Thank you for sharing your insightful 3-part analysis on Evo. I found your perspective on the US as a potential future growth driver particularly thought-provoking. However, I wanted to share some observations and raise a few points for discussion:
1. Land-Based Casino Numbers in the US
You noted that land-based casinos are legal in 18 US states, but according to the American Gaming Association's State of the States 2024 report, there are 22 states with commercial land-based casinos and 29 states with tribal casinos, which are also land-based (source: https://www.americangaming.org/resources/state-of-the-states-2024/. This could suggest a larger footprint than initially outlined, and I wondered if this might impact your view of the opportunity landscape for Evolution in the US market.
2. US vs. European Casino Markets
You highlighted the US as a potential driver of growth for Evo, but I believe there are key structural differences between the US and European casino industries that might influence this thesis:
o Integrated Entertainment Hubs: US land-based casinos are deeply integrated into entertainment hubs, offering luxury accommodations, dining, shows, and other experiences that online platforms struggle to replicate. In contrast, many European casinos are standalone establishments with fewer non-gaming amenities, which may make them less resilient to online competition. Additionally, EGMs in pubs and clubs (common in Europe) are declining, as they are easily substituted by online gaming.
o Market Fragmentation: The US casino market is less fragmented than Europe. For example, in 2023, Nevada and New Jersey accounted for 32% of US GGR, with $15.5bn and $5.8bn, respectively, out of the $66.7bn total US GGR. This concentrated market dynamic could influence the growth trajectory for Evolution differently compared to Europe.
3. Online Casino Legalization in the US
While I understand your view that the US could drive significant online casino growth, it’s worth noting that predictions for online casino legalization remain cautious. For example, Chris Krafcik from Eilers & Krejcik Gaming anticipates “only a very small number of states” will legalize online casinos by 2027. Assuming four additional states legalize, as some predict, the total would reach 11 states by 2027—aligning with your downside case. Given this outlook, I wonder if the US is likely to emerge as Evolution’s largest revenue segment, or whether growth will be more moderate.
4. UK Online GGR vs. Broader Markets
You mentioned that 60% of the UK’s GGR is now online, with upside potential for online casinos as the market matures. However, I would argue that the UK may not be entirely representative of broader markets. The UK has faced significant pub closures, and much of the decline in land-based GGR can be attributed to reduced EGM activity in these locations. For instance, in markets like the US, where land-based casinos are entertainment hubs, such demographic and structural differences could suggest a less robust shift to online gaming.
I wanted to see if these observations might influence your view or if there are counterarguments I may not have considered. Your analysis has been incredibly detailed, and I’d love to hear your thoughts on these nuances.
Thanks again for sharing your work—looking forward to your response!
Thanks for the comment Harvey. Those are some great questions; I will try to answer each of them as best as possible, I'm also very happy to connect and discuss.
1. You are absolutely right there are actually 27 states with commercial casinos, this has been updated in the post, thank you for this! In my opinion, this is a good thing, it demonstrates more states are willing to allow gambling. On the other hand, it will likely take longer for these states to regulate due to the resistance from land-based casinos. I believe the likely outcome in these states is a partnership model. Overall increasing the potential states allowed.
2. The US casinos are like you said integrated with entertainment making them more of a destination to go and experience. I consider this a good thing for the online industry, the entertainment aspect lowers the barriers for people to try gambling. After people return from Las Vegas etc. the best option is to then use online casinos.
On the other hand, these land-based casinos will be around far longer than their European counterparts due to the entertainment value they provide. Overall, they are likely a net positive though by making gambling more accessible to the market.
3. I simply do not know how many states will regulate by 2027, in fact, it's doubtful anyone knows. It could be more than 4, it could also be 0. The great thing about the situation is the current share price has such low expectations that any future regulation of any state is upside at this point.
Over time, I do believe the US will become the largest segment. However, the timeline is uncertain. The US has 330M people, with the largest spending power of any nation.
4. You are correct that the demise of these land-based locations has been a factor. It is also important to consider that the UK was one of the first major markets to allow online casinos, so they have had the most time to grow. It is difficult to know how the US will play out with penetration rates, but that is likely at least a decade away.
Considering the US, though, players tend to go to these casino destinations on holiday or for a weekend; it is likely this behaviour will continue. This means that the majority of players are only going once or twice a year. Online casinos, especially the live games of Evolution, allow players to experience world-class casino entertainment all year round, this likely increases the total market rather than competing with the casinos.
Thanks for the swift reply! I find Point 2 really interesting—I hadn’t thought about it that way before, but it makes a lot of sense. So, what you’re saying is that places like Vegas act as a beachhead or hook for people, while online gaming provides an alternative avenue for them to continue their gambling urge (albeit not offering the full-blown experience of being in Vegas).
I guess my consideration is whether this behavior will be sticky. People visit places like Vegas or Atlantic City (which, btw, contribute ~30% of US GGR) for the full entertainment experience—gambling, shows, food, and more. Once they return from these destinations, they might play online games for a couple of days or even weeks while they’re still "hot" about the Vegas experience, but I wonder how sustainable that engagement would be long-term.
If the players aren’t sticky, it could result in significant churn, which isn’t ideal since new customers typically receive free spins or top-ups as part of onboarding. This leads to high CAC but LTV. Aren’t you concerned about this aspect?
Thanks a lot for the write-up!! One thing I'm wondering is the stickyness of end-consumers / gamblers. Companies with the best long-term moats are usually win-win-win, where all three of the key stakeholders (customers/employees/shareholders) win in the long term because of the business (think Costco). However, in a "sin" business like this one, I wonder whether the increased online gambling is actually hurting the average gambler. This, over time, could reduce the size of the entire gambling market. See global cigarette consumption , for example - it steadily increased since the 1800s and peaked in 2009 and has been dropping every year (based on Statista). So, is there a possibility that the gambling industry goes the same route? If yes, then there could come a time when revenues finally start trending the other way for Evolution and other players.
Incredible 3-part writeup! Best I've read in a long time. /bow
Thank you very much! I’m glad you like it
Glad to see EVO is being proactive in developing for the AR/VR platform. Staying ahead is key! Nice write-up!
Exactly, who knows whether AR/VR will take off, but they will be well positioned if it does!
Thank you for this great deep dive. What are your thoughts after Q1 2025 earnings and stock crash?
Thanks you!
The headline financials were certainly disappointing. However, the long term thesis of regulatory tailwinds remain intact.
At a PE of 11X, share buybacks will be highly accretive over the next year.
Thank you for sharing your insightful 3-part analysis on Evo. I found your perspective on the US as a potential future growth driver particularly thought-provoking. However, I wanted to share some observations and raise a few points for discussion:
1. Land-Based Casino Numbers in the US
You noted that land-based casinos are legal in 18 US states, but according to the American Gaming Association's State of the States 2024 report, there are 22 states with commercial land-based casinos and 29 states with tribal casinos, which are also land-based (source: https://www.americangaming.org/resources/state-of-the-states-2024/. This could suggest a larger footprint than initially outlined, and I wondered if this might impact your view of the opportunity landscape for Evolution in the US market.
2. US vs. European Casino Markets
You highlighted the US as a potential driver of growth for Evo, but I believe there are key structural differences between the US and European casino industries that might influence this thesis:
o Integrated Entertainment Hubs: US land-based casinos are deeply integrated into entertainment hubs, offering luxury accommodations, dining, shows, and other experiences that online platforms struggle to replicate. In contrast, many European casinos are standalone establishments with fewer non-gaming amenities, which may make them less resilient to online competition. Additionally, EGMs in pubs and clubs (common in Europe) are declining, as they are easily substituted by online gaming.
o Market Fragmentation: The US casino market is less fragmented than Europe. For example, in 2023, Nevada and New Jersey accounted for 32% of US GGR, with $15.5bn and $5.8bn, respectively, out of the $66.7bn total US GGR. This concentrated market dynamic could influence the growth trajectory for Evolution differently compared to Europe.
3. Online Casino Legalization in the US
While I understand your view that the US could drive significant online casino growth, it’s worth noting that predictions for online casino legalization remain cautious. For example, Chris Krafcik from Eilers & Krejcik Gaming anticipates “only a very small number of states” will legalize online casinos by 2027. Assuming four additional states legalize, as some predict, the total would reach 11 states by 2027—aligning with your downside case. Given this outlook, I wonder if the US is likely to emerge as Evolution’s largest revenue segment, or whether growth will be more moderate.
4. UK Online GGR vs. Broader Markets
You mentioned that 60% of the UK’s GGR is now online, with upside potential for online casinos as the market matures. However, I would argue that the UK may not be entirely representative of broader markets. The UK has faced significant pub closures, and much of the decline in land-based GGR can be attributed to reduced EGM activity in these locations. For instance, in markets like the US, where land-based casinos are entertainment hubs, such demographic and structural differences could suggest a less robust shift to online gaming.
I wanted to see if these observations might influence your view or if there are counterarguments I may not have considered. Your analysis has been incredibly detailed, and I’d love to hear your thoughts on these nuances.
Thanks again for sharing your work—looking forward to your response!
Harvey
Thanks for the comment Harvey. Those are some great questions; I will try to answer each of them as best as possible, I'm also very happy to connect and discuss.
1. You are absolutely right there are actually 27 states with commercial casinos, this has been updated in the post, thank you for this! In my opinion, this is a good thing, it demonstrates more states are willing to allow gambling. On the other hand, it will likely take longer for these states to regulate due to the resistance from land-based casinos. I believe the likely outcome in these states is a partnership model. Overall increasing the potential states allowed.
2. The US casinos are like you said integrated with entertainment making them more of a destination to go and experience. I consider this a good thing for the online industry, the entertainment aspect lowers the barriers for people to try gambling. After people return from Las Vegas etc. the best option is to then use online casinos.
On the other hand, these land-based casinos will be around far longer than their European counterparts due to the entertainment value they provide. Overall, they are likely a net positive though by making gambling more accessible to the market.
3. I simply do not know how many states will regulate by 2027, in fact, it's doubtful anyone knows. It could be more than 4, it could also be 0. The great thing about the situation is the current share price has such low expectations that any future regulation of any state is upside at this point.
Over time, I do believe the US will become the largest segment. However, the timeline is uncertain. The US has 330M people, with the largest spending power of any nation.
4. You are correct that the demise of these land-based locations has been a factor. It is also important to consider that the UK was one of the first major markets to allow online casinos, so they have had the most time to grow. It is difficult to know how the US will play out with penetration rates, but that is likely at least a decade away.
Considering the US, though, players tend to go to these casino destinations on holiday or for a weekend; it is likely this behaviour will continue. This means that the majority of players are only going once or twice a year. Online casinos, especially the live games of Evolution, allow players to experience world-class casino entertainment all year round, this likely increases the total market rather than competing with the casinos.
I hope this helps!
Thanks for the swift reply! I find Point 2 really interesting—I hadn’t thought about it that way before, but it makes a lot of sense. So, what you’re saying is that places like Vegas act as a beachhead or hook for people, while online gaming provides an alternative avenue for them to continue their gambling urge (albeit not offering the full-blown experience of being in Vegas).
I guess my consideration is whether this behavior will be sticky. People visit places like Vegas or Atlantic City (which, btw, contribute ~30% of US GGR) for the full entertainment experience—gambling, shows, food, and more. Once they return from these destinations, they might play online games for a couple of days or even weeks while they’re still "hot" about the Vegas experience, but I wonder how sustainable that engagement would be long-term.
If the players aren’t sticky, it could result in significant churn, which isn’t ideal since new customers typically receive free spins or top-ups as part of onboarding. This leads to high CAC but LTV. Aren’t you concerned about this aspect?
Happy to connect with you if you would like to take this discussion further too.
Thanks a lot for the write-up!! One thing I'm wondering is the stickyness of end-consumers / gamblers. Companies with the best long-term moats are usually win-win-win, where all three of the key stakeholders (customers/employees/shareholders) win in the long term because of the business (think Costco). However, in a "sin" business like this one, I wonder whether the increased online gambling is actually hurting the average gambler. This, over time, could reduce the size of the entire gambling market. See global cigarette consumption , for example - it steadily increased since the 1800s and peaked in 2009 and has been dropping every year (based on Statista). So, is there a possibility that the gambling industry goes the same route? If yes, then there could come a time when revenues finally start trending the other way for Evolution and other players.
Fantastic write up! Keep doing what you’re doing!
Great series of articles on Evolution. Subscribed!