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.

{audio:0:06:07} I have been in Israel the past few months, but I have offices here, in Argentina in Uruguay.

{audio:0:06:23} We are scheduled to talk about Ezugi or Evolution, the entire gaming market, but it is a busy day today, I am sure you saw the announcement from Playtech? This morning an Australian company, Aristocrat, acquired Playtech. I wanted to mention I have interests in Israel and Uruguay, so this call can be timely from other angles.

{audio:0:07:42} I have not seen anything today because I am busy with other things this week. I was the representative of Playtech in Latin America, excluding Mexico, through Teddy Sagi's Skywind Group, a private company who used to be the main shareholder of Playtech.

{audio:0:08:19} Before we get started, I will tell you about me and then I certainly want to know everything about you. I run a global fund based in Chicago. It is very concentrated and only invests in public companies. I am interested in Ezugi because Evolution is my biggest position and they ended up acquiring Ezugi. The live casino part is interesting to me, so that is the nature of this call. I have other diversified investments, one of which happens to be an Israeli company called Automatic Bank Services, SHVA.

{audio:0:09:59} In Israel it is local here, not international, but they are big for the Israeli market. I am almost 45 years old, was born and raised in an Israeli Kibbutz, which is a concept of living. I am in the south, 5km from Gaza, and I also served in the army in a very combative position. I started in the online business in 1999, where I was an affiliate in the United States with a website called Gaming Jetset, which we ended up selling. Since 2008, I got in parallel in B2B and B2C, of online casino. If you are interested in live casino and in Ezugi specifically, my first business in Latin America was called Stream Tech, which became Ezugi, acquired by Evolution. I am still a very good friend of Kfir Kugler, the CEO and founder of Ezugi. I think he still has shares and is the CEO of Ezugi under Evolution.

{audio:0:12:08} In 2009, the Stream Tech was a downloadable client and only worked on Windows. The product was terrible; there were only five live dealer providers in the world and the bandwidth was not good enough. The games kept loading which created a credibility issue with players. There were only two games – roulette and Blackjack – and in the beginning in roulette, when you threw the ball, there were five to 10 seconds where you would see the window loading, then found out you lost. It was not good, but it evolved a lot. In the B2C operations I was involved in with live dealer casino, there was a 1.5% to 2% NGR at most of the total bets. Today, it represents 25% to 30% of the NGR, because it is now high quality. We have high-definition cameras which we could not have dreamed of at the time.

{audio:0:14:11} Did you spend more time in Latin America or did you move around?

{audio:0:14:17} I am still in Latin America today. I am in Israel now but I have operations there in the form of a B2B company called Viva Solutions. The URL is vivosa.org but we do not invest in our corporate website, but you can see some of the brands we represent, such as Sirplay, Playtech, Ezugi and others. We have offices in Montevideo.

{audio:0:15:13} The Uruguayan company I am interested in was called AstroPay.

{audio:0:15:40} Yes; they have created a new company called dLocal.

{audio:0:15:47} dLocal is not new; they are in the same building, two floors below AstroPay. AstroPay was for the less regulated or more high-risk merchants, and dLocal were integrated in ecommerce websites which were fully regulated and not so high risk. I know Andrés very well from 15 years ago; he used come to us with a business card in London with his partner, and they are both Jewish. They did not exist at the time but have grown substantially.

{audio:0:16:50} dLocal is now a public company here in the US.

{audio:0:16:57} Publicly traded; wow, I did not know that.

{audio:0:17:03} Yes, the stock has done very well within a very short span of time. Before Ezugi was acquired by Evolution, they were playing in New Jersey and Oklahoma. What was it that Ezugi provided to Evolution? Was it the head start into these new markets?

{audio:0:18:01} Evolution acquired Ezugi because of their operation in the US. Ezugi made a deal with quite a famous and veteran offline casino in New Jersey. This was before online gambling was prohibited in 2006. Then in 2018, they started to move towards allowing it again. Kfir recognized the opportunity there and I accompanied him through a very lengthy process, and finally got the license. There are more states opening now but, in the beginning, you had to have a brick and mortar land based casino in order to get the online license. Land based casinos do not know how to do online, and online casinos do not know how to do land based; it is all a cooperation. Kfir and Ezugi actually started in New Jersey. Their activity grew as they were also first to market. Even though the market was very small, 95% of the activity was there so it was enough to do business. Evolution recognized that and ended up buying Ezugi. I am not saying it was only because of that, but it was definitely the trigger.

{audio:0:20:17} In South America, where was Ezugi at the time of the acquisition?

{audio:0:20:32} Ezugi still have offices there, with their headquarters in Costa Rica. They operated in almost all the Latin America countries. Colombia is the sole country with proper regulation or licenses per se. The rest of Latin America divides into either illegal or unregulated.

{audio:0:21:29} Grey market, so you can use an offshore license from Curacao or Malta. 90% of Latin America is unregulated. Kfir used to live in Argentina and did well in sales and marketing. They have a good product and will continue growing. Under the Evolution umbrella, they have even more financial backing and tools to grow their specific niche which is live casino.

{audio:0:24:16} How do you expect the regulatory market to evolve in Latin America?

{audio:0:24:27} Argentina has already given licenses and will start in February 2022. Not Argentina as a country, but the city and province of Buenos Aires. I do not have huge faith with the regulator there which I met several times to deal with the regulation itself. It is very new for them and they do not know what they are doing. There are obstacles but like a baby learns to walk, it will simply take time. If there are no major surprises, Brazil will follow. In the end everyone will end up regulating, but it takes time, especially in Latin America. The only place you may not expect regulation any time is Uruguay because it is a state monopoly, which makes it difficult to take it away from them.

{audio:0:26:28} From Ezugi's offerings in New Jersey and soon to arrive in Oklahoma, as well as in all these unregulated Latin American markets, did they old Ezugi offer online?

{audio:0:27:08} No, Ezugi only offers live dealers.

{audio:0:27:11} From a games standpoint, I went through the current offerings by Ezugi, and the RTP range on certain games is very wide. Dragon Tiger goes from 67% to 97%, while I thought most live offerings had an RTP North of 95%, can you explain why?

{audio:0:27:56} You cannot control the RTP in roulette. You have 36 numbers, and with a double zero, 37; that is it. With a deck of cards, the dealer can deal 500 different cards. I am not saying they deal out of 500, but you can control the odds because you can control one component of the game which is the deck of cards. In roulette, there is a table and a wheel with 36 numbers and you throw the ball, that is it.

{audio:0:28:47} In other words, it depends how difficult or easy it is to play?

{audio:0:28:57} No; in an online graphic slot machine, the RTP is determined by an algorithm. The creator of the software determines it, but with live dealers you cannot pre-program the result. The only thing you can program which will influence the chance, is the game components. You cannot add more things on the table but if the dealer has one deck of cards, your chances are one of 50. If the dealer deals from two decks of cards, it becomes one out of 100. Live dealer is good and bad for the player and the house because you cannot control it. In an online operation, you can lose money some months. Over 12 months it will even out, but if you are a beginner and you open an online casino, you have to know that online slots are programmed, and at the end of the month, you will win 2% to 3%. With live dealer some months you will lose.

{audio:0:34:59} Are all the live studios based in Costa Rica or are they in other countries?

{audio:0:35:14} By law, you have to have the studio in Colombia, which is the same as the US.

{audio:0:35:29} It depends on the regulation. In the beginning it was only for high-end clients, but now it is very popular. Because it is a B2B business, if an operator in Bolivia wants private tables, you can open a location with local dealers and branded t-shirts; it is not complicated.

{audio:0:36:22} Who else competes with Ezugi in Latin America?

{audio:0:36:31} There are several companies such as TVD and BetConstruct who have their own live dealers. I cannot tell you who is the biggest, but Playtech have a strong live presence.

{audio:0:37:32} Ezugi offer Indian games from studios in Romania and Sri Lanka; did you have any exposure to that aspect of Ezugi?

{audio:0:38:10} Yes, they have quite a strong presence in India. At the time they used to do it through an Indian company who are strong in lottery points of sale. I remember a guy from Skilrock.

{audio:0:39:10} That is obviously potentially a very big market, but it is not regulated yet and, in fact, parts of it are still illegal, so I was surprised to see Ezugi offer those games in India from studios in Sri Lanka and Romania. Have you heard of On Air Entertainment?

{audio:0:39:54} It is apparently a new one started by some of the former Evolution guys.

{audio:0:40:05} No, never; is it also live dealer?

{audio:0:40:08} Also live but a smaller player and apparently growing relatively quickly. Is Pragmatic Play a competitor in South America?

{audio:0:40:31} Pragmatic Play is now becoming the competitor in Latin America but I opened the Latin American hub for them in Montevideo and I am still bound by NDAs, so cannot discuss it. They have strong VP for Latin America who I brought in, called Victor Arias. He is a very pushy salesman and will bring in many contracts. Product and strategy wise I cannot discuss much.

{audio:0:41:53} You said, if Bolivia wanted a particular offering, it would be easy to set up a studio, train the dealers and get going. How long and how much does that process cost?

{audio:0:42:22} It depends on the game and the hours you want to be operative, because staff make up a significant portion of the cost. If you want a 24/7 roulette table, the setup fee will be around $15,000 per table and depend on local employment laws, minimum salary and social benefits which vary widely. Once you put the technology in, you only pay for electricity and the server, which are operational costs. Marketing is the business of the operator which has nothing to do with the software provider. In Latin America, it costs $9,000 to $11,000 per month to operate a table 24/7. If you are experienced, it takes two to three days to be operational. It becomes a simply copy/paste once you know how to do it, but some countries do not have the cameras required and it is complicated to import, but those are very specific cases.

{audio:0:44:26} Is internet connectivity and payment technology comparable to the west?

{audio:0:44:35} Payment technology is external and has nothing to do with the software provider. The live dealer software is integrated to the operator's platform, who similarly integrates whichever PST they choose; they are two separate businesses. The internet differs in big countries like Brazil where, in Rio de Janeiro, some neighborhoods have great internet whereas others have very bad internet, and no internet in the north of the country.

{audio:0:45:38} Is that all on the operator anyway?

{audio:0:45:42} Yes, the infrastructure has nothing to do with the live dealer software. It is simply software that connects to the hardware which is the table, cameras, microphones, servers and some other gadgets that knows how to read cards and spin the roulette wheel according to the latency you choose, but it is specific to the game and has nothing to do with your location.

{audio:0:46:22} Is there anything else I should know about Ezugi, Evolution or live casinos?

{audio:0:47:18} No, Evolution is in a very strong position. Playtech is also a strong player in whatever they do. Live dealer is not complicated; it is easier for a big software company to get into the live dealer market than slot machines whose secret is the mathematics. Everybody knows you get 97.8% at the end of the month, but how you get to that and how many times you return to the player and keep them engaged is complicated and takes time, experience, data and learning. There is also the graphical aspect. I am not saying you can make a $10,000 investment to open a live dealer company, but simply that it is not that complicated.

{audio:0:48:56} Why are many of the land-based casinos or other players not doing live if the market is so attractive? I do not know about Ezugi standalone as it was a private company and is now part of Evolution, but Evolution's numbers are really strong. I see no major competitors in the US, Latin America or other markets. On Air Entertainment and BetConstruct are interesting competitors but why is Evolution not threatened?

{audio:0:49:47} Evolution is the most veteran in the world and know what players like. If you collaborate with MGM, it is not only because you have the greatest technology, but I know the guy who signs the contract and he chose Evolution over BetConstruct due to personal reasons. The live dealer niche has an inherent risk which does not exist in programmed online games. This is live and you can win and lose.

{audio:0:51:12} Is that what keeps many of the competitors away?

{audio:0:51:19} Do you see any other big markets opening up for live outside the Americas?

{audio:0:51:37} Yes, India will open soon. A big question mark is Japan. China will not open any time soon because it prefers to control its businesses. There are some talks about relations in Australia, but my specialty is Latin America, so I would prefer not to comment on that.

{audio:0:52:25} This was helpful to get to know you and the Latin American market, and Ezugi in particular. I appreciate the time.

Ezugi, Evolution Gaming, & LATAM Live Casino

Evolution Gaming

Evolution is a B2B live casino gaming operator which provides customers with professional croupier services via its online casino and gaming platform. (Live casino refers to a game where a game presenter runs a gaming table followed in real time via a video stream.) The company has a large addressable market. 

Live casino is the fastest-growing segment in online casino, with an annual growth rate of 31% from 2017 through 2021. Evolution dominates this space. Sales increased 90% in 2021 and are 6x greater than in 2017. The business has high and increasing margins; EBITDA margins were 68.9% in 2021 and management believes they hit 69%-71% in 2022. The business is capital-light with capex of less than 6% of sales in 2021. Evolution generates substantial free cash flow and has no net debt. 

Ezugi, Evolution Gaming, & LATAM Live Casino

Former Head of LATAM for Ezugi & Pragmatic Play

inpractise.com/articles/ezugi-evolution-gaming-and-latam-live-casino

Evolution Gaming

Why is this company interesting?

Executive Bio

Former Head of LATAM for Ezugi & Pragmatic Play

Interview Transcript

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