much free-play will impact your net profit,” Collins told EGRMagazine.com recently. “It is difficult to forecast how much sites are making without seeing promotional schedules, cash-backs and redeposit values being put into the system.”
Skelhorn responds: “The main question to ask is if the marketing was taken out, would the players still be here? After we launched in June last year, we did a fair bit of marketing to get players in the door, but in November, December and January, we did hardly any online or offline marketing aside from affiliates. In those three months, the revenue has grown, as has the active daily player base. Although we are not yet in net profit and taking all marketing spend from within the Costa balance sheet, we will in a few months have broken even on our initial investment.”
As Casino Choice provides the platform for Skelhorn’s business interests, which now straddle the affiliate/operator divide, it seems fair to ask Skelhorn his opinion on operators’ oft-cited complaint their profit margins are being squeezed by powerful affiliates demanding ever-higher percentages of revenue share.
“I would gladly open up my Google AdWords accounts to anyone who talks about margins being squeezed. When Google opened this up last January, Casino Choice had 10 more competitors on the page, click price rocketed to £30-£40, natural SEO traffic dropped by 70%, margins were chopped to pieces.
“As one of the largest affiliates, Casino Choice is competing in the same space as Party, 888, William Hill Online, who are all destroying each others’ margins in the process. We actually spend more on pay-per-click (PPC) than some operators do. So margins are being squeezed, yes, but not by affiliates, by the likes of Google.”
Skelhorn thinks the market will get tougher for Costa this year following listed operators’ significant investment in bingo businesses during 2009, notably Party-Gaming’s buy of Cashcade last July and 888’s of Wink Bingo in December.
However, Skelhorn says he remains firmly focused on making Costa “one of the top three bingo rooms in the UK, not just in terms of traffic, but in revenue as well. It’s a big ask, but I think we can do it. Let everyone else worry about buying everyone else.”
Exit strategies?
However, as Crown Bingo owner Joe Saumarez Smith pointed out in eGaming Review last month, 888’s buy of Wink on a multiple in excess of that paid by Party for Cashcade, despite only launching in February 2008 and therefore offering little in significant player data, would suggest the price of bingo businesses could be on the climb. With an increasing number of investors now circling the sector, would Skelhorn be open to an exit at the right price?
“Casino Choice has been around eight years, with strong revenues and traffic numbers, you could see someone potentially buying that. But Costa has been around little more than six months. We are not coming into work every day thinking about an exit plan, we are working out how to get bigger. But maybe 18 months, three years in, if someone says ‘hello’, we would always talk on that basis.”
And beyond that? “I would like another two or three operational businesses outside of bingo, perhaps sports. We are learning all the time how to run operations, so why not apply that elsewhere? The Ignite business I would also like to see grow. Never have I been as excited about our business as a whole. In five years’ time, I hope to retain that.”
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