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 the Former Director or Ezugi for Asia and has experience running operations for Ho Gaming in Macau and Europe. The executive has deep experience in China and South East Asia gaming.Read moreView Profile Page
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 have been studying Evolution for a while and we have been improving our understanding of the business. The purpose of this call is firstly to get your view on how Evolution is positioned as a games supplier in the online gaming market, and second and most importantly is to understand how Evolution is currently operating in Asia and other unregulated markets. We want to understand the risk implications of that part of the business. Give us an introduction on your background and we can then discuss Evolution and their operations in Asia.
I will focus on my Asian background. I started working for Ho Gaming which is from the Ho family, Stanley Ho, based in Hong Kong. From the 50s up until 1997, they had the monopoly to run casinos in Macau, which used to be 10 times bigger than Las Vegas. Back then the turnover from gambling was much higher because there was not much entertainment. Asians went there to gamble and nothing else. The Ho family own the entire island including all transportation back and forth and the casinos. In 1997, they had to shift and could no longer be a monopoly. They handed out licenses for others to run casinos, which is why it now has Sands, Wynn and others.
I worked for the family on their online arm which was a live casino. This had come out of a company which has joined Evolution and Ho Gaming. It was all one with that first investor Richard, then in 2005 they separated and went into Europe and Ho Gaming went to Asia. For Ho Gaming I helped them establish their European operation. I built a studio for them in Tallinn, Estonia and I was running the business side together with Amaya, who were the sole distributor for Ho Gaming in Europe. I did that until 2014.
The business was doing well for them in Asia and specifically in South Korea where they are still very strong. I left them because the main focus for the Ho family was running their land-based casinos. The online part comprised 0.0001% of the family fortune, so they never put much focus on it. I wanted to achieve things and realized it would not be much more than this. Instead I joined another live casino provider called Ezugi, which was later purchased by Evolution. I worked directly with the founder and CEO, Kfir Kugler and helped them into Asia with the contacts I had gained through my time at Ho Gaming.
I also helped them on the commercial side because they had no resource there. After a little bit more than a year there I saw the potential of building RNG slot games in Asia. Ho Gaming had some slot games back then and when Asian players started to trust the RNG product the revenues increased. The down side with live casino, especially in Asia, is you have baccarat which is 90% of revenues which is a very small margin compared to an RNG game running at RTP of 96% whereas baccarat is over 99%.
I definitely saw an opportunity that it would shift the market and wanted to build my own slot games. I did that together with the founder of Ezugi, so Kfir was the investor in a company I started called Xin Gaming. I moved to Hong Kong and set up a team there, building everything in-house with Asian staff to get the games to be proper because our focus was the Chinese market. I didn't want some European designers coming up with dragons and believing it was the right way to go. I did that for less than a year, then was contacted by Asia Gaming, who back then were 15 times bigger than Evolution in the overall market for bottom line revenues. Their main market was China and they were massive there.
When I started working with them, a company called BBIN were still number one, but after several months Asia Gaming passed BBIN and up until a year and a half ago, Asia Gaming were by far the number one in Asia. My role at Asia Gaming was to deal with RNG games, which we distributed throughout the network of the live casino operators that we had, in addition to several B2C business in the group. I was part of the C-level management in the company where I saw the extreme volumes of live casino.
After working with them for a year and a half, it was time to return to Europe. The workload was enormous and how you run a team culturally is very different compared to Europe. In Europe if your team performs well, you give them a bonus, whereas in China if they do not, you fire them. I could not treat my staff like that, so we separated ways and they purchased Xin Gaming which is still quite a well-known brand in Asia.
In Europe I worked for Gaming Innovation Group. Gaming Innovation Group were having financial problems up until they sold the B2C part to Betsson, but before that they had to hit the brakes on everything. They clamped down on sports a lot and closed down our team because they were running out of money. So I contacted a company and together we purchased all the assets from GIG which we had built in my team.
Yes and a complete one; that was very helpful. We want to understand how Evolution market their games in Asia and unregulated markets. Our understanding is that in China it is illegal to gamble online?
We see that as a risk, as 60% of Evolution's revenues are from unregulated markets. Probably half are illegal markets and a portion is definitely coming from China. 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.