Special report: Germany Power 10 (Part 3)

NOTE: This list was compiled prior to GVC’s acquisition of bwin.party being announced on 4 September 2015.

Today eGaming Review completes its countdown of the ten operators best placed to take advantage of Germany’s egaming market by looking at the three giants of in the industry who have succeeded despite the country’s regulatory problems.

3. bet365

While its market share is unknown, it’s impossible to exclude bet365 from the top tier of operators in Germany given its market leading product and the respect it’s afforded by most of its main rivals in the country. The Stoke-headquartered firm was however one of the surprise omissions from the 20 provisional licences awarded by the Hesse Ministry of the Interior and Sport in September last year. It remains hopeful that the list will be scrapped or at least expanded.

However other restrictions currently imposed by Hesse authorities related to in-play markets and monthly stake limits, as well as the 5% turnover tax, do not suit bet365’s low-margin, high-volume model particularly well. The company hasn’t executed any mainstream marketing campaigns in Germany for several years and it relies on word of mouth and an extensive affiliate network to grow its customer base there. Some suggest bet365 is keeping its powder dry in Germany and is holding back on expensive and high profile sponsorships for the time being, making it an even bigger threat once the market has finally opened properly.

2. bwin.party

Germany represented 27% of bwin.party’s net revenue in 2014 and therefore remains its most important market. The operator’s almost unassailable lead has however been eroded in recent years due to a combination of improving local competition and poor execution of its product and marketing strategy. Its database of players no doubt remains one of the largest but the fall in revenues derived in Germany to £151.9m in 2014 from £155.3m the previous year tells its own story.

The basis of its revenues is the hugely powerful Bwin sportsbook brand, with bwin.party one of the first to aggressively go after German punters from the early 2000s with high profile sponsorship deals and mainstream marketing. It previously counted Bayern Munich, St Pauli and the German handball team among its list of sponsorships, although it has pulled back from these in recent years.

But despite a lower profile in 2015, one executive of a rival firm said market research puts the Bwin sportsbook brand right at the top in terms of public recognition. Its partypoker brand has also historically been a big name in Germany but as in most markets has lost ground to PokerStars, while its casino business – licensed in Schleswig Holstein in 2012 – remains a healthy contributor of revenues.

The drop-off in performance is likely down to a loss of focus on the regulatory unclear German market, while product overhauls including in mobile sportsbook and a partypoker relaunch have been some of a long list of distractions. But if a new owner can exploit the operator’s brands with improved product and sharper digital marketing and CRM, it could yet return to the top of the German tree.

1. Tipico

When Tipico announced in June that it had signed a “platinum partner”sponsorship agreement with Bayern Munich, reportedly worth €5.5m a season over four years, it was tempting to draw parallels between the two. Like Bayern, there is little doubting Tipico’s position at the head of its field in Germany. The firm employs more than 5,000 people, operates in the region of 1,000 franchised retail chains in Germany and is a household name across the country. When it gets things right, the competition struggle to compete.

But like many of Germany’s retail giants, Tipico was somewhat slow off the mark when it came to online; although a relatively new firm having been formed in 2004, the primary focus had always been in the retail space. That retail side is beginning to be leveraged to boost its online offering and Tipico now views its shops beyond their own revenue potential as a widespread advertising network for the online brand.

The last couple of years have also seen aggressive marketing as the firm moves to grab a significant chunk of online market share. While most operators pass on the 5% turnover tax to customers, Tipico has been footing the bill itself as part of this aggressive expansion strategy.

As a privately held firm, Tipico has traditionally played its financial cards very close to its chest, although this too is beginning to change. In 2014 Tipico paid more than half of the total sports betting tax collected by German authorities – a mark of its dominance among those operating within the framework. Revenues and EBITDA remain fiercely guarded secrets, but a 2014 turnover of €2.5bn gives an indication of its scale.

Tipico is also displaying some genuine innovation in the online and mobile channels. Earlier this year it launched Tippn, a mobile app which allows users to build accumulators by swiping logos of teams. The app is squarely aimed at casual gamblers and Tipico clearly understands the importance of the demographic – the operator’s average bet size is just €2.30.

Tipico finds itself at something of a crossroads. It has undoubtedly grown its brand significantly in Germany in the last two or three years and it continues to do so with high-profile sponsorship agreements. But just as Bayern Munich’s dominance in Germany has not made it immune to threats from elsewhere in Europe, Tipico will be looking over its shoulder at other, larger firms looking for a slice of the German market.

This puts the firm in a strange position as far as the regulatory outlook goes. Of course, like any operator, Tipico would like to see a regulatory framework befitting of a market Germany’s size. But it must also appreciate that the regulatory chaos has kept several big hitters out of Germany and allowed it to scale in an environment considerably less competitive than the UK. How Tipico capitalises on this head start when greater competition arrives will go a long way to determining its future prospects.

Part one and part two of our Power 10 countdown were published earlier this week.