Episode Transcript
[00:00:05] Speaker A: Welcome back to another episode of Right to the Source. My name is Robin Harrison and I'm here as always with Mr. Ed Birkin from H2 Gambling Capital, back from the Scottish Highlands. Ed, how are you?
[00:00:16] Speaker B: I'm well, thank you, Robin. Yeah, I had a nice week up in Scotland where I was for the podcast last week. Surprisingly good weather, Climbed to Munro, didn't get lost. Yeah, all is good. Good to be back in the office and see the pile of work that's accumulated and talk about Africa.
[00:00:30] Speaker A: Yes, yes, we promised we will deliver. We're going to talk about Africa this week. Obviously, it's a really interesting time for the industry and we kind of touched on this at the end of last week's podcast in that I think there's a general kind of trend of looking for new places to grow. You know, it's like over recent years, it's been competing against a relatively kind of small number of markets. Europe's been kind of, I suppose, tapering off. All the attention's been in the U.S. but as we've talked a lot about in this podcast already, we've talked a lot about Latin America. And Africa is a region that I think is really interesting. Like, it's one that I feel has always been sort of potentially the next big thing. I don't feel it's really kind of jumped to the forefront of the industry's mind, but I definitely feel that starting to change. I mean, you're seeing a number of brands starting to really kind of do some good business there, you know, and really kind of create something quite distinct in the market. You know, I'm thinking, of course about Betway, you know, Supergroup and you know, the joint venture 880Africa that, you know, Chris Coyne, Andy Lee, people like that are building up, you know, these real kind of pan national brands. And as ever, I'm keen to get your thoughts. I mean, like, what, what kind of size are we looking at for the African market? I mean, like, how, how kind of big is it currently?
[00:01:48] Speaker B: Hey, Robin? Well, it's, it's good to talk about Africa this week, although I feel that given we've spent a week we've had to prepare, as we said last week, we're going to talk about Africa. We perhaps should have used this opportunity to maybe get our first guest on, maybe someone like Andy Lee from Aid to State Africa, who probably knows more about the market, in fairness, but we can work on that at a later date. I mean, in terms of our figures, we estimate the market of generating about US$11 billion of GGR this year. But for a series of reports we're working on, and we did some back of the envelope figures that suggested if you had the whole of the African market regulating online sports, online gaming, at a reasonable tax rate, operator friendly commercial market, it could generate 20 to 22 billion US dollars of gross win by 2029. Now that's not going to happen because obviously not every market will regulate commercially and not every market will regulate in a operator friendly model. And we can perhaps talk about the issues there at the moment. But if we were to broadly split up Africa, and I appreciate not offending anyone in Africa, every single country is different and unique. If we're to broadly split it, then you've got the kind of Francophile, francophone, central western African markets, broadly lottery, monopoly, PMU based, not all of them, there are exceptions, commercially regulated. And then you have the Anglophile kind of east southern African markets which again not all of them, a lot of them are probably viewed as more commercially friendly ones of having a more open market. So you know, the market potential is pretty much double what I think the market is at the moment. But that is a, that is a figure that I don't think will ever necessarily be seen. And as you say, it is a market that some people are talking about, but it's not really got mainstream. People have been asking about it for a number of years. Not only is it perhaps each individual market, with the exception of South Africa perhaps, or if you're one of the biggest ones in Nigeria or Kenya, probably doesn't necessarily move the dial in terms of market share. It's also quite difficult to really get into without need local partners and you need to dedicate a lot of resource which is why as you say the likes of what Supergroup have done there is actually hats off. It's pretty impressive what they've managed to.
[00:03:56] Speaker A: Build and you mentioned it there. But let's drill down a bit on South Africa because obviously biggest market on the continent, but one that I think in keeping with that theme of unrealized potential is never actually regulated. RNG games obviously fixed odds products are allowed, which is why you see a lot of live dealer offerings in the country. But without that I casino piece, what's that market size? When we talk about that, I think it was 11 billion figure how much of that is, you know, concentrated in that one country.
[00:04:29] Speaker B: South Africa's a large part of it. And the problem, the question we get a lot in our data is why are you showing no I casino? Because you Know, you look at let's say Sun International's reports and they spit out I casino. And we say the fact is it is not legal and when it's reported by the regulator, it is reported as sports betting because it is a fixed cost product, a bit like the Foxes game machines in the betting shops. So we have to then make our own estimate of how much of that is iGaming or iGaming, fixed odds gaming, what do you call it? Effectively fixed odds betting but on gaming content. And then we do that by looking at the kind of growth in turnover versus growth in GGR and what kind of hold margins you're looking for the two of them. So if I'd been more prepared, I could give you the answer of what split we'd actually have.
But I can look at that while you are thinking of some other questions.
[00:05:16] Speaker A: Yeah, well, thank you for that very whistle stop tour of South Africa. Now get searching because next up, almost kind of sticking with this I casino theme because I think one of the, one of the recurring kind of trends we see across the different African markets is very much that it's sports led. You know, sports is kind of first and foremost and I casino hasn't perhaps taken off in the same way. And in particular here I'm thinking about Nigeria. Obviously it's, it's been a while since Clarion used to run Ice Africa. But talking to local stakeholders, I mean there's some, you know, really excellent kind of, you know, people have met from Nigeria in particular in the, in the market, you know, chief amongst them, Yahaya Maikore of Lo Allianz. And it's always felt sports led. I mean, is that fair to say? Or, you know, do you feel there has been a bit of a shift, you know, is online casino becoming more of a presence in somewhere like Nigeria?
[00:06:15] Speaker B: Yeah, I think if we go back a year, two years, I think the big story, big story. But what made Nigeria different to maybe the likes of Kenya was whereas crash games were really taking off in markets like Kenya because they're very simple I gaming games, they can work with technology, smartphones per se. Nigeria was their equivalent of iGaming was really virtuals and that was a big, big growth driver, virtual sports. And with that kind of equivalent of igaming now I think that I gaming has started to kind of come into the market and it'd be interesting to see how much of a share of virtuals it's taken or whether it really is additive. But it is, you know, it is very much a sports dominated Market, you know, it still has a reasonable retail size as well. I think it's about third of the market's probably still retail, although we can forecast that to be kind of flattish going forward. I think slightly down in the last year or so.
Yeah, they hadn't really seen the, the Aviator, you know, online casino. That was Kenya. Kenya really doing particularly well there. But virtuals was, was what was probably the big growth driver of the overall betting market.
[00:07:20] Speaker A: Yeah, it's interesting just to come back to you, Robin.
[00:07:23] Speaker B: Now I've got our excellent data up.
[00:07:25] Speaker A: That was some very quick searching. Well done.
[00:07:27] Speaker B: There you go. I mean our website is not the most user friendly, but when you've been working here for as many years as I have, you kind of work it out.
So we have in terms of.
So this year, let's say ballpark figures, you're looking around for online betting around 10 billion.
And for online gaming being 20 billion.
[00:07:50] Speaker A: This is the entire continent or that's just South Africa. Just South Africa. So 10 billion in 20 billion in iGaming.
[00:07:58] Speaker B: So that's the kind of, you know, that's kind of showing how big, you know, we think the iGaming or not iGaming, the gaming fronted fixed odds product is.
[00:08:07] Speaker A: And what's that in pounds or dollars or euros?
[00:08:11] Speaker B: So 20 of estimate this year of 23 billion in euros is 1.15 billion euros.
[00:08:21] Speaker A: Okay, 1.15. So it's maybe about kind of 10% of that 11 billion figure.
[00:08:26] Speaker B: So that's just for the I casino. Yeah, if we're looking, looking at the overall looking was about 1.75. Yeah, so about 15% or so.
[00:08:33] Speaker A: Okay, 15% of the total continent. I mean, first thing jumps out is that means there's a lot of, you know, kind of extra markets and doing a touch on Kenya in a minute, but I think it's just coming back to someone like Supergroup or a Africa. I think what's interesting there and what kind of, you know, I think is kind of particularly interesting for Africa is the opportunity for these kind of economies of scale for a business to become a pan national operator. You know, operating in multiple markets similar to, you know, somewhere like Europe. You know, I don't want to always go back to Europe with these things, but it is the most mature online market. So I think that comparison is worth kind of being made. You know, what we've seen there as well, we do have, you know, in certain markets, local heroes. You know, we mentioned Becklec last week. You could also mention Winnemax in France you mentioned typical in Germany, you know, people like companies like that. What do you think about the prospects, you know, considering these difficulties of more people following the super, the supergroups, the Africas and creating that multinational presence across Africa? I mean, do you feel that's an opportunity? Because you mentioned earlier the difficulty in, you know, the obviously a lot of differing regulatory frameworks, you know, kind of markets, country markets being of different sizes.
But is there a scope for someone to, to kind of knit it all together?
[00:10:02] Speaker B: Yeah, and I think you are, you're seeing that. So if you look at the likes of someone like a bet poor, for example, you know, they are in multiple countries and you know that's, I think that there are an operator who you would put with the likes of Betway, you know, who are probably trying to see a bit more homogenization, homogenization of the regulations which would make it easier. You know, I think we talked last week on, you know, about Argentina and the provincial regulation and how actually, you know, if you can get the provinces, everyone can have their own regulation and you know, everyone can have their own tax rates. But if you get the general regulation and technical aspects pretty similar, that makes it much easier for people to then want to come on shore and get the licenses. You know, one of the big issues we see in, I see in Africa is really the tax. I know people talk about tax a lot and it's easy to say this is a hostile market tax. Arguably tax isn't actually the biggest issue in most markets. I mean if you've got a large market with a well functioning market, I mean look at New York, you know, they've got 51% tax. Now that wouldn't work in most markets. And I actually think most operators wish they hadn't agreed to that. We thought they could get it down after they regulated, which was ridiculous. So I digress. Or Germany, you know, turnover based tax. But actually it's the product restrictions which are probably more of an issue. And it's not the, it's not the level of tax. I think it's this withholding tax that seems to be very popular in Africa, which I think is a big issue for the players really not necessarily for people getting regulated but for players wanting to play. And it also leads to risky behavior. So we've done this analysis where actually the average number of legs that people bet on are multiples because multiples betting is the big thing in Africa. Africa, low stake, high margin products and they don't do singles. So in markets with, withholding tax, the average bet size is 12 and a half legs versus 10 legs without and it gives the operator another 3% margin. But it's just showing that's the, the risk behavior. So if you are looking at some responsible gambling aspects, putting in a tax which actively encourages players to have to make riskier bets to get a higher return, try and generate a higher return because of the taxes that are being taken out is just an issue. And that's something that isn't really I don't think understood. And on the flip side, as we've seen in Kenya, which has been a disaster with the flip flopping of taxes and operators leaving the market, I think on the flip side is, you know, yes, the regulators or the governments want more tax, which is probably one of the reasons they do it. But also there's a concern about the proliferation of gambling. And so if they see the market collapse and I get the impression from far away that they're like, well okay, people are gambling mess, that's good. Well they're not, they're just gambling with offshore operators like you just cannot, as sad as it is to say, you cannot stop it. So again, comes back to the whole, you know, bringing people onshore, consumer protection, having a well regulated market and we've just done three reports, hopefully doing some more on Africa, which I believe are going to be live on the IGB site soon. And they're talking about what they need from well regulated market. Second one on consumer protection and the third one on tax. And it just shows the distortive impact of withholding taxes. Then comparing state taxes and to be honest that can be applied to any market really. So I think it's quite an interesting read to see how it affects player behavior, how the effect of tax rates, etc. The other issue with not issue per se, but what's helped grow the market so well has been some of the payment processing slant and things like that. But again in most markets you tend to have this single payment provider or at least majority of mobile payments going through one. I think some of the fees, you know, if the fees are about one to three and a half percent of transactions, that doesn't seem like a lot. But actually when you apply that to the GGR, they can be 10, 15% of GGR. So you start putting all of these taxes on top. It's not surprising that, you know, apparently not every operator fully declares all of their revenues to pay all of their taxes. We find that data when we get the, you know, you have some of the, some of the regulators who do put out data or some of the governments or tax authorities which are very few but put it out and they say things like, oh, tax collected has increased by, you know, 87% year on year. This isn't the market growth, we're just collecting more taxes than we did before from people. So the data in the market is very hard.
[00:14:21] Speaker A: And you mentioned that there are a bit earlier actually. But also I think kind of talking about taxes, it's worth bringing that up, which is Kenya because well, I mean it was, it was fascinating during the pandemic really you saw this boom. You know, brands like Sport Pesa became you kind of like, I mean you know, huge in Kenya but also, let's face it, internationally renowned. You know, they were on various football teams, you know, they were Everton sponsor. I think they sponsored some form of racing, maybe F1 or one of the formulas.
It's not my sport, I'm not that into it. But that was really sort of derailed by the excise tax.
Sport Pesach pulled out of the market for an extended period. Obviously came back in at a later date.
A I think it was Betika did the same. I mean has that market stabilized or is that still or has it. Has, has it ever really been able to recover? You know, because the tax was removed, reintroduced. There was a lot of kind of, you know, tax rate hokey, hokey going on. You know, it was in, it was out.
[00:15:35] Speaker B: Yes, is we talk about, you know, the three options of estates tax, GGR tax, net win tax, which is the least distortive because of the tax bonuses and the excise tax. And with Kenya they had a stakes tax and an excise tax. Yeah. 2019 they increased the stakes tax from 5 to 20% which was bad enough. But then they launched proceedings against a load of operators claiming they'd underpaid tax, which they may have done within this.
How they were calculating these taxes was highly disputable and that's what left Sportpisa to exit the market. They're estimates have 65% share. So you know, that had an issue. 2020 they realized that actually all this increase in tax meant there's lower tax revenues. So they were proposed to scrap it entirely, which they did. And then it was introduced in 2021, I think around 7 and a half percent. Then it increased to 12 and a half 15% in 2023, although there were a lot of operators in the market. Another 10 companies left in 2024 because this tax increase. So you've got this, this Large tax increase on a large tax on stakes, plus you have the, the excise tax on the players. I mean, the problem is with the tax on stakes is that how do you do it? Is that paid by the operator or is that effective, viewed as being paid by the player? So if a player, and let's explain the difference, you know, if a player is betting 100 currency, let's just say Kenyan shillings, then, you know, do you say, right, we effectively need to set our odds. We're going to have to pay 20 shillings in tax as the operator. So do we set our odds, you know, so badly that we need to make at least 30% average GGR marginal supports, which in Africa, it helps the fact that they do do lots of multiples. So they don't. It's not like they're doing singles where you just wouldn't be able to really set those odds. But do you do it that way or do you say, well, actually we're just going to effectively make this tax a player. So they're putting 100 shillings on. Do you take 20 off and say that's a tax and actually the wager is 80 shillings and then you can set lower odds and that's how it tends to be done on the latter, which I suppose makes, makes the odds a bit more comparable to operators who are not paying the tax. But on the flip side, if you know you're going to wager 100 shillings and then you know you can do it with an offshore operator and wager 100 shillings is your stake, or with an onshore, you're actually only going to be able to wager 80 and your returns are going to be lower. It makes it difficult to compete.
[00:17:59] Speaker A: That's a fair point.
And just before we finish any other kind of interesting markets H2 is tracking.
[00:18:05] Speaker B: In Africa, I think that if we're looking at some of the, some of the markets that the tax that they're doing, I would say just have a look at the different tax rates in the markets now. Well prepared. Yeah, I think there are some interesting markets and it's really the ones that are being more operator friendly in terms of their tax regime.
So drc, Tanzania, Uganda are ones that are, I hear some of the local operators talking about, which are not ones you necessarily hear more international operators. You know, they tend to just kind of name the big ones. Whenever I get asked about it, it's Africa. Then talk about South Africa, Kenya, Nigeria, maybe Throna, Cameroon or something. But I think there's a lot of other ones that there Are operators, local operators there who are, you know, working with the regulators to try and get a bit more friendly and they can probably under the radar, make some, make some reasonable money. And it'd be interesting to see if in, in a few years time the true size of some of these markets comes out because we try our hardest to estimate it. As someone once said to me, maybe you want to cut this from the actual one is actually after ICE they said, oh, you're from H2. I love your data. I mean all your data on Africa is wrong, but it's the closest that we actually get. But that's fine because every operator has two sets of books and so you'll never be able to get it perfectly accurate. Which at first I thought was a bit of an insult, the fact that our data's wrong, you know, he said, I have all of them out there. It's as close as you can get. I think when you're dealing with those issues, when you're dealing with tax authorities who admit that their tax increase has nothing to do with market growth just because they're actually enforcing more people to pay the tax their owed, you know, it becomes difficult. So it is very much a best estimate. And if I'm being honest, hopefully we're doing as good a job as we can. But you know, with the exception of South Africa, that actually pours stuff, it's, there's a lot of estimates and using however many years of knowledge we've got in the business to try and come up with the best guess really.
[00:19:54] Speaker A: Well, there you have it everyone. We have talked Africa, we've gone through some of the most interesting markets and this week let's not set out what we're going to talk about next week and see what happens. As Ed mentioned earlier, we probably could have done with the guest day to add a bit of additional color on the market. And that's something we are going to be looking at bringing in future podcasts. There's a lot of really talented people in the industry and we should probably showcase him rather than Ed's banner and my living room and high chair in the background.
So everyone, thank you very much for listening. This has been another episode of Right to the Source with Robin Harrison and Ed Birkin. See you next time.
