Another year has passed and when we reflect back, it seems as though there has been little in the way of major regulatory developments throughout the world, but plenty of activity on other fronts inside the gaming market. At every corner, it appears that merger and acquisition activity has dominated the landscape over the past 12 months and it shows no signs of abating in the short-term. Within the technology spectrum, there has been considerable activity with regard to DDoS attacks and developments with regard to deployment of technical products and services. In summary, while we have traditionally agonised on a perennial basis over the opening up of newly regulated markets, there has been plenty of action within our own sector to keep every mind exercised.
On the regulatory front, the UK Point of Consumption Tax was introduced at the end of last year and in spite of all the conjecture and positioning, everyone has come through it, albeit with differing strategies moving forward. It never ceases to amaze me – the myriad outcomes that arise within the gaming sector given what appear to be tangible factors.
We have seen a number of different responses to the POC tax and I believe that we have not come across them all yet. Some companies have decided to pull out of the UK market, some have set about separating elements of the business and some have moved either headquarter functions or technical infrastructure. There were doom and gloom scenarios for some of the traditional offshore gaming jurisdictions. But by and large, most have fared quite well.
For our part as a multi-jurisdictional hosting and services provider, we are seeing continued interest across our footprint. Especially in locations such as Gibraltar and Malta, as well as London. Irrespective of the decisions emanating from the POC tax, operators will see profits affected and will need to take a closer look at operational and marketing costs.
The US market has had another year to bed down. No additional States outside of Nevada, Delaware and New Jersey have regulated any form of online gambling, but there have been murmurings from a few States including Pennsylvania and California. Maybe 2016 will see another State emerge.
It is important to bear in mind that only about 4% of the population can gamble online and so this story has a long way to run yet. In terms of numbers, all three States are experiencing stabilisation of revenues rather than any great growth curves. New Jersey has seem some modest growth recently, due no doubt to its decision to regulate casino games since online poker revenues in the US regulated markets are challenging at this juncture.
As alluded to in previous reports, it is hoped that as more States regulate, a pragmatic approach is adopted by regulators that will allow operators to use infrastructure already deployed within the US market so as to foster competition, reduce barriers to entry and minimise ongoing costs.
Mergers and Acquisitions
Going back to the introduction, the outstanding story of the past 12 months has been the continued frenzy with regard to large mergers and acquisitions within the industry. It was only a year ago that Amaya Gaming Group agreed to acquire Rational Group, the owner of the PokerStars and Full Tilt poker brands, for a whopping $4.9bn. The resultant effect being that Amaya became the largest publicly traded online gaming company. The ink hadn’t dried on this deal before Scientific Games Corporation announced a $5.1bn deal to acquire Bally Technologies. Prior to this, Scientific Games and Bally Technologies had acquired WMS Industries and SHFL Entertainment Inc. respectively – demonstrating considerable consolidation within the market.
Not to be outdone, in April of this year, Gtech SpA completed the acquisition of International Game Technology (IGT) in a deal valued at approximately $6.4bn including $1.75bn in existing debt – a deal marrying the world’s largest lottery systems provider with the largest slot-machine maker. In the UK market Ladbrokes and Gala Coral are going through a merger, while at the moment all eyes are on the tug-of-war between 888 and Gaming VC for the hand of bwin.party. It really has been an incredible 12 months in this space.
While most, if not all, of these mergers and acquisitions are complementary to a large degree, there are certain challenges that are unique to the gaming sector to achieve the efficiencies and cost savings that would normally be associated with such M&A activity. In the gaming sector, there are other factors to be considered such as licensing of each party in various jurisdictions, which in turn raises questions around such things as suitability. This gives rise then to the potential for technical efficiencies; for example, can content and games be merged onto the one platform, do you need multiple footprints in the same geographical areas, how do you integrate/amalgamate the different technologies that may exist.
DDoS attacks, while increasing in both complexity and size every year, have had a particular effect on the gaming sector this year. One prominent group calling itself ‘DD4BC’ has systematically been targeting gaming customers seeking bitcoins in exchange for not targeting the particular company. While this does inconvenience targeted customers as DDoS protection begins, we are pleased to say that none of our customers have been taken down by these attacks. But there is no doubt that we will continue to be busy in this area and it is vital that we continue to build upon our service to thwart these and future attacks.
So where will we be occupying our minds for the coming year? There will be continued activity emanating from the aforementioned M&A activity.
Continent 8 has already been heavily involved with a number of customers on this front and having a multi-jurisdictional footprint has allowed our customers to move infrastructure across different data centres to comply with regulatory and legal requirements, while at the same time we can be flexible in terms of contracts and commitments across a customer’s estate.
We expect to see continued growth as the market continues to grow and we enter new markets. Projects for the coming months include building a dedicated data centre in Atlantic City as well as new offerings in Asia. These will be coupled with a significant extension of our global network into Asia allowing us to further develop our DDoS offerings and services.
On the technology front we are seeing increased interest in advanced offerings such as remote backup across jurisdictions and cloud offerings. We expect continued challenges in the year ahead!
Article appeared in the eGR Jurisdictions Report, 2015