The strategy that backfired (twice)

Posted on | April 15, 2010 | 1 Comment

Two years ago, what were the odds for the following current facts?

• PMU is in bed with Party Gaming for online poker and with Paddy Power for online fixed odds
• Danske Spil is in bed with Party Gaming for online poker and casino
• PAF buys white label sportsbook from Unibet
• Bwin, 888 (via B2B arm Dragonfish), Betsson and similar are in semi-formal JV talks with state monopolies around Europe

The last 12 months of European gambling regulation have been as interesting as they have been surprising. Official standpoints from state owned gambling operators and other regulated gambling bodies have been extremely homogenous:

-“We will vigorously defend our market against all foreign/not-locally-licensed operators in our crusade for a more safe and trustworthy national gambling environment”.

Note that above has been the official rethoric as stated, discussions behind the scenes have followed quite different lines. Now, in Europe predominantly two main strategies have dictated the operations of private operators.

On the one hand we have seen operators that don´t care particularly much about whether local regulations are hostile or not towards un-regulated operators. Simply put, this group of operators has chosen to push hard for market penetration whilst running the risk of colliding with national governments and laws.

On the other hand we have operators that have chosen a more compliant approach, at least towards regulations which makes it a direct crime to offer and/or market un-regulated games in the country. This strategy often have bearings on either a strong desire to be first invited to the table should the regulatory environment open up for new private entrants, and/or a fear of putting existing brick-and-mortar assets at risk.

Now, the developments we have seen the last 12 months have settled the battle between these two strategies. Across Europe, states open up opportunities for private and foreign operators to become part of re-regulated frameworks. And the really interesting thing is that to a very large extent, the operators the state and state monopolies turn to are the group of rogue operators that have disregarded local law and just pushed all-in. Why? The answer is as simple as it is inevitable; these operstors have acquired massive brand awareness and trust on the local market, and in most cases also significant player bases on the back of that. This makes them much stronger partners for the monopoly operators, seeking to lock in as large pieces of the domestic market as they can also under a new regime. Duh.

So, the irony of it all is that the second strategy run the risk of backfiring not only once (not being invited to the table when state controlled operators start looking for partners) but Twice! The second slap is of course the absolutely massive revenues they have turned down all these years by staying out of the markets. I can easily see how share holders will require some clarification on this predicament.

Of course the re-regulation wave over Europe has merely started, and the new gambling brand map is far from drawn at this stage. But so far the trend is clear. One can reflect on whether the European development plays a role in the current feverish dreams many operators have on the potential US market. I for one think it should as it is a very plausible parallel development. But that is for the boards and ultimately the share holders to decide. I stick to observing the very exciting and often amusing development and progress of the Scandinavian and European market. Enough to keep me busy shall we say.

When in doubt – Raise!

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