H2 Gambling Capital with Josh Hodgson

Good morning, Dan. How's your G2E checklist looking? Are you all ready to go?

Slowly coming together, Nick. I guess depending on how you count, it's what, six days, five days, four days away. So looking forward to seeing you here in here in Vegas next week.

Yeah, it'll be a nice trip over. Looking forward to it for sure. So let's see. News this month, Dan. I thought I'd revisit what's been happening on the prediction markets front since we've been tracking that. Quite a bit of legal activity. So back in March, if you recall, Arizona's Attorney General filed a 20 count criminal complaint against Kalshi citing election related betting, which is strictly illegal under Arizona law and operating a sports book without a license. However, in May, the US District Court for the District of Arizona, which is part of the Ninth Circuit, ruled in favor of Kalshi stating that the Commodity Exchange Act under which Kalshi operates and is regulated by the CFTC preempts state gambling laws. So the judge then issued a federal injunction effectively freezing the AG's case.

However, in August and September, the higher court, so the Ninth District Court of Appeals ruled in the opposite direction in two cases.

There was Kalshi versus Assad and then Blue Lake Rancheria versus Kalshi. So the Assad case involved the NGCB's cease and desist order against Kalshi. And in that case, the appellate court ruled that sport event contracts are fundamentally sports bets, not swaps, as they're defined in the Commodity Exchange Act. So as they're not swaps, the court ruled that Kalshi has to comply with Nevada State gaming regulations and required Kalshi to geofence Nevada until it's compliant with state law.

And then in the Blue Lake Rancheria case, the Ninth Circuit Court of Appeals cited with the tribes, again ruling that the event contracts are bets, not swaps, and that once again, Kalshi must geofence tribal lands until it's reached a state of compliance with the applicable tribal gaming regulations.

So Dan, that's now two courts in the same circuit disagreeing with each other. And if we rewind to our episodes with Brendan Bussmann and Mike Dreitzer, I'm wondering if this might not be the on-ramp to the Supreme Court. I think each of those guys, if you recall, they said ultimately this is going to come down to nine opinions and it's certainly starting to look like that day might be approaching. So Dan, any feelings about this either way, hopes and fears or you seen anything there that's catching your attention?

No. I mean, it seems like the topic that won't go away, right? It's only headed in one direction. On a related note, I don't know if you saw the one thing I would add is just yesterday, the CFTC announced that Kalshi petitioned them to allow margin trading on sports trades.

Oh, jeez.

So what could go wrong there?

Yeah, exactly. You really just have to think about there's a group in there just trying to make the biggest mess possible. Oh my God. Okay. So no, that's not a good thing to hear, but okay, with any luck, this starts to take shape here within a relative short term.

Okay, so we are going to jump into listener question here. Before I read it, let me quickly state that we love to tackle any questions anybody listening may have. So if you have a question about what we're presenting or something you'd like us to present, please drop us an email at reelcast@reelmetrics.com. Again, that's R-E-E-L-C-A-S-T@reelmetrics.com. Our policy is to keep all questions anonymous, so please speak directly and don't worry about us revealing your identity. That's not something we do.

So Dan, this comes from an operator in the American Midwest who asks, "Hey, Nick and Dan, what will you be looking for at this year's G2E?" So Dan, as I tend to attend these events in sell mode as opposed to buy mode, I'm going to throw this one to you to handle solo.

Yeah, no, great question. Always looking forward to the show. I mean, my focus is a little bit different this year, Nick, just because I'm not directly buying for an organization. So I think my view and what I'm hoping to get from it is a little more big picture, but there is some new hardware being the view that should be exciting. I know I'm going to miss a couple here, but specifically Wonder I know is debuting a new cabinet called the Firebird, which is a 55-inch display that should be really exciting and we'll see what that looks like. Aristocrat announced they're launching what they're calling the Reign cabinet, which I believe, I could be wrong, but I believe it's essentially the replacement to the Neptune.

Yeah, that's my understanding too.

So it's a curved slant top. And then one other that was announced that we'll see is the AGS Glo Upright 43. My guess is that's more of just the new generation upright cabinet replacing some of the Spectra content, but I could be wrong there. So those are three. There's others, I apologize that I've probably missed.

And then not new, but I'm really interested in seeing the continued evolution of a couple hardware pieces that debuted either earlier this year or last year. In particular Konami Solstice, that cabinet debuted at the beginning of this year. A lot of folks have either made their first placements or seeing how those initial teams are going and are evaluating, do I make a second buy? A lot of folks still need to get penetration on that cabinet. So it'd be really interesting to see more the content on that cabinet that's debuted. Because Konami's at a place they really need. They've had good success, early numbers on that cabinet, but they need to see continued momentum there.

And then the other one is IGT, the Rise series. That's not new. I believe the Rise55 actually debuted prior to G2E last year. So for them it's more about a content play as well to get continued momentum and success, which they've had recently on that cabinet as well as the Rise32. I'm interested in a few booths in particular, folks that are really seeing or have seen some organizational change over the last year or a few months. In particular, obviously IGT, that combination with Everi and Apollo happened right before G2E last year. And if you remember, it was really a mad scramble for them and combining those booths and showcasing something. It was a little bit of a hodgepodge.

They did a great job last year in pulling it together, but it was very clear that it was every product and IGT product. And so this year it'll be really interesting to see A, what they're prioritizing, what they're deprioritizing. They've announced they're getting out of the ETG business. Is there anything else, whether it's steppers or poker that's going to be taken a step back in favor of video, we'll see and how they continue to combine those product lines. And then is there any new hardware in the IGT booth?

Interblock under new leadership. And if you remember last year, the big buzz in their booth was the Amuse product line, the non-traditional more gamification of ETGs. And they're seeing some good early success with some of that product. But if you remember last year, it was a ton of it that they pushed out. So it'd be interesting to see if it's maybe a little more focused and defined and clear on which aspects of that Amuse product line they're prioritizing. And then also it'd be interesting to see how customers adapt to it because they're very forward in saying, "Hey, if your only metric is what's win per unit on these and your only experience with us is the Amuse line, it may not meet your expectations." It's really designed as part of an ecosystem to bring new players in and create some excitement. So really curious there.

And then the third one I'd say is interest to see the Gaming Arts booth with the partnership with Merkur. They made a bigger splash last year. It'll be interesting to see, is it a bigger booth? What additional splash are they making with the combined power of those two organizations?

Boy, I don't know if that booth can get a whole lot bigger.

I know, I know, I know. On the games front, I'm always interested in really primarily two things. One, high limit focus. How are folks taking existing strong penny themes and presenting them in a mid-denom, the high-denom format? And especially following the Million Dollar Dragon link and things like that, are more folks focused on bigger in-house jackpots, as opposed to what is that balance with WAP to get those seven-figure jackpots out there? And then new mechanics, it's more been evolution than revolution over the last few years. My guess is that's what's going to happen, but it'll be interesting to see is there any new mechanic that pops at the show?

Outside of slots, FinTech, interested to see the focus has really been Apple Pay or Apple Pay type payments. Is that still the focus or is it something else? And it's been slow-going and slow to get adoption. So is there any more momentum? Do folks continue to keep spinning their wheels on digital payments and gaming? Obviously AI will be the buzzword and huge focus, but I'm really interested in seeing what does that mean? And are there actually in slots and tablings and gaming true solutions that are ready to deploy that show clear value proposition for the operators?

But at the end of the day, I want to come out of the show. I'm curious outside of the big three who gets success. This is the time of year going into Q4 that folks are really planning their capital spend budgets for next year. So it's even more important, as you know, for the mid-tier and the emerging suppliers, because if they don't get success and buzz and get operators feeling good about their product come January, February and get on the floor and get part of those early allocations, sometimes it can be too late, or it can be too challenging because all that capital's already eaten up by Aristocrat like Wonder and IGT.

But I guess my question for you would be going back to hardware. It seems to me over the last few years that the new hardware's incredible and new is driving the replacement cycle. And so it's a bit of an arms race, but it still feels to me that it's content that drives everything. Some of the new hardware is enabling maybe more robust game engines and things like that to enable new bonuses. And some of it's how they're managing the content library in terms of the new hardware's performing well because the new themes they're developing are exclusive to that hardware. Is that how you see it? That it's really all about-

Yeah, it's kind of these weird questions-

... mechanics and content?

Yeah, to me it's kind of one of those things like what really leads to social change? Is it more economics or politics? It's one of those types of questions to me. But yeah, I generally am the one saying that it's the content really that's driving it more than anything. But to me, it's always a package deal. So you can't dismiss the ergonomics of the box and the presentation and the sound and all that. I mean, it's such an important package. But generally, yeah, we feel that it's more content than hardware that's driving performance, no doubt about it. Yeah, no question.

There's always something unexpected, so we'll see next week what that is, right?

Yeah, for sure. For sure. Well, thanks for the summary, Dan, and thank you to the user, to listener rather for that question. It's a really good one. Okay, so Dan, time for today's guest. Now I first met this young man at the Casino Operation Summit in Thessaloniki back in May. He did a talk on the state of European land-based and online gaming that impressed me a great deal. Not only his approaches and insights, but also his ability to really engage the audience and articulate his methodology. So I just thought this is a guy more gaming people really need to know.

So he's a graduate of Northumbria University in Newcastle. Incidentally, the same alma mater as Sting, Dan. So there you have that. He began his gaming career back in 2015 as an analyst with market research and consulting firm, H2 Gambling Capital. A testament to his talent and grit he stayed with H2 in 11 short years after starting there he's now their chief operating officer. So I'm referring, of course, to Mr. Josh Hodgson. Josh, how are things in Northeast England today?

Yeah, I mean, they're very rainy actually, Nick. They were [inaudible 00:14:07] hit hard, but yeah, all good. Thanks very much for having me on.

Oh, you betcha.

And looking forward to boring all your listeners with some of our data.

Okay. Well, now, so some guys of your background from England, usually we see you working somewhere in city, but you decided to get into the gaming business. So why don't you give us a bit of a rundown how you came to H2 and your present role there?

Yeah, absolutely. So I started with H2 whilst I was just finishing up at university actually. So I spotted a job advert that had gone out for an analyst because the talks around the repeal of PASPA was starting around that time. And I think they were looking just to build out some data analysts to get all the US data sets ready. Because it was looking pretty likely that we were going to get some movement on some pretty big stuff in the US. So I thought it's very interesting. Data, that's my thing 100%. So yeah, I just thought it was a really good opportunity.

And I'll be completely honest with you, when I saw that the role was remote and completely flexi time, and at the time I was actually a professional cyclist at [inaudible 00:15:20] university. So I was racing in France, Belgium, Italy across the summer. And then when obviously there's not, or at least at the time, there wasn't a lot of money in cycling. I was thinking a role that's remote and where I can do this, maybe I can do this for a year or two, this would be perfect, and then see where things go. And that was 11 years ago, which is a hell of a long time.

I think as soon as I started with H2 and the founders, Simon Holiday, just realized the potential really of expanding that role, and especially as PASPA was repealed in 2018, and then all of a sudden all the work that we've been putting in over those two years, so I built out a lot of our US analytics and data sets. And all of a sudden then we were doing banking round tables. So I went over to the US and then did a series of several weeks of banking round tables with a lot of real big finance guys over that way who were starting to look at the space and wanting to judge the size of the opportunity and everything.

And then I really got hooked in there. And once you can see, I think, the actual outcomes of the data and the work that you put in, and see actually this is where the value's coming from really, I went even deeper and then moved up to associate after that, and really started working on translating all of the regulatory change into the actual data. Which is definitely a dark art within itself in terms of data modeling and trying to turn very sort of wishy-washy regulations sometimes into what the actual outcome's going to be, was then something that I just deep dived into and really loved learning about different ways to model the data. Different theories, different raises to use, and just got absolutely stuck in on that side of things.

And I guess that's been a lot of my role up to date as well, is really keeping track of everything that's happening in the space and then working with the team to try and translate that into what we think is going to happen in the market as a result. So I guess a fairly grim example would be the tax change here in the UK for online casino. So going up from obviously 21% up to 40%, that's something that at the point where it was starting to be talked about, we start modeling out various scenarios. So we didn't know the percentage yet, we just knew that it was likely we were going to get some tax change in the budget.

So we looked at what a 5% increase would be, a 10%, a 15%, 20%. And yeah, it was the latter of those that we ended up putting into the model, which was quite unexpected, to be honest. I think we were expecting something a little more moderate. But yeah, that's definitely something where we're seeing a lot across Europe now with obviously a lot of markets doing that's a hell of a lot of work. My role now I guess encompasses leading the team on that side of things, where we put our focus and our resources in terms of time and also money into player surveys, into the market share, deep dives that we do and things like that.

So it's now getting to the point where we've got 150 markets under coverage, so we could very much spend years and years and years of building this out. So we're trying to pick out the real value adds to the subscribers just to touch on those in terms of the player surveys and which are the markets that are super interesting. Prediction market's obviously a huge topic, which I'm sure we'll get into today as well. But yeah, essentially now just making those decisions on where we should allocate those resources and unfortunately spend very little time modeling data myself anymore. I think these things tend to happen.

Well now, and just for those who aren't familiar with H2 Gambling Capital, can you just give us an overview of really what you're tracking and your clients, and really your unique prop as a research company?

Yeah, sure. So essentially we're the data and intelligence layer for the global gambling industry. So the vast majority of the tier one operators and suppliers are subscribed. We also work with a lot of top tier banks, hedge funds, and the finance guys, payments guys. And then also government bodies, so the regulators themselves subscribe to the data to look at how we're modeling out the offshore or the unlicensed side of the online industry. And what we do is we pull together all of the reported data in the market because it is a highly regulated industry and in some markets we get a lot of good quality, well-reported data, and in some we absolutely do not.

So that's where we can step in and we take everything that's been reported, we translate it through into the same consistent breakdowns of products, of categories, of channels, whether it's land-based, whether it's online, onshore, offshore, break down by the different products. And then for example, if you wanted to compare Illinois to Italy to India, you could look at the exact same metrics of the same time span, the same currencies and see what's the legal markets existing in that country, what do we think the illegal market looks like, and then how do we expect that to change going forward based on some of the confirmed regulations?

So yeah, we cover, as I mentioned before, 150 markets globally. So that's a full breakdown of US by state and Canada by province as well. And essentially what we are just trying to do is provide that one source of data and intelligence for the industry to come together over. So when operators are talking to regulators, for example, about the rise in offshore, a lot of these guys are looking at the same data, looking at our data, so those conversations can be facilitated by that because we sit as a sort of independent body within the space and we're not funded by anyone, everyone pays the same sort of subscription fee to access that data. And we can sit there and say, "Hey, based on what we've seen happen in this market, this is what we expect the impact is going to be here." And then we can have those arguments, I mean conversations with operators or regulators, whichever side you sit on.

So yeah, I think it's very much a central source of information. And I guess an example of that would be in the recent Lottomatica and CIRSA acquisition. Our data underpinned all that, so the market size in the growth forecasts. Yeah, four of the six advisors to that deal were H2 subscribers and then both parties involved as well. So providing all that data then just allows those forecasts to be underpinned by a reliable source of information.

Okay.

Josh, can I ask you, going back, you mentioned the UK online piece.

Yes.

And the tax impact earlier. I'm just curious, in your view, in that modeling, what is driving that big impact? Is it, hey, the economics are worse, so providers can't spend as much on marketing? Is it they're not going to invest as much in the product? Is it they can't afford to offer the same odds that the offshore books can offer? What primarily... Help us bridge the gap between tax increase going up and top line going down?

Yeah, sure. So I mean, essentially there's a parts play in everything that you've said there. The big one that we think is the bonus insight. So you can't offer attractive bonuses when all of a sudden your tax rate doubles overnight. It's just not something that's feasible. You have to find those cuts to keep a profitable business. That's one way in which it does it. The return to player percentages drop as well. That's a huge factor. And then the big elephant in the room as well is we're talking about online activity here. It's very different to land-based in that players are very aware and very easy to switch to an operator that is going to offer them an incredibly lucrative bonus.

We've already seen that unlicensed operators, they're using this as a land grab. They've started marketing so much harder. They started bonusing more aggressively. So yeah, essentially our view of the online slots market from the license side in the UK is we're not actually expecting growth going forward to be forecast out in five years, so to 2031. We expect a gradual decline in that market based on what we've seen so far. And year-on-year, we expected a doubling of the size of the offshore online casino market. I mean, it was coming from a fairly small base in the UK. There's obviously no market is 100% onshore, even if you've got the best regulatory system in the world. We normally see typically very high spend players. They'll stay quite agnostic to whether an operator's licensed or unlicensed. They will go to the best RTP percentages.

They'll also go to the best games like the content. I was definitely interested in your view before, Nick, on content versus an actual physical cabinets you're talking about. And I think on the online side, what we've seen through the player surveys is when we look at what's important for very high spend players, it is, can I get the game that I want? If I can't get that with a licensed operator, then I'll go to an unlicensed one. I don't care. It's very much driven by that. And the economics to players as well. Yeah, if you're not going to give me great bonuses, if you're going to have terrible return to player percentages, then I'm going to leave to someone that will.

So those are really big factors. Something I'm actually going to be diving into at SBC in a panel with a lot of UK operators. So I'm going to be moderating that discussion and asking from their perspective what's really been the big factors, how they're trying to absorb that, and also the trends that they're seeing because from the data we track, we look at customer activity on a monthly basis.

So we're looking at multiple sources of internet traffic, affiliate traffic, and web search data to pull them together into a customer volume metric to track on a very frequent basis how the trends are changing between the licensed and unlicensed side. So we cover thousands and thousands of brands within that. And before any of these operators are actually reporting revenue, and before the gambling commission's even reporting revenue for the month, we can see how things are shifting. So since those tax changes came into effect in April to where we are now in September, so we've got the August data out and it's been pretty stark. The change has been faster than I think we were expecting in terms of a switch over to the unlicensed side for a lot of players.

And it's going to be really interesting to track that going forward, and that will be something that's an input to our model. So if it continues to go at this rate, then it's potential that we'll update those forecasts going forward as well. We obviously base all the data on the reported statistics we get through from the gambling commission for the onshore market, but that always lags quite a bit. So yeah, we won't be getting those insights for a while. So it's very much a useful thing to be able to do to track actually what players are doing on that really granular basis. And we are seeing shifts over to big unlicensed brands at the minute.

Now, Josh, I read through the other day your NFL 26/27 season preview, and it had some pretty incredible numbers in there. So a few things I want to lock down on. So first, you noted that the handle has gone up from, I think it was 3.8 billion in the 2019-2020 season to nearly 32 billion last year, if I have those numbers correct. And then-

Yeah, that sounds right. Yeah.

Okay.

About 10x. Yeah.

So with those post-COVID legalization initiatives, I mean, this is completely understandable, but one of the things that really shocked me is how dramatically that growth has kind of leveled. So you showed that we just had these huge upticks early on and it's trickled down to just a 1% uptick, '25 versus '24. So can you unpack that a little bit for us?

Yeah, sure. So yeah, essentially that explosive growth from the 3.8 you mentioned, that's the year after PASPA was repealed when we had a handful of states online. Obviously New Jersey moved pretty quick and we had Delaware as well. But really then that growth up to the 32 we were expecting is just that map filling in of those states that then came online. So you're getting whole new markets, massive growth. So looking like, I can't remember how it actually rolled out. Was 18 states within the first two or three years. But then actually we looked to last year, you're getting one or two. So it's really slowed down. The states that wanted to move have moved and then very much we're not seeing more states go online now.

So that's a really big factor in what we're not getting is an expansion of that market. It's now starting to be a, how can these operators grow within an existing set number of states? We do think there's potential for more states to come online further down the line, but we don't think it's happening this NFL season.

Yeah, and I think this is what shocked me is I just saw that it's just how quickly it seemed to saturate. So it didn't seem like within the captive market right now that there's much more organic growth occurring. That was, I think, what shocked me a bit.

Yeah, there's a couple of things going on there because the underlying demand is healthy. So we've seen 4% for football as a whole, but it's being... If we look at handle, obviously it's total market, but actually when we look at the fact that there's a rising hold rate because players are getting more sophisticated, so operators are having to be more aggressive on their pricing, rather than their bonusing.

Sure.

So previously the tactic is throw as big a bonus as you can to acquire all these players. We saw some absolutely crazy bonuses when new states come online and players didn't care so much about the odds. Whereas these players are now... If you think of someone like a state that's gone online, someone living in New Jersey that's been now betting with a legal operator since 2019, that's a very sophisticated player looking to want to maximize their economics from themselves. So they'll see who's got the best odds and they'll go into that. So that's where the operators are competing now. So that really affects the margin. So you're going to have to get more aggressive on that and offer better odds. So it hurts the GGR margin.

But also we are seeing a lot of volume go to prediction markets. It's something that we've seen across unlicensed states, obviously. If you've not got a licensed alternative, then something that's sitting in this sort of legal gray area.You guys are obviously talking about that in the starts as well, and that's something where the states and the courts are catching up. But there's still a lot of areas where these prediction markets are very much taking players on. And even if you're in a licensed state, you say, well, that's new, that's interesting. You've got Sydney Sweeney coming up in adverts all over the place. That of course is going to get people trying out these platforms and taking some of the traffic away even in regulated states.

So overall, if we look total state handle growth is up 6% year-on-year in the US. So there is still natural organic growth. But looking at football, actually it's a bit less, it's at 1.5. And a lot of the growth that we're seeing in regulated sports betting has been coming from parlays, so multiple bets and non-football. So people are branching out from what they've previously bet on and looked to the more interesting parlays and multiples and the non-football stuff. It's something that the American Gaming Association actually has touched on as well. So we looked at their data and I think they're actually expecting quite similar trends to us in that we're not expecting a lot of new growth at all this year. So the market's kind of maturing as you would expect. It was a very rapid growth.

Yeah, yeah, that's-

If you look at the-

It seemed to mature, reach saturation point so quickly.

It did. It really did. And that's when you get a heavy online market with aggressive advertising, aggressive bonusing would have shifted that S-curve. So whereas you used to get a sort of steady stream, we're talking 10, 15 years ago, digital natives and things, it was a very different ecosystem in terms of you would get a few of these newer players, digital natives coming on and driving up that growth of online. Whereas when we're looking now in recent years and very much the second you go in online players are driving up those revenues and the amount of traffic and everything is a rapid curve, rather than a slow burn.

So yeah, I mean calling the US mature is a crazy thing to do given that we've only got a few... Well, sorry, not a few. There's a lot of states with regulated gaming, but there's a lot more that could move. And on the sports betting side, there's still massive states, California and Texas haven't regulated. So there is a lot of room for that to grow. But in the states that have regulated, yeah, we're actually getting to that point of topping out on those curves I think where we're expecting those single digit growth rates.

Well, if not more mature, at least more rational on the promotion front, right? We all remember when they launched, everybody could get a $500 offer from everybody. And I haven't seen any-

Some were three times that size, right?

Yeah.

There was some crazy offers out there.

It's all anecdotal, and I don't know if it's just taking a step back because the prediction markets are flooding TV with the ads, but you're obviously seeing less spent on the advertising front from the license sports books. But the hold piece you mentioned was really interesting because I remember when sports betting launched, everybody was shocked with how much higher the hold rates were than anticipated. And then as folks became more educated and migrated more to more sophisticated prop bets and stuff, they went even higher. So it's really interesting to see that you're saying that that's starting to stabilize.

Yeah.

On the... Go ahead.

Just going to say, it's something where we're seeing more similar hold rates and things to European market now than in the US, whereas it was very different when it kicked off. So when we're looking at the economics and how that shifts through, almost you can start using some European markets to benchmark and say, well, based on these sorts of percentages and those economics, what does that look like for operators? And to your point on the advertising as well and the bonusing, these guys are going to have to start to really seriously think about becoming profitable now. They've had years and years of saying, "Yeah, we're going to get all the players and then we'll convert them into profitability." And that time's coming. You very much now got to translate that into your book.

And it's not an easy prospect to do when all of a sudden you've got a whole new curve ball thrown at you with a new, I'm going to put new in inverted commas even though, sorry, I know the listeners can't see me, but yeah, prediction markets coming online. Whereas we've had regulated betting exchanges in the UK and Europe for years and very much just a whole curve ball for the operators to deal with.

Can we dive into the prediction impact a little bit more on the licensed book NFL volumes?

Yes.

So I think you had thrown out a couple numbers, so correct me if I' wrong, but I think you said so far you were seeing 6% handle increase and that's down to 1%. I know obviously we probably don't have data yet or a lot of data yet on the current NFL season, but directionally, do you have a sense yet of what the impact is on NFL volumes?

We've not got anything through yet. Well, I mean New York provides some monthly stuff, but it's not split out by sports. So there's a layer of estimates we have to do there. Yeah, it'll probably be, I mean, even to the back end of October before we get a really good head of steam on the data so we can start looking at how the first month's gone. But yeah, I guess it's at the moment something that essentially we're expecting prediction markets to be around a third the size of the combined betting pool of operators.

So they're no longer fringe participants. They're really now stepping into it. So yeah, it's definitely something where just based on that, we would expect, given traffic is such a strong driver of activity and time spent on sites and affiliate push throughs, that to really translate through into the revenue, not just in the sort of player metrics. But yeah, unfortunately until we get that reported data through, it is still modeled and we'll see how close that comes in.

In your preview, you also said something that I thought was fascinating that honestly I didn't fully understand that I'm hoping you can clarify for me. So you talked about how the reported metrics on sports betting handle and prediction market volume are kind of misnomers, and kind of skew the impact a little bit because they're not apples to apples and that they're, at the end of the day, kind of overstating the size of the prediction sports market. Can you explain what you were talking about there and how that mechanic is different?

Yeah, absolutely. And it was something that we saw initially, a lot of people getting excited and scared, depending on which side of the fence they were sat on, by the volume metrics that are being thrown out for prediction markets. And I guess people just sort of assumed, well, that's handle. Because that term might be used interchangeably for handle. But yeah, I guess to put it out very simply, if we're looking at sportsbook handle, that is just the total amount of money a better stakes on an outcome. So that is one number staked once.

Whereas prediction market volume is the total value of the contracts traded, which is inflated in three ways. So every trade has two sides, a buyer and a seller. So one position gets counted twice. A contract can be bought and sold many times before the event actually settles. So each passive of that adds to the volume and the market maker and then the liquidity churn gets swept in. So that's essentially not activity which a punter's actually betting on. So a single position can throw off several times of its value in reported volume. However, when we actually look at the numbers that are exchanged in X number of billion in transaction volume, that's very, very scary. But it's not the same unit as handle at all.

So I think a lot of media outlets, whether they knew or not actually, were loving these numbers. These huge, huge numbers that was like it's bigger also prediction markets are bigger than the sports books in last year's NFL season. But actually when you convert the transaction volume to a handle equivalent, it's on a like-for-like basis between eight and 11% of sportsbook handle. And that's in competitive stage where you get-

So that I get the first part of it. So the idea is it's a trade. So basically you have, let's say one person betting five, another person betting five. So you're saying that it's basically at least inflated by a factor or two because the counterparty, do I have that right?

Yes, you get that aspect, and then also that contract, so someone betting that five, they can sell that contract to someone else who would buy it, and that adds to the transaction volume. So all of a sudden that play's exited, but another person's bought that and the volume is now double.

Yeah. Gotcha.

So it gets inflated, inflated the whole way through the chain, especially, so if you are getting these real long, essentially who's going to win the NFL and you're betting that now, that contract's probably going to be traded in and out of hundreds of times before that bet's actually settled. Whereas in terms of a sports book, you're putting that bet on, that's going to get settled once at the conclusion of the NFL season and that's handle. So yeah, if you've seen prediction market volume figures, you've got to do some work to actually translate it through to handle before actually understanding the like for like impact on sports books.

Because whilst it is a big number and it's very attention grabbing, it's not necessarily representative of the threat basically to, but obviously the numbers are starting to get there when we're looking at handle in terms of the actual amount that prediction markets are doing now. Whereas last year we were much further down the curve and it were very much fringe in terms of revenues because obviously handle's not GGR, but very much this year they are starting to come into the play a lot more.

Okay. Well, it's a great distinction. I can't say I've seen a lot of other places, but it's a great point that you make there for sure, for sure. I also wanted to talk, so in the early part of this month, you post a big writeup on the Lottomatica CIRSA deal, which is for our industry, it's a very sizable deal. So we've yet to cover this on the podcast. So I was wondering if you could break down the philosophy behind the deal, the resultant portfolio and the top level financial features that we're looking at there.

Yeah, sure. So it was a huge deal for the industry, which essentially has created the world's number two listed gaming operator. So that is something that has brought another player into the investible space for a lot of funds who we speak to a lot of people that they can't touch stocks that have X amount of revenue, it's too small. So it has to get to a certain size before it becomes investible. And that line actually, I believe is around 50 billion is a number that we hear thrown around a lot. And that now means Flutter's not the only one that's above that line. And Lottomatica CIRSA has then stepped in and you're looking at the number one operator in Italy and now the number one operator in Spain coming together is definitely a huge player in the space now.

So yeah, the data that we worked on for the deal provided the background to the potential growth of the company going forward. So if we're looking at the markets that they're looking at, obviously they're going to consolidate its opposition in Italy and in Spain, but also grow in Latin America. And that's very much an interesting split. So looking around, I'm going to round up, so I'm not using ridiculous numbers, but around 60% Italy, 20 something percent Spain, and then 20% rest of the world split. And then 97% of the EBITDA coming from having the number one market positions in Italy and Spain.

So yeah, it's a very interesting deal basically of that size to be going on. And we've seen a lot of deals over the past few years that have really started to show that sort of consolidation in the industry. And yeah, it's going to be very exciting to see how things go. And we'll keep an eye on market share performance and things and whether whilst the entry into LATAM is going to be very much one that's on the book for us to be watching how well that goes.

Yep. Okay. Very good. Well, I'm definitely a Guido Angelozzi fan. I worked with him a lot back when they put together the VLT products in Italy and the guy doesn't tend to make a whole lot of mistakes.

No.

Very bright dude.

Yeah, absolutely.

So yeah, it's an exciting deal and we'll be very, very curious to watch it going forward. Also, if I rewind a bit back to May, you did a presentation at the Casino Operation Summit where we were talking about you were really focused on European casino gaming, which today is about 18% I think of the total land-based casino market. I think that's right, is it? Do I have that number right, Josh?

It sounds roughly about there. I think obviously North America's huge. Asia's huge with that. So yeah, with those two, definitely being one and two, I think Europe's then coming into third place, it sounds. Yeah.

Okay. So then it was the European land-based casino market, you were projecting 3% compounded growth through 2030, but you had some really important caveats in there about re-regulation. That was a big thing about that cracking down and tax hikes as well, some of which we're seeing. So what have you been seeing on those fronts over the past quarter?

Yeah, I guess the summary, definitely what I hoped people took away from that presentation, it's policy that's the risk, not demand. Players are very much enjoying casinos still, but what's happening is it's getting much harder and harder to operate one profitably in terms of the policies that are coming into place. And this is just general across the whole sector as well in Europe. We are seeing obviously regulations get tighter and tighter and taxes get higher and higher. And unfortunately, land-based casinos are some of the least able to absorb it. They're fixed cost businesses.

You've got your property, your staff, your floor space, you've got tax and then rule tightening hits the margin and footfall far harder than if you're just on an app. And whilst obviously you've got a lot of considerations for an online operator, it's just a very different thing altogether. So I guess Netherlands would be quite a clear example of it this quarter. So just looking at Holland's Casino, the pre-tax profit down 54 million in 2026, visits are down 11% as well. So people aren't walking in. And once you have to really focus on the moveables that you have in terms of your return to play percentages and things like that, then yeah, that's what you're risking.

I think this is a consideration that a lot of governments really should be well aware of, study the economics and understand [inaudible 00:50:40], you can't just tax something to oblivion. You're going to get a reducing amount of tax revenue, which is what we saw in the Netherlands. They increased the tax rate and got an infinitely reduced amount of tax back because it's just not a straight line. It is a curve. Once you hit that sweet spot, it's something where, as an operator, you would hope that governments would be considerate of that and see actually maybe we've pushed it too far and pull it back. However, once you get a new government coming in, and obviously we've had that in the UK, you're not seeing anyone pull back on taxes for the gambling industry. It's not a popular policy, even if it is the right thing. I think there's one example of it that I can remember in history in Italy where they actually rolled back a tax increase down the line. It's now [inaudible 00:51:37] done that.

Yeah, I think they rolled back one after 15 previous increases.

Yeah. It's like they wanted to give you one thing. But yeah, I don't think we're going to be seeing that. So it's going the other way and then very much it's a worry and we're seeing the impacts now going through that's a very recent and very obvious impact on a massive operator.

I didn't realize the Dutch numbers were that dramatic. So you said it was a 54 million down in, what were those stats again?

Yeah, pre-tax profit was down 54 in 2026, 54 million.

Okay.

Yeah.

And 11% down in visitation is also not great.

Yes.

Okay.

Yeah.

Josh, there are two big events next week that we already mentioned, right? So Nick and I will be at G2E here at the Venetian in Vegas, and you already mentioned you'll be attending SBC in Lisbon. And for, especially the sports betting folks and the iGaming folks, they have a decision to make on which one they're going to.

Yeah, absolutely.

Knowing you can't be on both, I think you mentioned there's a panel you'll be participating in, but as an industry observer, I'm really curious what are the big takeaways that you are hoping or expecting to hear coming out of either of the shows next week?

Yeah, I think I've got to hold my hands up here and I've never actually made it to G2E.

Ooh.

Next year.

So this is one where next year I need to make it over. So yeah, I mean obviously we're UK based, it's a lot easier to get over to Portugal, but I very much want to be visiting G2E. It's actually H2's MD, Ed Burkin, he tends to go over there, but I think that is mainly because he just likes visiting the casinos, if I'm being honest, and he makes the decisions. So he goes to G2E and I stay over here in Europe. But yeah, there's some really interesting topics that looking across both events, I think what would be interesting to see at G2E is how's the floor responding to those margin pressures and re-regulation and things just generally.

But the prediction market side from the more land-based perspective as well, that's a very interesting one just in terms of any knock-on effects. It's a factor I don't think a lot of people have talked about yet, but it should be something that should be a consideration. And yeah, that would just be an interesting one to actually be on the ground to look at. So I'm upset to be missing that. But I think SBC is going to be potentially more depressing if we talk about European re-regulation and tax. So a lot of the panels, a lot of the talks are all about what's the dominant theme of where regulation's headed, how are people going to actually try and absorb these?

And if you look at the Netherlands, France, UK, there's a lot of markets. Spain, I'll be speaking in Spain next month as well on the cross-operated deposit limits and things like that. There's a lot of moving parts in Europe, which I think is the threat of moving towards that over-regulation stance. And I think a lot of that talk's going to be dominating the panels, and I hope not everyone's leaving depressed, but it's obviously going to be the prediction markets chart, probably more from the online operator angle, I guess, just from the attendance of SBC in Lisbon.

There have been a few reports now that really Polymarket and specifically Polymarket is really lobbying hard in Europe. I don't know if you've seen these reports, but I've seen plenty of them.

Yeah, no, definitely. And we've seen quite a few European courts clarify their stance on prediction markets, and that is in Spain, in Madrid, that's something. Spain's been very clear on it, saying it's not permitted, it's a betting exchange, so you have to get regulated as a betting operator, and obviously these guys don't want to be doing that for sure. So yeah, it's interesting the two different conversations. So what's going on in Europe is very different to what's going on in the US, I think, in terms of where the conversation is, because there's a lot of regulations already that exist in Europe for betting exchanges and things because it's been a product that's been around for ages.

Whereas in the US, again, it's coming out as, I guess, a newer, more nascent thing that courts are having to really dive into and really explore what that actually is. So I don't think it's a conversation we're going to see leaving courtrooms very quickly. I think it's something that's going to be mulled over quite a lot. But yeah, I guess thinking about the ray of hope, I'm thinking for SPC is obviously where people are looking towards newly regulated markets, LATAM, and we've got Finland coming online next year, so Veikkaus monopoly is going to be replaced by a new re-regulated commercial market. That's interesting. We've got New Zealand as well. There are little rays of hope within that regulatory situation, but yeah, very much, I think the overall view is going to be heavily regulatory focused. So it's a good job Lisbon has good wine because I think I'm going to need that after some of the panels.

Cool, cool.

Sounds like there's a lot to keep you very busy. Beyond SBC, is there anything else that you want to plug or promote for us?

I mean, SBC starts a bit of a European tour for me. It's not too bad to be out of the UK in autumn. I'll take any opportunity I'll get. So yeah, I'm heading over to Gaming in Spain in Madrid, which I've mentioned, which is, I think it's mid-October time. The EGR Italy briefing and awards in Rome. And then also Gaming Germany over in Berlin in November, a few stops that I'll be going on. So these are all sort of what we'll provide deep dives on each individual market and the interesting nuances that we're seeing. How they're comparing compared to the overall market in Europe, and then splitting out the land base from the online and individual products and individual regulations as well.

So I think Nick saw my presentation in Thessaloniki, which was very much how do I cover all European markets in an hour from the land-based side, and that is not an easy task at all. So yeah, I love talking about as many markets as possible, but I've got to say some of these ones where I'm just focusing on one market and can really deep dive, it's a little bit easier when you're only considering one set of data or at least one set of regulations as well, rather than I had lots of people coming up to me after that presentation, Nick, and say, "Well, I don't know if you considered this about our country. We're doing this and we've got this new product launch." And I was like, "No, we have honestly, I promise, but I had an hour, guys. I can't go into absolutely every nuance about these markets."

So yeah, I think that will be me wrapping up, I mean, potentially heading over to Rio actually in early December for the EGR.

Okay, cool. Very good. Well guys, I see we're pretty much at the hour mark today, so I think we're pretty much ready to wrap. So gentlemen, thank you so much. And Josh, I really appreciate you joining us today. And yeah... You betcha. Good luck at SBC and we'll be over in Vegas thinking about you in Lisbon.

Yeah, sounds good. Okay, perfect. Thanks so much, gents.

Cheers. Bye-bye.