## The Competition for Size Continues – Finance – iGB
In the second part of this series, Tom Waterhouse (Waterhouse VC) argues that Evolution’s size in live casino makes it a key part of the Waterhouse VC portfolio.
**Home > Finance > The Competition for Size Continues**
**The Competition for Size Continues**
As gambling companies have had trouble setting themselves apart from each other for a long time, we think that companies that can get new customers at the lowest price will become the most successful in the US.
Several companies that only operate in the US have quickly cut back on their marketing efforts, focusing more on making a profit. In contrast, companies with a large presence in businesses outside the US, such as Flutter and 888 Holdings, are able to pay for their US marketing with profits from their global operations.
For example, in 2021, Flutter’s group earnings before interest, taxes, depreciation, and amortization (EBITDA) were $1.23 billion (£1.02 billion/€1.18 billion), including a $300 million EBITDA loss in the US. In contrast, DraftKings (a US-only operator) lost $676 million and will continue to need money put in. This could lead to a significant decrease in value for current shareholders, given the current valuations of fast-growing businesses.
Churchill Downs is a recent example of a company that has not only reduced its marketing efforts but also decided to completely leave the sports betting business in February.
The internet sports betting and internet gambling sector is a fiercely competitive market, with an increasing number of participants competing for a share of the profits. Many are pursuing the largest market share, regardless of short-term or even long-term financial success.
Size is significant in betting and wagering, and not just for companies that deal directly with customers. While we focus on the most innovative smaller firms that offer services to other businesses (like Voxbet), some parts of the industry require substantial size to thrive.
The Emergence of Live Casinos
One segment that necessitates scale is live casinos. In live casinos, casino games (like poker or blackjack) are broadcast in real-time, with live footage from the casino tables. Live casino providers then sell this product to operators like Flutter and DraftKings.
The first live casinos were introduced in the mid-2000s, and the segment quickly expanded with the rise of smartphones and advancements in streaming and text/voice chat capabilities. The global live casino segment continues to grow rapidly at +31% annually, compared to +15% for RNG (random number generator) games and an 8% decline for land-based casinos (according to the Malta Times). We believe that live casinos will continue to be one of the fastest-growing segments in betting and wagering as technology and player experience quality continue to improve.
Evolution Persists
Development, listed on the Stockholm Stock Exchange (STO: EVO), runs two business segments: Live Gaming and Random Number Generator (RNG). In the initial three months of this year, Development’s Live Gaming division produced income of €264.5 million (+44% year-over-year), while the RNG division produced €62.3 million (+1.8% year-over-year). The €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 market, with approximately 70% market share among 41 global live gaming providers.
Obstacles in the Live Gaming space include: delivering lag-free live broadcasts globally, staying ahead of technological improvements, continuous training for on-camera personnel, building intricate multi-functional studios, maintaining multi-lingual customer support and chat moderation, and risk and monitoring. (Listen to Development’s Chief Product Officer Todd Haushalter discuss “Why is Live Gaming so difficult?”). By overcoming these obstacles daily, Development has established a significant lead over its rivals.
Development is one of the highest-quality suppliers in the industry. We’ve spoken to many Development clients who say the company is a leader in both Live Gaming and RNG. Development’s superior product and service levels have driven the company’s impressive income and profit growth.
The live gaming sector is a substantial, highly profitable business due to the high fixed costs of studios, yet the variable costs to accommodate extra players are minimal. For instance, Evolution’s “Lightning Roulette” live gaming offering can be utilized by an almost limitless number of players concurrently due to its multi-player scalability.
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. The enterprise will benefit from considerable economies of scale and margin expansion as Evolution continues to expand in the flourishing North American market.
In 2021, Evolution’s North American operations produced €114.5 million in revenue, representing 10.7% of group revenue. Evolution has 7 studios in Europe, 3 studios in the United States, and 1 studio in Canada. In 2022, two additional studios will be launched in Europe, along with a new studio in Connecticut, USA. The business is expanding at a rate of 70% annually in North America. Evolution is a key holding in our investment portfolio, reflecting our focus on high-quality B2B suppliers.
Since its beginning in August 2019, Waterhouse VC has generated a total return of 1,997% as of May 31, 2022, assuming all distributions are reinvested.
Please be aware that the information provided above regarding Flutter, 888 Holdings, Churchill Downs, DraftKings, Voxbet, and Evolution is based on publicly accessible information about the companies and should not be considered or interpreted as financial product advice.
Waterhouse Venture Capital puts money into businesses such as Flutter, 888 Holdings, Voxbet, and Evolution. This document is purely for information and should not be considered as guidance for investing. You ought to consult with a financial expert to determine what is most suitable for your circumstances.
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