On your marks

Start-ups remain high-risk, but there are still opportunities if companies have the right stuff, says Scott Longley

Nursing our losses from a recent four-day horse racing festival –‘oh Cheltenham, so much to answer for’ as the renowned Mancunian pop-poet Morrissey never quite sang –the staff at eGaming Review towers were consoled by a sympathetic contact who referred us to a quotation from one Jame Bryant Conant, chemist, one-time Harvard president and all-round public service good egg.

     “Behold the tortoise,”said the manx Telecom who introduced aptitude tests to the US educational  system. “He makes progress only when he sticks his neck out. ”
      Even in our hour of betting distress, we were struck by how much the comment was an appropriate one for an industry where risk-taking is the name of the game. Start-ups are the business   equivalent of throwing caution to the wind, and in the present climate of the world of egaming, where the phrase ‘gold rush’ is never far from the lips of the commentators, they are perhaps doubly so.
      But a bet to nothing?  Certainly not according to those involved in the industry. “Start-ups generally are higher risk,” says mike Saul, relationship director with the leisure and gamin team at Barclays Corporate. “The skill, however, is taking those ideas through to fruition. ”

      Jez San, the man behind PKR, one of our featured start-up companies, makes the point that one of the reasons there have been so many new people and companies entering the sphere is that “people see it as easy money ”.
     “But it isn’t , certainly not any more. you now have to have a good product, be well financed, be good at marketing, and have some kind of new edge. ”
      As San goes on to point out, the days when you could open up shop, shunt out a job lot of spam emails, buy some advertising space and, as if by egaming magic, end up with an egaming business are (mercifully) long gone. Which is not to say such a route is to longer available – it is . But whether it would lead to any degree of success is a very different matter.

Putting up barriers

The so-called barriers to entry in this business are still quite low in terms of software and infrastructure costs,” says Evan Hoff, chief executive of AIM-listed Fairground Gaming. “However, the barrier to success have gone up, in terms of the ability to attract and retain players cost-effectively, build an effective back  office and marketing operation, and generally run a profitable business. ”
      For a supposedly young industry, egaming is showing distinct signs of market maturity as even in supposedly niche areas and geographies, opportunities become thinner on the ground. True, certain areas are probably easier than others – Greg Harries, leisure analyst at Canaccord Adams, points to affiliate marketing and niche technology offerings, along with payments solutions, as being areas that remain ripe with possibilities. But generally, size now matters most.
     “Big is definitely   becoming bigger in egaming,” says Simon Holliday, partner at Global Betting and Gaming Consultants. “The winners in this space are increasingly moving towards having a presence across all market channels. With marketing budgets running to hundreds of millions of dollars, and in some cases technology teams that are 100-plus strong, it is becoming increasingly hard to get on the first rung of the ladder. ”
      To get an idea up and running you will clearly need the classic ingredients for any success : inspiration and perspiration. But you will also need cash, and quite a bit of it.

     “As existing brands increase their strength, any start-ups which seek to compete are likely to see the amount of capital required rise significantly,”  says mark Blandford, founder and chairman of Sportingbet.
      Holiday says he cannot stress enough how much money is the key to gaining a foothold in the market. “Only organizations with deep pockets will be able to enter the market now, unless they find a particular niche,” he says.
      External funding, says David Collins, head of corporate finance at Berwin Leighton Paisner, is a challenge. “Most start-ups we see tend to have been seeded by their founders will need to be convinced of the business proposition which the start-up represents, the prospects for the market in which it operates, its competitive advantage and the quality and experience of its management team. ”
      In any business start-up, the people behind it are the biggest single factor that will determine success or failure, and egaming is clearly no different. “As in any business, you can’t really replace the advantage of sector experience, so it is a must-have,” says Hoff.
     “Attracting the best people is difficult for start-ups, as significant established companies are already around, many of which can offer attractive remuneration packages to employees. ” Says Collins.
     “A start-up relies in that regard on finding a team that perhaps wants the autonomy they couldn’t otherwise find in a larger organization and a greater equity incentive package to reflect the bigger risk of joining a start-up. ”

Finding talent

Experience in the sector is something most of experts believe is vital. “If you look at all the major players, strong overall leadership is required,” says Holiday. “Experience of the industry, especially at the top, is becoming more important because this industry has evolved so rapidly during the past decade. ”
      As Harris says, with the industry only 10 years old, there is not a lot of strength in depth of top talent available. But he adds it should be possible for good management to transcend from other industries, particularly video gaming, media, land-based gambling and enterprise software.
     “The qualities that make good management in egaming will be similar in other areas, and include innovative thinking, ability to guide a team, and strong communication skills. ” Examples of recent successes in the world of egaming are not hard to find. With arguably one of the most obvious currently sitting pretty in the FTSE 100.

      But other more recent start-up winners are also abundant and should give some degree of hope to those who think the market might not be wholly sewn up by the sector behemoths. The likes of Betfair, Game Account, Gamesys, Empire, FUN and others all get mentions as examples of companies that have made it in recent memory. All have managed the trick of having the idea, getting the money, and finding the management.
      What is more, they have all managed what Holiday delineates as the basics for any business looking to make a success of its model –giving the customer what they want, when they want it. “Assuming they have found you, they want a bet at good odds, they want to be paid quickly without hassle it they win, they want bonuses to reflect their loyalty, and they win, they want bonuses to reflect their loyalty, and they want site to run fast   and be reliable. ” Simple really.

eGaming Review Start-up panel

Mark Blandford is founder and chairman of Sportingbet. Previously owner of a traditional bookmaker’s chain for 15 years, blandford launched Sportingbet in October 1998. In January 2001 the company floated on the Alternative Investment market.

As head of corporate finance, David Collins advises on corporate finance transaction, acting primarily for public quoted companies and corporate fianc é intermediaries. He leads BLP’s betting and gaming group which includes William Hill as a client.
Even Hoff  is chief executive of Fairground Gaming. Previous to that, he co-founded Forward – SLASH, which launched and maintains some of the world’s leading online casinos including The Gaming club, The Riverbelle Casino and the Lucky Nuggett.
Greg Harries joined Canaccord, the Canadian financial group as a technology analyst covering enterprise software and wireless in 2004, before moving to the London tech team. Prior experience includes time at Orion Securities, UBS Warburg and Mitsubishi.

What is the nature of the business?
PKR is a next-generations poker room that features deeply immersive game play, state-of-the art visual technology and high levels of personalization.

Who is the management behind the business ?
PKR was founded by its president, Jez San. One of the UK’s best-known technology entrepreneurs, San has over 20 years experience in the video games industry. Malcolm Grahm has recently joined PKR as chief executive after previously being managing director of The Ritz Club London Online.

What market is it aiming at?
The aim of the product launch is to recruit large numbers of existing online poker players. PKR is also confident that is ground-breaking software presents it with an opportunity to take to the wider video games market.

What was the hardest part of the process?
Jez San: “The hardest part was locking down the product and ending the phase-one development programme. ”

What is the USP?
“PKR’s USP is simple: its software: PKR provides the most advanced pocar room ever seen, PKR features   real-time 3D graphics and full-character animations, enabling us to put the player at the players at the heart of the action and deliver a more engaging and immersive experience. “PKR allows players to use emotes and body language to express feelings, read and give off poker tells or try to intimidate opponents by showing off chip tricks. ”

Website: www.pkr.com

Panel verdict:
Greg Harris : “Some US readers may remember the Edsel, a car built in 1958 by Ford Motor Company, that sported many innovations but flopped. As market adeptness improves, poker plyars are constantly looking for tools that will help their games play. So far this has been seen through software that assists in hand analysis, hand tracing, player tracking.
     “PKR could see success if they can significantly improve the look and feel of game play. so far this has been seen through software that assists in hand analysis, hand tracking, player tracking.
     “PKR could see success if they can significantly improve the look and feel of game play while at the same time not taking away from playing speed.
Mark Blandford: “On the positive side, the software looks great, which is probably only to be expected given San’s background. Of the challenges, I think it has now been at least two years since we have seen a start-up penetrate the ranks of major standalone poker brands, with many having tried and failed. This has the best chance of the recent entrants to the poker ‘gold rush’. “But will they make it?  The odds are against them unless they can afford to compete with the big marketing budgets. ”

Poker share

What is the nature of the business?
Poker share is the first poker site to offer its players the opportunity to share in its success. The Poker Share  Trust has the ultimate benefit of 40% ownership of PokerShare.com. It receives cash every month which is used to reward its beneficiaries, the players, through its unique Poker Share Trust Loyalty Store. If PokerShare.com floats on the stock exchange or is bought by another company, depending on the total number of share points players have accumulated, they will receive cash from the Poker Share Trust.

Who is the management behind the business?
The Gibraltar-based company is backed by a group of high-net worth individuals who form a private equity / venture capital business. Lucan Toh is a director and has been involved since inception.

What market is it aiming at?
Lucan Toh”“Our business is about finding existing online players, people who know the game and are looking for great value. ”

What is the hardest part of the process?
“(Apart from the false start …) The barriers to entry are low, but the barriers to success are huge. You have to have something very clever in this industry; you can’t simply be a skin. You need to have something memorable, something people want to be part of – we do. ”

What is the USP?
“Put simply, it is value. We offer a value proposition to existing players in an overcrowded market. We’re not targeting players who have never played before; we’re targeting existing players hungry for better value. ”

Website: www.pokershare.com

Panel verdict:
Evan Hoff: “It is an interesting concept although it takes a fairly savvy person to understand that they get some value back via their shareholding. Also, there have been schemes before offering various forms of ownership and cash back and rakeback, and I think they might struggle to convince players they are different. However, there has been a lot of talk about rakeback, so players are obviously knowledgeable enough to understand the concept of being rewarded for their play. ”

Purple Lounge

What is the nature of the business?
Formed by poker players who believe that the game needs a makeover, its sleek interface aspires to capture poker’s rich lifestyle. ‘The Lounge’ not only offers a game of poker and allows you to take a peak into the world of celebrity gossip, scandal and luxury but its exclusive ‘Side Bar’ offers unique player benefits.

Who is the management behind the business?
Chairman Chris Gorman is a serial entrepreneur who has headed several successful ventures in both retail and technology businesses. He was a founder shareholder in UK mobile phone retailer DX Communications, and then went on to create the internet services company, Reality Group.

What market is it aiming at?
Chris Gorman: “Purple Lounge offers a fresh gaming experience and is aimed at the more discerning player who appreciates sleek sophistication, and trendy extras that come with it. As the poker market becomes increasingly more saturated, Purple Lounge moves away from the  Vegas glitz bringing the cool and sophistication back to online gaming. ”

What was the hardest part of the process?
“Making sure that we had the right team of people in place to support the division for Purple Lounge and ensuring we had systems and processes in place to support that team. ”

What is the USP?
Purple Lounge’s main aim is to offer players and affiliates outstanding customer service. Purple Lounge is committed to their players and is constantly looking into the needs of each individual. We strive to offer the most innovative in gaming play, both in our poker tables and in our entertainment. ”

Website: www.purple-lounge.com

Panel verdict:
Evan Hoff:   “The site has a nice feel to it, though on its own I don’t think it offers anything particularly unique which will help in attracting new players – so I’m sure they ’ll be relying on traditional player acquisition strategies. However, as a retention tool this sort of content and lifestyle-oriented focus will probably be helpful, even if it’s not unique. As a player I certainly wouldn’t mind being schmoozed in the manner described on their site. ”


What is the nature of the business?
WBX is a new betting exchange which will actively seek to enhance the person-to-person (P2P) betting experience through a focus on be-spoke technology, including increased platform reliability, diversity of product base, enhanced customer service and unique member incentives. WBX believes there is a genuine need for a second thriving betting exchanges, not just to increase customer choice, but also to protect the consumer from what is currently a virtual monopoly in the exchange betting industry

Who is the management behind the business?
The major shareholder is Malcolm Gray, who has a proven track record in business development.

What market is it aiming at?
Malcolm Gray : “WBX will be aggressively marketing to the existing exchange betting audience, while looking to promote the advantages and demystify exchange betting to the leisure betting market. ”

What was the hardest part of the process?
“Betfair has a significant first-mover advantage in exchange betting challenge we will face is to promote the migration of existing exchange users to their own website. Generating strong site liquidity will be key, and while we are aware achieving this will be difficult, we have a number of strategeis in place, which include providing improvements in areas in which we perceive Betfair to be weak. ”

What is the USP?
“WBX believes it will be able to offer the consumer a genuine, thriving alternative in the P2P market.

Website: www.wbx.com

Panel verdict:
Evan Hoff:   “Very few markets are controlled for long by a single player so there is always room from the ‘slow-moving  behemoth’. In its case, I suppose WBX is hoping Betfair is just that, although Betfair’s performance is obviously evidence to the contrary. Competition is good news for punters and if WBX can get the liquidity, the consumer stands to gain the most. ”

Greg Harries : “The main challenge I see with entering the betting exchange market will be in differentiating themselves from the market leader and providing sufficient value-added services to attract customers. A betting exchanges acts quite similarly to a stock exchange where the proposition is about low cost transaction, fast execution and liquidity. Betfair is doing a good job meeting these propositions and so WBX will face the challenge of doing it better. ”


What is the nature of the business?
Better will be a betting shop network which aims to be the sixth-biggest network within two years of launch. Accompanying its original shops (almost wholly within the London orbital M25 Motorway) will be an online offering covering sports betting, poker and casino. The shops are aiming at being more customer- focused than the other high-street firms.

Who is the management behind the business?
Ian Hogg, managing director and Derek Wood, commercial director. Both were previously with Anthraces, the first versions of the racing TV channel. Previous to that they were both at UK racecourse operator Arena Leisure.

What market is it aiming at?
Derek Wood: “Both offerings will be aiming at the high-street better, though online, by the nature of the product, will be looking at the more sophisticated punters. ”

What was the hardest part of the process?
From the start, finding the people to run the business according to it aims has been difficult. Alongside this, the hardest part has been finding the premises in the right locations as Better is not looking to acquire existing bookmaking outlets, but new high-profile, high-street licenses. We are spending £ 250,000 on each refurbishment. ”

What is the USP?
“Better is all about quality locations, quality staff, quality fittings and excellent customer service. We have a strong belief in customer service. ”

Website: www.betterbet.com

Panel verdict:
David Collins : “An interesting concept in terms of trying to create an upmarket niche in contrast to the more traditional UK high-street estates operated by the major players. ”

Mark Blandford: “If they are able to find the right kind of sites, they have a good chance of succeeding. But like all retail businesses, it’s all about location. In terms of online, there is not much point in them launching the online offering until they have built their offline presence. Operating online is a very different business. ”

Global Bet brokers

What is the nature of the business?
Bet brokers is a betting brokerage, placing bets on behalf its clients, who will be either high stakes punters or bookmakers themselves. The client has one account with us, and we then have accounts with the major  bookmakers and betting exchanges.

Who is the management behind the business?
Wayne Lochner, chairman and chief executive, has vast experience within traditional telephone brokerages. Key management includes trading director Randy Haynes, who has 30 years ’ betting industry experience.

What market is it aiming at?
Wayne Lecher: “For the punter, one phone call to the dealing room in Canary Wharf and they have access to the entire market. For the bookmaker, bet brokers can introduce a wide spectrum of business from a retail customer base, or just send them the bets they want. ”

What was the hardest part of the process?
“You cannot underestimate the difficulty in raising money. We had two false dawns over funding. It took us 18 months to raise the cash. The only thing that keeps me sane is that this is a long process. Some start-ups might happen relatively quickly, but really starting a business from scratch is a two-to-three-year process. ”

What is the USP?
“The world’s only betting brokerage. At present it is only wholesale and over the telephone, but the launch on the internet will also make it retail.

Website: www.betbrokers.com

Panel verdict:

David Collins :   “A sophisticated approach to traditional betting methods offering punters a service akin to private client discretionary and advisory stockbrokers and a tailored personal service to the bookies. ”

Mark Blandford: “The conundrum the business faces is this : all the major bookmakers like to know each source of business and the Betbroker model denies their traders the vital information they need. By making the source anonymous, the bookmakers are not likely to keep accepting larger sums as the business grows. Thus the basic model appears flawed.
     “Professional punters may well readily become customers, but I don’t see the casual /leisure punters rushing to join in such numbers as they have no trouble getting their bets accepted, let alone being prepared to pay a commission.
     “There may be a modest niche business in here, particularly if they were to combine an odds aggregation service into their online offering. ”