NEW YORK – A panel of financial experts said Monday that there are significant opportunities for future mergers and acquisitions in the gaming space, but said that those opportunities might not present themselves.
K. Don Cornwell, a partner at PJT Partners, said at the NYC Sports Betting Investor Summit that European development has been more defensive in nature.
He cited the current overseas regulatory environment.
“In the U.S., people are trying to figure out what capabilities do I (need), and do I have time to build them?” Cornwell said. “If I don’t have time to build them, I have to go buy them.”
The one-day slate of discussions to an audience comprised largely of operators and finance professionals was held in advance of the annual Sports Betting USA conference.
Cornwell’s panel was moderated by Edward King, managing director in Morgan Stanley’s Investment Banking division, and included Tekkorp Capital CEO Matt Davey, SBTech Chairman Gavin Isaacs, and Moelis & Company Managing Director Ramy Ibrahim.
Ibrahim agreed that operators are having challenges in Europe, calling the political environment, “toxic,” which he believes leads to consolidation.
“So where are you going to find growth? In the United States,” Ibrahim said,
King said mentioned “splashy corporate mergers” in the U.S., but Cornwell speculated lower-level deals might drive the market. He cited the recent partnership social and sports betting partnership between sports bar chain Buffalo Wild Wings and casino giant MGM Resorts International.
“People are looking around at different unique ways to lower, in particular, their customer acquisition cost,” King said.
Ibrahim predicted additional media partnerships will take place.
“How do I lower my customer acquisition costs, how do I create retention, and how do I do that so I can generate a higher return on investment?” he said.
The partnerships make sense because of the significant costs involved in establishing a brand in the United States and because a partnership allows a company to invest in and get involved with the gaming space without having to be concerned about getting licensed.
Contrasting the wisdom of business to consumer investments versus business to business, King cited the United Kingdom and European markets.
“With the No. 1, No. 2 and No. 3 market share, you can very readily translate that into free cash flow.” King said.
In the U.S., however, there’s a danger that companies will spend an exorbitant amount attracting customers and wind up with a low-tier market share.
“Where’s the actual return? We need to get to scale,” King said. “The best way to do that isn’t to build, it’s to buy.”
Ibrahim said business-to-consumer deals in the U.S. often leads to two years of massive losses.
“You’ve got to have a strong stomach and deep pockets for that,” he said.
Several of the panelists cited licensing issues, and the complexity of the licensing process, as potentially problematic when trying to lure investment capital.
“It’s not terrible but it is something to be reckoned with.” Davey said
Isaacs, a former CEO of SHFL Entertainment and Scientific Games, two casino and lottery equipment providers, said Europe is teaching the sports betting world that the business to consumer operator isn’t always the major player.
“Maybe you’re going to need some affiliations,” he said. “If you believe online gaming is part of the future and the way of the future, sport is the spearhead.”
Cornwell predicted that in five to 10 years, a major media company will acquire a major online gaming company.
Ibrahim said, “The only two things that people watch live are sports and news, adding there’s no better way to get people excited and tuned into a game than to have $40 on the (Dallas) Cowboys.”
Isaacs added that in-play wagering might keep a sports fan’s interest in games between poor teams, such as last weekend’s NFL game between the New York Jets and Miami Dolphins.
“I don’t want to cut anyone’s teams but sitting through that game would be a lot easier if you’re betting on every play,” Isaacs said.
Justin Martin is the associate editor of CDC Gaming. He can be reached at jmartin@cdcgamingreports.com
