Get the party re-started: Inside GVC's assault on the US market

As multi-brand online gambling groups go, they don’t come much bigger than acquisition-hungry GVC with its bulging portfolio containing more than a dozen operators and sites covering all the main verticals. And with the recent acquisition of UK-centric online and land-based heavyweight Ladbrokes Coral in a deal worth up to £3.9bn, the enlarged Isle of Man-based business is now valued at £5.3bn. It’s a far cry from when renowned dealmaker and former accountant Kenny Alexander took up the role of CEO in 2007 when the then-insignificant GVC was valued at around £26m.

As a result of colossal expansion, largely accrued through acquisitions rather and organic growth, GVC has become a huge international operator, and one of the next big markets in the operator’s crosshairs is the US. “For us, the US is a very strategic market. And we think GVC is in the best position to be a major player,” COO Shay Segev confidently tells EGR NA. Besides recently becoming a board-level member of the AGA, GVC is also busily embarking on a drive in New Jersey to kick-start the partypoker and PartyCasino brands and, in turn, deliver value for online partner brands Borgata and playMGM.

Indeed, GVC recently migrated partypoker’s casino to a new standalone site – PartyCasino NJ – and plans are well underway to unleash a live dealer offering for customers in the Garden State in early May (see box on page XX). Before the new site, the casino was a sub-site of the partypoker NJ client and reached through a tab in the partypoker app. Now, though, it has also been given a complete makeover with improved navigation, a modern interface and a fusion of purple and pink hues to align it with the appearance and layout of the PartyCasino product for the dot.com markets.

The new site, which recently underwent a successful soft launch, features 250 games from New Jersey-approved suppliers, as well as in-house slot titles including Melon Madness. More games are due to be added in due course. “We are positioning the casino as a strong, state-of-art casino utilising the latest GVC technology,” says Paris Anatolitis, GVC’s head of casino and gaming. “We are closing many product gaps, adding our newest proprietary content, plus third-party licensed providers in the US. The feedback has been very positive from our players who tell us they like the additional content, the new fresh design and the improved user journeys.”

While the old partypoker casino product will still be available to users, Anatolitis said the re-launch of PartyCasino had been “on our radar” for some time, but it was a case of managing priorities across the group. Now, though, the operator finally has a dedicated casino site like most of its rivals. “The party brand still has a lot of weight in the US market but what we are doing now is shifting our focus from poker to casino,” Anatolitis says. That shift can’t come soon enough with poker revenues across the industry in New Jersey flat-lining around $2m a month since October 2016 before dipping to $1.77m in February – the third-worst month ever for the vertical. Poker now accounts for just 8% of the regulated egaming market.

By changing tack and doubling down on casino, was the focus on poker a strategic mistake in hindsight? “When bwin.party launched in New Jersey [in 2013] the view was that we could leverage a lot of the partypoker brand which used to be huge in the US,” says Segev. “What experience has shown the last six years is that New Jersey is more of a casino market than a poker market. So, the whole strategy at that point was incorrect – it was wrong. The rationale was probably right but, in practice, it didn’t work because poker became relatively small compared to casino.”

Rise, fall and rise again

Although PartyCasino is one of the oldest online casinos in the world, having launched in 1997 as Starluck Casino by then-parent company PartyGaming, it’s the partypoker brand that took the US by storm in the early 2000s. By sponsoring the World Poker Tour, which was first aired on the Travel Channel back in early 2003, this exposure helped propel partypoker into the largest online poker site on the planet, while the four reclusive founders became overnight billionaires when the four-year-old start-up went public in London in 2005. PartyGaming was worth £7bn at its peak – more than twice the market cap of British Airways. However, the founders and stockholders suffered a crippling ‘bad beat’ in October 2006 with the passing of UIGEA which forced the operator to cease accepting US traffic. Around 75% of its player-base vanished in an instance and £2.5bn was wiped off the company’s value.

PartyGaming and its shrunken partypoker site soldiered on, eventually merging with Austrian-based operator bwin in 2010 and creating what was at the time the world’s largest listed online gambling company. It didn’t turn out to be a match made in heaven, though, and five years later the beleaguered bwin.party business was devoured by GVC in a deal worth £1.1bn.

“To a certain extent,” says GVC spokesman Jay Dossetter, “the partypoker brand suffered from that malaise in management throughout that period prior to the GVC takeover, so it’s taken a little bit of time to turn that brand around.” Indeed, during an earnings call in March in which GVC announced net gaming revenue for FY2017 had jumped 13% to €1bn, Alexander pulled no punches when he said partypoker was “very, very poorly managed” before the takeover and that the previous management paid “zero attention to it” and were “letting it die.”

The party-powered Borgata poker client

In 2017, partypoker’s net gaming revenue soared 42% year-on-year, which is no mean feat in today’s poker climate with the halcyon days long gone with UIGEA and then Black Friday in 2011. Much of this growth is down to significant investment in the brand and product, including an overhaul of the desktop and mobile products with new software and table design, changes to the lobby and tournaments, and introduction of a cashback loyalty program. A number of high-stakes pros have been sponsored, while the globetrotting partypoker LIVE tour began last year and boasts an impressive $100m in guarantees for 2018. The plan is to clearly to try to usurp industry leader PokerStars. “Absolutely surging,” is how Dossetter succinctly sums up partypoker’s performance right now.

According to online traffic tracking site PokerScout, the international partypoker dot.com site has a seven-day average of 1,500 cash game players, putting it in fourth position just behind 888poker. In New Jersey, where the product revamp has yet to arrive, partypoker NJ, BorgataPoker and playMGM, which share the same liquidity and network powered by partypoker’s software, muster a seven-day average of 70 players. This compares with 65 players at WSOP/888 NJ and 100 at PokerStars NJ.

Up until PokerStars NJ arrived two years ago, Party/Borgata and WSOP/888 had the state all to themselves. Yet with PokerStars and also Pala Interactive entering the space, there are now four networks and seven sites pretty much feeding on scraps. “I think we are in a good position overall but it’s just not a big market for poker,” says Segev. “Stars went in and they invested so much money and I think they realized quite quickly that it’s not a very high liquidity poker network and pulled back on the spending – that’s my understanding of it.”

He continues: “It [partypoker in New Jersey] is a good opportunity for the future of the US and I think we are in the best position to go further, both in terms of our technology and the partypoker brand.” So does Segev, who joined GVC from Playtech in 2015 to oversee the integration of bwin.party, believe GVC’s flagship poker product still carries anything near the cachet and brand recognition it once had in the US should other states regulate online gaming in the near future? “With it being more than 10 years ago [partypoker was present in the US pre-UIGEA] a lot of this value in the brand, which was the largest brand, will be lost,” he replies. “It’s still worth something – probably something big – but it’s definitely not what it used to be in the US. However, when you ask people about partypoker many of them will know what you are talking about.”

Turning the corner  

With management switching emphasis from poker to casino in New Jersey, the salient question is whether it’s almost too late for the party brands to claw back market share from rivals with their dedicated casino sites after four-and-a-half years of regulated egaming. When the starting gun was fired back in November 2013, Party/Borgata quickly raced into a comfortable lead, regularly posting monthly revenues of $3.5m to $4m – and sometimes as high as $4.5m – a month, according to DGE figures. However, Golden Nugget stole Party/Borgata’s crown in late 2016 and soon put daylight between itself and the chasing pack.

Golden Nugget and its partner brands, Betfair and SugarHouse, occupy approximately 36% of the market in terms of revenue. The trio hit new heights in February with total recorded revenue of $7.88m, and that’s despite neither operator offering poker. In fact, Golden Nugget has racked up 13 consecutive months of revenue in excess of $5m when no other rival has managed to ever eclipse this figure. “Golden Nugget did an amazing job in the past two years when they started to get the momentum,” Segev acknowledges. “They are very aggressive on marketing and what they do, and they were the first to launch live dealer which gave them another advantage.”

It means Party/Borgata and the other brands now operating under Borgata’s license occupy second spot with around a 17% share of the market in what is a closely bunched slugfest. Powered by casino’s strong performance, the sector set a new a new monthly revenue record in February of $21.9m (up 30% YoY), which was the 12^th consecutive month of $20m-plus revenues across the board. With total revenues of $245.6m in 2017, New Jersey is set to smash the $1bn-mark later this year.

Despite two soon-to-be-opened Atlantic City casinos – Hard Rock AC and Ocean Resort Casino – poised to launch online casinos, Anatolitis says the market still displaying “very healthy growth signs” and he doesn’t believe we are approaching the peak. “I don’t think we are hitting a plateau. I would say players in New Jersey are still pretty new to the online gaming product and there is a lot of room to convince traditional offline players to try hybrid products like live dealer and then learn to love the advantages of online casino. I definitely don’t think we have seen the end of the growth.”

Open the floodgates

After establishing a presence in the US, GVC is now surveying other opportunities across the country, the most obvious and immediate one being Pennsylvania. While Segev says GVC “has the optionality to enter this market”, he and the business are tight-lipped as to confirmed partnerships with land-based casinos. There is a distinct possibility an agreement is in place with Valley Forge Casino Resort as, through a process of elimination, it was believed the property inked a deal with bwin.party in 2015 after ex-bwin.party chief Nobert Teufelberger confirmed a tie-up with a Pennsylvania casino. Valley Forge, on the outskirts of Philadelphia, was recently purchased by Boyd Gaming, and the Las Vegas-based operator previously held a 50% share in GVC’s New Jersey partner, Borgata, which is now fully owned by MGM.

Much like New Jersey, GVC is likely to operate on a B2C and B2B basis in the Commonwealth now that it has been confirmed ‘skins’ won’t be severely restricted. Yet the elephant in the room, besides the exorbitant license fees, is the sky-high 54% tax rate on online slots. So, does this level of taxation on online casino’s biggest product make turning a profit from slots practically impossible? “I think it will be very difficult,” Segev responds, choosing his words carefully. “With a 54% tax you don’t need a PhD in maths [to comprehend the challenge].” Nevertheless, Pennsylvania will be another stepping stone on the journey towards GVC’s expansion in regulated US states.

“We tick all the boxes with what may happen in the US”  GVC CEO Kenny Alexander

You can also bet your bottom dollar GVC will be involved in sports betting in one way or another. In fact, it already is after the Ladbrokes Coral acquisition as in 2012 Ladbrokes acquired a 65% majority stake in Las-Vegas-headquartered Stadium Technology Group, a provider of in-play betting software and risk management to race and sportsbook operators. “This is a very strong technology sportsbook provider in Nevada and in the US in general,” Segev says. “I think around 80-90% of the casinos in Nevada are using Stadium Technology.” Furthermore, GVC owns long-established international sportsbooks in the shape of bwin, Sportingbet and now Ladbrokes Coral, it has its proprietary technology, and employed 1,000 developers even before the Ladbrokes Coral deal.

Segev, who feels the proliferation of legal sports betting “seems closer than ever,” believes there is plenty of room for online giants like GVC and its resources and experience. “Legislation will require you to partner locally. The brick-and-mortar US brands are very strong, so they will bring a lot of value and they also have big player databases. On the other hand, the European brands bring a lot of operational expertise around marketing and digital CRM. There is definitely a space for some of the global brands, no doubt.” He adds: “GVC is in the best place to be a significant player.”

On top of this, GVC now boasts the scale and experience to enter new markets, born out by the fact its brands are present in jurisdictions around the world (90% of net gaming revenue is derived from regulated or locally taxed markets). “People may ask ‘how will you cope with everything you need to do [with the Ladbrokes Coral acquisition], plus the US opening up?’” Segev says. “We already operate in 20, 30, 40 jurisdictions that are very different. We are in Italy, Spain, New Jersey, for instance, and we are already set up in a way that supports multiple jurisdictions and multi-brands. It’s what we do and why we are in the best position once things happen [in the US].”

During the aforementioned earnings call, Alexander spoke of how from a strategic standpoint it was “vital” to secure a license in New Jersey license through the bwin.party acquisition, even though the business “wasn’t making vast sums of money.” With this foothold, along with strategic advantage of owning Stadium Technology Group, a stable of powerful sports betting and gaming brands, its own in-house technology, and a poker network to boot should more states pass poker legislation, it’s no wonder Alexander said: “We tick all the boxes with what may happen in the US.” In fact, it would be a brave person to bet against this shrewd, poker-playing Scot from eventually taking the US by storm and also returning partypoker to its former glory. GVC has a very strong hand right now.