Whale or dolphin?

Gambling business is business of scale. Economies of scale work there which means that costs won’t increase with the same speed as sale will increase. In principle the bigger business you have the more cost efficiency business you have. In theory that would lead to the “natural monopoly” situation where there would be in long term just one global gambling company!

We have seen more and more mega size mergers and acquisitions in gambling business. The main reasons for those huge deals have been to increase cost efficiency and to get bigger market share and to utilize the big size of the companies to make even better and more profitable business. Here are some examples of that kind of M&As: Ladbrokes merger with Gala Coral and further Ladbrokes Coral acquired by GVC, Bwin Party acquired by GVC, Betfair merger with Paddy Power, Sky Betting acquired by Stars Group and Tab merger with Tatts. In addition to that you could notice that also big companies outside gambling business (for example ESPN) have acquired gambling companies to get more new business. I believe that this development will continue and become even more common in next few years and that will change our business dramatically.

Although development seems to go towards even bigger gambling companies at the same time there appear more and more newcomers.  Is there space for both giants (whale) and agile smaller operators (dolphins)? For sure there are if we understand that those companies are operating in different levels. Small companies are looking for new business opportunities from niche areas which could be from limited customer groups, from geographical limited areas or from limited products/services areas. There will more potential new business areas thanks to innovations. It seems that big companies are going to acquire all the time those successful small companies if their innovations and business seem to develop in good way and create business potential also in bigger markets.

Whale which will utilize its’ size doesn’t need as much agility as much smaller dolphin to get more fish than dolphin. Sometimes it will be enough that whale will open its’ mouth and fish will swim inside and at the same time dolphin should work quite hard to get much less catch. In long term whale will win but both could be happy when they understand their roles. There will be space for dolphins too because they will always be more agile than whales. I think that it would be easier to get more agile and new methods to big company via acquisitions and partnerships than try to change the whole company culture. That’s one reason why there will always be M&As.

I believe that innovations to gambling business will mainly come from small companies although big companies will have more resources for innovations too. The main reason for that is company culture of those big operators which mainly support the current business and prevent big changes. That’s another reason why we shall see those acquisitions and partnerships between whales and dolphins. I would say again that it is important that companies realize in which level they are operating and adapt their goals to that level. Of course it’s always possible that someone will manage to raise to upper level and it makes business even more interesting one but you should be realistic and don’t build your business based on dreams.

As I already told in my previous blog there was huge merger also in Finland when the Finnish State decided that there will be just one gambling company taking care of whole business. Although the process and reasons of that merger were unique ones some of main goals were exactly similar with the most of mergers and acquisitions. The new company is giant, 90 % market share, and one of the biggest companies in Finland. However it is not real big company in the global gambling markets. New Veikkaus is in fact at most middle size company in European and especially in global level. Is Veikkaus whale or dolphin? In Finland it is for sure whale but in global gambling market it would be dolphin. It’s interesting theoretical question what kind of position Veikkaus should take if it would operate in global gambling business? Could that kind of “small sea whale” become whale of big sea and could it change to dolphin and which change would be better for it?

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