Evolution Gaming & Unregulated Asian Gaming Markets | In Practise

Evolution Gaming & Unregulated Asian Gaming Markets

Former Managing Director at Ezugi, Hong Kong

Why is this interview interesting?

  • Asia unregulated market structure
  • How unregulated gaming markets work
  • Risks to Evolution Gaming in China and Turkey
  • Evolution's advantage over competitors
  • Outlook on European, Asian, and US market growth
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Executive Bio

Former Managing Director

Former Managing Director at Ezugi, Hong Kong

The executive has over 25 years experience operating RNG game studios and live casino operations in Asia and Europe. He is a Former Director or Ezugi for Asia and has experience running operations in Macau and Europe. The executive has deep experience in China and South East Asia gaming.Read more

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Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

We would like to better understand what is going on there and what the implications are of getting players and gamers from China?

When they refer to unregulated markets, you can include Germany from 1st of July as well as Canada, LATAM, all of Africa, Finland and Russia. The Chinese share is very small. The reason for that is because in Asia, when you try to launch a live casino or any gambling product, you need to give out very low rates. You have to do that because otherwise the operators cannot be profitable due to the transaction cost they have for each deposit or pay out, which is extremely high because quite often they have to do things in cash.

When Evolution entered the Asian market, I had a meeting with them in Malta where I offered to work together with Asia Gaming to distribute their live casino. I explained that we would purchase their game at 5.5% and resell, but the 5.5% was theirs and they would fall under our contracts. They would not be contractual with anyone else in China, in order to effectively hide them from illegal gambling. They declined because they were only willing to sell at 8% or 9%. I told them it would be impossible to make any money. After that they made inroads. First, they put a guy in Manila, then grew a team there. They do well in Asia but not as big as you would think.

In China specifically they wouldn't be that big because they do not have the required CDN they need. Asia Gaming were successful because they had a CDN in China, which is highly illegal.

What is a CDN?

A CDN is a content delivery network. For anyone playing online games in Asia on an illegal site, they need to have a proper stream which is fast enough to play a live casino. That works in Europe where you can even use the cloud, but a cloud solution does not work in China. Many companies place servers in Taiwan to service China from there, but it is not strong enough. That is what we did at Asia Gaming, which is a technical part I was not directly involved with. I know we had servers inside China, which is impossible for Evolution to do. It is too risky and they do not have the right connections to do it. All these factors make China a small market for them.

The two reasons are the pricing or commercial side of the business, plus they also lack the technical access to get to the market with a viable CDN?

Exactly, and the third part is that operators in China have no licenses whatsoever. Several of them have a PAGCOR license from Manila, but most of the big ones in China have none. Evolution are not able to give their software solution to anyone who is completely unlicensed. There are some ways around this which Evolution and every game provider in the world do. They have one contractual partner with the ability to resell games to whoever they choose. But then you have to lower rates because that partner takes a cut in between and also has to make money.

That also tells me it will not be a massive market for them. I know they are working with three or four partners based out of Manila. These guys could hold an Isle of Man license, an MGA license from Malta or a PAGCOR. That is fine for Evolution but they have to close their eyes and pretend these partners do not resell to anyone, but they do. There is much less risk in other markets such as South Korea and Thailand. All of East Asia is fine because they have the payment solutions in place which means the money can go back to Evolution.

Only China is a huge risk. At Asia Gaming, every single thing was in cash. I personally went to Macau to pick up a duffel bag each quarter which contained my salary. This is not something which Evolution can handle.

For the time being, Evolution is setting up a different company by partnering with aggregators or distributors who resell the game to unlicensed operators; is that currently how they are making money from China?

Yes, but as I said the Chinese part is insignificant. If you want to measure your future risk, I would say that China is the only risk. Everyone I used to work with from Asia Gaming have disappeared. I do not know where they are and cannot contact them. They are no longer in Hong Kong where we all used to be. They had to go underground because China were shutting everything down. They did this by stopping the payment flow, without which there is no product.

From your point of view, the risk here is that Evolution see no real cash coming from China, plus they have the risk of being sanctioned from China?

There would not be any sanctions towards them as a game provider. What is illegal in China is to run a B2C operation where you accept money directly from a player. It is also illegal for a player to play on an online casino. Evolution are not breaking any Chinese laws by doing what they do, but again China is a very small portion of the unregulated market.

Is there a similar risk in other Asian markets? Worst case scenario is that Evolution lose whatever revenues they make from that market, or could it go beyond that in terms of sanctions in other markets?

The risk is absolutely only in China. The second riskiest market is South Korea and Evolution are doing well there. As an investor, the number one risk factor is unregulated markets. For all the others which are fairly big, such as Thailand for example, there is no risk.

Operating in unregulated markets and offering games where it is illegal to gamble is one thing but are there money laundering activities which could be worse?

No, it would not be. A very big market for Evolution and probably the majority of that 60% is Turkey. Evolution, NetEnt and B2C operators such as Betsson who are on the Swedish stock exchange, openly admit they have business in Turkey on a B2B level. Evolution have taken one step away from that by offering their games to a B2C in a completely separate company and then they go with it, and most often there is even one company in between. Evolution does the exact same thing for Turkey, by offering their game to an aggregator who then resells to Turkey and the aggregator will hold an MGA license.

The risk could be that Turkey decides to be much stricter with online gambling, but historically they have never been and gambling grows tremendously as Turks love live casino. Out of the entire online casino cohort, 80% is live casino, whereas in regulated markets such as the UK and Sweden, a company like LeoVegasmakes 15% of their casino revenues from live.

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