This week may mark the completion of the latest headline-grabbing transatlantic acquisition to reshape the U.S. igaming market.
Having been dominated by sports books for the last four years, European casino platforms are starting to inch their way onto the scene.
On September 1, MGM Resorts International confirmed that its proposed $604m (€602.8m/£521.1m) deal to acquire Swedish operator LeoVegas has been accepted by 96% of the European group’s shareholders.
MGM suggested a completion date may come as early as this week (7 September). Meanwhile, LeoVegas revealed it was ready to set the wheels in motion, announcing that it was preparing to de-list from the Nasdaq stock exchange in preparation for the acquisition.
While both firms appear poised to proceed, there seems to be a lot of red tape to navigate to set the combined business up to launch on a steady footing.
In June, the Swedish Economic Crime Authority started investigating LeoVegas over potential insider trading of its shares, stemming from MGM’s acquisition offer.
In a statement, LeoVegas said it was “fully assisting the authorities” and that “no employee, member in the management team or board member in the company has been notified about any criminal suspicion”.
However, it’s unclear if the deal could complete without a conclusion to the proceedings in LeoVegas’ favour.
European regulatory wranglings aside, there is also the question of the future of existing commercial relationships within both MGM and LeoVegas.
The former currently operates its BetMGM online product via a joint venture with FTSE 100 company Entain, also the subject of an earlier, unrequited, acquisition bid. Meanwhile the latter was due to launch in New Jersey this year, via a deal with Caesars.
While MGM may decide to honour the Caesars deal and take its product live in New Jersey, it is hard to see how its JV with Entain will hold up, given LeoVegas’ sports book is powered by Kambi and its casino products run on LeoVegas’ proprietary Rhino platform.
However, it may be that the relationship with Entain soured anyway, after it rejected MGM’s acquisition bid.
It’s a lot of moving pieces in an industry under increasing regulatory scrutiny, and where in the UK recently failures to shore up legacy tech stacks has contributed to large regulatory penalties. Could MGM be lining itself up for a similar fate?
Igaming Focus spoke to Russell Karp, vice president at software consultancy DataArt. Karp pointed to transatlantic acquisitions that had worked well, namely DraftKings’ private equity driven takeover of European sports betting technology provider SBTech.
“That strategy was done smart. It was done by private equity people who know what they’re doing”, Karp says, alluding to the relative immaturity of the gaming market in the U.S., where customer acquisition and the race to grab market share may have sometimes won out over pragmatism.
“There has to be communication between business and technology, so one knows what to expect from the other”, he continues. “There has to be this relationship there and when they’re working in silos, the end result is almost never positive.”
In the U.S., there is yet to be a massive regulatory failing to hit the headlines and potentially damage a brand, if not have them withdrawn from the regulated market. However, it’s not impossible to imagine it could happen if bolt-on tech from acquisitions is not managed carefully enough to secure watertight compliance across all the states a brand may be active in.
Karp says the incentive to stay compliant is strong in the U.S. “America is polarised with politics. If somebody gets to somehow deposit a million dollars that they don’t have, and they blow through it, or somebody, god forbid, does something to harm themselves because they lost all their life savings, then you’re going to have politicians here stand up and make a statement, not only about the industry as a whole but the specific sportsbook”, he explains.
He says there are consultancies in the U.S. specialising in cross-jurisdictional compliance but he’s not sure the take up for their services is as high as it should be. “I recently met with a company called Odds On Compliance”, he says. “They’re fairly new, like a year and a half, maybe two years old but they have a very slick product. You can search anything legal around sports betting and they have the actual legislative wording for each jurisdiction.”
He thinks businesses like Odds On will play a key role in the U.S. industry going forward due the likelihood of frequent regulatory tweaks and updates, across all the U.S.’ legal states.
There’s no evidence that major players like MGM and Caesars aren’t doing their due diligence as they bid to buy up their European counterparts, but the pattern of growth appears messy, and less pragmatic than it might be in a market that had already reached the top of its growth curve.
In a market that’s just four years old, there is still a lot to learn and a lot to shakedown before these major consolidation efforts can be properly judged as successful or not. You can bet the more tentative entrants to the U.S. are looking on with great interest.