What next for the social casino sector?

Just when you thought deals couldn’t get any bigger, a consortium of Chinese companies, led by online game developer Giant, dug deep into their collective pockets and paid out $4.4bn to acquire social casino behemoth Playtika. The mega-deal came not long before another major transaction, with casino operator Penn National entering the sector via its $170m acquisition of Rocket Games in August. The shopping spree has rocked the industry, which was settling down after a turbulent – and lengthy – period of consolidation.

But these deals are the perfect illustration of the appetite that remains for gambling operators and technology firms alike to get in on the social action. And while the market may be heading towards maturation in North America, opportunities to grow these businesses and drive revenues upwards still exist. That, of course, is easier said than done, and some remain sceptical as to whether Giant can extract any more value from Playtika than Caesars Interactive managed to achieve while the Israel-based firm was under its ownership. Others believe the buyout will be transformation for both Playtika and the market as a whole.

For Penn National, however, the impact of its deal will be felt much closer to home. The casino operator has been growing its interactive business – under the watchful eye of UK egaming veteran Chris Sheffield – for a number of years now. It’s first foray into digital was by way of its hollywoodcasino.com site, a free to play offering powered by the Scientific Games’ Play4Fun Network. But with more than half of its land-based customers still playing social casino games elsewhere, Penn and Sheffield knew they needed to add more substantial weaponry to their online arsenal. They needed to bring out the big guns.

Taking off

“We are always looking for ways to grow our business both organically and via acquisition where there are clear synergies,” says Sheffield. “The addition of Rocket Games allows us to continue expanding our social gaming offerings to reach a broader audience and provide our customers with a variety of content to enjoy. Rocket’s classic three-reel mechanical style games fit perfectly with our customer base, and the recent launch of our stand-alone native app, Hollywood Classic Slots, is a welcome addition to our social gaming content portfolio,” Sheffield adds.

For the likes of Penn National and Giant, the key to taking their newly-acquired social casino assets to the next level will be to identify any clear weaknesses and obvious areas of growth, and deploy a strategy that strengthens the business and allows it to shift up a gear at the same time. And while Sheffield is reluctant to reveal just how he and his team will go about doing this, he says taking an omni-channel approach to product, marketing and UX, particularly when it comes to tying land-based and online rewards and loyalty schemes together, will be absolutely vital.

“We will continue to explore an array of opportunities with Rocket Games and all of our products to create synergies with our land-based facilities to drive customer visitation and build brand loyalty. The utilization of our Marquee Rewards loyalty program (which the operator recently rolled out on hollywoodcasino.com) will be essential as it allows us to engage with our customers online, at regional and retail gaming facilities, and at our flagship Las Vegas destination resorts,” he adds.

Money matters

The latest deals suggest the favored way for operators and tech firms to enter the fold is via acquisition. The huge scale and scope of the industry is laid bare through the sheer size and value of these transactions. Indeed, for new firms considering starting from scratch, it must seem like an almost impossible challenge, maybe even a futile one. In that sense, the sector is becoming a little too big for its boots; a victim of its own success, if you like. The beating heart of social casino used to be creativity and innovation – it’s what attracted Caesars Interactive to Playtika in the first place. But that is becoming less so.

These developers have become corporate behemoths, chunky businesses that lack the flexibility and manoeuvrability of start-ups. So why don’t more operators invest capital in their own in-house social game studios? Anton Krasnyy, CEO of social casino developer Murka, says it’s all about risk. “For casino operators entering the market via acquisition, the risk is far less than compared to building your own product or white-labelling. When you acquire an established and sustainable business, you also take on the talented people capable of creating value, as well as their experience and knowledge.”

The other issue is marketing. While designing and developing games requires significant investment, the cost is often far more palatable than outright acquisition. When it comes to putting those games in front of players and making a sizeable market aware of your new and exciting content, however, some serious spend is required. Established operators already have marketing departments and budgets, and have often found the right formula delivering the best ROI. For those building from the ground up, it can become a very expensive game of trial and error. And one that most don’t want to play.

Limited availability

That’s not to say that some aren’t prepared to give it a go; The Las Vegas Whaling Company entered the market back in 2011 and has opened three studios in the past five years via strategic investment. And co-founder George Zaloom says the other option available to operators, a sort of middle ground, is a white-label solution. “These are good solutions for small operators, but if you have got 1,000-plus slots on your casino floor you have to offer more than the same set of tired games that are often common place with these kind of package deals,” he adds.

In essence, then, the fastest and most effective way for operators to enter the social casino sector is still via acquisition. But with the flurry of deals that have taken place in recent months, there isn’t much left on the shelves. Murka has long been seen as an acquisition target, and Krasnyy says the firm has held discussions with a number of interested parties over the past two years – the firm saw 3Q16 revenues jump 360% YoY to $20m giving it a 2.2% share of the market, raising a number of eyebrows in the process. The other is Super Lucky, which has attracted attention due to its unique strategy and continued growth.

“The company seems to be bucking a long accepted principle about the importance of a ‘long tail’ in social casino,” says Adam Krejcik of Eilers & Krejcik Gaming. “Notably, Super Lucky appears to release a new game each quarter that mostly replaces its top grossing game from the prior one. In other words, the company appears to be purposely cannibalizing its games by heavily cross promoting new launches, nor does it have that one big ‘franchise’ title. Nonetheless, the company has been enjoying success and outpacing the overall industry growth rate for the last few quarters,” he adds.

Drop the ball

The impact of the Giant/Playtika deal, undoubtedly the largest and most significant the social casino industry has ever seen, has yet to be truly felt. The general consensus is that Giant will lead the firm onto even greater success, perhaps with a focus on new markets including Asia and in particular China.

Playtika’s 2015 revenues hit $725m and its current market share is more than double that of its nearest rival Double Down Casino, so the prospect of it becoming even more powerful should be cause for concern for other developers. And with the global online social casino market project to be worth approximately $4.4bn next year, there’s plenty more pie to aim at. But is there a chance the new owners could drop the ball altogether?

“Barring any major employee turnover or serious operational disruptions, we expect Playtika to maintain its dominance in the social casino space led by its scale, world-class marketing, and exceptional execution,” says Krejcik. “The biggest near-term challenge will likely centre around maintaining its entrepreneurial environment, keeping employees motivated – especially those who may have benefited from this deal, and finding good new employees for expansion,” he adds.

If they do stumble, however, it could provide smaller operators the opening they need to claw back market share. Indeed, it could be argued that the time is now for start-ups and smaller developers to make a name for themselves, to be entrepreneurial and motivated. While the big keep getting bigger, social casino has been waiting for its next truly innovative game or feature to break cover. New companies that take a different approach to product and development, culture and outlook, are best placed to make the breakthrough the market has been waiting for.

“Some of the leading companies have forgotten about creativity and fun, producing mediocre games that are a cookie cutter of other titles in their portfolios,” says Krasnyy. “The way, the only way, really, for start-ups to make a name for themselves is to design something unique, and be ready to spend upwards of one million dollars on user acquisition to properly test out their idea. By offering something new to the market, they will force some of the larger operators to take note and breathe life into their own product pipelines in order to remain ahead of the curve.”

Zaloom agrees: “The social casino industry is still open to new entrants, particularly if you are a content house. We are seeing small shops launching that are only creating reel strips, or art, math and sounds, and then licensing those elements. If you don’t have a vast marketing budget, it is a fast way to build a business in the sector, especially as the larger players are constantly on the lookout for bespoke content.”

There has been a major shift in the social casino landscape in recent years, driven primarily by M&A in the sector. These latest deals mark the start of the next chapter for the industry, and one where Playtika’s rein at the top looks to be fairly insurmountable. And while on the face of it there is little room for new developers to enter the fold, the reality is very much the opposite. So long as they come armed with new ideas and genuine innovation, there will always be a place for start-ups. This, of course, is good news for operators looking to make a move into social casino, as it throws up more potential acquisition targets.

If this cycle does continue, then the deals you thought couldn’t get any bigger will likely do so. And with Double Down rumoured to be a prime target for a number of investors, it’s very much a case of watch this space.