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Founding History.
Swedish-born Jens von Bahr worked a grab-bag of jobs before finding his calling. He worked in leisure travel in Vietnam, started a second-hand sportswear store, and ran an advertising agency. He’d eventually get an MBA in Australia, and thereafter became the head of makeup company Oriflame’s Sri Lanka operations. All along the way, he’d kept in touch with his childhood friend Fredrik Österberg, who was working at the sports website Sportal. They watched many of their peers get rich during the dot com boom and started thinking about things they could do together. The idea of sports betting was floated, but there were a plethora of sites that were already working on that and poker. However, they wondered if there was something more in the gambling realm they could offer. While they themselves were never big gamblers, they thought online gambling had a lot of potential. The idea of livestreaming roulette from Monte Carlo to someone across the world sitting at home became a powerful vision for them.
They decided to build an online live casino business that would allow players to feel like they are playing in a real casino from the comfort of their homes. The problems were numerous, from getting the picture quality and streaming experience high enough to figuring out the legality of what they were doing. One of the first people to get the idea pitched to them was Unibet founder Anders Ström. (Unitbet was an early gaming operator with sports betting and digital slots.) But the idea was too early: the picture quality and bandwidth lag made for an unimpressive experience. He would pass, but thought there was long-term potential.
While the pair couldn’t get a key customer interested yet, they did find some investors with help from Richard Hadida. Richard was previously the head of Tech and Media Investments for London & Regional Properties Limited, which was essentially a family office for British Real Estate Billionaires Richard and Ian Livingstone. Securing that investment was critical to building a real product. Richard Hadida became the third co-founder and involved in the operation as creative director.
In 2006, with a seed investment from Richard Livingstone, Evolution Gaming was born.
Business History.
Their first move was to use their funds to build the first live casino studio in Riga, Latvia—a location close enough to Europe with sufficient affordable, multi-lingual labor. In 2007, it was completed and the first customers started broadcasting live. The product still required a hard sell from the founders: few gaming operators were interested as they were unsure players would like the product, especially since they were convinced it would regularly crash. In 2009 though, Unibet trialed the product. While initial expectations were low, within a year they had worked out most of the kinks and the product was working without any hiccups.
Just a year later, in 2010, the first gaming operator experimented with it by dedicating an entire website tab to live casino on the top of their site. In short order, the question of whether this would be something customers wanted was settled forever: the operator’s website activity quickly increased 400% y/y with a floor of increased betting. It turned out players not only found the live casino games entertaining, but also trusted them more than their digital equivalent, which they felt were more likely to be tampered with. Evolution’s sales pitch became much easier as gaming operators saw a clear proof point and lined up to be added carriers of Evolution’s games.
The online-only gaming operators often started with just sports betting or poker, but were increasingly leveraging their captive user base by trying to cross sell them other gambling products. These operators often did not develop their own games, but carried games from a variety of suppliers. Live Casino was an entirely new product for them to upsell their users on and it would also differentiate them from other operators who lacked that category. Once one operator saw how popular it was with players, all of them needed it.
Jens and Frederik decided to move to Malta, the center of online gaming in Europe, and worked on getting more licenses for other countries. They wanted to be the first into every market so they wouldn’t give competitors who were starting to develop similar offerings a chance to catch up. In 2011, they would become the first operator in the newly regulated Italian market. This volume pushed their Latvian studio to critical mass and operated 24/7 to meet player demand.
Being first to win licenses would be a mainstay of their growth strategy—in 2012 they became the first certified Live Casino supplier in the Danish markets, and in 2013 they partnered with a land-based casino to be the first to be certified to offer games in Spain.
Whereas since inception the focus was only on serving desktop PCs as early smartphones weren’t conducive to an enjoyable gaming experience, by 2012 the devices and connectivity environment improved enough that Evolution launched mobile gaming. Desktops were still vastly more popular for years to come (by 2014 only 13% of revenue was generated on mobile devices), but being there early would allow them to benefit when the preferred playing device flipped to mobile several years later.
All of the data they were gathering from their ever-growing player base was also helping them improve security and anti-fraud systems, as well as help increase dealer consistency (mistakes, like spinning a roulette wheel too slowly, can inadvertently give players an edge). This further attached operators to Evolution.
Noticing that the tables they offered operators were leading to a similar player experience, they started thinking of how to offer a unique and custom experience to help operators differentiate themselves. Evolution would offer custom and dedicated tables to operators, including dealers who spoke different languages, which was important for them to not only differentiate but built customer trust.
The dedicated tables were also helpful in winning over land-based casino operators. These land-based casinos wanted to increase player loyalty and stay top of mind, since many customers only a visited a handful of times a year, if that. An app with tables branded in the casino’s name would help the operator achieve both goals. Additionally, it gave land-based casinos a position in the quickly growing online gaming world, which alleviated some concerns that that online gaming would pressure land-based casino gambling.
Now though, the Live Casino experience was good enough that they started moving their focus to new games. They launched one of their first game iterations—Three card poker—and “Bet Behind” for blackjack in 2014. At the time, they noted that “customers are now making a larger initial investment, and therefore often go dedicated with a live environment from the start”. Not only are dedicated tables more profitable for Evolution Gaming, but the higher upfront investment made operators more willing to promote Live Casino to get a return and less likely to engage with the many competitor products that were starting to spring up.
By the end of 2014, Evolution had 120 tables and was the clear, dominant Live Casino provider of Europe. Revenues were just shy of €50mn with EBITDA margins at 35%. With a sizeable business that was growing rapidly, Evolution decided to go public. They felt the transparency of being a public company could help them when dealing with state gaming institutions and regulators.
In March of 2015, Evolution Gaming started trading on the Nasdaq First North Premier Exchange, which is a smaller European Nasdaq exchange for growth companies. At the time, they were valued at just ~$340mn. (A few years later they would be trading on the main Nasdaq Stockholm Exchange.) The company didn’t need to raise money in the IPO, but many shareholders partially cashed out with existing holders selling almost ~40% of the company in the offering. Jens Von Bahr and Fredrik Ostenberg each took their ownership down from around ~17% to 10%, and seed investor Richard Livingstone sold his 33% stake down to 16.5%.
Post IPO Evolution would continue to sign up operators with a focus on expanding their studios to accommodate more dedicated tables. Jens Von Bahr noted in 2015 that they were launching more games beyond the typical 5 core games they provided. There was also an inflection in mobile gaming popularity in 2015 (alongside launching new tablet compatibility) and total revenue from mobile reached 27%.
As Jens Von Bahr felt Evolution was in a strong position, he would step down as CEO but stay on as Chairman of the Board. Martin Carlesund, an external hire, was appointed as Evolution Gaming’s new CEO. Around this time, they made another key hire, Todd Haushalter, as their Chief Product Officer. How important he would become to Evolution was unknown until a few years later, when he helped create a whole new category of live casino games, called “live game shows”.
The first of which, Dream Catcher, was launched in 2017. This new category of games was novel, entertaining, and perhaps most critically, appealed to the more casual gambler who didn’t want to play table games. Many gamblers first come to an operator’s site for sports betting and see the Live Casino tab on the website or in the app, but all too often are too intimidated or disinterested to play table games like Blackjack. But the game show category provides very entertaining games that are also simple to play. Todd Haushalter talks about how this category changes the dynamics of operators’ cross-sell in the press release below.
Evolution’s growth continued to be strong as they benefited from the online gaming market exploding and revenues reaching ~€250mn in 2018, up 500% in just 5 years.
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Evolution Report Table of Contents
- Founding History.
- Business History.
- Business.
- Gaming Market TAM.
- Competition and Competitive Dynamics.
- Competition Sprouting Up in Europe, North America, and the UK
- Asia Competition.
- Threat of Vertical Integration.
- Evolution Model.
- ROIC and Capital Allocation.
- Valuation.
- Risks.
- Summary Model.
- Historical Financials.
- Summary Model.
- Conclusion.
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