## Market Domination: B2B Scale Wars – Finance – iGB
In this subsequent installment of our series, Tom Waterhouse, representing Waterhouse VC, asserts that Evolution’s dominance in the live casino sector makes it a fundamental asset within their investment holdings.
**Scale Wars Enter the B2B Market**
Given the historical difficulty for betting firms to maintain a distinctive presence, we anticipate that those capable of acquiring customers at the most economical rate will emerge as the leading players in the American market.
Several operators exclusively operating within the US have substantially curtailed their marketing expenditures, prioritizing profitability instead. Conversely, operators with a robust global presence, such as Flutter and 888 Holdings, can leverage profits from their international operations to fund their US marketing endeavors.
For example, in 2021, Flutter’s group EBITDA reached $1.23 billion (£1.02 billion/€1.18 billion), which encompassed a $300 million EBITDA deficit in the US. In contrast, DraftKings, a US-exclusive operator, incurred a loss of $676 million and will necessitate ongoing investment. This could potentially dilute the value of existing shares, considering the current valuations of companies experiencing rapid growth.
Churchill Downs serves as a recent illustration of a company that has not only scaled back its marketing efforts but also opted to completely withdraw from the sports betting sector in February.
The digital sports wagering and virtual gambling sector is highly competitive, with a growing number of organizations entering the marketplace. Many are striving for the largest share of the market in each state, with little regard for short-term or even long-term financial gains.
The advantages of being a major player in gaming and betting aren’t just for businesses that sell directly to consumers (B2C). While we concentrate on the most innovative smaller companies that sell to other businesses (B2B), like Voxbet, certain segments of the industry need to be large to thrive.
The Rise of Live Casinos
One segment of the industry that requires scale is live casinos. In live casinos, games such as poker or blackjack are broadcast live from casino tables using real-time video. Live casino companies then distribute this product to operators like Flutter and DraftKings.
The first live casinos emerged in the mid-2000s, and the industry expanded rapidly with the advent of smartphones and advancements in streaming technology and text/voice chat. The global live casino market is still experiencing rapid growth, at approximately 31% annually. Simultaneously, games utilizing random number generators (RNG) are growing at 15%, while traditional casinos are shrinking by 8% (according to The Malta Times). We anticipate that live casinos will continue to be one of the fastest-growing segments of the gaming and betting industry as technology and the player experience continue to improve.
Evolution Persists
Development, listed on the Swedish stock exchange (STO: EVO), operates two key business areas: Live Casino and Random Number Generator (RNG). In the first three months of this year, Development’s Live Casino division generated €264.5 million in income (+44% year-over-year), while the RNG division generated €62.3 million (+1.8% year-over-year). This €19 billion enterprise boasts nearly all major online gambling operators as customers, with income distribution as follows: Nordic 7%, UK 7%, Rest of Europe 33%, Asia 32%, North America 11%, and Other 10%. Development holds a dominant position in the global market, accounting for about 70% of the market share among 41 Live Casino providers.
The difficulties of Live Casino include: delivering live broadcasts without delays worldwide, staying at the forefront of technological advancements, continuously training on-camera staff, constructing complex multi-functional studios, maintaining customer support and chat moderation across multiple languages, and risk and monitoring. (Click here to hear Development’s Chief Product Officer Todd Haushalter discuss “Why is Live Casino so hard?”). By overcoming these difficulties daily, Development has established a significant lead over its rivals.
Development is one of the highest quality providers in the industry. We’ve spoken with many Development clients who have stated that the company is industry-leading in terms of product quality in both Live Casino and RNG. Development’s superior products and service levels have driven the company’s exceptional income and profit growth.
Digital gambling platforms are a substantial and highly lucrative sector due to the high fixed costs of studio operations, yet the variable costs associated with supporting additional players remain low. For instance, Evolution’s “Lightning Roulette” online gambling product can accommodate an almost limitless number of participants concurrently due to its multi-player adaptability.
Consequently, Evolution’s EBITDA margin has risen from 45.3% in the first quarter of 2019 to 70.3% in the first quarter of 2022. As Evolution continues to expand its presence in the rapidly growing North American market, the company is well-positioned to benefit from economies of scale and margin expansion in the region.
In 2021, Evolution’s North American operations generated €114.5 million in revenue, representing 10.7% of the group’s total revenue. Evolution maintains 7 studios in Europe, 3 in the United States, and 1 in Canada. During 2022, 2 additional studios will be established in Europe and 1 in Connecticut, USA. The business is experiencing an annual growth rate of 70% in North America. Evolution is a core holding within our investment portfolio, reflecting our emphasis on high-quality B2B providers.
Since its establishment in August 2019, Waterhouse VC has generated a total return of 1,997% as of May 31, 2022, assuming all distributions are reinvested.
Kindly note that the information provided above regarding Flutter, 888 Holdings, Churchill Downs, DraftKings, Voxbet, and Evolution is derived from publicly accessible company information and should not be construed or interpreted as financial product advice.
Waterhouse Venture Capital boasts investments in Flutter, 888 Holdings, Voxbet, and Evolution. This information is merely for general awareness and should not be interpreted as financial guidance. It is advisable to consult with a qualified financial expert for personalized advice tailored to your specific requirements.
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