The convergence of multiple trends in the online gaming industry (the acceleration of games as social networks and content platforms, and a push toward cross-media integration, cloud gaming and subscription services) is underpinning buoyant times for investment and M&A activity in the sector. Indeed, the last few years have seen a huge acceleration of growth and increased deal activity, both from existing video games industry players and new investors.
The sector’s growth has already brought scrutiny in terms of player protection, especially around the risks of financial harm. Controversies over monetisation methods continue to cause negative sentiment leading to calls for increased regulation.
Israel has long been one of the world’s leading exporters of online gambling and casino companies. Yet the recent news that Israeli-managed and London-listed 888 Holdings has agreed to buy William Hill’s European business from its U.S. owner in a deal worth £2.2 billion is further proof that opportunities abound for Israeli casino and gambling companies looking to expand internationally.
Online gambling is continuing to boom worldwide. Specifically, during the Covid-19 pandemic consumer demand is growing and leading operators to new revenue highs. While some offers such as sports betting (due to a lack of events) and poker (due to a general trend) have experienced less growth, online casino slot games, bingo and casino games are gaining traction in markets that had relatively big terrestrial offerings.
In the U.S. market, the pace of mergers and acquisitions in the sports betting and online gaming world has considerably increased in the last few months, with Penn National Gaming buying Score Media and Gaming in a $2 billion deal and DraftKings purchasing Golden Nugget Online Casino for $1.5 billion in stock.
The global online gambling market is expected to grow from $64.13 billion in 2020 to $72.02 billion in 2021 at a compound annual growth rate (CAGR) of 12.3%. The growth is mainly due to recovery from the Covid-19 impact, which had earlier led to challenges stemming from lockdowns and social distancing measures which resulted in operational challenges. The market is expected to reach $112.09 billion in 2025 at a CAGR of 12%.
Gambling companies, many of which are owned, operated or financially backed by Israelis are looking for new expansion and investment opportunities. Regulatory changes in a number of European countries open these markets also to operators with little appetite for risk such as publicly listed gambling operators, those that are owned by institutional investors or investors who may be new entrants to the online gambling space.
In Germany on 1 July 2021, a new State Treaty on Gambling came into force which provides new licensing opportunities for sports betting, online slots and online poker for private operators across all of Germany. The new Treaty replaces a previous ban on online gambling which only allowed sports betting. While the strict license conditions and high tax burden have drawn criticism by lobbyists for the industry, the market size and liquidity of the population make the new licenses very desirable for operators.
Additionally, there are more opportunities on the horizon. For example, the German federal state of North-Rhine-Westphalia has published a draft law, which would allow operators to obtain a license for online casinos. Under the proposed legislation, a maximum of five licenses may be issued for a term of ten years.
In Denmark, the license regime has already become somewhat tried and proven. Operators can apply for a license to provide legal online casino and/or betting. Remote gambling companies can offer online casino games, online poker and online betting under a license, while online lotteries, bingo, scratch cards and keno (a fast revolving lottery) remain within Danske Spil’s state-owned monopoly.
Sweden has had a gambling law since the beginning of 2019 and continues to give out licenses. Private operators may offer online casino, poker, slot machines, betting (including betting on virtual events), racing, fantasy sports and lotteries under such licenses. While some of the very strict decisions by the gambling authority (specifically around advertising and bonuses) have been criticised, the high attraction of Swedish players to gambling offers keeps operators interested. The number of licenses that can be issued is not limited.
The newly reformed Ukrainian Gambling Law provides for separate licenses for online gaming (casinos) and online poker. Online betting is covered by one unified license for both land-based and online operations.
In the Netherlands, remote gambling licenses became available in April 2021 for casino games as well as sports and horse race betting. The number of potential licenses is not limited. However, for operators already operating in the market without a license a “cooling off” period may apply.
These new opportunities lead to a need by the operators to raise capital. We are currently seeing three market trends. Firstly, big operators are consolidating. Secondly, new market participants use the new entryways to try to enter this competitive, but lucrative market. Thirdly, institutional investors, specifically private equity and venture capital firms, are continuing to invest in the market.
When it comes to big players expanding their influence, the recent market activity of online gambling group 888 Holdings plc cannot go unmentioned. The online gambling group will buy William Hill’s international business from Caesars Entertainment in a £2.2 billion deal that will see 888 take over the UK bookmaker’s 1,400 physical betting shops outside the UK. This is a first for the online-only giant. The company is confident in the continuing existence of retail betting shops but also plans to encourage retail customers to register with the online casino by taking them over. This action is the latest in a surge of consolidation in the global gaming industry as companies look for economies of scale to hedge against increased regulation and enter new markets.
Nevertheless, big established gambling players are not all by themselves. Talk of opportunities in the online gambling industry is also heard in other circles. The German media giant ProSiebenSat.1 plans to enter the regulated betting market. This involves a cooperation with Betsson, which provides its B2B solutions. A new subsidiary called Masterpiece Gaming was created for this purpose. Betsson secured online sports betting licenses for various brands in Germany in March this year. In order to implement this cooperation, ProSiebenSat.1 will try to use its media reach to acquire players.
Private equity and venture capital funds and others have also invested in online gaming in the past and are now expanding their portfolios. For example, CVC Capital Partners, as owner of Tipico, invests directly in the online gaming sector. The company Tipico is an internationally active provider of sports betting, casino games and a range of other games based in Malta. It holds a German and various Maltese gambling licenses.
Opportunities abound for Israeli online gambling companies to expand and grow internationally. In addition to building market share, advantages of looking abroad include exit opportunities, either by way of acquisition by strategic players or private funds as well as fundraising opportunities on the UK, European or U.S. capital markets.
Jan Feuerhake is Salary Partner at Hamburg, Taylor Wessing and Nathan Krapivensky is Senior Counsel at Tel-Aviv, Taylor Wessing