Quite a few years ago, I had the honour to work for the late Peter George. (Yes, I did have a job once!) Peter was the former CEO of Ladbrokes. I remember sitting at lunch with Peter and a CEO of another UK-based gambling company. The CEO was explaining that the businesses his company had acquired about a year earlier were “strategic acquisitions”. Peter, never one to pull his punches, quipped, “Oh, so they don’t make any money then!”
It’s true that sometimes companies explain poor investment decisions by saying they are strategic, but still a necessary part of an overall plan.
Joking aside, having a strategy is a critical part of running a business and allows the company and each department to have a plan that, if successful, achieves the strategic aims of the company.
Quite often, there is a confusion between the meanings of strategy and plan; they tend to be used interchangeably. But strategy is the why and what – why are we doing this and what is the overall direction? A strategy is the bedrock of the business; it is longer term in its goals and does not contain many details. A plan is what follows, the how and when; how do we execute the strategy and what are the timelines and steps? The plan is very detailed and is usually shorter term in its outlook.
A business strategy is, of course, future looking, but we cannot always predict the future. We are buffeted by macro events, the global financial crisis, the COVID-19 pandemic, and these are unpredictable. I doubt any company’s business strategy or the consequent plans taken could accommodate the severe economic and behavioural shocks that ensued.
Strategies need to be flexible if they are to be effective. Rigid adherence to a strategy when it is clearly not working and has no chance of succeeding is undoubtedly foolhardy. Kodak is a classic example of a company that followed an analog strategy when it was clear that digital would eat their lunch.
Kodak, founded in 1888, was the global leader in photography. The company was vertically integrated: film, cameras, and photo processing. Their slogan was, “You press the button, we do the rest”.
One of the company’s engineers invented the digital camera in 1975, but the executives took the idea no further, fearing that this new device would cannibalise film sales, an extremely lucrative part of the Kodak business.
How right they were. It also took analog camera sales and photo-processing with it.
The confluence of PCs, digital-storage devices, and digital cameras meant companies like Canon, Nikon, and Sony that had further developed digital cameras dominated new camera sales and absolutely destroyed the three main parts of Kodak’s business.
This didn’t happen overnight. Kodak continued to produce film and analog cameras and tried, very late in the day, to enter the digital-camera space. But it was too little, too late, and Kodak filed for bankruptcy in 2012.
I believe executives and boards need a flexible approach to strategy; it needs to contain some opportunism. Imagine you are an online-gaming company and your strategy is to develop the business in central European countries where you believe there is not much competition (I did say imagine).
France legalises icasino and allows it to be open to all comers. Do you stick to the strategy or do you pivot? Do you reallocate capital and resources to focus attention on France, reducing attention on the central European initiative?
I have been involved in new casino development for more years than I care to mention. New jurisdictions for land-based gambling do not come along often, especially those that have a tax rate and operating conditions that would enable large integrated resorts.
When they do come along, the usual conditions are that there are a small number of licences and a public tender. Wynn was extremely fortunate that they were selected by Ras Al Khaimah without a bidding process.
When you are of the scale of an MGM, Caesars, or Wynn, how do you grow the business? It has to be opportunistic. You cannot plan to open four IRs in the next ten years. Instead, you might look for suitable acquisitions, but at what price?
MGM spent ten years pursuing the licence in Japan and even then, it almost didn’t happen. Thailand flirted with the idea of introducing integrated resorts and if the number of IRs were limited and the tax rate reasonable, it would have been a remarkable opportunity. But a series of slips by the Prime Minister put paid to that initiative and it is unlikely to return any time soon.
For integrated resorts to be become a reality in a new jurisdiction, the stars need to align. And that doesn’t happen very often.
Companies that operate smaller gambling venues, if they want to grow beyond a couple of percentage points per year, can grow through roll-ups, buying smaller chains, opening new venues, or a combination of the two.
Opening new venues depends on the availability of licences and the willingness of local councils to approve of a new gambling business. Novomatic and Merkur in the land-based adult-gaming centre market are pursuing this strategy in the UK.
Smaller chains are usually owned by the original founders, who have an unrealistic idea of the value of their business, which makes buying at a reasonable price difficult.
Again, year-on-year growth is not assured. In Europe, and I believe soon in the U.S., the industry is suffering the headwinds of stiffening regulation. Advertising bans, zoning restrictions forcing the closure of some gambling businesses, increasing taxes (or in the words of the UK Treasury, “making gambling taxation more efficient”!), increasing age requirements, stake and prize limits, affordability checks, and spending limits all make for an increasingly unpredictable future for the industry. Perhaps the only thing you do know is that conditions will get worse.
With this in mind, in today’s gambling-business climate, it is a very brave CEO that acquires a European gambling business. Unless, of course, it is a strategic acquisition.
