Analysis: A look inside the GVC/MGM JV

“From the first time I met Jim Murren in his office in Nevada, I said to him, ‘if you do a deal with GVC, you will crush the US market. You will undoubtedly be the market leader,’ and I am 100% sure that will be the case.” That was the pledge GVC CEO Kenny Alexander recounted to analysts and investors the morning GVC officially announced its headline-grabbing joint venture with MGM Resorts.

The details are well known by now, with both firms committing $100m to the JV, and probably more, with a new office to be established in a to-be-named tech hub. “I genuinely think in five years’ time when people look back, this will be a historic day for GVC,” Alexander claimed. “There will be no done or upcoming deals that will compare to this JV.”

The upside of the deal centers around the scale of the combined firm, the access to both markets and customers, and the unique combination of proven technology and well-known brands. It’s a combination that appears to set the standard for firms looking to crack the US, but not everyone is convinced. Starting with the positives, however, the sheer size of the combination stands out. GVC claims to be the largest online-led operator in the world, with annual group revenues of $4.3bn last year.

Yet it is still less than half the size of MGM, which generated revenues of $10.8bn in FY17.It means the $100m each firm has committed is just a provisional amount and can easily be upped, should opportunities present themselves. “It’s a proper sum of money to build a business from… but there’s still lots of uncertainty about how much will be needed given the regulatory picture,” GVC said.

You can’t buy history

There’s optimism too for the brand. The JV will use two main brands – partypoker, which of course has a chequered history in the US thanks to its pre-UIGEA glory days, and PlayMGM which has been gaining some traction in New Jersey in recent months. It’s an interesting combination of old and new, perhaps deliberately so. GVC COO Shay Segev was asked by EGR NA recently whether the partypoker brand still retained some of its old cache, when it was worth £7bn on the London Stock Exchange thanks to its US revenues.

“With it being more than 10 years ago, a lot of this value in the brand will be lost,” Segev said. “It’s still worth something – probably something big – but it’s definitely not what it used to be in the US. However, when you ask people about partypoker, many of them will know what you are talking about.”

Of course, the MGM brand has a more mainstream appeal because of its famous Gold Lion, and the PLayMGM site was responsible for around $700,000 in New Jersey revenues in June, according to estimates from Eilers & Krejcik Gaming, which said the brand was “starting to pull its weight” after a slow start, so that’s perhaps a positive sign for things to come.

Access all areas

Another positive aspect of the deal that somewhat slipped under the radar was the announcement that MGM had agreed an access deal with Boyd Gaming – a tie-up which would also benefit the JV. In short, the agreement means MGM and Boyd both have the opportunity to offer online gaming in jurisdictions where either one operates physical casino resorts and online licenses are available.

The combination is active in 15 states containing some 90 million people, representing a massive potential market. “This is the really exciting part of the relationship,” GVC said on the post-deal investor call. “In terms of touch points, the opportunity is many times just the 30 million Mlife Rewards members. Regulus Partners analyst Paul Leyland also sees the Boyd angle providing the “real value” for the JV. “This provides a far more credible domestic US footprint, though the economics and level of strategic flexibility of Boyd’s involvement are not clear,” Leyland said.

The news of the JV was quickly followed by another announcement: MGM had become the official gaming partner of the NBA. Along with that official moniker, MGM gets the rights to use NBA logos and highlights, and, crucially, access to the NBA’s official data feed for live betting. “Integrating the NBA’s assets and having official NBA data showcased across the MGM Resorts platforms will provide us with a distinct advantage and instil more confidence in knowing our data is directly from the NBA,” Murren said. “We need the best possible technology, the best in-game betting experience which we get with GVC, and now we have tremendous data, analytics and information from the NBA. And that will determine who wins and losers in this arena, the sports betting arena, in the US. And I think MGM is going to win.”

The deal was rumored to be worth around $25m over three years – relatively small change to both sides – and it received much fanfare since it was the first deal between a gaming operator and a professional sports league.

Product-first strategy

However, not everyone was impressed. “MGM talked of a highlights package being available on mobile and being able to use logos and branding, and in theory this sounds like a business advantage,” noted Eilers & Krejcik Gaming analyst Alun Bowden. “But as we’ve seen in Europe, if the product and the UX aren’t right, then nothing will persuade people to bet with you.” Indeed, the analyst firm was one of the loudest dissenters in the industry. “With so much unknown about the US sports betting market, has MGM locked itself into a solution too early in the game?” asked MD Chris Grove.

The concern is partly that even with access to 15 states, that’s still less than one-third of the potential addressable US market. Likewise, the partnership depends on GVC coming up with a platform and product that appeals to the US market – that’s no given. Its bwin platform is far from the market leader in the UK, and the 25-year (on paper) deal creates plenty of opportunity for new rivals to appear.

“The JV needs to be able to change quickly with the times and the idea the US market is going to be a linear extension from existing conditions and consumer trends seems somewhat ambitious,” Bowden says. “One of the most dangerous beliefs in online gambling is that how things are is how they will remain, and no amount of historical precedent will change some people’s minds. Often this change is due to an underestimation of the power of innovation, both from within and outside the sector.

“Cryptocurrency could reasonably be looked on as the next mobile, with a number of false dawns already and a market that feels comfortably ‘over there’ for the rest of the industry. But it’s as likely to be a major trend few yet see coming that will wreak havoc. And it’s as likely to be one of the smaller, less fancied operators who really latch on to it.”

In short, the scale of the business could be as much of a hindrance as a help, in what is still a rapidly evolving and very uncertain market. Giant listed companies are hardly known for their risk taking and innovative qualities, which could be exactly what is needed for a brand-new audience. GVC and MGM look well placed right now but as any sports bettor will know, a winning position can turn sour faster than a Russel Wilson pass from the two-yard line.