Key Themes Shaping the Global Gaming Industry in 2024

Author: Paul Richardson

As we step into 2024, the global gaming industry is poised for a resurgence in M&A activity after a relatively quiet year in 2023. At Partis, we're optimistic about the year ahead, armed with a strong Q1 business pipeline.

Key themes shaping M&A dynamics include the imminent opening of the Brazilian market, a new phase in the US, a rebound in Private Equity buyside activity, and the aftermath of 2023 gaming IPOs, prompting sellside activity too.

Internally, a strategic shift between insourcing and outsourcing is underway, driven by the rising cost of internal talent, especially in tech roles. In marketing too, rationalization is leading to outsourcing, particularly in the affiliate market, paving the way for consolidated outsourced marketing functions. Content acquisition and cutting-edge technology are also becoming pivotal for market positioning, as brands grapple with limited differentiation opportunities.

We have all heard the old adage about opinions. Here are some of mine…

Brazil: A Significant Opportunity in Gaming

The anticipation surrounding the imminent opening of the Brazilian gaming market is palpable, and we are now on the cusp of a breakthrough. With over 130 parties expressing interest in the government's RFI process in 2023, Brazil looks set to become one of the largest regulated single markets yet.

The addition of iGaming into existing sports regulations, coupled with a favorable 12% tax rate and a large, sports-mad population, positions Brazil as a significant opportunity. For operators with an established market presence, especially "Brazilian Owned", the prospects are substantial. They become attractive acquisition or joint venture targets, offering large international operators a ready-made brand and customer database while fulfilling the mandatory requirement of a 20% local partner.

Beyond gaming giants, local businesses, particularly in media, view Brazil’s gaming market as a strategic market for entry. They also see themselves as potential acquirers of smaller international operations, bringing them valuable technology and a seasoned management team with a track record of success in other markets.

US – A New Phase

After the capital market correction, the subsequent push for profitability and the US quietly establishing itself in 2023 as clearly the #1 global regulated online market, keep an eye out for two key trends in the US, and one wild card.

Firstly, a new group of ‘serious’ challengers. While FanDuel, DraftKings (and sister brands) captured 74% of US online sports betting (OSB) and 49% of iGaming GGR year to November 2023 (per E&K), ESPNBet, bet365 and Fanatics have come to play. bet365 grew revenue 8x YOY and has overtaken Caesars in all of its states bar one. ESPNBet has lifted Penn significantly since its Q4 launch, though it’s still early days. Fanatics’ Pointsbet acquisition is yet to close nationally, but these are all serious challengers with the capability, intent and momentum to shake things up.

Secondly, the astonishing growth in product verticals ‘adjacent’ to traditional real-money online gambling, most noticeably courier lottery (e.g. Jackpocket), sweepstakes social casino (e.g. Chumba) and the new wave of Daily Fantasy Sports (DFS) operators leading with their Pick ‘Em format (e.g. Prize Picks and Underdog Fantasy) which has far exceeded the levels of revenue and profitability ever achieved by FanDuel and DraftKings in DFS. All of these companies have focused on less competitive, less regulated market segments and have demonstrated extreme consumer focus to create intuitive product experiences that are wildly popular. 2024 is likely to see multiple M&A transactions in these product verticals, especially deals with regulated online betting/casino companies, in both directions.

Finally the perpetual wild card – online casino, or iGaming in US parlance. In the US iGaming is wildly popular (3x OSB at state level) but is only legal in seven states. Despite only reaching 12% of the population the US was the largest iGaming regulated market globally in 2023. 2024 will see serious efforts to legalize iGaming in multiple states that, collectively, could double the market size, with New York the potential game-changer – NY iGaming market is a $5B prize that would create a contiguous regulated east coast N.America iGaming market approaching $15B (much larger than Europe ex-UK) connecting eight US states and Ontario.

Private Equity's Resurgence?

In 2023, the cost of debt had a notable influence on Private Equity dynamics in the gaming space. The impact was particularly felt by leveraged finance-dependent private equity buyers who found it challenging to meet their threshold returns, resulting in restrained capital deployment. However, as these funds now face the imperative of investing their current funds while gearing up to raise the next, we anticipate a significant resurgence in Private Equity activity on the buyside.

Driven by the quest for profitable, high-growth, and well-managed operations, this resurgence also presents an opportune moment for businesses seeking strategic partnerships and growth capital.

Strategic Moves in the Wake of Gaming IPOs

Even though Lottomattica got its IPO away, pricing dynamics have cast a shadow on the IPO route for other Private Equity funds eyeing similar exits. The repercussions are now evident as businesses like Cirsa, Tipico, and ComeOn are likely to be coming to market, or have been actively offered for sale, with no visible outcomes yet.

This creates a unique opportunity for strategic players in the gaming industry. As these businesses seek new avenues and potential acquirers, it opens doors for others to acquire local champions. For those aiming to scale ahead of the anticipated global market resurgence, which many commentators are predicting, 2024 presents a strategic moment to explore acquisitions and enhance market positioning.

The Shift from Insourcing to Outsourcing

With margin pressure on the B2C sector never stronger, the cost of carrying all those expensive developers and designers is a tempting target for rationalization. The conventional mantra of "transformation," often echoed by management consultants and C-suite leaders, is undergoing a paradigm shift.

Owning one's technology is evolving from a necessity to a luxury in the B2C sector. This shift is an opportunity for B2B operators, particularly those with cloud-based next-generation customization abilities. Expect to see the emergence of spinoffs, introducing new B2B businesses with a built-in customer base inherited from their erstwhile internal origins.

Furthermore, a drive towards "one-stop-shop" tech solutions is on the horizon, fueling tuck-in acquisitions and potentially triggering mergers among smaller exiting B2B operations.

Affiliates: The New Outsourced Marketing Department?

The outsourcing trend continues into the marketing department. Who needs that expensive marketing and CRM talent in house when you can rent it?

In new markets especially, the potential for consolidation in the broader affiliate market to create a full outsourced marketing function that can be sold to operators, is a compelling proposition. And who knows, what about the prospect of integrating this outsourced marketing function with a B2B tech provider to offer a fully managed services function?

Content: The Only Area Left for Differentiation

In an industry where differentiation often boils down to marketing spend and user experience, the strategic acquisition of unique and sought-after content is increasingly the only area where gaming operators can stand out. As B2C operators navigate this landscape, the pursuit of proprietary content, as exemplified by moves like MGM Resorts acquiring Push Gaming, becomes a crucial avenue to secure and retain profitable customers.

Simultaneously, B2C providers are turning their attention to cutting-edge technology, whether in sports, slots, or other verticals. Aiming to elevate market positioning significantly, acquiring next-gen tech takes B2C providers to the next level, going above and beyond the messaging so expensively created by their marketing departments.

The above opinions are mine and reflect conversations we’ve been having at Partis internally and with our clients and industry network. I’m keen to hear your thoughts too, so please feel free to comment below or get in touch with me directly.

Contact me @ paul@partissolutions.com