With more than 40 years of experience in the industry and days before participating in the G&M News webinar, Eduardo Morales Hermo, senior advisor and consultant at iGamingCo and Ficom Leisure, evaluates the effects of COVID-19 on land-based and online gaming. Countries, verticals and business opportunities are some topics that the analyst also considers in this unmissable interview.
In general terms, what good decisions and errors did you see in dealing with the health crisis in European countries such as Spain and Italy, and how did this specifically affect the gaming sector?
The COVID-19 pandemic took everybody by surprise, starting with the World Health Organization (WHO). Every government was slow and erratic in identifying the consequences of the pandemic. In countries like Spain (Italy could be in the same line), government delayed tests and lockdown measures for weeks, which allowed many crowded events to take place and increased the contagious of the virus, conducting to an exponential growth of deaths with health systems unable to cope with the demand of an unknown pandemic. There was no medical remedies to fight with and lack of protection equipment for the medical and hospital services which provoked massive contagious in the medical staff who was taking care of the patients. This lack of acknowledgement of the virus impact and erratic decisions of the governments also made the population relax following the disgraceful attitude of the health authorities. Then, overnight, government decided to stop all public commercial activities and established a rigid lockdown of the population with no economic activity, except primary supply (food, supermarkets and pharmacies). That meant that all retail business was closed from March 14th on, including the gambling establishments of all kind, which meant that gambling revenue in the retail sector went down to zero and still is as of today June 8th. Establishments in some regions classified in stage 3 should start reopening from today, and the remaining regions from June 21st, when and if they are classified under phase 3. The restart will be abnormal, only restricted to 50% of public access for customers to be indoors of any gambling premises. This will evolve depending on the region, government in place and, like other retail business, will slowly be returning to certain normality under strict health measures within the premises and gambling devices. The retail gambling industry has already lost over 30% of 2020’s revenues and is estimated to lose another 20% in the second half of the year. This number could even increase, depending on how the restrictions of public access evolve.
In what way do you think that the online gaming segment, in its different verticals (except sports betting), was able to take advantage of the context of COVID-19 to increase the spreading of its products and generate more income?
Regarding online gaming and betting segment, it was also negatively impacted by COVID-19. Besides from the total absence of sports betting revenues, other verticals like online casino or bingo were not able to compensate the lack of revenue from main. With very few exceptions of operators exclusively focused on casino and bingo, the majority of the operators were impacted by the chunk in revenues and consequently the overall GGR was down 10% in the Q12020 and in the 30-35% range for the Q22020. In the same line, other products such as virtual games or even betting on Esports did not have substantial benefits to compensate the mentioned downfall. One of the factors which also impacted negatively was measures taking by some regulators in different jurisdictions (Spain, Belgium, Sweden, UK, and Latvia, among others) in limiting deposits, ban advertising and bonus, promotions, or commercial actions. All in all, the lack of retail gambling was not sufficient for the swift to improve substantially the online gaming channel. In fact, the percentage of iGaming on the overall gambling revenue must have increased only 4 to 5% in these 12+ weeks of lockdown.
Do you consider that some online gaming platforms and websites relied on the benefits provided by the sports betting vertical and neglected other options (online casino, virtual gaming, Esports), so they were greatly affected by the absence of sports competitions? How should these platforms restructure their contents to retain current players and attract new ones?
The strategy of each online operator depends of their vision of the business and how to benefit from the synergies between verticals, and sports betting has been a very strong mass accessible player acquisition to be converted or diverted into the other verticals such as casino (within casino slots and roulette) and less towards other verticals such as bingo, virtual betting or Esports. Those operators more focused on betting did not neglect their casino gaming option, since it is part of their offer, and most of them have a dual or multiple approach towards player capture and consequent retention and loyalty across all verticals. It is simple: sports betting provide 50%+ of the revenues. Bear in mind the betting gross margin is in the 8-10% range and casino games are in the 3% range. Because of the exponential growth of the betting segment in the last 10 years it is not possible to replace its absence with the other gaming verticals, including virtual betting or the more recent and smaller contribution of Esports. This situation might lead to reassess the product strategy for some operators, but with sports betting back at its best, there will not be such a big change in the strategy. Everyone has to think that this is a temporary situation, probably longer than expected, and we have to see how will be the reactivation of the different sports competitions, specially football in Europe and LatAm, tennis, basket, and other more locally impacting sports in the U.S., just to understand how the strategy of the offer might be adapted.
Are you optimistic regarding the future of online gaming in Latin America, taking into account the great interest in gambling by players from the continent, but also the difficulty in moving forward with the iGaming regulation in different territories?
I am optimistic about the evolving of online gaming and betting. Age and technology factors are in favor of the digital channels. And I am also optimistic in the online gaming and betting development in Latin and South America. iGaming is a must for all relevant gambling operators, although not all will be able to compete, and it will depend on the regulatory framework as it is put in place. Only a few markets are available for a regulated operation, but others will follow, and then, perhaps only 5 or 6 jurisdictions will be potentially relevant: Brazil, Mexico, Argentina, Peru, Chile or Colombia. The potential interest of Europeans or other international operators is evident and will be there especially in markets which are in process of regulation, like Argentina, Brazil or Chile and others already open. This will also depend on how effective governments are in blocking the offshore offer. Otherwise, the licensed operators will have it difficult to compete. On the other hand, the market values and KPIs are not comparable with the ones from Europe, Asia or the U.S., so you need higher market share to have a sustainable business. Nevertheless, the interest is and will be there for sure if the regulation is reasonably competitive for business.
How important is for the industry to have open spaces for debate and analysis on the sector, such as the next conference on Thursday, June 11th, in which you will participate, organized by G&M News?
It is a good initiative. This is the right moment to analyze current outlook of the industry. It also could be interesting to exchange impressions by different experts from the sector, which enriches the vision on how to best approach and face each context. The impact of COVID-19 is also a game changer and relevant in the analysis, so the time seems to be right for the debate. Of course, main issue is how the recovery of the economy will take place while the gambling industry tries to get back to its pace prior to the virus. I envisage a long and winding road towards the wrongly described ‘new normality’ which can take 18 to 24 months to achieve. None of us has the crystal ball and can only play by ear. We have to take into consideration the economic values which have been hit by the pandemic, unrecoverable revenue losses in many businesses, industries which are vital for many countries nowadays (i.e. tourism, airlines, accommodation, manufacturing and retail). Global economic crisis will show an exponential increase in unemployment and decrease in consumer spending. This will certainly affect the recovery pace. In my opinion, this crisis will not be as bad as countries and international economic institutions’ predict, since this is not like the 2008 crisis. Depending on how fast a medical remedy and/or an accessible efficient vaccine are available, the long road to recovery will be longer or curvaceous. I like to play the optimistic tune, and my prediction is that it will be tough and might be impossible for some companies, but the majority will make its way to doing business. As in every grave situation as this, there will also be opportunities for those who are in position to identify and grab them.