Q&A: Ed Ware, 32Red CEO

It may sound like a cliché but 2014 could well be a pivotal year for Gibraltar-licensed 32Red.

Despite presiding over four years of consecutive growth, CEO Ed Ware is more than mindful that planned changes to the regulatory and taxation environment in the UK could undermine some of the company’s recent achievements.

Its nascent Italy-facing business, which launched in November 2012, last year attracted £1.3m of its total £38.8m revenues while the remaining gross revenues before the deduction of bonuses were largely from its UK operations with additional internationally derived business*.

The Gibraltar Betting and Gaming Association, of which 32Red is a member, continues to make the case against such regulatory and taxation changes. However, whatever the final outcome of such discussions, it shouldn’t detract from what has been a recent success story.

The operator’s revenues have rocketed by more than 200% over the last four years and 21% in 2013 alone, with growth predominantly centred on its core Microgaming-powered casino product.

For such a risk-averse business, the recent move into Italy was a bold one while the willingness of commercial director Matthew Booth to re-join 32Red last year, after having left what was then an unstable business for Betfair in 2007, illustrates the strides made during the intervening period.

eGaming Review (eGR): The company has enjoyed another year of record growth but are there any areas which you feel have held you back?

Ed Ware (EW): Progress in Italy has been steady, but we are locked into making that a profitable market for 32Red. We certainly haven’t lost confidence in the Italian market but it’s not been as fast growing as we would have liked, which is linked to problems such as the continuance of the black market and the difficulty in getting products to market in the way you can do in the dot.com environment. There are also issues around taxation in Italy that need to be dealt with at some point in the near future.

Italy is a good project and, for us, it’s our first foray away from the UK so we are very keen to make sure it is a success. It is a work in progress but I think by the end of 2014 the business will be becoming profitable.

eGR: Did you perhaps underestimate thet ask you faced in Italy?

EW: I wouldn’t say we underestimated it ““ we knew it was going to be tough, no doubt about it. All of us here knew it was going to be a challenge; however, we were surprised the black market was as strong as it was and surprised the Italian state isn’t able to show its teeth in this regard in order to make sure people are playing with regulated and licensed operators.

eGR: You have just released a mobile version of the 32Red website in Italy ““ how did that go?

EW: It’s a good example of how difficult it is from a product perspective to get games live. We have got seven HTML5 games and it’s frustrating that it’s taken over a year to get in a position to have a mobile product which itself is someway off what we offer to our UK players. What irks even more is that mobile devices in Italy are more important, pound for pound, than just about any other territory in Europe.

eGR: Where is 32Red at in terms of further international expansion ““ is it high on the agenda?

EW: We want to keep up with what’s happing in Holland, definitely ““ it’s a small but important market and it’s a place where I think it would be good for 32Red to be. We have attended meetings held by the Dutch to discuss industry matters in light of their plan to issue licences and we are taking note of draft legislation and getting involved in helping shape the regulation wherever possible.

In Germany we continue to take a passive stance. We looked at Schleswig-Holstein some time ago and the acid test for us was could we take a licence into a TV company and legally have advertisements broadcast nationwide? The answer to that generally speaking is ‘no’. Could Google support 32Red PPC advertising in Germany? Again the answer appears to be no, so we are not entirely certain of the point of such a licence as yet. If it comes to pass there is a practical licensing regime in Germany then we’d be very interested.

I’m not saying we’d never be interested in Spain but I would say it’s not high on the list of priorities, despite our close proximity geographically. If the tax regime is sensible, if we don’t have to provide too much money to the Spanish State for the privilege of having a licence and if slots are authorised, then it makes it potentially viable. Fortunately, we are able to pick our international battles and as we had no trade to speak of in Spain before regulation, we haven’t been forced to apply for a licence in order to protect our existing business.

eGR: And the US?

EW: I would be lying if I said we don’t speak to people in the US but it is very much research and a watching brief at the moment. Activity in the US doesn’t form part of our commercial business plan but if something kicked off that worked for us then it’d be particularly important for us. We are agile enough to be able to rise to such a challenge quickly.

My simplistic view is that we’ve always tried to play our cards right and to not step out of line. This is just a reflection of how we do business and the lack of appetite for too much risk at a senior level at 32Red. I believe this approach may hold us in good stead should the prospect of accessing the American market become a real possibility for us.

eGR: You have previously mentioned there could be some movement in your sportsbook. What’s the latest?

EW: We are very keen and active in trying to get the 32Red betting platform into a fit for purpose shape. Our current Betdaq set-up is a result of what was a total aversion to risk stemming back to 2008 and the guys at GBE have supported us earnestly over the last few years.

This approach has been fine and allowed us to not be distracted from the core casino business, but it obviously limits your ability to grow your share of the betting market too. The business has got over the BetDirect experience with those scars now generally healed. We believe the time is right to shift our stance on sports betting.

eGR: Will the PoC tax result in a scaling back of your marketing budget?

EW: Not this year ““ definitely not. We’ll continue with business as usual until the metrics of the business have changed. There is a great danger that operators are going to be spending money in other markets before they spend in the UK. It’s already happening ““ even outside of Europe, because people are concerned about the tax making their business less profitable, or unprofitable.

There is still a huge global dot.com market. Some of the incumbents in the UK market may be looking forward to the prospect of fewer or weaker competitors, but the consumer will get reduced choice and faced with a less competitive offer. Hopefully such a situation ““ or worse ““ can be avoided.

eGR: Do you think the implementation of the PoC may prompt a raft of M&A activity?

EW: I think it certainly gets M&A ideas being discussed. Whether or not the motivation for it is correct ““ ‘we need more scale so let’s join up with operator Z’. Whether or not the premise is right, I think it does encourage conversations to take place.

*This article first appeared in issue 117 of eGR Magazine in which it implied that 32Red’s UK revenues amounted to £37.5m. This is incorrect and we would like to apologise for the error.