Gigi Levy, the chief executive of 888 Holdings, answered questions by telephone about the company's growing business-to-business arm, its perceived competition in the b-to-b space, collaboration-minded solutions to the poker liquidity problem, M&A and more.
Q: An area of the company we watch closely is the b-to-b arm, which analysts have suggested to us may be one of 888's strongest growth drivers going ahead. What are your thoughts on getting involved in this sector and what do you see looking forward?
A: That would be one of the quickest areas for growth, and what I like about it is that in most cases, it's not only revenue growth, it's also profit growth, because clearly it's all on the same infrastructure as the b-to-c side of the business, which means we're not creating a new, from-scratch b-to-b company, we are actually working on the same infrastructure as we had before. From that perspective, I don't think there's any other thing that could be as beneficial to our strategy.
I think that there's also relatively little competition at this point in this area. I think that Microgaming -- a good company, but a private one, which I think stops many of the big, potential customers: I think many of them now would require the transparency of a publicly traded company. I think that Playtech has had a wonderful time being almost solo in the market. I think that Boss Media, as part of Gtech, it seems, is going to focus a lot on lotteries. While this is clearly a great area for them for growth, I would think that their focus on the traditional online gaming partners is going to diverge a bit more toward lotteries. I think that CryptoLogic is a not very successful company recently -- it's not necessarily just this issue of critical mass, they are somewhat below critical mass when it comes to poker liquidity. It's somewhat struggling, but it's still a good company.
The outcome of this is that we looked at it (the b-to-b market) and said that there is actually a very nice opening for us to take some leadership in the market, to be at the forefront of potential deals together with Playtech, which is where I think we are -- the Sportech deal proves that.
Q: We've heard through financial sources that the company has a very strong pipeline of potential licensees -- one estimate had as many as 30. Can you make any comment to this end?
A: The simple answer is no -- we're not going to quantify the pipeline. But what I can tell you is that there is currently more demand than supply when it comes to these white-label arrangements. I think that it's still quite unique. I think that many people who are looking at potentially finding a partner for their needs feel that everybody has a Playtech, and maybe they can be different by having an 888. And currently the pipeline is very healthy.
Q: Out of the company's emerging revenue segment -- arguably the highlight of its first-half recent results set -- which of the segment's composite streams has you most excited?
A: I think that in terms of actual numbers, if you look into it, the Q1 was $7.8 million in emerging offering revenues, and that $7.8 was almost exclusively bingo. Q2 was $11.8 million, out of which $10 million was bingo, $1 million was sports betting and $800,000 was backgammon and some other things. So, altogether bingo is clearly the leading one of them, but the fact that we managed to get $1 million of revenue out of sports betting in the first month after launching it is also very encouraging. Altogether, we're extremely happy about bingo. We just launched a new TV campaign in the U.K., and that seems to be working well. We're very excited about sports betting and additional products to ride on our infrastructure -- we got to this $1 million with almost no marketing, but just by the fact that we were there. We're also extremely excited about some things were doing in Asia Pacific around live-dealer casino, which are growing very quickly. All the emerging offerings are performing well, and I think they'll continue to be the core of our growth in the years to come.
Q: An issue of particular import for us recently has been the debate over poker liquidity. We've heard from analysts and other executives that an approach may be taken whereby networks would share liquidity to cut costs. Where does 888 stand in this discussion?
A: We started this debate -- we were the ones who set out to actually do that. We're definitely very interested in it. From that perspective, it's an interesting discussion -- it's a discussion, the context for which you've seen for a while. I mean, it's similar to what the airline industries and that banking industry went when it comes to clearinghouses and ticket-ordering systems. If you look into these other industries, it's very clear to see that there's always been a period of being -- how shall I put it? -- being defensive, where everyone says, well, "My system is best." Longer term, however, I think it will happen in this industry -- there's just no choice.
I'm not sure you need the full-blown network merger. If you take our network, for example, there's definitely no shortage of table games. The only place where we could benefit is the higher tournaments. So, I think the first stage that you'll see, you're going to see some attempt to share tournament liquidity, which is where most operators are struggling. I think you'll see -- I'm not sure how these deals will form -- but we're trying to lead the discussion and get everybody to agree to do something of the kind. Without giving away too much detail, we are very active on that side.
I'm a big believer in this; I don't believe there's justification for so many poker networks existing at the same time, when essentially there's very little -- extremely little, if you want -- reason for differentiation, to keep themselves separate. I don't see any reason, for example, for Boss Media and CryptoLogic to own two separate networks.
Q: What do you make of PartyGaming getting back into the b-to-b space more actively? What sort of threat -- or competition -- does this pose to 888, if any?
A: First of all, I think PartyGaming is a good company and they have exactly the same logic going into b-to-b as we have; I would be surprised if they didn't. I think they would need some investment in their systems and capabilities that we've already done across the last year, that hopefully will give us a head start. I think it was quite clear that they were going that direction -- do remember that Jim (Ryan) comes from St. Minver, which essentially is a b-to-b company, and a good one at that. So, I'm sure that they'll be a good competitor. Overall, I think there is more than enough work for all of us.
In any way, to be quite frank, I'm actually quite happy because one of the things that we have to convince customers sometimes when we talk to them is -- how can it be that we can be both an operator and a b-to-b company? You know, we always mention Bwin, which also owns Ongame -- but then people say, "Yeah, that's just a poker network." If PartyGaming is going to be a full-fledged b-to-b company, with a full product set, that makes my educational role a bit easier. So, there's a benefit in everything.
If from that perspective the three biggest companies in b-to-b are going to be PartyGaming, Playtech and 888, then I think that, first of all, it takes away some of the negative people see in working with us, and the second thing, I think that it's a good set of companies to be between and we can definitely gain enough market share to justify our strategy. So, I'm not very upset about that.
Q: As 888 is offering the full turnkey I-gaming solution -- both b-to-b and b-to-c -- do you think having this position makes the company a more attractive target for, say, a land-based company that's looking to get into Internet by acquisition?
A: To be quite frank, we're not looking to become a more attractive acquisition target -- we consider ourselves the predator and not the prey. So, I'm not sure that this is anything we're aiming at. I think it's going to make us a more profitable company and create more shareholder value, and if somebody wants to buy us, then they're going to have to pay more, which is what our shareholders want.