Q&A: Brian Kyle, CFO, The Stars Group

The senior exec team at PokerStars-parent company The Stars Group has undergone an almost unparalleled overhaul in the last 18 months. Under the command of CEO Rafi Ashkenazi, the firm has brought in a litany of big names, including Christopher Coyne as chief customer officer and Bo Wänghammar as casino MD. The stated goal has always been to help the company transform from poker-first operator into a true multi-vertical egaming operator.

And as part of the ongoing process, Stars also brought in a new CFO in the form of Brian Kyle, who may not have seemed the most obvious fit given his history outside the industry, most recently at Toronto-listed IT firm Pivot Technology Solutions.

However the hire begins to make sense when reading Ashkenazi’s comments on Kyle at the time. “He brings a wealth of experience in the capital markets working with technology companies. We expect Brian to take our finance and investor relations functions to the next level and deliver great value to our people, customers and shareholders.”

The announcement also noted that Kyle oversaw six acquisitions during his time at TSX-listed DH Corporation. It’s no secret that Stars is itching to get involved with industry consolidation, with regulated sportsbook revenues at the top of the shopping list. Kyle’s experience in raising capital and overseeing major deals then made him the perfect man for the job.

Below, Kyle tells EGR North America about those M&A priorities, plans for Pennsylvania and investor tolerance for grey market revenues.

EGR North America (EGR NA): You joined from IT firm Pivot Technology Solutions in May 2017, what have you learned about the gambling sector so far and how does it differ from other industries you’ve worked in?

Brian Kyle (BK): The Stars Group is fundamentally a technology, software and services company, so there are more similarities than differences. In terms of learnings, most immediately I’ve found that there’s a lot of smart, creative and driven people in the gambling business. It’s a competitive industry that operates within constantly shifting paradigms. Not only does the gaming industry have to deal with the changing tech and consumer landscapes that most businesses have to navigate, but also the regulatory environment. The increasing shift towards local licensing is something that PokerStars has long championed so it is embedded in the culture already, which provides a great competitive advantage as we look to expand geographically and by vertical.

There is constant change in the technology industry and we’re seeing that in our business. If you look at 2017, it was a year full of change: re-naming to The Stars Group, relocating our headquarters, enhancing our focus on recreational players, and introducing our successful cross-vertical loyalty program, Stars Rewards.

EGR NA: Presumably you’ve been looking over the economics of Pennsylvania with the tax rates for slots, table games and poker recently. Have you come to any decisions about offering verticals?

BK: We’re continuing to study the market opportunity and, of course, there will be additional regulatory decisions that will affect the dynamics and considerations. So, we expect to be a competitor in the Pennsylvania market but it’s too early to disclose any details on how or when we will enter the market.

Obviously, it’s good to be coming from a position of strength as we are, given our strong brand awareness in the US and the availability of our products in New Jersey. In general, we are optimistic that passing of legislation in Pennsylvania will increase the momentum behind igaming regulation across the US.

EGR NA: Penn National executives have said they simply cannot be profitable according to their existing models with the current tax rates. Do you agree?

BK: We are certainly in conversations with local regulators and are sharing with them our experience in other jurisdictions and the impact that tax rates have on the marketplace, notably on the channelling of customers to locally regulated and taxed sites. Around the world we have formed solid partnerships with regulators and governments under varied regulatory models. We are confident that we can create a business model that works for us.

EGR NA: It was rumored a while back that Stars was considering a move to the UK. Have you considered such a switch, and why have you stayed in Canada where gambling is perhaps less widespread?

BK: We are listed on the TSX and Nasdaq and regularly review our listing strategy. If it is deemed to be in our shareholders’ interest we would certainly consider changing our listing, but we do not have current plans to do so.

EGR NA: On your hiring at Stars, it was noted you oversaw six acquisitions at Pivot – can we expect any transactions soon? What do you look for when evaluating opportunities from the CFO viewpoint specifically?

BK: Obviously it would be inappropriate for me to discuss any potential M&A. It is clear that we are in a period of industry consolidation and, as Rafi noted in our Q3 call, we will engage in industry M&A discussions. Of course, we would only undertake M&A that meets our strategic objectives and builds shareholder value. I have spent my career building businesses organically and by way of acquisitions.  Acquisitions certainly can play a major part in creating shareholder value and we will pursue acquisitions if we feel they will do that.

Today, The Stars Group has a strong business, great fundamentals and the financial flexibility to explore various opportunities.

EGR NA: Rafi said last year Stars could raise up to $2.5bn to fund acquisitions if needed. Is that still the case, and what does that say about the financial health of the company?

BK: I remember the headline. It was perhaps taken out of context a little as it is not a specific number related to any individual M&A, more related to capacity. In general, we believe the debt [and equity] capital markets are open to us. We are a profitable company with strong cash flow. We have been good stewards of capital and have been successfully de-leveraging the company. We also have flexibility in what we do with the cash we generate. We are also investing in future growth through R&D and smart marketing expenditures that we expect will grow the business in the short and long term.

Stars Group CFO Brian Kyle

EGR NA: How important has the pursuit of revenue diversification been for the business?

BK: While poker is still our core business and is at the heart of what we do, it is now about two thirds of our revenues as compared to nearly 100% a few years ago. That change primarily comes from strong revenue growth in our other verticals over the past two years. Our products and technology are supportive of one another and facilitate a smooth cross-sell with a common account, shared wallet and the recently launched Stars Rewards, which provides relevant rewards to our customers for whatever they play.

With that said, it is important to note that revenue growth in casino and sportsbook has been generated almost entirely through cross-selling those products to our poker players, which is exactly what was intended when PokerStars initially started down this path before its acquisition. Going forward, we will also be looking to diversify our customer acquisition methods by developing our sportsbook into a strong secondary customer acquisition channel to poker, with both verticals cross-selling into casino.

EGR NA: How involved are you with M&A, or is most of that left to chief corporate development officer Robin Chhabra until things progress to a certain stage?

BK: I am very fortunate to work with a very strong executive management team, a very experienced independent board of directors and customer centric employees.  It’s a great team; we each have a role to play in achieving our growth strategy. We are all extremely focused on delivering shareholder value.

EGR NA: What do you hear from investors about a) the company and b) their tolerance for grey market revenues? Is it fair to say that tolerance is increasing?

BK: In general, our shareholders and the investment community are enthusiastic about The Stars Group and our growth prospects. I think our performance under Rafi’s leadership has demonstrated that investors increasingly have confidence in, among other things, our global strategy and execution. Working closely with our independent board and our relevant committees, we continually review our markets and where we can offer each of our verticals.

In markets that are not currently locally taxed or licensed, we work closely with those jurisdictions to promote a well regulated environment that benefits all parties. We believe our investor base has a strong understanding of that. In fact, we have gone from essentially zero locally taxed revenues a decade ago to 55% and that is anticipated to increase as more markets regulate and our casino and sportsbook grow. M&A may also help accelerate that growth as we focus on acquiring regulated revenues.

EGR NA: What do you think are the benefits and hindrances of being a public versus private company?

BK: We believe that access to public markets is very beneficial, particularly in a consolidating industry. Access to global exchanges improves our ability to further our access to capital. Moreover, as online gaming continues to grow there is certainly a confidence that regulators have in working with public companies given the requirements inherent in being listed, including greater transparency, strong governance and independent oversight.