Marco Castaldo, Microgame: Why new US operators shouldn’t confuse choosing a supplier with defining a strategy

We spoke to Marco Castaldo, who explained why uncertainty in the US path from early regulation to profitable business has dictated caution for Italy-focused gaming services provider Microgame, and what he perceives as a “fixation” on platform features, while speculating as to whether leading European operators – particularly those who drive innovation in-house – will move ahead of those who rely on suppliers “distracted” by the sirens of the US market.  

SBC: Coming from a background of working in such a heavily regulated market as Italy, what is your take on the US regulation passed so far?

MC: In general, the technical aspects appear to be much simpler for sports betting as compared to Italian regulation. On the other hand, the state vs national dimension adds a level of complexity and uncertainty that should not be underestimated.

In terms of sheer delivery from the technical and compliance perspective, when you successfully supply the Italian regulated market, you can go anywhere. That includes the US of course. The real issue is what the market is going to look like, where will the profits be, in what time frame will they materialise, and whether they will justify the early investments we are seeing.

What I find interesting is the industry structure in the US and how gambling regulation in general, over time, has led to a complex and quite fragmented market with many segments and players of different types in different geographical areas.

The question for me is how a large subset of the US gambling industry will address the sports betting market, in the many cases where individual companies don’t have the scale of some of the names that made early headlines on US sports betting.

The other key aspect is how the online regulatory framework will evolve in the near term, if at all. This will determine the possible scope of multichannel strategies which are one of the keys for long-term success. 

SBC: From the supplier side, do you think that innovation in Europe may stall as some of the biggest companies bring their US market clients up to speed?

MC: In principle no, a mature competitive market like Europe should remain a strong locus of innovation. Practically, though, as suppliers don’t have infinite resources, something may have to give. And with regulation lowering short-term prospects in certain European markets, it’s easy to imagine priorities shifting to growth in new markets.  

Certainly, European operators who depend on suppliers for platforms and service should be watchful of the attention they get from their partners, in terms of customised development capability, for example.  

Ultimately, innovation is not the suppliers’ prerogative, and it is a broader playing field than just technology. For me, the only durable innovations are strategic, business model changes, not the addition of a nice new bell or the latest two whistles which everyone else will have in six or 12 months.

The successful operators ultimately lead on innovation. So maybe the leading European operators, those who drive business-wide innovation strategies in-house, will move further ahead of the pack and distance those who rely on suppliers “distracted” by the sirens of the US market.  

SBC: Do you think there’s a chance that new US market operators will put too much emphasis on technology and innovative features to drive their choice of supplier, rather than the right platforms and capabilities to manage such technology?

MC: It’s difficult to generalise but I warn against what I sometimes perceive as operators’ fixation on technology and platform features, uninformed by a vision of how they will succeed in the business based on their own capabilities. When you confuse choosing a supplier with defining a strategy, you’re not getting off to a good start.

Operators in the US, just like any company entering a new market, should think hard about their definition of victory for the business, where they are going to play and how they are going to win.

Which activities in the operator’s business system will be key to compete successfully and how do they fit with the current operating model? What must be done in house? What pieces of the stack should be outsourced? What will integrate with legacy core business systems and how? What human resources do we need? You can’t substitute a platform RFP for this exercise, but I fear some do to a large extent.

If you ask yourself the right questions you might find you don’t need or can’t use certain technologies. Or you might find, especially if integration with legacy channels is key, that a gold-plated betting platform isn’t the key asset for your strategy and you should be investing in the stack below and above.

SBC: Speaking at Betting on Football, you mentioned that you are “soon to move abroad” to complement the work you do with 50+ licensed operators in Italy; can we expect to see Microgame services in the US?

MC: The answer is yes but we will take our time, for at least three reasons. First of all, we are not going to dilute our commitment to Italy, both for our current customer and for the new business that is starting up following the tender for new licences. We are bullish on the Italian market for the long-term.  

Second, as I stated earlier, the uncertainty in the US market’s path from early regulation to profitable business dictates caution. We’d rather see how things develop over the coming months. We can always accelerate if we see real early opportunities. Finally, other geographies are providing more concrete international opportunities for us in the meantime.  

Thinking down the line though, the Microgame target is the US “middle market” where we can bring to bear our experience in tailoring service to medium-sized and smaller operators, while generating scale across a network of customers. I doubt the leading providers have the desire, the technology or the DNA to successfully tackle that segment, and they will be focusing on the “big fish” they landed.

SBC: At the same event, you said that the long-term winners are operators that take a broader perspective across all entertainment opportunities, not just those from the sports vertical; is this even more relevant for the US?

MC: Nowhere is the notion of transcending gambling into entertainment more developed than in Las Vegas, from what I know. So, emphatically, yes. How this will develop in practice around sports in the US will certainly be a learning opportunity for Europeans, especially for operators in those markets where the retail model is looking pretty tired.

What we at Microgame can bring to bear is our experience in implementing a cross-vertical, cross-channel model. This doesn’t depending on the betting platform but on a broader set of assets. What we don’t know is whether and in what time frame the regulation will evolve to where a true convergence can be implemented.

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