LeoVegas Q&A: Director of corporate finance Philip Doftvik on choosing the correct companies to invest in and why the timing was right to enter the US
LeoVegas has invested its cash reserves in a number of budding iGaming businesses via its LeoVentures incubator arm.
The Stockholm-listed operator is currently partnered up with a handful of innovative companies in the space, including Malta-based esports betting operator Pixel.bet and Karolina Pelc’s casino and social gaming start-up BeyondPlay.
It has also made some strategic and successful exits on those investments, including a 100% yield on the 2019 sale of its shares in live casino provider Authentic Gaming to Genting Group for €15m.
Below, director of corporate finance and investor relations Philip Doftvik discusses the firm’s investment criteria.
He also spoke to iGaming NEXT managing editor Jake Evans about why LeoVegas decided to wait and watch in the US market before making its first strategic play and provides his views on the proprietary versus third-party technology debate.
iGaming NEXT: When LeoVegas is looking at investing in these companies, is there a specific criterion that you mark them against?
Philip Doftvik (PD): We don’t have a mandate of X amount of euros that we can spend. It is more on a case-by-case basis, and I think LeoVegas is well known for being entrepreneurial and quick to make decisions. I would say the most important thing is the team behind it and the people. Even though LeoVegas helps with support in terms of finance, or legal, or HR, these companies are very much independent. But we do still have a close collaboration and I speak to the companies every day, more or less. The team is the key, because having the right people behind it will determine whether it is going to be successful. For a company that we invest in, we need to see that this could be a category leader for their niche. There is no point if you don’t aim to be the best.
iGN: What is the end goal for LeoVegas when it comes to investing in these companies?
PD: I think that depends on the different companies. Lately, it has been quite clear that diversification is important. Last year we had Germany where regulation went the wrong way and recently, we had the Netherlands where everyone needed to pause very quickly. Then there are regulations in Sweden and the UK is in turmoil as well. There are short-term ups and downs in our industry which means that you need many legs to stand on. LeoVentures is part of that diversification and gives us a larger part of the value chain, which is a huge benefit. Then we also have the knowledge sharing between the different companies, where everyone has their own mindset.
iGN: Could you elaborate slightly on ROI strategy. Do you have a rev share or a share of the profits in these businesses if you don’t end up selling them off?
PD: If we take Authentic Gaming as an example, we made a 100% yield on that investment. (LeoVegas sold live casino business Authentic Gaming to Genting in 2019. It has since been acquired by Scientific Games). Depending on the different companies, some key employees or founders have ownership as well, which is designed to keep their skin in the game.
iGN: How do you strike the right balance between proprietary solutions and outsourcing to third-party suppliers? Why bring Blue Guru Games in house, for example?
PD: Blue Guru will do exclusive games for LeoVegas brands but it will also do B2B and have that as a strong focus. We are never going to do all the games ourselves but it’s a good complement to the existing portfolio. We have today over 60 suppliers integrated for content and another one will be Blue Guru. The good part is that you have full control of it. If we wanted to tailor a game for Sweden, our largest market, it would be easier to do with Blue Guru than to go to someone like NetEnt and ask them to tailor a game for us.
iGN: Is that the same for sports betting? You have a long-term partnership with Kambi of course.
PD: Regarding in-house the sportsbook, I have a slightly different view compared to many others. I don’t think it is necessary to have it in-house if you want to deliver the best sportsbook product. That is not where you are going to win the war. It is more about how you use customer data, how the events are presented and using CRM for targeted messages and the right offers and so on. I don’t think many sportsbooks do that well these days, to be honest.
iGN: Have you been surprised to see some big US operators moving away from third-party suppliers to try and build a competitive sportsbook in-house?
PD: Yes and no. It’s partly an equity story, that you want to have your own technology and maybe you want to raise money to do it. But I also think that to run a sportsbook in house is not easy. It’s complex and you need quite a lot of staff even though you can make some automations. You also need to maintain it and adapt it to different markets. I think it is easy to underestimate the work it takes to create or build something that Kambi can do today. We have a great partnership with them. They allow us to dig deep down in the tech stack as well. You can always take the plain vanilla client and just plug it in, but for some brands we build a lot ourselves [on top of the client] to make the experience more tailored. It just means you don’t have to do the risk management and the trading. We don’t have any plans to build our own sportsbook, but I can see why some might want to do that.
iGN: Some of the investments through LeoVentures have been in the disruptive technologies space, like esports betting and social streaming. Is that LeoVegas placing a bet on the future success of these verticals?
PD: Definitely. LeoVegas was very early with the transition to mobile. We don’t want to wake up one day to have missed out on another strong trend. No one really knows when exactly betting on esports is going to boom, but we are quite certain that at some point it will. If we already have a good brand and platform and technology that is tailored to it, that will be a huge benefit, and we do that with the brand pixel.bet.
iGN: What do you make of the suggestion that the future of gambling depends on it becoming an additional feature in a wider digital entertainment universe, where the line between gambling, streaming and video games becomes increasingly blurred?
PD: For sports, for sure I think it will be even more integrated and you will see more products pop up to make in-play betting much easier, with one-click technology on mobile and so on. I think that will be very interesting to follow. On the casino side, I believe it will focus on the streaming part and becoming a social product, by sharing your winnings or your experiences on social media. You couldn’t see that happening a couple of years ago, because people maybe didn’t want to tell their friends they played casino, but that is not the case anymore. I think the community element will be even stronger and that sometimes the line will be blurred between gambling and gaming.
iGN: Ignoring Web 3.0 for a moment, where is the scope for future innovation in this industry?
PD: I would say personalisation and more tailored offers, we have just scratched the surface there. We’ve had the recommendation engine on Netflix and Spotify for years now and we launched our own almost two years ago, but that is just the first step. There is much more to do here when using customer data on a more granular level, on an individual basis and by using machine learning algorithms to tailor bonuses and jackpots to match their needs.
iGN: LeoVegas has a market-access deal with Caesars and has decided to open an office in Hoboken, New Jersey. Why did you make that decision and why wait until now?
PD: We looked at the US for a long time and you need a partner to get market access. To put it simply, we are very data-driven in all that we do, so the business case needed to be there. It is a land grab to be first to market and how you position yourself and a lot of companies are flooding the market with money and their investments. I think we have a slightly different approach, where we actually want to see the business case of how this is going to work. When we started looking, the market-access deals were on quite high levels and were not that attractive to us at least. We decided to wait and we also wanted to do it with our own platform. The aim was to certify the platform first, because we know we have one of the greatest casino products in the industry and that is a clear USP. If we were going with a third-party platform, we might not be able to control it at the same satisfactory level that we have today. Some companies are really stressed about getting into the US, but we decided to wait and to take it easy. Then by having that conversation later on, the market-access deals were on different levels and the business case started to work for us. The timing was better and now we are moving towards a launch this year in New Jersey to begin with, using the LeoVegas brand.
iGN: So LeoVegas is going to position itself as an online casino operator in the US, despite the fact iGaming is only legal in a limited number of states at present?
PD: Definitely. It will be back to our DNA and the best mobile casino experience. In the US when I speak to investors, they are used to the winner taking all, be it Google or Facebook or Amazon, but in Europe it is different, where there are a lot of different companies with their own niche. We want to enter the US to be a niche mobile casino player. We will also rely on data-driven marketing, rather than doing shirt sponsorships or sponsoring big stadiums. It will be about having the best casino customer experience and complementing that with data-driven marketing on Google, Facebook and through affiliates.
iGN: Interesting. Thanks for joining us and good luck in the US.