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Adventures in Deal-Making: iGaming Partnerships in the U.S.

How a new industry began and how it will progress

Adventures in Deal-Making: iGaming Partnerships in the U.S.

In iGaming partnerships, trust is the most important element in any relationship, but finding the right partner was a chore in the beginning, says Matthew Katz, founder and CEO of CAMS LLC, a provider of third-party services including I.D. verification and payment processing solutions to the iGaming industry.

“When we started CAMS, prior to state-regulated online gaming going live in the U.S., it was a massive uphill battle to find a partner,” Katz says. “It was known who the operators and the lottery providers were, yet finding the right person to talk to in these organizations was tough.

“Even when you found the right person, deals would take us a very long time to complete.”

The game has changed. Internet gambling is now live in the U.S., and the year or two that contained its launch was a veritable deal-making boom. Almost every land-based casino in New Jersey entered into a partnership with an iGaming platform provider. There’s a great demand for services like CAMS, meaning partnerships need not be necessarily limited to land-based casinos and online gaming platforms.

Recently, iGaming deal-making has even gone outside of the regular gaming arena. Shortly after PartyPoker announced a milestone marketing partnership with the NBA’s Philadelphia 76ers and the NHL’s New Jersey Devils, was named the “exclusive online gaming partner” of the NHL’s New York Rangers.

Yes, such a partner can exist now in the U.S., signaling unprecedented deal-making opportunities in a country historically suspicious of online gambling.

All this disruption that the U.S. iGaming industry both caused and sustained was the result of just three states—and not even very big states at that—going live with state-regulated internet gaming. With another 47 states to go—plus some U.S. territories and the remote dream of accepting international players—many eyes and hearts are set on what might come to be a second boom of U.S. iGaming deal-making—with any luck, a third and fourth as well.

In short, the quest for lucrative and well-timed partnerships is moving furiously. Katz, who has become a fixture at iGaming shows worldwide, no longer has as much trouble landing meetings as he did before. “We see such incredible interest in this space, and we see more start-ups popping up than I can recall in any other industry,” he says.

The iGaming start-up boom, Katz says, isn’t limited to just online gambling; social gaming and fantasy sports may be peripheral to the U.S. iGaming world at present, but their might and momentum are doing their part to keep CAMS in activity. “Once you have made sure the prospective partner is operating lawfully,” says Katz, “you want to support working with everybody.”

Coming to the Table

With so much novelty and eccentricity characterizing the ascent of the regulated U.S. online gambling industry, it can be easy to forget that “this business works much like any other,” says Steve Callender, general manager of the Tropicana Casino and Resort in Atlantic City.

“When a new market is opening up,” says Callender, “both operators and suppliers alike go looking for favorable partnerships, often aided by specialized consultants with specific experience in negotiating online gaming partnerships and service provider deals to expand into new markets.”

The Tropicana is no stranger to the iGaming partner-seeking process. In mid-2013, the Boardwalk-based property officially revealed its partnership with U.K.-based software provider GameSys.

Callender offers an inside view of how an iGaming deal generally transpires, at least from the land-based perspective. “There is typically a process of ‘activation’ in which early conversations with potential suppliers help shape the direction of the search,” he explains. “Then, alternative providers are investigated for the purposes of comparison and due diligence. In addition to the front-end features that operators may tend to focus on first, there are important factors to consider around back-end features and infrastructure, cultural fit, technical capacity and compatible strategic goals.”

The ‘Typical’ Deal (Hint: There is None)

Marcus Yoder, formerly the head of IGT’s Interactive Division, is today the lead consultant for his own company, Accelarus. Yoder, who was both witness and party to much of the formation of the New Jersey online gaming market, says that, while the motions of deal-making may occasionally be uniform, the resulting agreement follows no particular recipe.

“There was not necessarily an ‘average’ deal in New Jersey,” he says. “You have some operators who simply licensed all of their platform, game content and services from a provider. For those deals, there would normally be some form of nominal up-front payment, then a revenue share to the platform provider.”

Callender says that to strike the optimal deal, a participant needs to be more focused on its own individual needs rather than on keeping with convention. “It’s difficult to generalize about operator and vendor goals,” he says. “Each property in Atlantic City is unique. We each seek to occupy specific market niches, and we look to maximize shareholder value and the business as a whole long-term with different strategic approaches.”

Deal-Making With a Deadline

New Jersey Governor Chris Christie did not sign the state’s online gambling bill into law until the beginning of 2013. By the middle of the same year, it was publicly known which land-based casinos were going to be working with which supplier. Surely enough, some of these agreements had at least entered the negotiation stage well before the official passage of the iGaming bill, but once the document was signed, there was still a sense of rush and urgency for qualifiable operators to get their act together on time.

Either get a partner or do it on your own—just be prepared to launch by November of this year, the government basically said.

In spite of all the pressure, platform-seekers still needed to be cautious. “Tropicana did not rush to a decision, and vetted potential partners very carefully,” says Callender. “We spoke to many suppliers before choosing to move forward with GameSys.”

The same discriminating approach can be said to have been taken by Boyd Gaming, which entered into a joint venture with MGM Resorts and in 2011, and Caesars Interactive Entertainment, which signed a platform partnership with 888 Holdings all the way back in 2009. Neither company selected its online gaming partner in haste.

Robert Boughner, Boyd’s executive vice president and chief business development officer, says his company “conducted an extremely thorough review of more than 20 potential providers before selecting” This could startle the outside reader, who is accustomed to hearing about a deal only when the final agreement is reported in the gaming press. But Seth Palansky, vice president of corporate communications for Caesars Interactive, relates a very similar experience.

“The truth is, we likely have kicked the tires on every piece of poker software in the marketplace over the past five years,” Palansky says. “But when you include all factors, the available options for a U.S.-facing operator were quite limited in our view.

“Of course, quality of the software platform was important, but so was the experience and expertise of the people behind the company, as well as an often overlooked factor—the suitability of the company we chose.

“Suitability” (i.e., will you get licensed or not?) can be an awkward topic in the U.S. iGaming industry, because several of the platform providers operating today who are headquartered outside of the U.S. had been active in some shape or another in this country in the decade of the 2000s, when the online gaming market in the U.S. was at its grayest.

Boyd’s software partner PartyPoker independently served U.S. players until it withdrew from the market completely following the passage of the Unlawful Internet Gaming Enforcement Act in 2006.

In the interval between this pullout and the U.S. iGaming renaissance of last year, was often cited as the entity best positioned to take advantage of the U.S. market once it became transparently legal to operate there. This prophecy has seemingly held up, since Borgata has been shown to be the clear iGaming revenue leader in New Jersey following the commencement of its online offering a few months ago.

“When selecting an iGaming partner,” Boughner says, “Boyd Gaming focused on three parameters: integrity, operator experience and product quality. It was important that we find a partner who shared our commitment to integrity and responsible gaming. has consistently respected U.S. laws with respect to online gaming, has a successful track record, and offers a first-in-class product.

“We did our homework, and our success in New Jersey has shown that we made the right choice with”

Culture Shock

Accustomed to the overseas market as they are, not every foreign iGaming company has found U.S. cooperation with land-based gaming establishments to be a walk in the park.

Palansky sheds more light on this reality: “I’m sure if you asked our partners, they would complain about the checks and balances we have in place and how it can slow down the creative process,” he says. “It is true. We are guided by compliance, ethics and a regulatory process that must stand up to any scrutiny. As such, innovation can take longer to bear fruit than those without these guiding principles.

“The scrutiny and diligence one must face during the licensing process is difficult and challenging. Foreign operators who may have longstanding businesses in other jurisdictions can be shocked at the level of detail—and personal detail, too—that accompanies being a participant in this business.”

Unappealing and discomforting as it may be, this probing degree of regulation is just the cost of doing business in the American gaming market, a very coveted one by international iGaming companies.

Boughner has worked for Boyd Gaming for almost four decades, and he takes the following view: “There is definitely pressure on operators to conduct thorough background checks—and there should be. We have established rigorous and robust compliance standards, which apply not only to online partners, but vendors, suppliers and other companies we do business with.”

Deal-Making of the Future

How well U.S. iGaming is doing barely a few months into official operation is already debated frequently. In New Jersey, iGaming revenue has been decent, but far off of most of the projected expectations that preceded the launch.

Still, most of the companies involved are in it for the long haul. Katz argues that, for those invested into this space, and bound to some sort of collaborative partnership (thus practically everyone), the spirit of long-term goodwill will be vital.

“Our success is not defined by how much money we make from our partnerships in the first year,” Katz says. “Our truest definition of success is how many years we work together. By not gouging our customers for significant up-front fees or significant usage-based fees, it helps them understand that we are a partner instead of just a vendor. We are investing in their business and we are investing in our long-term partnership.”

Speaking of the future, Yoder suggests that, forgivable as many of today’s partnerships may be given the U.S. land-based industry’s inexperience with anything involving iGaming, there may come a time to take the training wheels off.

“I think there are those U.S. operators who will simply rent out their licenses to whoever can provide the biggest rent check,” he says. “That can be short-sighted, because then you lose the opportunity for cross-marketing between online and land-based. No doubt the majority of operators needed partners with experience to get them going, but slowly, over time the land-based operators should be focused on building up their own skill sets—or buying their online partners outright.”

Yoder says that if the next few years continue to bring breakthroughs in the way of U.S. intrastate online gaming legalization, it may considerably influence the deal-making landscape that exists today.

“I think the pace of partnering is commensurate with the pace of legislation,” he says. “Many of the deals that would affect, say, New York or California have already been agreed upon well over two years ago. The interesting thing will be if more than one additional state legalizes in the next six to eight months.

“Then, the U.S. land-based companies need to consider the ability of their potential partners to have the bandwidth and scale to handle multiple jurisdictions at once. Only a handful have that capacity.”