Last week, Evolution Gaming offered €1.8 billion ($2.02 billion) for NetEnt AB, which while a large deal in absolute numbers actually has even greater implications and lessons for the gaming space (both social and real money). While a $2 billion deal is significant, in the grand scheme of iGaming it is dwarfed by Flutter’s purchase of the Stars Group; GVC’s acquisitions of Ladbrokes, PartyPoker and Coral; and even Stars’ acquisition of SkyBet. These other deals, however, were largely driven by synergies and market opportunities while the Evolution acquisition of NetEnt shows a structural shift in the space.
Live Dealer for the Win
The most important lesson is that the Live Dealer vertical is becoming the most important, and valuable, segment of the gaming space. This transaction shows that Live Dealer, which effectively did not exist ten years ago, now is driving the casino industry. NetEnt is the largest provider of online real money slots content in Europe, so the fact that the largest Live Dealer provider was able to acquire, rather than by acquired by, the largest slot provider shows the relative value of both verticals.
What is Live Dealer?
For those not familiar with Live Dealer, and it is still largely unknown in North America and in social gaming, a live dealer casino is a room, or series of rooms, on an online gaming site, where you can play traditional or modern casino games that are run by a real-live person. Games run the gamut of table games you would see in a casino, with revenue largely driven by blackjack, roulette, lottery and baccarat, though there are now many interesting variants and new game categories. What makes Live casinos so exciting is that the games are run in real-time by a human dealer and players are able to take part in the game on their mobile device or computer. It also increases players’ trust, as customers often will trust a live person more than a Random Number Generator (RNG).
Who is Evolution Gaming
Evolution Gaming (Evo) is the largest provider of Live Dealer content and services to Real Money Gaming operators; they provide the content that its customers (online iGaming operators) then show to players (Evo is 100% B2B). Evo was founded in 2006 and reached its first agreements to provide Live Dealer services in 2007. Evo now has over 70 percent of the European Live Dealer market and has continued growing about 30 percent each year. It has over 700 table and offers Live Dealer content to its customers’ players every hour of every day.
Why this deal shows Live Dealer has won
Very few companies have gone from start-up mode to being able to make a $2 billion acquisition of an industry leader in such a short time. While Evo has run its business brilliantly, it shows the underlying strength of Live Dealer. While the Live Dealer vertical is about 15 years old, compared to the Slots vertical which has been around since 1894, it has already surpassed slots with several major online casinos and is likely to at least be equal with slots in the near future.
Live Casino is also a better business than slots for (a very few) providers
The other element of the Evo-NetEnt deal, and the fact that Evo is the acquirer, is that a top Live Casino provider is in a stronger position than a top slots provider. Live Casino has huge barriers to entry as companies have to create studios to provide the content and each table requires dealers/presenters as well as the technology infrastructure. With Evo providing over 700 tables, it would cost a new entrant tens of millions of dollars even to create an inferior offering. Due to these barriers to entry, there are effectively only two companies (Playtech being the other) that provide a competitive and robust offering. It is interesting that NetEnt, even with its vast resources, tried and largely failed to penetrate the Live Dealer space.
Contrast that situation with the slots world. A small studio with a talented mathematician/game designer and artists can create a slot that competes with the top providers. They may even do it without the mathematician or artists, outsourcing those tasks. Last year at ICE, I commented that slots content has become a commodity, that problem has only accelerated. While there will be some hit slots that perform exceptionally well, there are tens if not hundreds of company’s capable of creating a top-10 slot (yet only ten, at most, will).
While NetEnt is also a great company, you do not pay $2 billion for a bad one, it does not have the same defensive moat that Evo has. They constantly have to compete for operators’ attention, and eventually the attention of end users, with slots all the other slot providers worldwide. The situation has gotten worse as major operators are now creating their own slots, further fragmenting the addressable audience. This problem is likely to accelerate as barriers to creating slots continue to fall. NetEnt also provides its games in a very competitive environment, which gives operators leverage on deal terms while operators have much less bargaining power when dealing with Evo.
Implications for iGaming RMG
While most European real money gaming operators have already embraced Live Dealer, this deal shows that they should realize that both it and slots are likely to be equally important and allocate resources accordingly.
More importantly, many of the nascent US real money casinos that do not have an experienced European partner do not understand the dynamics of and need to embrace Live Dealer as a central part of their offering.
Implications for social casino
The implications for the social casino space are greater than for RMG. While RMG has already “discovered” Live Dealer, most social casino companies have not even dipped their toes into this vertical for a couple of reasons.
- It is not top of mind. Most social casino operators focus on their competitors and while they may be aware of Live Dealer, they do not see how much it has grown. Social casino companies are also often based in the US or Israel, two markets where real money Live Dealer is either non-existent or limited to a very small part of the market.
- You cannot create a good Live Dealer experience internally. Unlike Real Money, virtually all social casinos rely on internally created content. Not an issue when creating slots, many of the social slots are better than what is available in real money, but the huge fixed costs in setting up a good Live Dealer operation is prohibitive.
- Live Dealer started around 2007 and only became so powerful in the last few years, as the development of Evo shows, while the major social casinos launched what is still their major products when slots dominated (Slotomania and Doubledown in 2010, Jackpot Party in 2011, Heart of Vegas in 2013, etc.). Those products have evolved in terms of product management and the quality of the slots, but the overall products have not changed significantly.
While social casino companies have not seen the opportunity, it clearly exists. Outside of sports betting (which has different underlying dynamics), the social casino space has largely mirrored real money gaming. The various verticals (slots, table games, poker, bingo, etc.) enjoy similar market share in both spaces and see similar behavior from players. The exception is Live Dealer, and the social casinos that learn to leverage Live Dealer will enjoy the same success as the RMG casinos that adopted it early.
- Evolution Gaming, the largest Live Dealer provider, recently announced a bid to acquire NetEnt, the largest slots provider for $2+ billion.
- The deal, in that Evo is the acquirer, shows that Live Dealer is eclipsing slots in the casino ecosystem.
- For real money operators, they need to ensure they balance resources around both Live Dealer and slots while social casino companies need to figure out the best way to embrace this opportunity.
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