Ways to enter a new market in online gaming
In this post we're going to examine a bit the different ways to enter a new market in online gaming. In the preceding post, we looked at how you will dial in on a new market for your expansion. Naturally the peculiarities of the market will have an impact on the way you'll go in, I cannot stress enough the fact, that it is paramount to have a man on the ground. Someone who knows the market, the authorities, ways of doing business, local customs and language.
A typical way to enter a new market is in its broadest sense, one of two alternatives; Greenfield or M&A. There is a fair bit of flavours of these two, so it is not a clear cut definition as such. Both come with their respective pros and cons, and the chosen path is up to your own strategy and tactical means. Operators come in many shapes and forms, with different backgrounds and amounts of capital that they can or are willing to invest. Overall in many European markets today, there is a tendency towards consolidation where smaller, often local operators get picked up and merged into bigger, multi-jurisdiction companies.
Regulations usually state that you need a local legal entity to hold the license, sometimes even combined with a local "brick'n'mortar"-casino (like in Switzerland for example). These consideration might take you into partnering up with someone.
Let’s take a look on high level first, what these two entail. I will dig deeper into both with follow-up posts.
You set up a new subsidiary on the target market, without any player liquidity, involving building the local presence from operational, marketing and regulatory perspectives. You can, of course, leverage you existing skills, technology and capital in that market. Depending on how mature the market is, you usually face existing competition and need to carve out your niche. That being said, this might be the only option if you want to be in a market that is just opening, as by default there are now operational companies to be acquired. I am reluctant on commenting on the overall cost compared to the M&A alternative as there are too many factors to consider. Pulling out from a greenfield operation is usually more painful than reselling an existing operation that you previously acquired.
For a Greenfield entry you need to be committed and in it for the long haul, break even usually takes up to 5-6 years depending on the size of your local team and set-up, but might be a good alternative for a freshly regulated market with less competition and established players in the beginning.
Mergers and Acquisitions:
You look for a suitable candidate for acquisition on the target market and decide to buy yourself into a market. The variety of alternatives within this branch is huge, depending on the depth of your pockets, finding a complimenting one is the tricky part. M&A is a tempting option as you are basically guaranteed to get a functioning operation, market presence and player liquidity from the get go. One big benefit is also, that you usually get capable people with experience in that market, not a small thing by any standards. While one could say that everything is for sale, there is only a few companies looking for a buyer actively. There are many pitfalls though, and those things to look for definitely merit their own dedicated post, if not two.
With M&A approach you gain immediate access, but the M is always the hard part. You should aim to run a tight ship, and with that in mind eliminate duplicate work and unnecessary costs. Are you going to run the existing brand of the target company or merge into your own? Are you going to leverage your existing technology stack or keep running the one that you just bought?
In addition to these two basic approaches there is also a model that fall between the two; partnerships. At this point, I won’t go into too much detail with that one as they are more opportunistic, case-by-case entries, with the normal division of supplier-operator paradigm turning into something else.
I'm fully aware that this is just scratching the surface, and I hope to dig deeper into this subject in the future.