Episode Transcript
[00:00:00] Speaker A: Foreign and welcome back to Right to the Source with Robin Harrison and Ed Birkin. We weren't with you last week because I was roaming around Paris and Ed was sitting in a sun lounger in Miami. So Ed, how was Miami?
[00:00:19] Speaker B: Miami was similar to Sao Paulo in the fact I left the sunny uk, got there for two days of rain where there was nothing to do but work in a hotel room and then the sun came out when we were at the show.
[00:00:29] Speaker A: Excellent.
[00:00:30] Speaker B: But on a work basis Miami was good. Must admit the show wasn't quite as good as the, the Rio one. Weren't as many people there, which given what's happening in Brazil is probably understandable. But it was good to get some more insight on the latam market.
[00:00:44] Speaker A: Excellent. And so what did you pick up when you were there? Because obviously it was, I suppose it was kind of like an America's show. You know, it's combining the US it's combining all the different kind of Latin American markets in Miami which is, you know, a city that they, you know, like the latam gaming community, you know, just from being at shows with them, they're absolutely love. So I mean what was, what was kind of the chatter on the show floor?
[00:01:08] Speaker B: So there wasn't loads about the US at least that I was talking about. I think when people were talking about the U.S. it was about the predictions, markets and sweepstakes. I think that's, that's the focus, you know, this, this traditional sports betting and I gaming market I think everyone's got a handle of at the moment. There's not much optimism of new states opening up. I think the, there's a little bit of chat about whether hold margins are, you know, going to keep increasing and whether actually these profit warnings, for want of a better word from the big operators are actually due to poor sporting results or whether actually last year they just had a few quarters of good results and actually the hold margin is going to be around 9% and not keep increasing. So yeah, it was really about what's going to happen to sweepstakes and prediction markets. And I think the sweepstakes it looks like it's going to follow the same path of dfs. You know, some states will regulate, some states will outlaw it and quite frankly most states will probably just do nothing and they will continue to operate as they are. And for those, those operators who are doing the sweepstakes it's a very lucrative market. If I actually got an email the other day from someone that randomly came into my junk box offering to set me up they could open a sweepstake business for me, you know, with very little regulation. I think it said we can bypass all US regulations and you can be operating, you know, in the US within a week. You know, if that's coming to, to me, I'm sure it' to a lot of people and it seems quite a lucrative idea for them. And to be honest, I think that most states will probably do very little about it. A bit like dfs.
[00:02:36] Speaker A: Wow. I mean that's a bit of a grim state of affairs. You know, we've essentially had these kind of seven years now of this, you know, fairly kind of rapid growth and of gaming expansion. We had sports betting. We had sports betting, you know, absolutely race across the states and then essentially the casino wave didn't really follow it. And ultimately, I suppose what, you know, is something that we've definitely talked about a lot in, you know, IGB's other podcasts, World Series of Politics, you know, essentially you then have this gray market coming up and without any tax revenue for the states, without any consumer protections, I mean it just shows, you know, the kind of, I suppose just the danger of regulatory stasis because essentially you've got this kind of parallel market developing which is, I mean like the numbers are difficult to see. I mean let, I think on the prediction side, someone like Kalsha is probably doing the vast majority of money from sports now. But I mean, why do you think this is? Do you think this is down to that is really down just to this regulatory status or is this more down to a lack of, you know, it's like are there kind of deficiencies in the regulated operators approaches because you mentioned earlier, you know, kind of like a whole margin and I suppose whether kind of like last year was an exceptional year for the most part until, well, I suppose until early Q3. I mean, is that really a case of things just snapping back?
[00:04:07] Speaker B: I think we need to separate the predictions and the sweepstakes, albeit they both are semi unregulated products. They'd argue that predictions aren't. They're being regulated by the SEC or whoever it is that's regulating them.
Go and listen to the other podcast to get more data on more details on regulation. I think the predictions market is just speaking to them there. They, they view it as here to stay. And even in states where there is legal sports betting, their viewers, there are a lot of players who would rather do use Kalshi than they would use one of the, you know, FanDuel or DraftKings. And they said actually just the, for the younger demographic, the user experience is better. I will hold my hands up and say I've never been on it. So I can't sit here and compare and say whether that's true or not. But people in the US believe that that is a genuine contender to legal sportsbooks in states where online sports betting is, is legal and regulated. And that's kind of there to stay on the, on the sweepstakes.
Sweepstakes been around for a long time.
They just seem to now be, be really growing. And I think that because there has been such a lack of momentum in igaming regulation over the past few years and to be honest, that doesn't seem to be changing very much. You know, this kind of status quo or the kind of limbo that a lot of these states are in, they don't really want to regulate I casino but it is, you know, then again it is difficult for them to, to, to, to really get rid of the sweepstakes. I mean there are certain states you can. But it was the same with sports betting. You know, most states have viewed sports betting as they didn't really want to touch it while PASPA was still in, in place. But how many states outlawed dfs? Very, very few. There were a handful who said we're going to regulate it and you know, try and tax it and make some money out of it. And actually it'll be interesting to see whether a number of states start trying to legalize and tax sweepstakes but still not have icasino because it's probably viewed as a softer form of igaming and maybe a stepping stone. I mean, we could sit here in five years time and say actually sweepstakes has been a very good thing for the US gambling industry because you know, it's that stepping stone towards regulation of I casino. We may sit here in five years time and yeah, there's still no other states having done I casino and sweepstake operators are making a lot of money without proper regulation and without any tax going to the states.
Been interesting one for get Brendan's view and see how they think it's going to go.
[00:06:28] Speaker A: Well, I suppose the interesting thing is when you look at that proliferation of dfs among a very small number of brands, the market was very controlled by the top two early on when sports betting came in. That's a better product, that's a more feature rich product.
So that essentially superseded it. And you could argue that something like sweepstakes, even if they are bubbling under, that's something that you could essentially Kind of push down with a well regulated I casino offering.
[00:07:05] Speaker B: Yeah.
What's going to be the catalyst for states to kind of regulate I casino? Obviously the overturning of PASPA was what kind of the catalyst for people to regulate sports betting. I suppose if there's this realization of how much money is being made by these operators or how much money is being spent by players, however you want to look at it, you know, is that going to be a catalyst to say, look, let's, let's tack this, tax this and get some money ourselves? I suppose on the flip side, as much you can talk about how much tax a state can make, when you look at it in the kind of wider widest sense of it is still very little compared to a lot of the budget deficits that the law of states are running. I mean, I remember just about probably during the financial Crisis, you know, 2009, you know, we're talking about California and like of course California is going to regulate, you know, poker. You know, this is a time when.
[00:07:51] Speaker A: Yeah, I remember that.
[00:07:52] Speaker B: That's kind of happening.
[00:07:53] Speaker A: Coalition.
[00:07:54] Speaker B: Yeah. And it's like, well, you know, look, you know, this could, this could fund this many schools or hospital, but in the grand scheme of things, you know, it didn't matter and the tribes there just had no interest in it as we've seen with nothing happening in California. So there's still a lot of, there's a lot of moving parts that could still block our gaming regulation in these states, including land based casinos who don't want it in a lot of the states. So actually I think we'll probably, if I had to try to make about myself a prediction, I would say that in five years time we're probably just going to end up in the same scenario we are. And there's a lot of people making money from that. Another not wanting to get onto illegal stuff markets the time and not saying that sweepstakes are illegal, but another chat with a few people there. The general view was if I were to open an iCasino or iGaming sportsbook now as a general rule they're like why would you go on shore in any of these markets, especially in Latin America? We're talking about the viewers. You would just do it offshore. So many people use it, so many people trust it. And the regulation is just not particularly friendly in most of these markets.
[00:08:51] Speaker A: It's a dangerous precedent to set though. I mean like not yet. Not wanting to once again kind of go back to this podcast weird comfort blanket of the illegal markets. But Res definitely feels like there is, like there is kind of an underlying attitude in the industry that regulated markets are difficult, just go gray. Yeah, I think it's dangerous for the future of the industry ultimately because this, this sector, you know, it started off very much an offshore industry and then it moved onshore. They created these big businesses. There was this kind of ongoing boom. These companies listed did very well for a number of years and now as things kind of turn, you know, they've got a lot of shareholders to answer to. You know, they're under huge pressure to find new ways to grow. And you know, for the most part that has resulted in kind of like avoiding kind of gray markets. And some companies that started out in kind of like gray jurisdictions have kind of pivoted to a legal market e kind of post M and a, something like that. So it almost kind of creates this kind of, you know, these two parallel industries. You know, you've got these two kind of different attitudes kind of, you know, like driving kind of like growth trajectories. But that's.
[00:10:01] Speaker B: Yeah, and look, I am not advocating gray market or offshore, non locally licensed or illegal have you want to call it operators and you know, choose subscriber base is largely locally licensed operators. We have regulators, you know, investors who clearly will be investing in listed companies which are mostly locally licensed. So you know, for us, from a very selfish business point of view, we want the local licenses to thrive. You know, we don't want this big offshore market and we track the illegal market because we have to. And we actually try and find ways to, you know, work with regulators to kind of and the industry to explain how we can make it more attractive. But that is just the fact is that if you don't have shareholders for public listed companies, a lot of them view it as more business friendly to operate offshore and there's not anything really being done to stop them. Or you have hybrids, big crypto casinos, for example. We don't name any, you know, who are kind of making money in gray markets and then using that to fund their locally licensed markets. And then over time they will probably become more locally licensed and get more revenues from the kind of white markets and then become worth a lot of money. So you know, it kind of funds their ventures. But you know, look, we want to be talking about Latam, which for now 13 minutes in and haven't really touched.
[00:11:16] Speaker A: Upon and you live with the U.S. so we went with the U.S. we run with it. But let's, let's.
[00:11:22] Speaker B: You said the Americas. So, so let's pivot.
[00:11:25] Speaker A: Okay.
[00:11:27] Speaker B: Mexico, you know, very interesting market, but it is dominated by a handful of operators. I mean, it was dominated by one operator, Caliente, you know, now there are others coming up there. Caliente is still, my estimate, four times the size of, you know, number two, about three, six Kaderas you got there, paid Watts.
But, you know, it is, it is a market that I don't think is particularly friendly to operators. I don't think it's bad, but it's not, you know, it's not one that's, you know, you can go, this is a utopia.
And, you know, it's tough because you go in there and there is a tale of market share you can try and get. But these guys are big and they are spending so much money. I mean, if you have, you've got caliente making over 800 million euros of these last year of gross win or probably even net revenue. And they. In Europe, you're probably looking, looking at between 20 and 25% of your revenue. The marketing spend, I think in Mexico, you know, they're spending above 50%. So you're suddenly going to a market where the biggest operator is potentially spending half a billion US Dollars. You know, marketing, you know, how do you. The market size isn't big enough for you to really want to compete at that level. So I think that makes it tough for any new entrants.
[00:12:39] Speaker A: I mean, very late. The U.S.
yeah, and.
[00:12:43] Speaker B: But that's also before you then have. At some point you have a backlash. Because if you're just doing marketing spending and doing it all through the day on all kind of different media channels, you know, at some point someone go, this is, this is too much. And then you start having a crackdown on marketing. Mexico is good for some of the bigger operators in there, but I think it's very tough for people to come in, you know, this idea of, let's just go. And we talk about them a lot. But, you know, I saw some DraftKings saying international expansion is a sort of kind of when, not if. And a lot of people may assume that Mexico is, you know, an obvious one, you know, on the border. I mean, that will be tough. You know, that is a lot of money. If you look at what their EBITDA is at the moment, that is a lot of money them to try and really compete there. So I don't think that's something that's hugely attractive for operators looking to, especially for a large operator who's actually looking to make a material difference to their revenues. If you're a small operator, you know, going in there and you, you know, getting a few million more, you know, 20, 30 million in revenue, that's fine. But what's 20, 30 million in revenue due to a fanduel or draftkings? It's nothing, especially when you've got the costs associated with it. So I wouldn't say Mexico is one you go into. Obviously we've talked about Brazil at length. Next one, Argentina. And again, speaking to a couple of operators there, the view is it's become a lot more a better market now. You know, the inflation's kind of come down a bit and it's the currency stabilize. You can get money out of the country. However, on the flip side, there are very few provinces you'll be in. And I think an interesting way was put to me was that you have had the different provinces and it'll always stay regulated on provincial basis and they are happy with that. They are not trying to say, you know, there should be federal licensing, but you have, you know, what's generally accepted as licensing conditions in Buenos Aires? You know, the city or the province? Both, that you can, you can work with, you know, people that's the, that's got the most operators because it's the biggest market and people have said we are willing to get license there. These are conditions that are not too onerous for us to get a license. But if you start going to smaller province where there's a very small market size and they want different licensing conditions and you have to go through that whole process for a very small party, the operators are just not going to do that. If, however, this, you know, another province, and I believe I could be wrong here, I believe Mendoza's done this where they've effectively copied Buenos Aires. Then they said, look, if you're saying that we are proven, we can be licensed in Buenos Aires, we'll have the same conditions and then just get a license with you charge whatever tax rate you want, you keep all the tax revenue. You know, it's up to you how you do it. But as long as all the technical issues and all the rest of the regulation are the same, then we will happily get a license in your province. If the smaller provinces start trying to make their own regulation and change it, then it's just, it's just going to be a dot com market there. No one's going to bother getting a license in all of these smaller provinces. So I think that's an interesting one that should try and be communicated probably to some of the other regulators. There, probably through the lotteries, that they need to just have some homogenous licensing and the regulations around it and they go, look, you know, do it yourself.
[00:15:39] Speaker A: But some kind of, like, passporting system, you know, like, you could even kind of include, like, local elements, like, you know, maybe kind of like advertising regulation is handled by the individual provinces, but ultimately have a licensing system that accepts it. If you're licensed here, as long as the standards kind of match or exceed the other, you know, one exceeds the other, then you can, you know, kind of move in. I mean, in terms of that market size. Because, I mean, like, it's. It's interesting you bring up Argentina because generally it is kind of disregarded because it's, you know, it's kind of fragmented, you know, for, like in Europe, there's kind of echoes of, you know, the German market and the kind of chaos that we had there before. We finally got a, you know, a kind of a system that's hopefully starting to work. And there's obviously a lot of good people kind of like pushing for further change to really kind of make it work.
[00:16:32] Speaker B: A system that's starting to work. Is it okay?
[00:16:35] Speaker A: I think. Well, I think there's kind of. I do feel there is kind of broadly, you know, at least among the industry, recognition of the issues and kind of a clear and concerted voice to push for change. But with Argentina, you know, it's been disregarded along the same ways. You know, it's kind of like it's broken down. It's not like the individual provinces have the same. Aside from Buenos Aires, have the same kind of return as like a US State, you know, so, I mean, terms of sizing, I mean, like, how were you kind of looking at that? Are you looking at that in terms of, you know, like individual provinces, or are you looking at that from the perspective of Buenos Aires, then the rest in terms of, you know, like revenue projections?
[00:17:17] Speaker B: Yes, it's, you know, it's difficult to get a lot of data from the individual provinces. So we're working with some of the lotteries, trying to reach out to them, because a lot of them, same licensing. And so at the moment, our data is on a.
A nationwide basis. But yeah, if. If we're looking at it as we're getting provincial breakdown, then so you look at it as Buenos Aires and then the rest. And then over time, you start looking at it and try to say, right, which are the ones that actually you can get one. Get some data for, but also which are the ones that people are Going to look at and say it's not just on size. I think you have to look at its attractiveness, which is more than that. And so if you have some kind of passporting and you say, look, Mendoza's gonna have the same regulation, you'd expect most the operators in Buenos Aires to get a license there. And then it becomes more att. But I think it will be piecemeal, actually, if you have a few provinces doing it and saying that, you know, this is a smaller province in terms of population, but they've got a lot more people licensed than us. You know, why is that? Oh, okay. Because they've made the regulations, you know, similar or the same, you know, as in Buenos Aires or is in another. Another province where people are regulated. You know, they can charge their own taxes, you say they can do stuff around the edges, their own advertising rules, et cetera. And they go, why wouldn't we do that? Because that's, that's a way to get people unsure. And that's effectively what everyone wants. You know, everyone wants. If there's going to be gambling, they want to unsure. So I do think that makes it. I do think the potential there. But, you know, sitting on the outside and saying this makes logical sense. And then actually what happens in a country are two very different things.
[00:18:46] Speaker A: Yeah. Moving from one slightly inhospitable market to another. I just want to finish up talking a bit about France. I mean, I am aware that this is a bit what we did in our summer holidays, but I think, you know, I think they're quite kind of interesting a places to talk about because France is like France regulated. Around the time I started in the industry, I think it was definitely in that kind of, you know, like early 2010s, whatever it was, and very limited market, which is unusual in Western Europe. Very high tax rate, which now is the norm in Western Europe. But at that time was unusual. A lot of, you know, it was one of these ones that kind of started out, everyone's very interested in. It became very difficult, you know, definitely got deprioritized by a lot of companies. But despite that, the market continues to do relatively well. I mean, I think I'm just going to try and seamlessly check some stats. But I think, you know, online gambling was up about, for revenue about kind of 12% last year.
And it continues to grow despite the difficult operating conditions, despite people pulling out.
It keeps kind of, you know, it keeps kind of performing. Obviously it had a few kind of difficult years, but it feels like it's an interesting situation in that despite the kind of high tax rate, despite, you know, kind of pretty onerous conditions on the operators, and, you know, even the fact that when ANJ saw, you know, kind of like a big increase in, you know, kind of gambling activity, it kind of said this needs to be done sustainably. It started monitoring advertising more closely. It started kind of approving advertising kind of strategies. And that hasn't, that hasn't really kind of like checked this momentum that France is developing. And then obviously the big thing once again, you know, kind of illegal, like illegal gambling kind of floats onto the horizon. France didn't have I casino and that's obviously a huge mess. You know, there is. There is by all accounts fairly large a kind of offshore I casino market. There is an interesting kind of push pull between different kind of groups. For example, the kind of like the seaside casinos on the Riviera.
The companies behind them want to be involved in the online gambling market. Fdj, I don't think I've seen any kind of change in this, even despite the acquisition of Kindred and it becoming FDJ United.
Stefan Pali for a piece for a IGB sister publication, Global Gaming Business. It's available on ggbmagazine.com Stefan Pali said that, you know, it was kind of not vehemently against icasino, but, you know, wasn't broadly in favor of it. You know, so you've got. You've got kind of groups with, you know, the people that are supporters are not necessarily people you'd expect.
So what do you think about the prospects for ICASINO in France?
[00:21:53] Speaker B: I think that FDJ has got a very hedged position now. You know, on one side, they probably don't want it because, let's be honest, there's a risk, you know, potentially they may view a risk. I'm not saying there isn't or isn't a risk of it. The data can show kind of what you. Whatever you want, really. But, you know, they may say that it competes with their, you know, online lottery product to clear the instance. You know, online instance versus slots. How much of a difference is there?
There is a difference, but, you know, around the edges there probably would be some cannibalization.
And then also if it just generally makes it a more attractive market and you have more competition because they say it's growing, but it's growing with a very small number of operators. You know, France has managed to protect its, its monopolies. They've opened open the market, you know, at least according to what they had to do with the legislation.
You know, fdj, the mu are two of the biggest players in the market. And that's from my, my view that's kind of what they wanted to happen. So from their point of view, it's been successful. And this is what annoys me when I hear people in the industry say, oh, look at France, it's been terrible, terrible market. I was like, well, not really. It depends what, it depends how you're doing. In terms of potential market size. Yeah. In terms of the size of the offshore I casino market. Yeah. In terms of what they wanted to achieve, to regulate it in as little way as possible and keep the local operators being the ones who get the money and not the Gibraltar based London listed operators. They've been highly successful in that. Yeah, No, I think that's on the flip side. If they did regulate iCasino, then with their, with FDJ's presence and with the Kindred acquisition, they are probably in prime position to benefit. So from their point of view, they're well hedged regardless of what happens.
[00:23:30] Speaker A: I would also add backlik, you know, it's. I think, you know, obviously it kind of exploded onto the scene in the early 2010s, made a lot of kind of acquisitions, built up this business, you know, sponsored whole lot of football teams. I'm pretty sure Everest Poker was in PSG shirts. I'm sure it was on Leon at one point. And then, you know, expanded quite rapidly and then seemed to kind of, you know, kind of stall and then the business kind of retrenched. Obviously Nicolas Barrot, you know, could have like took charge, you know, he'd step back, you know, reassumed the CEO seat. And it feels like it's been growing in this trajectory. And then obviously it was, you know, kind of acquired in one of the very limited European spacs. And this kind of roll up with a Banerjee, which is.
Well, I mean, basically most of the kind of. If you think of a TV program, one of their studios or one of their production companies probably had a part in this. And I think. And it was, it was just the other day, it was when I was in France Barley. It was a. Stephane Kirby had made some comments on I casino regulation and also kind of hinted at, you know, kind of potential M and A including, you know, for the gaming business. You know, it's like Betclick is.
It's in a few different European markets. I think it's kind of looking at Africa. I think it's definitely in A few. And I mean, I wouldn't rule them out as a competitor, especially just to wrap up before we hit 30 minutes of, you know, kind of using that as a foothold for, you know, Francophone Africa. You know, that market is something that we've kind of like discussed doing and I think, you know, now we're duty bound to do it in the next episode.
But that sort of business with that, you know, kind of like connection to France and the localization skills could be, you know, a decent springboard into that region.
[00:25:22] Speaker B: Yeah. And, you know, that is a very, very smooth transition to what we'll probably talk about now next week, Africa, or whether that's now forced us to do it. We are actually doing a series of reports on Africa about optimum regulation. Look, Backclick's done very well in, in France. And yes, the Francophone Africa. It would be a good springboard. And we'll talk about this more next week. The problem is that the, the regulation in Francophone Africa is very much based on monopoly partnerships with pmu, to be honest. And a lot of them run by the lottery.
I'm not say corruption, but distrust from players about the lotteries.
[00:25:58] Speaker A: Yeah.
[00:26:00] Speaker B: And it's the more Anglophone stuff where it's actually the regulation that it makes you. That is kind of workable, despite the withholding taxes we'll get onto. So it is a good springboard. But unfortunately, the markets where they're perhaps better poised are the ones that are actually less or more hostile, I suppose.
[00:26:18] Speaker A: But equally Becklec, as it's shown in France, has proved that it can compete in a monopoly dominated market.
[00:26:26] Speaker B: Yes. Just not in a market where there is only a monopoly. But we'll look at the different ones in Africa next week because we have gone over 30 minutes, so you're going to have to do some editing. And it's been again, quite a random mix from US Sweepstakes to Argentinian provinces to French regulation to Africa.
[00:26:43] Speaker A: Yeah. It's been a very long time.
[00:26:44] Speaker B: I don't know how you can describe it as, as what we're talking about because you know how some podcasts are really well structured and they go, you know, this week we're talking about Mexico.
[00:26:53] Speaker A: Oh, yeah. This is more in the kind of. This is more in the jazz side of podcasts. You know, I mean, it's free form. We see where it goes, you know, we see where the, the music takes us. So we've ended up on Africa.
We will be discussing that next week. Thank you very much for listening, everyone. This has been episode four, I think of Right to the Source with Robin Harrison and Ed Birkin. See you next week.
