The History Behind Playtech
Playtech is considered by most of the online gaming industry to be one of the top, if not the top, providers of online casino games.
Now about to reach its third decade of existence, the company has seen its fair share of ups and downs (not shocking at all for this industry) and have come out of it as a force to be reckoned with as the world of online gaming changes yet again.
This is a history of how a company built in Estonia came to be a juggernaut in a very crowded online casino landscape.
The Early Years
The mastermind behind the start of Playtech was an Israeli by the name of Teddy Sagi. Sagi wanted to bring together the best minds from gaming, technology, and multimedia to create a company without rival.
He planned to build casino software so robust that it would provide far more comprehensive reporting than any operator could imagine ever needing, while providing players with a gaming experience unlike anything they had ever seen.
Sagi built his team in Estonia in 1999, and over the next two years he worked feverishly on accomplishing his goal. In the meantime, the online casino world was starting to become very popular, with more and more suppliers bringing operators to life with their products.
Not one to rush anything, Sagi may have felt the pressure to release something to compete in the short term with several new suppliers, but in the long run, he decided it was better for his company to blow everyone out of the water with their release.
In early 2001, the first public indications of what Sagi and his team had built were starting to be seen in the industry. Playtech booths at industry trade shows were starting to pop up, and what operators (and competitors) were seeing was something far ahead of what many of the incumbents had to offer.
With the launch of Playtech’s casino platform in mid-2001, Sagi had served notice to the rest of the industry: there was a new player in town, and it was going to take no prisoners.
A Company on the Rise
One unusual move that the management of Playtech chose to make from an early stage was not to discount their software for anyone. In fact, the company required a hefty up-front payment for the software, along with details on how much money was going to be spent on marketing by the potential licensee.
This style of doing business went against everything the industry had seen to date. In most cases, the software companies were almost giving away their platforms to bring on as many clients as possible.
This gold rush of operators coming into the business seemed too good to be true, and Sagi believed that being more selective with their client list would keep Playtech in the safest place with regards to being involved in any shady behavior.
The calculated risk paid off for Playtech. Over the coming couple of years, many scammers entered (and exited) the casino world, often running off with money owed to players and operators.
They started attracting existing operators as well as brand new licensees. They also managed to land the deal to bring the first land-based European casino online in 2002.
All the while that this was taking place, Sagi had a much bigger plan for Playtech. Not only had they built a piece of software that was able to handle the volume generated by its huge licensees, but it was also ready to integrate new games into the mix.
As the casino business grew and continued to create massive revenues for the company, Sagi was already on to the next stage in the evolution of Playtech.
Entering a New Vertical (Or Two)
In 2003, Playtech decided to branch out from traditional casino games by launching a bingo solution. This solution started with the traditional 75-ball version of the game, which gave their licensees the option of adding this social game to its current offering.
Also, having the reporting tools that were built into Playtech’s back office platform meant that operators could be very specific with their offers, creating much better ROI on campaigns.
While this growth was taking place, another major turning point in the growth of the overall online gaming industry was happening in Las Vegas. In May of 2003, an accountant by the name of Chris Moneymaker won the World Series of Poker Main Event.
While the name alone was enough of a new story, what really made headlines is that the amateur had won his $10,000 buy-in for the event through an online satellite from a then-unknown company called PokerStars. Suffice it to say that the Moneymaker Effect had an impact on the gaming world. Online poker was thrust into the spotlight, and everyone wanted in on the action.
Sagi saw this happen and immediately got his developer back to work. With the number of players in the database of Playtech’s licensees, it made total sense to have them capitalize on the poker boom by offering them the opportunity to pool together players into one central network.
Poker, unlike other games, requires a critical mass of players to boost prize pools, and Sagi knew he was sitting on another goldmine.
In 2004, the iPoker network was launched, linking together many of Playtech’s current casino operators, as well as new poker-only sites who wanted to benefit from the pool of players. The iPoker network snowballed, as did the whole poker industry.
By 2005, the network had thousands of concurrent players, putting it in the top five from a traffic perspective and making the operators and developer even more money.
Becoming a Household Name
With growing revenues and profits, but an increasingly competitive landscape that was also starting to mature, Sagi and his partners had a decision to make. They could continue to fight in the highly competitive market to attract both operators and licensees, or they could begin the process of consolidation by acquiring smaller companies.
The group was leaning towards the acquisition route, but to do so, they would need capital – a lot of it. So, after much deliberation, Playtech followed many other gaming companies by announcing it would take the company public.
Given the uncertain nature of the business, the best place for this to take place was on the AIM, the secondary market of the London Stock Exchange. In March 2006, all the paperwork was completed and filed, and Playtech became a public company with an opening valuation of almost 1 billion USD.
Now the company was prepared and fully stocked to begin the acquisition plan….at least, for a few months anyway.
It All Starts Crashing Down
The first eight months of 2006 made Playtech seem invincible. They had continued growth, continued increases in the stock price, and no signs of slowing down. However, rumblings were coming from the United States that there may be some new legislation cracking down on the online gambling market.
This wasn’t shocking; the growth of poker had led to a massive amount of advertising of online gambling in traditional media. You couldn’t miss the ads for the major poker sites, and many casinos and sportsbooks were getting into the act.
On October 1, 2006, the U.S. government sent their first crushing blow. The Unlawful Internet Gaming Enforcement Act was passed, and while that didn’t make what Playtech was doing illegal, it did make all the banking that happened on their operators’ sites against the law.
The lines were drawn, and it seemed pretty clear what was going to happen. Publicly-traded companies, including Playtech, would have to leave the market due to their fiduciary responsibilities to their shareholder.
Private companies, however, for the most part, were going to stay the course and try to clean up the mess of operators fleeing the scene in the U.S. It didn’t take long at all for the investment public to make their feelings known. Carnage hit the stock exchanges, with Playtech taking a hit of 40% of their share value in one day.
At this point, companies had another decision to make: how to rebuild trust in the eyes of the investment community while attempting to replace a significant piece of revenue that had to be abandoned.
Doubling Down in the Face of Crisis
The board of Playtech had no intentions of backing away from their stake as an industry leader, and so their march continued. They had launched a 90-ball version of bingo just before going public, and before their stock price sank, they were in discussions with many companies regarding acquiring their assets.
While other companies were licking their wounds, Playtech decided this was the best time to start buying up companies that were now reconsidering their place in the online gambling world.
The company made a foray into the sports betting world, adding that technology to their current platform to try to create an all-in-one solution for their operators. The theory behind this was that if they could take a piece of all the gambling revenue from one of their current clients, it would go a long way to replacing the lost revenue from the U.S.
Over the next few years, Playtech flexed its muscles with a series of takeovers which boosted the bottom line by adding valuable operators and players into the revenue pipeline. There was no shortage of companies looking to sell, so when Playtech came calling, the answer was usually “Yes.”
They purchased bingo white-label provider Virtue Fusion in 2010, propelling their bingo offering to new heights. But the company was not done there.
Time to play with the big boys.
All of these acquisitions, along with the signing of several high-profile clients, pushed the valuation of the company higher and higher, and it was rewarded in 2012 with a move from the AIM to the LSE 250, which was the exchange that housed the businesses ranked 101-350 in size on the exchange.
This was a huge win for Playtech, a reward for all the hard work in recovering from the 2006 debacle.
With the move to the new exchange, the spotlight was once again on Playtech, and the firm took full advantage. It had made it very clear that the way to continue growth was through strategic acquisition, so over the next couple of years, Playtech went on a shopping spree.
Each purchase has a purpose, which was to continue to round out the best overall platform on the market. Companies like sports betting platform BGT, PokerStrategy, and Ash Gaming were highlights of the first wave.
The company then announced that it had purchased Aristocrat Lotteries from Aristocrat Gaming. This gave them a foothold in the land-based lottery market, further expanding the reach of their platform. Along the way, Playtech also acquired a couple of companies held by Teddy Sagi, further lining his pockets while also removing him as a major shareholder.
A Move out of Traditional Gambling?
At this point, you would think that Playtech would be happy to rest on their laurels for a minute. They were far and away the largest online gambling provider, and having swallowed up many smaller companies, they had accomplished what no other company had to date: the start of industry consolidation.
However, the board had even higher sights set, and that included the foreign exchange market. The forex betting market was growing exponentially, and Playtech realized that this was yet another revenue stream they could apply to their growing roster of licensees.
An announcement that they were planning to buy a forex trader, Plus 500, for more than $660 million in 2015 confirmed that Playtech was serious about the financials market. That deal soured and was canceled, but that didn’t stop Playtech from adding financials to their portfolio.
You would be hard-pressed to find a company as diverse or powerful in the online gambling world as Playtech.
The group, started by Teddy Sagi way back in 1999, has found its way into almost all of the verticals in the gaming world, and expansion into the land-based terminal business as well as the financials world rounds out an excellent offering.
It will be very interesting to see what Playtech has up its sleeve for the future.