Speaking at this year’s Betting on Football conference, Parimatch CEO Sergey Portnov spoke about his company’s “wild” decision to move into the Tanzanian sports betting market.
Just over a month on, Portnov gave SBC News readers some further insight into why he chose to enter a country that is not yet ready to fully embrace the phenomenon of online betting, why lifetime commission-based affiliate deals are not an option for Parimatch, and how regulation might change once the market matures and margins inevitably become squeezed.
SBC: You recently steered clear of the well-trodden path into the likes of Kenya and Nigeria by making a move into Tanzania; why did you make this decision?
SP: The reasons are very simple. We ended up in Africa not by coincidence, but by examining a number of factors. First of all, whether there is a local partner, because we would never randomly pick a country from the globe and pursue that market. We would never do it because the first way into a country is through someone who has established local connections to clear the path.
We have a good business partner, who also happens to be Ukrainian, speaks the local language and frequently travels to Ukraine. This has made it easier to both keep the communication going about Tanzanian business and tap into an administrative resource to help our own market entry. In places like Tanzania, if you go on your own it means it’s just you and the government – overcoming any challenges can then become very slow and bureaucratic.
The second reason we look at is population – in this case 40 million. And thirdly, we look at the barriers for entry – for instance if you go to Europe, these are extremely high, not in terms of licensing but in terms of product and marketing spend. To get a serious market share, or let’s say a modicum, you need to spend a lot of money.
Conversely, in Tanzania it’s pretty much an empty field – you have some retail networks, but the quality of their market presence is often low, and we feel comfortable ‘beating’ them. The African market is emerging, the economy continues to improve, and infrastructure is evolving. All these factors indicate that in 3-5 years’ time, this country will reach a level where you can start making decent money.
It’s easy to get a licence, it’s easy to open a shop, it’s easy to get the best marketing deals. You can create marketing opportunities because of the country’s limited awareness of modern and contemporary business practices. We can bring those practices in and get them at the lowest rate.
We’re not aiming for Tanzania only, we just want this to be our HQ in Africa because we already have offices there, we have over 200 people there, and it’s convenient for us as a travel base. However, after we build a success story in Tanzania, and after the World Cup has finished, we will start to expand in the likes of Uganda, Rwanda and Democratic Republic of Congo (DRC).
SBC: Described as the ‘place to be’ away from the saturated European market, Africa also has a ‘largely untapped’ affiliate market; what is your affiliate strategy in Tanzania?
SP: At this stage, affiliates will not drive a lot of traffic or players to Tanzanian players because the country is not really well prepared for online. Affiliates will strengthen their position as the time evolves, but as of today the best way to recruit players is through retail.
Giving out 20-30% gross gaming revenues (GGR) to affiliates in lifetime value is too much because we can get those players cheaper. In my opinion, 30% should only be given when you’re entering a market with zero marketing budget and you want a quick way in – affiliates will help you with that. But, to be honest, it is the most expensive source of traffic and revenues. We don’t want to kill our own margins, so we have to be very careful with affiliates.
If I was not aiming for market leadership, and just wanted to be one of the players, then I would think about the best way to enter the market and affiliates definitely give you a boost because they’re highly creative and can manipulate the traffic. But the price is high, so for now we will continue by ourselves and do it more efficiently in the long term.
In the short term, yes, I agree we are possibly losing out by not using affiliates. Moving forwards, we will consider price-per-player deals, or non GGR based deals – that is an option for us. But today, it is a bit early for this discussion. Maybe in six months to one year.
SBC: You suggested that as players move away from longer coupons to ‘sharper’ live odds, margins in countries such as Tanzania will inevitably become squeezed; how long do you think it will be before the market matures to a point where a 6% turnover tax becomes invalid?
SP: When Tanzanian players start betting, they are the best ever for your business because they aren’t familiar with the product, they place longer coupons, they chase a dream and they pay a high price in the form of a margin. But this will change.
Everything will get cheaper in this world. Things will become more efficient and cheaper for the consumer. It means the evolution of their betting behaviours, which I believe will come in three years’ time as live betting takes over. The trend worldwide is that people move towards fast turnover markets – they want to spin money quicker, which means single bets and sharper odds, so margins will go down.
As competition improves in the market, new guys will come in and start competing using price differentiation. Right now, everyone has pretty much the same price. Margins, currently at 20%, will come down to 10% and maybe in five years’ time will reach 7%.
The question is how government will react to this, because obviously with 6% turnover tax and lower betting margins, businesses might become unsustainable. I won’t be surprised if regulation is changed towards GGR as time goes by, which would be a positive step for the operator. At Parimatch, we have an adaptable culture, so we are ready for any changes.
SBC: In many established sports betting markets, a retail betting presence is seen as a way of supplementing the dominant online arm of the business. How is this different in Tanzania?
SP: I’m a big advocate of online, because you remain light. Retail can be a heavy load. Nevertheless, Tanzania is not yet ready to simply absorb the phenomenon of online betting. They don’t have things like Amazon, they don’t order things online – those things haven’t emerged yet, so I don’t believe people would have enough trust in you as an online only company.
When you have a shop where you can physically come in, you see a brand logo, you see a real person dressed according to your corporate standards. It becomes tangible and through that you build trust. You could try and spend five times more on online marketing, but I’m still not sure it would work.
If you consider that buying simple things online isn’t yet integrated into Tanzanian lifestyle, then you can understand how hard it is to integrate betting in this way. Once the e-commerce development is there, I fully agree that it’s possible to survive without retail, but today it is impossible.