The Uncomfortable Truths of iGaming: Two CEOs, One Car

[00:00]  1. Intro: two CEOs, one industry

Host:  Today we’re doing something we almost never do. Two CEOs, one industry, the uncomfortable truths of iGaming. Buckle up, let’s go.

[00:33]  2. Meet the guests: Cedomir Tomic (Alea) & Oleksandr Feshchenko (GR8 Tech)

Host:  Let me introduce you: Cedomir, owner, co-founder and CEO of Alea, a huge casino-aggregation company, and Oleksandr Feshchenko, CEO of GR8 Tech.

Oleksandr:  We’re quite young compared with Alea, but hungry. Alea is actually our provider of content, and I hope by the end of the conversation they’ll be our client. Thank you for having me.

Cedomir:  I started Alea in 2012 as an operator, and we completely rebuilt it from the bottom up. Now we’re one of the biggest integrators on the market.

[01:33]  3. Do iGaming awards really matter?

Host:  First question, awards. Is it about credibility, or just shining bright?

Cedomir:  It’s industry recognition. I’m a judge at awards. Before judging, I didn’t know what happened behind the curtain, and yes, you can have judges voting for their friends, but there are so many judges that it balances out and it does become recognition. When a company wins six, seven or ten awards a year while others win none, it shows the industry something. It’s much more important for B2B than B2C. B2C just puts the logo on the website; for B2B, when everyone’s at the awards and sees who’s winning and going on stage, people remember, because it creates emotion.

Oleksandr:  Some awards are about visibility, and some organisations just create new awards for a particular reason. But for an award provider, it’s vital to be fair and independent, and then you get the credibility. I like the old-fashioned awards that were a nice show in a casino in London. Now everyone tries to follow and remove that perception that you can buy an award. And I agree with Cedomir that it’s very important for B2B, especially when you’re starting and want to prove you’re on the same level or beyond.

[04:27]  4. Bigger expo booths: growth strategy or ego play?

Oleksandr:  At the beginning it’s about growth: an expo is mostly brand awareness, not traffic, and you have to show everyone you exist. Then you need a good stand to work effectively with existing clients. But it’s slightly about ego too, because when you make the stand smaller, clients come and ask, “what happened, are you out of money?”

Cedomir:  It’s funny, because 20 years ago when we started, we had the same debate with my business partners, should we go smaller? No, no, people will think we ran out of money. The problem is that once you start, it’s not a game you can reverse. The equation is: square metres on the floor is growth, because it’s exposure to your customer. But the bigger and more opulent the materials, that’s ego, because you don’t need it, it lasts 48 hours. At Alea we build big booths with very cheap material, they’re practically auto-destructing during the 48 hours and we fix them on the go. I don’t want to spend a million, or even more than 100k, on the stand itself, because I’d rather have that money in the office. Renting just a TV for two days costs 5k, the same price as buying it. So: opulent stand is ego; big stand is growth.

[06:59]  5. Conferences: pipeline, branding, or cult?

Host:  Are conferences more pipeline, or just a cult?

Oleksandr:  It starts as pipeline, but the numbers show expos aren’t about generating traffic; they’re about brand awareness and retention of existing customers. It’s a very effective meeting point, especially when we all work remotely, even employees come together. We often close deals after the expo. And partially, yes, it’s a cult, you can’t miss it.

Cedomir:  We look at several metrics. A sales team just looks at leads, leads, leads, how many contracts will you sign. But that shouldn’t be the only one. The second is how many contacts you’ve now seen for the second, third, fourth, fifth time, the conversion funnel. The third is the actual conversion, signing the contract: we might have 30 leads, sign 10, one in three, but in between we saw these people three, four, five times. We sign because a lead was generated a year ago and we met them repeatedly. The last metric is retention, our account managers meeting our customers at the booth. That last one could qualify as cult, and it’s as important as all the others together: branding. If you have a strong brand, even in B2B people buy on emotions, just like B2C. You need a good product and everything squared up, but on top of that, a real brand people relate to and trust is outrageously important. It’s the metric CEOs dismiss when the CMO comes asking for money, and it’s a hard sell, because you’re selling magic.

[10:35]  6. Public CEOs vs effective CEOs: can you be both?

Host:  There are publicly known CEOs, but does public always mean effective?

Oleksandr:  Publicity is an important part of a CEO’s work. I’m not the most public, I’m still more focused on internal things, whereas Cedomir is much more public, running his own show and well known. I’m young and hungry and can catch up later. But I don’t fully agree that being public means being ineffective; someone has to carry that flag and move the company forward in the public space. For most CEOs it’s almost an obligation.

Cedomir:  In Alea’s case, I couldn’t be the CEO and be as public as I am. 100% of my job is being Alea’s brand ambassador, and I can do that precisely because I’m the founder and I don’t lead the teams. It puts the brand out, builds connections and lets me see the trends, but I live in hotels and planes, I don’t have a family, for example. I couldn’t be the CEO on top of that, it just wouldn’t be feasible. So being a genuinely public CEO and doing the CEO job as Oleksandr does, I don’t think you can combine both.

[12:59]  7. Marketing budgets in B2B iGaming: how much is enough?

Host:  What’s an acceptable level of marketing budget for branding, percentage-wise?

Oleksandr:  It depends on the stage. When you’re starting, you spend much more on marketing, building a brand and reaching clients; then your reputation works for you and the budget can be more moderate. We’re slowly switching from heavy to moderate spending, around 5 to 7% of total spend right now. The rule is that revenue should grow faster than, or at least at the same pace as, the marketing budget. And if there’s a chance to spend money effectively, you must take the opportunity. In B2B, most of the marketing budget is brand building; there isn’t much performance traffic, although in casino aggregation, where Alea and we slightly compete, you can build targeted Google funnels.

Cedomir:  In B2C, around 50% of GGR goes to acquisition and affiliates, plus you pay for booths. On one brand, the affiliate bot was a million per month, so 12 million a year just for affiliates. Then a couple of million on booths and conferences; for Alea, 3.5 million a year on booths and conferences, about 25% of our revenue. And when I talk to the biggest game studios, at ICE some spend 5 million on a single conference, probably 10 to 12 million a year on conferences alone. They do it partly to create a barrier for newcomers, buying everything so you don’t have space to penetrate the market.

Oleksandr:  Very smart, because it creates a wall that’s impossible for a newcomer to penetrate. They don’t have the firepower to just buy space and be there.

[17:45]  8. Regulated markets: growth engine or slow collapse?

Host:  Are regulated markets growing or dying, making money or not?

Oleksandr:  The big problem today is populism everywhere, and gambling is part of the game, an instrument in politics. “What should we do? Increase taxes on gambling.” But on legal markets, the more you raise taxes, the more you lose; raising taxes isn’t always the way to get more money. That’s why many regulated markets struggle. Germany, for example, has a huge gray market they don’t fight effectively, and even with super-disciplined German people the regulated market doesn’t really work. Regulation needs to be reinvented, lighter, to motivate operators to work in the legal domain.

Cedomir:  It’s strange to watch, and it’s been strange for 20 years. Twenty years ago you could address any market with an MGA license; today that’s impossible. When you see the UK raising tax to 40%, when 75% of the US market’s GGR is unregulated, something is off. An operator told me they bought a UK casino doing 50 million GGR per month. I said that’s impossible, you’re doing 5 million a month, I know the market. After an hour he admitted, it’s per year. So two problems: regulated GGR is much smaller than unregulated, and your monthly EBITDA margin is maybe 5% regulated versus 20 to 30% unregulated. It’s not just taxes, it’s all the barriers. They call it player protection, but it isn’t, because the consequence is players going to non-regulated casinos. Regulation today is driving the industry and the players toward non-regulation, and it really started in 2016 with the rise of crypto casinos. Each time regulation kicks in, look at it 10 to 15 years later and it’s a catastrophe. Look at Brazil.

Oleksandr:  I was sure they were doing such a good job in Brazil, creating a huge market and controlling Pix payments through the national bank. It started well, then they kept increasing taxes and did nothing about the gray market, where Pix still works. The operators who moved to the regulated market basically got hurt.

[21:46]  9. Crypto casinos and instant payouts: why players shift

Cedomir:  Players also go to unregulated casinos because the RTP is higher (no taxes) and the casinos are more fun and innovative, because they spend their resources on product. When we were a regulated casino under the UKGC, 80% of the product and development team was working on GDPR and compliance, which kills innovation. But the problem with unregulated casinos is that, most of the time, you risk not getting paid. As a player, I’d still play on a regulated casino, because if I win a jackpot I’m sure to be paid.

Oleksandr:  That’s true for small, shady brands. But big global crypto casinos like Stake built their reputation by paying everybody. It’s much cheaper to pay players than to invest in reputation, and the social connections between players spread the word immediately. The cheapest way to retain players is to let them withdraw as quickly as possible; the most expensive way is to lose them.

Cedomir:  And a crypto casino pays out instantly, which is a big benefit. Stake’s CMO Akhil said yesterday that with VIPs, almost automatic withdrawals are ultimately where trust is built, no “monkey dance” of asking for a utility bill, a passport photo, a photo next to your face. Instant payout.

[25:52]  10. Confess or Call (condensed)

Host:  Next is a new segment, “Confess or Call.” I ask a question; if you can’t answer, you spin the wheel and make a prank call.

Host:  Cedomir, what’s the craziest thing you’ve done at a party that you’d never post on LinkedIn?

Cedomir:  I can talk about it because I’ve stopped. I don’t drink, smoke or do recreational drugs anymore, except in clinical settings, supervised trials. As for the past, plenty of “rock and roll,” with people from the industry. There’s a thing in our industry: when you do things together and you each know what the other did, it creates a very specific bond, a glue. It’s honestly the fastest way to create a strong emotional bond with business partners.

Host:  Oleksandr, something shady in your career you maybe still regret?

Oleksandr:  My first business experience was illegally selling Christmas trees. My business partner got arrested but ran from the police, and together we earned about $50.

Cedomir:  What we do today is shadier than your little Christmas trees.

Host:  (The wheel sends them into prank calls.) Cedomir phones his head of PR, “Marit,” insisting she book him a same-day flight to Vegas, the largest suite at Encore, and clear his calendar for a week, before revealing it’s a prank for the show. Oleksandr is dared to call a board member and announce he’s resigning and taking the executive team with him; the call lands a little too well before he comes clean.

[38:39]  11. Wrap-up

Host:  Gentlemen, we’ve done it. The opening of ICE is exciting, and we hope this energised you. This is still an entertainment business, not a boring one. Apologise to your teams for the prank calls. Thank you both for being public, for speaking about things behind the scenes. Great appreciation.

Host:  This was yet another great episode of Bet It Drives. Take care, and see you all soon.