The Risks and Rewards of Expanding to New Gambling Markets with Melvin Ritsema and Ivo Doroteia

Summary

This episode explores the implications of gambling operators expanding into new markets, both domestically and internationally. Melvin Ritsema, CEO and Co-Founder of Xcite, and Ivo Doroteia, CEO of Playbook Engineering, discuss the risks associated with regulatory differences, cultural considerations, and market saturation, and analyse the potential rewards in terms of revenue growth, diversification, and access to new customer demographics.

Introduction

Vasco: Hi guys, welcome to another episode of Bets and Balance Sheets. Today we're speaking about the risks and rewards of expanding to new gambling markets, exploring what's behind the scenes of these strategies, how companies think about them and how they plan them. We have Melvin with us. He was the general manager at Leo Vegas for a while, and he's just starting his new venture, Xcite, which is going to launch very soon. We also have Ivo, CEO at Playbook Engineering, who has worked with iGP and Sportingtech. Both of them have a lot of experience launching products in new markets and helping companies do so, and that's why they're here. Welcome to the podcast, and thank you so much for coming. We can start with exactly that: what is behind the scenes of entering new markets? How do companies plan, and how do they pick these markets? Give us all the insights.

Ivo: Okay, so thank you for having us here. It's an absolute pleasure to be part of this podcast, so thank you for the invite. Thank you, everyone. That's a really good question, though very broad. I don't think we can cover it in 20 minutes, but there are things that are transversal to all markets, and I think we can share a few. For me, one of the main concerns is regulation. Of course you can add layers of product and everything else, but regulation and uncertainty in certain markets are the breaking point of where you decide to go or not to go. Then taxation, obviously, is a big must for several reasons. You need to consider those before deciding what kind of operation you're going to have, and what exactly the market needs and asks for in order for you to be successful there. So for me, those two are crucial when you're looking at a new jurisdiction.

Melvin: Yeah. If we go back 10 or 15 years, you launched a casino and you have global coverage, and it kind of worked here and there. Maybe you saw some markets doing better than others, put a bit more focus there and started to develop them. But these days, if you want to launch a new casino, you really have to say, "I want to go after this market," and focus on it. You can't just say, "We'll launch something," or, if you're already live in some markets, "Let's translate into Portuguese and launch in Brazil and see how it goes." You're not going to succeed. You need to put the research behind it, and you need the capacity within your business to deliver. You can't just hire a translator or a country marketing manager and go with it. You need everyone on board. You need your legal team on board, like you're saying, and taxation and accounting from the get-go, to make sure you can operate there legally and soundly. But you also need your tech team, your product team, your support and your operations. You need literally everything planned out and mapped out. Launching a new market without focusing on it is not going to work.

Ivo: It's not infinite resources, right? Allocating focus to a market is not just having boots on the ground, as you're saying. You need the whole company and structure to pull towards that, otherwise it's a big mess. Marketing is good, and having a good general manager or country manager is good, but everything from customer support to delivery needs to be in line, otherwise it will fail. Today the market is so competitive that this is really tough, and you can lose money in the process. I don't know if we're going to talk about the US, because it's a good emerging market. But that's a market where, if you don't get it right from the beginning, you will most likely struggle to be successful.

Vasco: That's a very interesting point you mentioned, about local partners and having the right people on the ground. But before that, I'd like to ask: is that what actually happens in real life? Do companies pick one market and go for it, or does something different happen in reality?

Melvin: I've seen both, and I've done both. Thinking back a lot of years, in the early days of Royal Panda we launched a whole bunch of markets, and we tolerated maybe 50 markets, of which five, six or seven just performed better than the others. Then we said, "Okay, what can we do extra here? Can we get localised support? Can we get better payments coverage, better games coverage, more focused marketing?", because we were seeing the performance. But if you start now and say, "Let's launch a new market, say Brazil, or Chile, or Peru, or somewhere else in LatAm," I've seen both approaches. I've seen companies that translate the website, go live, and see how it starts picking up, and if it does, they put more investment behind it. But then you won't really take off. If you don't put everything in place, if you don't localise well enough, if you don't have the good product, the good service level, the good marketing and the good tech, you need literally everything, otherwise it's just not going to take off anymore.

Ivo: If I may add, it's more than that. We are in an industry that changes a lot. I'm not going to say every week, but in a year's time it changes a lot. When you talk about a market like Brazil, which you just mentioned, Brazil has a continental size, so even within Brazil there are huge differences between Espírito Santo, São Paulo and Rio de Janeiro. Everything is different: the player, the demographics, the investment and the player behaviour. That can also change because of local players and international players doing something different. We were talking backstage, and Melvin mentioned two players in this market. I don't know if we want to talk about it, but you know these markets, Betano and also Betsson, and how they approach the same market. Both established entities, but with completely different strategies. One goes for acquisition, the other doesn't. One is more about brand awareness, sponsoring influencers and so on. Both work, both are correct, and both come with their own risks. At the end of the day, how they maximise this, and what profit they can take from that market, all depends on the final strategy. So there's space for mistakes, but there's also a lot of opportunity. In the end, it's just about balancing it out.

Melvin: And that's LatAm, or Brazil more specifically. But look even at the Netherlands, for instance. It's a market that's been regulated for nearly two years now. Of course, quite a few operators were active there before the regulation, and some of them built a massive market share. Unibet, or Kindred Group, did very well, but unfortunately they weren't among the first to go live, and that gave an opportunity to a brand-new player, BetCity, coming out of nowhere. I believe it was within their first year of being live that they sold to Entain, for something like 300 million plus a 500 million earn-out, something massive. So BetCity, a company with no activity in the Netherlands before, built something that big that quickly and made an exit before Unibet was even allowed to re-enter the market. It was huge for them. At the same time, Entain now has one of the market-leading brands, by acquisition as well. So all the players are there, and after Unibet re-entered the market, they became one of the market leaders again. They still managed to leverage the brand awareness they had before the market was regulated. So there are many routes to success in markets. Of course, with new or soon-to-be-regulated markets, I wouldn't call it easy, but there's a big opportunity. Markets that aren't yet regulating, or have been regulated for a long time, may take a bit more time, or it may be more difficult to gain that opportunity.

How culture effects expansion for igaming operators

Vasco: You spoke about translating the website and the marketing materials, and understanding the demographics. How much do you think the culture in these places affects the decision to go there, and the chances of success when expanding your business into those markets?

Ivo: You have to know the market you're going to. Culture is one of the main factors, and the fabric of society will also influence the way you market and how you decide to acquire your customers. There are some cultural restrictions. A good example, which you mentioned, is the UAE and Islamic countries, where gambling is forbidden by the Quran. But Egypt, for example, has, I think, 14 casinos. So you see it is possible to have gambling in these areas, but you need to be very conscious and thoughtful in how you approach these markets. With respect for and understanding of the culture you can do it, but it has to come with a comprehensive understanding and respect for how things are done, otherwise you can just crash and burn.

Melvin: The UAE just reminded me: I was there a couple of years ago watching Formula 1 in Abu Dhabi, and I've been to Dubai a couple of times. One of the things they do is differentiate between locals and foreigners. Locals cannot drink there, so even at the Formula 1 race there were specific sections where locals weren't allowed in, only foreigners, who were allowed to drink and do things there. I feel the gambling regulation will be similar, where the locals maybe aren't allowed to participate but foreigners and tourists are okay, which kind of makes sense. 

Vasco: They are even assembling a commission to understand the impact of gambling on their society, so it's something we're probably going to see evolve in the future. It's not only the cultural part, but politics can also affect the success you have in certain markets. We have a lot of operators that, for example, try to get into Germany and fail because of political situations there. How can you prevent that kind of thing? Is it even possible, or is that also a gamble?

Where to launch in gambling right now

Melvin: The reason I would say Germany is not working is that, from my personal perspective, the regulation doesn't make sense. There is literally no reason I can come up with for wanting the German gambling licence right now, because the black market has a 95% market share and insane profitability, whereas every licensed casino has to deal with restrictions that are very player-unfriendly. If I were to launch anything myself at the moment, it would definitely not be in the German regulated market, because I just don't see a good business case. It's not an interesting product for the consumer, and that's where it needs to start. You cannot build an interesting product within the current German framework, and it is so easy to play at the unlicensed casinos in Germany, which is what players are doing. I don't have the official stats, but I believe over 95% of the market plays on unlicensed sites, which to me says the German system has failed.

Vasco: So what do you think are the best and most interesting markets to enter at the moment?

Melvin: I don't know if I could really pick one. I still think there are opportunities in a lot of different countries, like I said, even in new or soon-to-be-regulated markets. I don't like to comment on specific markets, because either I might want to go after them myself, or... you know, you might not want to mention where you're going. I would say there are some to avoid, where I'd say, "Don't waste your time there," but there are so many good opportunities still out there if you have the right team, knowledge and focus. And that's what I said before: don't try to launch into five interesting markets at the same time. Focus on one that you really want to do, and do it right. Put all your focus there, and if you realise you have extra resources, sure, pick a second, and if you still have extra resources, pick a third. But the worst thing you can do is go after five new opportunities with 20% focus on each of them and not succeed anywhere. If you're going after something now, be laser focused. Don't cast a wide net or try to fish everywhere. Go after one thing and do it right. That's what I would say.

Ivo: For our customers, I think the UK is a very interesting market. We have the solution there and it works perfectly, so the product is really good in the UK. I would say it will always be one of our main focuses. It might be a little saturated, but it's a mature, competitive market. It's still good, and the product is good. The regulation is in line and protects the player, which is what you want in the end. So it's a good market, but as he mentioned, we also need to go to emerging and new markets, and I think there's a huge opportunity there. I see it in Brazil, but again, you have the political issue and the uncertainty around regulation, which changes almost every week, so building a business plan around that is quite hard. But the opportunity is there, and if you're aware of the difficulties and challenges, I think you can succeed very well.

Vasco: We see this quite often. Do you think it might happen, for example in this Brazil use case, that you enter a market that, even though it's not regulated, is already saturated?

Ivo: Saturated? I would not say so, because it's a huge market and it's creating new players almost on a weekly basis. Also, the moment it's regulated and socially accepted, you get more opportunities in terms of marketing, product and so on. I don't think the market is saturated, no.

Vasco: Do you think it can happen, entering a market that isn't regulated yet but is already saturated?

Ivo: Again, in my personal opinion, I think it will reach 170 million active players at least, so to become saturated it still has to grow. It will grow exponentially, for sure, but reaching that target will take time.

How to hire and build relationships that support growth in igaming

Vasco: Okay. And just to finish, because I think this is also a very interesting question for people intending to enter new markets: you mentioned having the right partners and finding local people who can support you on that journey. How do you find these people, and what do you think are the best practices for choosing them when entering a market you don't know much about but think has a lot of potential?

Ivo: For me, that is one of the biggest challenges, if not the biggest. Across LatAm there are really good professionals out there, but you don't have quantity. You have a lot of quality, but not quantity, which is kind of bizarre when you think there's a huge population over there. But working in gaming is very specific, and there just aren't that many professionals. So to find them, I think you have to go with referrals and trust the professionals doing recruitment in those areas, and we have really good companies doing that. But I prefer to build teams from the ground up. Even if I take someone junior, I think we need to dedicate the time to mentor them, grow them and make really good, solid teams.

Melvin: Yeah, same. Finding good people is tough. If you just need advice, I'm sure there are plenty of advisory companies that can help you build a business case and maybe a launch plan. But if you actually want to build a product and operate, you need a good team with good people. And like you said, I'm just starting my new venture, Xcite, and we'll need good people, so I'll use this as a pitch: come and apply. By the time this goes live we'll probably still need a lot of good people. That's going to be the challenge, for sure.

Vasco: One thing I also see happening a lot is the opposite. For example, you're in America and you want to launch in America, but you don't have a lot of gambling experience, so you go and find people in Europe who build casinos and these online ventures. Do you see that happen a lot, the complete opposite, with local people trying to find external partners who bring the knowledge?

Melvin: For sure, and especially in the US, I think you see this a lot, and not just with individuals. I'm sure anyone who has been in the European casino or betting space for some time has been approached by I don't know how many recruiters or consultancies saying, "Hey, come help us out here." But even through massive M&A deals, you now see US companies acquiring European or existing iGaming businesses just to get the tech, the people, the knowledge and the infrastructure. For sure, I think that's one of the big ways it's done.

Vasco: That's right. Okay, guys, I don't think I have more questions for you. Thank you so much for coming to the podcast. I think it was really insightful for me, and I hope it was for you too. Make sure you follow us on social media and watch the next episodes, because there will be more. Thank you so much, and speak soon.

Ivo and Melvin: Thank you very much for having us. Cheers.