In the second edition of his column, Waterhouse VC’s Tom Waterhouse argues that the evolution scale in live casinos is a major part of WaterhouseVC’s portfolio.

Since it is historically very difficult for betting operators to differentiate between long-term products, we believe that the dominant US operators will be the ones who can get customers at the lowest possible price.

Many US-only operators have sharply reduced their marketing activities by focusing more on profitability. In contrast, operators with scales in their non-US businesses, such as Flutter and 888 Holdings, are able to fund their US marketing through profits from global operations.

For example, in 2021, Flutter distributed a group EBITDA of 23 1.23bn (£ 1.02bn / 18 1.18bn) with a $ 300m EBITDA loss in the US. In contrast, DraftKings (US-only operators) lost $ 676m and will need a capital injection. Given the current valuation of high-growth businesses, this is likely to be much lower for existing shareholders.

Churchill Downs is a recent example of a company that not only cut back on its marketing activities but also decided to exit the sportsbook business altogether in February.

“Online sports betting and the online casino space are highly competitive with a growing number of participants. Many people are pursuing the maximum market in each state with limited consideration for short-term or potential long-term profits,” said Churchill Downs. CEO, William Carstengen.

The benefits of scales in gaming and weasel are not limited to B2C. While we focus on the most innovative small B2B suppliers globally (such as Voxbet), there are some segments of the industry that need significant amounts to succeed.

The rise of live casinos

One of the sections where scale is required is live casino. In live casinos, casino games (such as poker or blackjack) are shown in real time from the casino table, via a live streaming video link. Live casino suppliers then sell these products to operators like Flatter and Draftkings.

The first live casinos were launched in the mid-2000s, with a rapid growth in smartphones and technological advances in streaming and text / voice chat functionality. The global live casino segment is growing at an annual rate of + 31%, compared to + 15% for RNG (random number generator) games and 8% for land-based casinos (according to the Times of Malta). We believe that Live Casino will continue to be one of the fastest growing segments of gaming and vegging as the quality of technology and player experience continues to grow.

Evolution continues

Swedish-listed Evolution (STO: EVO) operates two business divisions: Live Casino and RNG. In the first Q1 of this year, Evolution’s live segment generated € 264.5m in revenue (+ 44% annual growth), while the RNG segment generated € 62.3m (+ 1.8% growth). The bn 19bn company divides revenue between 7% Nordics, 7% UK, 33% Europe, 32% Asia, 11% North America and 10% others, counting almost all major igaming operators as customers. With 41 live casino suppliers worldwide, Evolution dominates this segment with almost 70% market share.

The revenue model of evolution. Source: Evolution.

Live casino challenges include live streaming without delay, leading the way in technological advancement, continuous training of on-camera staff, building complex multipurpose studios, customer support in multiple languages ​​and maintaining chat restraint, risk and surveillance. (Key products of Evolution) Listen to Officer Todd Haushalter discuss “Why is Live Casino So Hard?” Here). By overcoming these challenges on a daily basis, Evolution has built a significant lead over its competitors.

Evolution is an industry-leading supplier. We’ve talked to a number of Evolution customers who say that the company is industry-leading in terms of product quality in both Live Casino and RNG. Evolution’s excellent product and service level has led to an extraordinary increase in the company’s revenue and profits.

Live Casino is an incredibly high margin business because although the fixed cost of the studio is high, the variable costs to support the extra player are low. For example, thanks to multiplayer scalability, Evolution’s ‘Lightning Roulette’ live casino product can be played by virtually unlimited concurrent players.

As a result, the EBITDA margin of Evolution has increased from 45.3% in Q1 2019 to 70.3% in Q1 2022. As evolution grows in the North American market, businesses should take advantage of the significant economies and margin expansion in that geography.

Evolution’s revenue, EBITDA and EBITDA margin. Source: Evolution.

In 2021, Evolution’s business in North America earned 114.5m, contributing 10.7% to the group’s revenue. Evolution has seven studios in Europe, three in the USA and one in Canada. During 2022, two additional studios will be opened in Europe, as well as a new studio in Connecticut, USA. In North America, the business is growing at a rate of 70% per year. Evolution is a key holding in our portfolio, focusing on high quality B2B suppliers.

All the best


Since its inception in August 2019, Waterhouse VC has achieved a total return of 1,997%, assuming reinvestment of all distributions by May 31, 2022.

In relation to Flutter, 888 Holdings, Churchill Downs, DraftKings, Voxbet and Evolution, please note that the above information is based on publicly available information about the company and should not be construed as financial product advice. Waterhouse VC has a place in Flutter, 888 Holdings, Voxbet and Evolution. The information provided in this document is general information only and does not contain investment or other advice. Readers should seek and rely on professional investment advice according to their personal circumstances.