Aspire Global
and the
iGaming industry
Part 1
By Manuel Maurício
February 12, 2021
Symbol: ASPIRE.ST
Share Price: SEK 62 – €6.1
Market Cap: SEK 2.89 Million – €286 Million
Introduction
After hitting the “stop” button on the recording of the latest episode of our podcast “Ações & Companhia” (which you should definitely watch), Diogo Gonçalves pitched us Aspire Global.
Aspire Global is a Maltese iGaming company trading in the Swedish stock exchange. iGaming is basically online gambling (casinos and sports bets). Diogo was so convincing that I just had to research it.
I’d like to start by saying that this can be a very toxic industry. Gambling is bad for society. All the more because it takes advantage of the “weaker” people, usually the poorer or less educated individuals. It serves no good other than to help people spend their time. Unfortunately, that comes with financial ruin. Yes, it’s better to have it legal and regulated than otherwise, but that doesn’t make it good.
I should warn you that I’m still half way through my research. I have yet to fully understand the industry and it will take me some time to get comfortable investing in any of these companies. Aspire Global has several segments, each one belonging to its own “industry”, with its own dynamics and competitive landscape.
Today, I’ll be making a first approach to the industry and in the next write-up or two I’ll be diving into the financials, competition, and opportunities for growth.
iGaming Ecosystem
One cannot understand Aspire Global without understanding the broader ecosystem. There a few designations specific to this industry, and it isn’t easy to memorize them all at first, but you can come back to this section whenever you feel lost.
The PLAYERS access an online casino (888, BET365, etc). These casinos are run by the OPERATORS.
The operators can be land based casinos, pure online casinos, and also media companies with “latent” internet traffic that they can redirect to their own gaming platforms instead of third party platforms. The media company just needs to acquire players by investing (huge amounts of money) on marketing. It’s an amazing opportunity to add a new revenue stream.
Most of the times, these operators have no technical skills whatsoever. They need to outsource the infrastructure, the platform that is behind an online casino as well as all the other services that are attached to it.
That’s why they partner with companies who are specialized in building and operating these platforms; the PLATFORM PROVIDERS. Aspire Global belongs to this group (more on it later).
In the beginning, the operators would deal with the GAME DEVELOPERS directly. The game developers are often called Game Studios; they’re the ones creating the games.
But these online casinos need to constantly offer the newest, hottest games or else the players will just switch to another online casino. There is very little customer loyalty. It’s brutal out there.
That’s why more and more operators turn to GAME AGGREGATORS (or Game Providers) to get their games. The aggregators are basically distributors. They buy the games at wholesale prices from the developers and sell them at retail prices to the operators. Although this means that the operators will pay a higher price for the games, it’s also much more convenient since they will deal with one entity instead of a few dozen.
They will gladly pay for the simplification of not having to negotiate new terms for every game and not having to deal with countless invoices and emails.
Business
Now that we have a basic understanding of who does what, let’s see what Aspire Global does. This quote by the CEO pretty much sums it up:
“Partners bring the idea, brand and players, while Aspire Global delivers the technical platform.”
Aspire provides a turn-key solution for online casinos. Not only does it have the core platform where the casinos are built upon, it also handles the player-account management, the regulatory reporting, the payment processing and a bunch of other services. Some clients will go for the core platform only, many will go for the whole package.
THE REVENUE MODEL
Aspire makes most of its money by getting a cut of the revenue generated by each casino. This means that the revenue is, in great part, recurring. We could say that it’s a sticky business as it will be hard for its clients, the OPERATORS, to switch providers as long as they’re happy with the technology and services provided.
But one could also say that, given that all the games are easily accessible in other platforms as well, there is no switching cost from the players perspective, so the idea that this is completely recurring isn’t 100% accurate.
One of the ways Aspire differentiates itself from its competitors is by lowering the initial mark-up on third party services (such as payments solutions) while taking a higher cut of the gaming revenue later on. Its competitors prefer to charge more upfront for the third party services and get a lower cut of the gaming revenue later on.
Theoretically Aspire’s way of monetizing its services is a better option for companies wanting to get into the gaming business. They don’t spend too much money upfront, and this allows for Aspire to gain clients and market share. I have yet to confirm this.
I’ve said that Aspire is a PLATFORM PROVIDER, but that’s only half the truth. The company has been branching out to encompass the whole ecosystem. It’s also a game developer, a game provider, and an operator. These are all still small segments, but in time, they’ll grow.
THE GAMING LICENSES
Aspire usually holds the license for each country where it operates in (the notable exception being Portugal). This is yet another great benefit for operators trying to enter the business and scale up. They don’t need to get the license. It’s all part of Aspire’s solution. Operators can even scale up to other countries with little hassle. Aspire will take care of every regulatory hurdle while the operator just has to focus on acquiring the customers.
Aspire will also take care of all the payments, payments providers. It will handle transactions in different currencies, it will give support in different languages. When one thinks about it, it’s hard work.
The fact that it owns the licenses and handles everything for the operator, means that it will be Aspire to collect the payments directly from the players, instead of earning royalties from the operators. To my knowledge, Aspire is the only provider working in this manner.
Acquisition of Pariplay (B2B)
The current trend for online casinos is to offer as many games as possible. There are games for the fans of “Peaky Blinders”, “Downton Abbey” or “Game of Thrones”. The operators can’t handle this rapid pace of innovation. There could be anywhere between 15 to 20 new games coming out every week from more than 100 game developers.
This makes the AGGREGATOR all the more important. First off, the aggregator allows for a shorter time to market because there is no need to deal with all the game developers. Then, by using an aggregator, every new game is plug’n play, they’re all certified, and the administrative process is highly simplified.
Aspire understood that it could benefit from offering the full suit of “verticals” to its clients. In 2019 it bought Pariplay, an aggregator of games and game developer.
With Pariplay, Aspire can offer its clients more than 45 game developers, more than 4.000 games and even 100 of its own games (developed in-house). These have higher margins (ca-ching).
For €13.3 million, Aspire bought, not only a “new vertical” play, but a “new geography” play as well.
You see, online gambling in the USA was prohibited until recently. I won’t go into details on the US opportunity as I’ll be writing about it on a later post, but suffice to say that it’s the market everyone’s going after right now. And guess what? Pariplay already had a license to operate in the state of New Jersey. With Pariplay, Aspire gained access to a whole new world.
It’s my understanding that the US regulation is very strict with companies that operate in grey markets (markets that aren’t regulated). It happens so that Aspire’s operates in some countries that are considered grey markets, so it might’ve been difficult for Aspire to get the US license by itself. With this acquisition, the United States of America became wide open to Aspire. Ah!, the perks of capitalism.
Acquisition of BtoBet (B2B)
Fast forward one year and Aspire made its largest acquisition to date. For €20 Million, it bought the sportsbook provider BtoBet.
I haven’t talked about sportsbooks before. A sportsbook is a place (physical or virtual) where you can make bets on all types of sports.
The acquisition of BtoBet has enabled Aspire to control the full value chain and offer its clients whatever solution they need. And the great thing with BtoBet is that the markets where it operates in don’t overlap those of Aspire. This means cross selling synergies in both ways.
With BtoBet, Aspire is in a much stronger position to go after the US market.
Karamba (B2C)
Aspire also owns its own online casino, Karamba. Although Karamba represents small dollars (or euros), it serves a higher purpose. It works like a marketing tool since it has incorporated all the new technology that Aspire intends to sell to its clients.
I don’t expect Aspire to invest too much time or money in this business given the fierce competitive landscape among Business-to-Consumer players. The operator business is characterized by low differentiation, thus high customer acquisition costs. You’re totally dependent on how much your competitors will be spending on marketing and advertising.
This is apparent when we look at the revenue split between Business-to-Business (B2B) and Business-to-Consumer (B2C). I expect this difference to become accentuated over time.
Conclusion
So here you have it, an iGaming company from Malta (trading in Sweden) that wants to take over the world of iGaming.
I chose not to talk about the relevant operating metrics and financials today as it would be pointless to just drop them here without a solid understanding of the industry. I’m still in “sponge” mode, sucking up all the information I can get.
In the coming week I’ll be looking at the financials, competitive landscape, opportunities for growth, risks, and more. Stay tuned.
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