Land of opportunity: Nordic-facing operators prospecting for gold in the US market
This is a very odd time for the European online gambling industry, with growing pains, Covid-19 gains and something of a mass delirium over the long-term prospects for the sector. And nowhere was this better expressed than the recent set of results from the Nordic-facing online giants Kindred and Betsson. “Betsson has delivered all-time high revenue under the most challenging conditions,” said the Betsson Q2 results release. While the typically more measured Kindred announced “Sports is Back!” in a fairly bullish outlook for the rest of the year. There was, it’s fair to say, some strong “this is fine” energy about it all.
At Kindred, revenue was up 4% year-on-year despite the sports wipe-out, with casino doing all the hard lifting. Active customers were down 11%, while there was a lot of regional variation with Nordics casino up just 6% in the period compared to 59% in Western Europe. An early exit from lockdown in Denmark and Sweden never going into one meant there weren’t the same constraints on leisure spend as felt in the other major European online gaming markets, but this is also against fairly weak comparatives. The weakness was explained away as being due to Kindred leading with the sports-focused Unibet brand in its key Swedish and Danish markets.
But there are other factors in play, and the Swedish and Danish regulators will have been looking keenly at any marketing aggression in the period. Betsson also showed 14% organic decline in the period and you sense the outlook for Sweden in particular with significant deposit restrictions around casino may be a limiting factor on growth for the rest of the year. There is a sense of current market conditions masking some underlying weakness across the mature markets of the Nordics and the UK, and you are likely to see a similar picture throughout the results season of firms talking up some shorter-term growth with only half an eye on the pending macroeconomic storm.
The question as always remains where is the growth going to come from in the ever-stricter regulatory environment and maturing markets? And we now have two more interesting answers than in the past: the much-touted idea of a big land-based to online migration finally started to show some real signs of kicking into gear during Q2 and, as things begin to open up, there is some evidence of holding onto gains made during the period in both sports betting and casino. There is a lot of the year left to run, but you can’t blame management for looking on this as a real opportunity for some step-change in what had been a very gradual trend to this point.
American dream
The other big growth opportunity, however, is the US and after some early green shoots it was a little surprising to see the normally understated Kindred giving off some bullish early commentary.
“Our US business continues to develop very strongly, despite the loss of offline revenue and the disruption to sports. Gross winnings revenue amounted to £6m for the second quarter, an increase of 131% from the first quarter. After less than a year of operations, the US already accounted for more than 2.5% of the group’s gross winnings revenue and this share is expected to accelerate in coming quarters, especially as further states go live,” the firm said in a statement.
Kindred expects to be live in five states by the end of 2021, with the plan to have a high single-digit market share in all of them, with Philadelphia already at 4.5%. It is certainly taking an aggressive line of approach at the moment, with high bonusing spend and it noted a £2.1m loss from the US in Q2.
What is interesting is that the firm has been quick to recognise the opportunity in US online casino in a market where many of the brands are sports-led and that is where some of the market share gains have come from so far. While growing a sports betting brand is far from impossible in the US market, although by no means an easy task, it does feel like growing a casino brand is a far more achievable target for European operators in the market.
The issue there is the more limited number of states with online casino compared to sports. Kindred will need to find a viable business model for sports betting in order to have a real shot at the targets it has set up for itself.
And it is far from the only European operator trying. Old rival Betsson threw its hat into the ring this quarter, signing an agreement with Dostal Alley Casino in Colorado to enter the “high-potential US market” in 2021. They also acquired 70% of Colombia-based operator Colbet.
This Americas focus is not that surprising given the growth seen at the closely linked NetEnt as well as Evolution and Kambi and the recent move into the US from Kindred. For the whole online gambling sector, the US is seen as the promised land and anyone with half a chance to stake a claim is likely to do so in the next year or two. Betsson’s plans make as much sense as any with the ambition to prove the product offering with a B2C launch before pivoting to more of a B2B supply model, as the market begins to open up more and even more land-based entities get pulled into the mix.
Taking a chance
In theory, this all sounds like a relatively low-risk, high-reward strategic option, but building out a sports betting business and repositioning a legacy technology platform for the nuance and intricacies of a very different sports betting market that continues to develop and evolve in new directions will be a significant operational challenge.
It may be a distraction that Betsson doesn’t need as it looks to recover lost ground in its core markets and put itself back into a strong position in key regulated or near-regulated markets such as the Netherlands and Sweden. It also, likely due to watching Kindred’s success, appears to be dangling its toe into the choppy water of the UK once more, and this will need to be carefully managed as to not once more represent a money bonfire.
This applies to a number of other firms greedily eyeing up the market, not least the German betting giant that is Tipico, which is moving aggressively into the US market with a similar picture of in-house technology and trading and a desire to find new growth markets. It would be surprising if other European operators with in-house platforms didn’t also take another look at the US, not least with the still fairly underserved B2B market.
But is there room for all, or indeed any of them, in the US market? The answer is almost certainly not and there will be some expensive failures over the next few years you sense as well as some potentially missed opportunities closer to home.
Betsson said it was taking a “first and cautious step into the US market” but this was also linked to an initial 10-year agreement, so that should be taken with something of a pinch of salt. Kindred, on the other hand, is far more bullish targeting high single-digit shares in five markets and with the expectations of launches in other states as they become available.
This is all from a standing start with limited technology differentiation. If it can pull that off in sports betting it will be one of its most impressive achievements to-date, and any major market share gains either in B2C or B2B for Betsson should be counted likewise. For both firms, it’s likely to be an uphill slog, and while this is still very early days in the US and it remains the land of opportunity, you just wonder at what cost for some.