Jackpot builds for online gaming
TORONTO • As Canadian online gambling company Intertain Group Ltd. celebrates a planned acquisition that would make it the world’s largest provider of online bingo, its chief executive is thanking a competitor.
Intertain CEO John FitzGerald said Pointe Claire, Que.-based Amaya Gaming Group Inc.’ s much bigger acquisition of PokerStars last year made it easier to put together his company’s $809 million agreement to buy several slots and bingo websites from U.K.-based Gamesys Ltd. Amaya was the top performing company on the S&P/TSX composite index in 2014, surging 257% after announcing an agreement to acquire PokerStars for US$4.9 billion in a deal that made it the biggest publicly held online gambling company in the world.
“Their acquisition has really helped us from a capital markets perspective,” Mr. FitzGerald said. He said the Amaya-PokerStars deal sent the message that online gambling is a “real business that’s accepted,” making banks more receptive to financing deals.
Intertain had already seen the value of its shares more than triple in the past year and investors sent them soaring even higher after the company announced the agreement, increasing by 2.93% to close at $17.24 Thursday. The online bingo market was worth US$2.1 billion in 2013 and Intertain said it expects that figure to grow 8.1% per year in a release announcing an earlier acquisition.
The Jackpotjoy business generated $128 million in earnings before interest, taxes, depreciation and amortizatin in the 12 months ending in September. Four of the brands Intertain plans to acquire have a total of 1.3 million active users, with an additional brand called Social Starspins set to launch in the second half of 2015.
An investigation by Quebec’s securities regulator launched in December into trading activity linked to Amaya’s PokerStars acquisition serves as a reminder of the regulatory risks that remain for the industry, however. Canadian entrepreneurs and companies got into the online gambling industry early and Canadians spend billions of dollars gambling on the Internet each year, but there are a lot of ways to run afoul of the complicated — and some argue, outdated — laws regulating the practice.
Mr. FitzGerald said one of the things that made the Gamesys brands attractive was the fact they operate in European countries where online gambling is fully regulated. The many international companies that offer online poker, sports betting and other gambling services to Canadians are operating in a legal grey area, with the criminal code stipulating that gambling that is not run by the provinces is against the law.
Online gambling companies that are based in Canada, but offer their services to customers in other countries, can get in trouble as well. A major reason why Amaya acquired PokerStars was to help the company return to the U.S. market, following a massive 2011 crackdown on the industry that led to the indictment of PokerStars founder Isai Scheinberg.
Paul Burns, vice-president of the Canadian Gaming Association, said many Canadians got into the indus- try early, aided by our strong technology sector and skilled workforce. Because of the country’s murky laws, however, some companies choose to operate outside of Canada, while others have left entirely for countries with friendlier regulations.
“There’s a lot of greyness and confusion in this space,” Mr. Burns said. “That’s been frustrating to a lot of people.”
It hasn’t stopped investors from seeing dollar signs, however. Jake Miklojcik, president of the casino consulting firm Michigan Consultants, said one of the biggest dangers to the industry’s profitability is competition from new entrants.
Big acquisitions by companies like Amaya and Intertain won’t shield them from upstart competitors, who could flood the market lured by its huge growth potential, Mr. Miklojcik said. “The synergy of having several [brands] under your control is all well and good. The danger is that supply could jump up. That would hurt your margin, potentially hurt your clientele level.”
But Mr. FitzGerald said he thinks Intertain’s investment in online bingo has the potential to avoid these problems.
“Online gambling for us is all about being in regulated markets,” he said. “We believe the bingo business generally is a great market with a very loyal customer base.”