The Deals Made between Software Providers and Online Casino

Author: Matthew Haynes

The online gambling industry is arguably one of the most interesting in the world to many curious spectators, especially when looking more at the business aspect.

When stopping to consider that there are so many online gambling companies (and that is even before you get to the huge variety of land-based casinos), you begin to realize that it is nearly enough a monopoly. Confusion is easily understandable.

Take a closer inspection, and you find that many notable brands you have no doubt heard of are part of the same conglomerate - nothing new in business - though in the gambling industry, it isn’t widely publicized.

And then you start to factor in the technical side. It is easy to think that when you imagine an online casinos, all of the work is done in-house, such as slot game development - that every gambling site has its own unique slots and games.

However, you may also notice that many live online casinos have exactly the same online slot(s); indeed, some have hundreds of the same. It may start you wondering exactly how this is possible.

Well, of course, this is a whole new industry. Essentially, a micro-niche within a niche - a multi-billion dollar micro-niche, within a multi-hundred billion dollar niche, to be more precise.

As such, there are companies especially dedicated to technology (or content) called software providers. Over two decades ago, when it became evident the industry was moving online, there were a number of individuals (or pioneers) who realized that any online casino brand, aspiring or otherwise, would not be able to function without game content. As a result, the online slot was born, along with the online version of table games.

One of the luminaries of the industry who launched one of the first software providers was Israeli entrepreneur Teddy Sagi, who had a clear vision for a new type of company, hence the birth of Playtech. After finally acquiring funding, he then proceeded to hire the very best mathematicians across Europe. The rest, as they say, was history.

Playtech, very quickly, alongside other industry giants of the era such as Microgaming and NetEnt, became behemoths and well respected. Along came the deals.

Evolution of Partnership Dynamics in the Digital Age

In the early days, it was admittedly somewhat of a gamble for software providers such as Playtech and, by extension, online casinos, with a lot unwilling to test the water at first, mainly staying with sports betting.

It is easy to imagine that securing deals was easy when thinking about how popular online casino products are over 25 years later, though this was still very new.

However, by the end of the late nineties, software providers saw their products were becoming highly popular. It meant that when it came to the negotiations with online casinos, they had considerable leverage.

Over the last two decades, the way in which deals work between software providers and online casinos has changed, with many more arrangements having been introduced. It is also important to note that there are vastly more online casinos now in addition to software providers. However, competition is proving to be no bad thing.

The way in which both segments of the industry work has changed, particularly in how they do business. There is a misconception that technology entrepreneurs or employees are not particularly adept when it comes to sales or negotiation; however, this perception has since been completely eradicated.

Software providers know that online casino need them and cannot stay in business without having their products, regardless of what these are, and as a result, they hold all of the cards.

Financial Arrangements between Online Casinos and Software Providers

While it may sound relatively straightforward, packaging and negotiating a deal between a software provider and an online casino can prove to be tricky and take a while - especially if this is the first time one has worked with the other.

Every company has its preferred structure of how a deal is packaged, while those that have a long-standing relationship with each other may also have certain economic advantages cooked in that kick into place after a certain period of time.

There are many variables to consider. Where is the online casino and software provider in question-based? Geographically speaking, especially when it comes to gambling regulation and licenses, a deal here can fall at the first hurdle before dollar amounts have even been mentioned.

How many employees does said software provider have? Can it adequately cater to the demands that an online casino is requesting - particularly in the future if they want a strong pipeline and continuous supply? Will delivery be an issue?

When these elements have been ironed out, only then the financial and numerical side of the deal can come into play and, even then, there is still a lot to discuss.

Established software providers that have been around a long time know that they have a lot of different hands to play. Particularly if they have a track record of developing industry-leading products that have won awards, this can certainly have an influence on what they can charge and how they can structure a deal.

Most of the popular software companies prefer to charge an upfront fee. As such, the primary setup and integration of a number of games can typically run at hundreds of thousands and into the millions, depending on factors such as brand recognition.

In addition, what appears to now be the most popular transaction type is an upfront fee, as well as a monthly retainer fee. This model works as either a revenue share basis between the software provider and casino or a flat fee per month deal, regardless of how much these games have made or lost.

Also, some software providers will include an upkeep and maintenance service for their products due to the need for them to continually monitor them, and they will look to offset at least part of this cost to the casino brand.

The deal term also comes into the negotiations. If it is a new relationship, it could be that a casino insists on a short-term arrangement before committing further; however, this can get complicated on both sides.

The Art of Negotiation

It is unlikely that information of great details about the deals will ever come to light without the threat of a lawsuit being issued, though it would be wise to suggest that every software provider has different agreements with the online casinos that they work with.

This could be due to a number of factors. The online gambling industry (while seeming big) is, once you get to a certain level, a very small circle. As such, it is common for industry employees to move between online casinos and software providers. It means that they may have relationships and/or warm leads on both sides. This can always influence the details of a deal.

There are, of course, other factors that may come into play. If a software provider recognizes potential in a new online casino brand, there is a chance that it lowers its fees at first until the casino reaches a certain level in the hope of business longevity with that particular brand. It could be that, in exchange, they ask for their slots and/or table games to appear at the top of the casino page, so it is the first software provider players see when they visit.

Furthermore, if a software provider is doing business with a relatively established online casino but in a new market - and one that it wishes to expand its presence in, it will likely realize that it suddenly does not have an advantage. As a result, there may be the case that they offer a fee reduction. However, this also gives them valuable insight into how a new market will respond to their products in the hope of establishing itself as the number one non-native provider for casinos in that region. As a result, the reduction in the initial fee could well be a worthwhile investment it in the long term.

Will More Software Providers Effect Future Business?

With the opening up of more new markets over the last few years - especially the US and even Canada and LATAM (Latin America), the online gambling industry is predicted to continue its rapid growth.

As a result, it is inevitable that we will see more new software providers launching in order to cater to these new markets. However, one noticeable trait over the years is that competition in this industry has been a considerably healthy factor. The industry generates hundreds of billions of dollars every year, and software providers have a generous slice of this.

If anything, more software providers entering the industry is only likely to prove current financial predictions right - that the industry is set to experience unprecedented global growth.