For most operators in the Ontario online gaming sphere, the one-year anniversary of the open market is cause for celebration. But for Coolbet, which recently exited the province, the year after launch is nothing more than a discussion of what-ifs.
In a recent conference call, the Dermot Smurfit, the CEO of Coolbet’s owner GAN Ltd., said the operator left because it was competing with the slew of promotion-forward, analogous Ontario sports betting and casino sites. As a result, withdrawal was necessary in what some industry experts describe as “the most competitive market in North America.”
End of year financial results prompt Coolbet’s switch in target market
On March 30, GAN released its fourth-quarter financials for the three months ending Dec. 31. And, on the heels of a swift market departure, the results were not ideal.
The Irvine, CA-based technology provider absorbed a $147.7 million loss, with the main culprit being a non-cash impairment charge caused by:
- Reductions in expected cash flows from its business-to-business division.
- A strategic decision to drop its original content strategy.
- A re-evaluation of growth plans for its business-to-consumer sector (ex. Coolbet).
Shifting focus to Mexico and Latin America
In response to such developments, GAN is shifting its focus for Coolbet from Ontario to Latin American markets, such as Mexico.
“For those markets where we don’t see a clear and rapid path to profitability outside of Latin America, we will pull back resources and/or exit those markets,” Smurfit said during the March 30 conference call for analysts and investors. “To that end, we have exited the Ontario market described by some industry experts as the most competitive market in the world.”
Despite being one of the first entrants to Ontario, GAN’s profitability largely hinges on success in Latin American markets. According to Smurfit, the “sheer number of entrenched operators and heightened promotional environment” in Ontario did not present a viable path to profit, or at least one worthy of steering away from Latin American opportunities.
Smurfit added that resources designated for Ontario sports betting would go towards “higher-return markets” and generating cash flow.
The CEO’s greatest condemnation targeted the barriers for small operators created by Ontario’s previously existing grey market. In his words, “Ontario was [initially] plagued by a competitive, promotional-orientated mania” that favoured operators already entrenched in the market.
Before regulation, ‘entrenched operators’ had been taking bets from Ontarians for years. Specifically, Ontario residents could place wagers with operators regulated and licensed outside the province.
Coolbet plans to move forward despite unique issues
GAN’s decision brought on speculation about Ontario operators potentially following suit, as some need to renew their iGaming licenses soon. However, no operators with the same level of cache as Coolbet have made a similar announcement. As of now, Coolbet, which built a partnership with Olympic medalist Andre De Grasse, remains available in other Canadian provinces.
GAN’s troubles were unique to the company’s doings and not necessarily a harbinger of what’s to come. During the earnings call, interim chief financial officer Brian Chang said the company will consider violating the terms of a loan and possibly speed up the need for repayment. Currently, GAN is negotiating with its lender over modifying the agreement to remain in compliance. However, a deal is not guaranteed.
Another point of note from the call is the company’s new strategic review process to find ways of maximizing shareholder value. Following the release of its Q4 results, GAN’s stock price dropped 25% to roughly $1.20 the next morning.