(NOTE: This Op Ed was first published in EGR Intel. I’ve put interesting links & other opinions in from people, at the bottom of this piece).
(I’m currently available for consulting or interesting work / jobs / projects – focused on Marketing, engagement, structures & culture & general business performance).
“Deeds will no be less valiant, because they are unpraised.” JRR Tolkien. The Lord of the Rings.
I loved Peter Jackson’s early work. The scale of the Lord of the Rings was truly epic – but is a Flutter / The Stars Group – a blockbuster too far? Or will US box-office be the new, new thing?
This is the deal that puts the rest of the industry on the back foot. The headlines we’re all used to seeing in terms of industry mega deals can summed up by “bigger is better & scale trumps all…”. But IS bigger better? And what happens to culture? I spoke to mid-senior people in both organisations and the general reaction was big picture positive, but followed with a biiiig sigh and observations around “more of the same battles to the death for people & teams.”
There are some areas that I think are really interesting here.
DOES SCALE & REACH SUPPORT POSITIVE CULTURE? The merger of (TSG & Flutter) cultures will be both a) fascinating and b) something that will drag on the culture for the next 2 years. Both companies have been there & done that (in terms of mergers) – but it’s the foot-soldiers / middle management that will both bear the brunt of the cuts and have to struggle through whilst “synergies” get negotiated. High level costs & targets will already be known (in terms of synergies / 140M) – but (I know from experience) that Steering Groups will be kicked off / egos will surface & Game of Thrones will have nothing on internal meetings over the next 12 months. Flutter is the boss here. Dublin is now the head office. Dublin has tended to be more of an historical (Full Tilt related) outlier for TSG, and they only introduced a site CEO this year. Scale & reach seems to be the new paradigm for the online gambling industry but there is a big (unanswered) question – can positive culture or habits be scaled? Particularly in an industry that has struggled with negative newsflow + lots of M&A + uncertainty over the last few years.
WHO MATTERS IN M&A? NOT THE END-USER: Speaking of Culture, IF “Culture =’s Brand” then this new organisation will be…diffuse. The reality is that 99% of consumers of Stutter brands will have no idea of any corporate change – or won’t care. This is a bigger news story in Ireland, due to Paddy Power’s brand heritage there – than it is in any other territory. The overall brand portfolio now stretches across Paddy Power, Betfair, Adjarabet, Pokerstars, Skybet, Full Tilt, BetEazy, FanDuel, Foxbet – as well as various sub-brands that sit within verticals in the brands. The best brands that I’ve worked on & with are aligned around a common purpose and mission to do XXX for the customer.
The sheer scale, weight, technical & budget challenges (and overall integration) means that brand alignment & resource allocation will be a power game as to who can get what, based on their ability to navigate the organisational power structures in a way that puts their brand needs highest. My own experience is that when people are a) concerned for their jobs b) having to compete for shared resources and c) having to navigate new relationships and comms structures – that the focus gets taken off the customer. Only time will tell here – but you feel that there are opportunities for more agile, more aligned gambling brands to deliver greater customer focus (and results) in the short to medium term.
RAFI WILL KILL IT AS COO: I first met Rafi when he was COO of Playtech. He was always viewed as the guy that would give you a straight answer, wouldn’t fuck around – and then deliver what he said he would. He knows gambling & the industry inside out, and there has always been a general feeling that if you were going to pick an industry COO – that he’d be #1.
This is not in opposition to him being CEO of a large public firm – but a case of Rafi being most comfortable being down in the absolute detail of the days to day, and not having to be the “BIG VISION, BIG MISSION…” sprinkler of fairy dust on a large organisation. Richard Flint is a great example of someone who combined the ability to inspire (teams) internally, and have enough charisma and slickness to put an acceptable face on an industry that is struggling with reputational issues. My gut feeling is that Rafi will be more comfortable with an inward VS outward facing role. He’s one of the good ones. I don’t know Peter Jackson – but he’s already got a board (eg: Gary McCann) that has ‘been there/done that’ in terms of long term growth and debt management.
I’m fascinated to see how Marketing gets apportioned out on a Group basis. Flutter moved to MD’s that were brand & territory focused. TSG’s (marketing structure) approach has been more vertically focused – both in terms of product & where the customer sits in the lifecycle. There has been a move from a general online POV, to break down the CMO role into complementary, but more technically focused areas. A Group CMO announcement? I wouldn’t be too sure about that.
MARGIN MATTERS. WILL POKER MATTER? TSG’s debt weight has been a killer. TSG has consistently delivered some of the best margins in the industry, but over the last few years hasn’t been able to touch it – due to the requirement around positive cashflow. The converse of this is that TSG’s marketing spend has been the lowest of its (industry) peers – as a % of its online revenue. The theory is that less drag of debt, deeper pockets (budgets) and rationalised Marketing overhead (people & partners) will allow an increase in the % of spend VS revenue – that can help drive top line revenues. However – it’s never as simple as this. I know Poker (for example), has tended to be at the bottom of the list of priorities for Flutter – as general category growth has tended to be focused on the Sports & Casino verticals. ‘Stars has always taken the lead in terms of category-widening (for Poker) – but my gut-feeling is that the Group focus may not allow this (for Poker) – and that x-sell will now be #1, 2 & 3 in terms of Poker focus.
This probably creates even more of an opportunity for Partypoker (& GVC) in terms of building on the real authenticity that it’s built up in the Poker space over the 18 months or so. Party’s challenge here – is to maintain Poker authenticity, whilst building more holistic and seamless Poker-driven gambling experiences – for the more “recreational” type of player. Stars Rewards is a beast at doing this – very interested to see if their model and player experience with Stars Rewards gets used on a wider Stutter group basis.
THE TERRITORY OPPORTUNITY: I think that this is where this deal gets most interesting. Industry people tend to forget that online sports betting is still a) nascent in many territories and b) has tended to be behind online poker in terms of (early) online adoption. Pokerstars was a truly global operator, before Paddy Power (for example) was of any significant size. If you look at the US as a territory – Poker has been the more “acceptable” face of online – and sportsbetting is only catching up. If you look at the territories below – I’d have a belief that Poker as an entry point – is going to be far easier to gain an (initial) toehold and expand from there. It’s where Flutter are probably most looking to growth – outside of the pure US story.
THE US IS WHAT MATTERS. Fox Sports + Free To Play. Fanduel + Poker. A Pokerstars legacy that goes back to the early ‘Noughties. Even Full Tilt as a secondary brand? Boots on the ground already in key markets. An Exchange in New Jersey. US fantasy sports marketing experts as part of the Management team. There is very little not to like about where this positions Stutter in terms of the overall US opportunity.
I’m familiar with the people from TSG that are over there. (Less so with the Flutter team). They are some of the smartest guys in the room & highly motivated to succeed. BUT – there is a question now, as part of an even bigger organisation that has an updated vision & mission – as to whether there will be organisational challenges that will slow up what they want to do. Decisions that have already been made in terms of budgets & resource allocations will be picked over again. Flutter will want to have some of Peter Jackson’s men up close & personal with everything that’s going on. Trust will have to be built up – at the same time that a 10 figure marketing spend is marching out the door in the pursuit of market share / land grab.
There are still some outstanding questions over who owns what IP, that relates to sportsbetting business procesess (eg: cashout) due to how the USPTO treats IP versus the EU. Firms are circling that one, and it could prove expensive. Positive newsflow about the US will the petrol that will drive the engine of the share price here. It’ll be one to watch that’s for sure.
SPORTBETTING PLATFORM FIGHT TO THE DEATH: Openbet. Skybet. Betstars. Betfair. Migrations. Integrations. Trading teams. Margin. Trying to see the wood for the trees in terms of technology / market fit – is as much of a political game, as it is in terms of the best technology and capability winning. I know that if was Skybet – I’d be concerned that my expertise was complementary to a core Paddy one. I know that the Trading overhead (in terms of headcount) at TSG. was punching well above its weight in terms of markets / scale per trader. Their challenge was market / platform fit due to TSG historically being a Poker business. Stutter have the luxury of choice, but that brings hard decisions around the big picture. Shoe-horning US sports and the required differences in exotics etc – is not an overnight job & that’ll be the focus in terms of core platform market development for the long term. If you have a “one territory, horse-racing focus” your horizons are…limited.
FINALLY – the industry is a state of flux. Mega deals have become more the norm than not. If it’s a mega deal to simply acquire tech or skillsets (a la Uber, a la Google or Facebook), it makes sense – as those deals increase capabilities that serve the customer. The mega deals in the gambling industry are driven by “synergies, reduced marketing costs because we can scale more efficiently & greater brand access to territories we don’t currently serve…” – and the reality is that – whilst the drivers are real =====- the clear outcomes as a result, unproven, at scale.
For example, performance marketing is not binary. Just because you own more brands, and have a smaller Marketing dept(s) doesn’t mean that your acquisition costs will go down. You are still competing against your own & competitor brands. Your (corporate) scale doesn’t mean anything to your end-users other than a greater ability to deliver hygiene factors around security and safety.
New management + revised territory marketing plans, based on new priorities + decisions around technology + integrations + internal politics + lack of clarity around future structures + the challenge of owned or licensed IP (in the US) + responsible gambling focus + regulatory pressure – all at bigger scale – do not suddenly become easier problems to solve, just because you are the biggest. Unfortunately – creating scale, scales your challenges too.
I’m looking forward to watching how Peter Jackson’s next epic unfolds. It’ll definitely be big box office – but will it be…good?
I’m available for full-time work or consulting – details here.
Other good articles & resources that are linked to this deal:
Here is the Flutter-Entertainment-plc-and-The-Stars-Group-Inc – corporate-doc that gives an internal >> external rationale of the deal.
Here is the investor presentation from Flutter – here.
Here is the link to TSG’s last investor roadshow and set of strategic priorities – here.
@brettsmiley breaks down greater specifics on Foxbet and Fanduel & the US opportunity – here.
@gamblinglamb (Alun Bowden) gives his expert analyst take on his four pillars of risk – here.
@DustinGouker looks at what it means for everyone else in the US – here.
Here is where I break down the US IP piece that relates to Cashout – here.