Online gaming, Ciavarella (CEO Empire Global): “Acquisition of Multigioco first step; 50 million to invest in Italy”

ROME – It was the first major hit of the year in the online gaming industry, with signs of a series of mergers and acquisitions in the coming months. Empire Global Corporation – a company based in Toronto and quoted on the OTC Market in New York – in a one million euro transaction, has discreetly acquired Multigioco Srl. a licenced online gaming operator in Italy, with five physical gaming centres in Italy made up of corners and agencies and more than 700 online web shops that produced over 71 million euro in turnover through 2013. Agipronews met the CEO of Empire Global, Michele “Mike” Ciavarella; an Italian-American entrepreneur in Rome outlining goals for Italy.

Mr. Ciavarella, why has Empire Global decided to enter the Italian market?

The Italian gaming market is a large, maturing and well-regulated market. We believe it is the right framework for a company like Empire Global, listed on an international stock exchange, seeking a safe and regulated gaming environment. The acquisition of a company such as Multigioco – with an excellent reputation and a young and capable management – is in our opinion the best way to enter the Italian gaming space. In addition to Italy, we have plans to expand into other countries in Europe and beyond.

What are Empire’s first objectives in Italy?

We want to be a forerunner in this market, for this – after Multigioco – we have ongoing negotiations with another major operator rich in human capital and experience, which is enthusiastic about the idea of having a foreign shareholder and capital sources. We plan to become one of the top five players in the Italian gaming space, always keeping in mind the need to offer a responsible gaming product to the consumer. We know that the most difficult part is yet to come; after the acquisitions, we will need to continue to invest resourcefully to reap the large rewards this market has to offer.

Which brand will you use to manage your business in Italy?

We will have three main areas of action: online web-based gaming; corners and agencies. We believe that we will maintain a specific brand for each sector, but we have not yet made a decision to that end. In any case, it will be clear to the consumer that the location is a part of the Empire Global group of companies. Our stores will be well organized and recognizable even from an aesthetic point of view. We plan to invest aggressively on this part of our business.

Speaking of money, how much is the investment of Empire in the Italian market?

Our forecast is to invest 50 million by the end of 2015, with at target of 100 – 120 physical betting locations as well as the development of our online web based business.

Do you plan to participate in the tender for betting licences in 2016?

Certainly yes, it will be mandatory for us, we will choose the areas in which to implement our existing network carefully.

Are you worried about the presence of thousands of unauthorized operator centers in the market?

Very much. We want to enter the market by following the rules, but we ask that those rules apply equally to all participants. To reassure investors, both the courts and the Italian authorities must ensure that laws are respected, otherwise, it will be increasingly difficult to attract international investors to Italy.

Do you believe that the proposed amnesty for foreign operators will help the market in this sense?

It is not just a matter of paying or not paying taxes, the key is to have an equal playing field for all. There should be no parallel network; all operators – even those that operate in the Italian market thanks to the amnesty proposal – must be transparent.

How to Play PASPA from Canada

Online Gaming Update — UNITED STATES

Until recently, the Interstate Wire Act of 1961, combined with the Professional and Amateur Sport Protection Act (PASPA) of 1992, prohibited sports betting in the U.S. in all but four grand- fathered states (Montana, Oregon, Nevada, Delaware). Despite its illegal status, sports betting has been a thriving underground busi- ness, with the American Gaming Association (AGA) estimating that in 2015, $149B was wagered illegally on U.S. sports – the 2016 Super Bowl 50 alone attracted $4.1B in illegal wagers, with only ~$100M placed legally.

In mid-May 2018, the U.S. Supreme Court overturned PASPA in a decision that found PASPA unconstitutional in a 7-2 decision. What this means is it will be up to individual states to decide whether to allow its residents to bet on sports. Many are expected to move quickly to establish sports betting as a means to increase their respective coffers. We have since seen a number of states pass legislation to allow online gambling. We believe the U.S. market will take 3-5 years to fully develop.

Online Gaming Update — CANADA

The legality of online betting in Canada is currently a grey area. Provincial govern- ments have a monopoly on gambling services, and civilians aren’t permitted to offer or use private gambling services. At present, the Canadian Criminal Code explicitly pro- hibits Canadian civilians from marketing or offering betting services to other Canadians. Provincial governments are permitted to offer a variety of gambling services, includ- ing parlay betting on sports. In practice, the vague nature of Canadian gambling laws and the limited sports betting options offered by provincial governments have resulted in extensive online sports betting activity. It’s estimated that Canadians bet over $2B with offshore bookmakers every year.

Brian Masse, NDP MP of Windsor West, tabled Bill C-221 in 2016 to repeal paragraph 207(4)(b) of the Criminal Code to make it law- ful for the government of a province, or a person or entity licensed by the Lieutenant Governor in Council of that province, to conduct and manage a lottery scheme in the province that involves betting on a race or fight or on a single sport event or athletic contest. Bill C-221 was defeated on September 21, 2016; 156 “nay” votes to 133 “yay” votes. We expect a revisit or a new Bill to be tabled in due course in light of the recent SCOTUS ruling on PASPA.

How to Play PASPA from Canada

We believe the best way to play PASPA from Canada is through the Stars Group (TSG- US, Buy, US$43 PT) and Newgioco Group (NWGI-US, Spec Buy, US$1.80 PT).

Sportsbook represents 50% of the global online gambling market. The Stars Group officially rolled out its sportsbook product, BetStars, in a limited capacity in December 2015 in anticipation of the Euro 2016 soccer competition. The sports betting product will launch within the PokerStars poker client in certain markets, and PokerStars will gradually add more markets as well as web and mobile versions over time. We think the CrownBet, William Hill Australia and SkyBet acquisitions are a meaningful expansion in this verti- cal, with focus now on integration and growth in their respective markets.

TSGI reported Q218 revenue of $412M (EWP: $385M) (Cons: $381M), Adj. EBITDA of $168M (EWP: $156M) (Cons: $152M), and Adj. EPS of $0.60 (EWP: $0.56) (Cons: $0.54). Its newly segmented International and Australia divisions contributed $350M and $61M, respectively, to revenue. Organic growth in the Q was 15%. Consolidated Poker, Casino and Sportsbook revenues in the quar- ter were $217M, $102M, and $81M, respec- tively. International and Australia quarterly real-money active uniques (QAUs) were down 5.2%. 2018 guidance was updated including the recent CrownBet, WMH Australia and SkyBet acquisitions with 2018 revenue between $1,995-2,145M (prev. $1,390-1,470M), Adj. EBITDA between $755-810M (prev. $625- 650M), and Adj. EPS between $1.99-2.22 (prev. $2.33-2.47). International net deposits were $322M in the quarter, an increase of 19.3% y/y. If the three sportsbook acquisitions were considered from the beginning of 2017, the revenue mix by product would have been: Poker (37%), Sportsbook (34%), and Casino (26%), with 75% of 2017 revenues from locally regulated or taxed markets.

TSGI is strategically evaluating opportuni- ties to partner with various gaming opera- tors and media companies in New Jersey (extended existing poker/casino partnership with Resorts Casino to launch an online and mobile sportsbook in the near future) and Pennsylvania (announced a partnership with Mount Airy Casino Resort to offer betting and gaming products subject to regulatory approval). As the US market evolves, TSGI will seek to secure leading market positions by combining its expertise and brand aware- ness with strategic focus on: (1) selectively partnering with land based gaming operators and/or lotteries in key U.S. states; (2) providing a multi-vertical offering of poker, casino and betting; and (3) following CMA approval of the SkyBet acquisition, TSGI intends to export to the U.S. SkyBet’s deep expertise with respect to the integration of media and sports.

Newgioco engages in the operation of licensed gaming, providing retail web-based and land-based gaming services in Italy. The Company offers online casino, sports betting, virtual sports betting, horse racing, and physical slots. The Company was founded on August 26, 1998, and is headquartered in Toronto, Canada, with wholly owned subsidiaries in Italy and Austria. Subsidiaries include: Multigioco Srl (acquired on August 15, 2014), Rifa Srl (acquired on January 1, 2015), as well as Ulisse Gmbh and Odissea Betriebsinformatik Beratung Gmbh (both acquired on July 1, 2016).

NWGI had a strong Q218 which included 15 days of the 2018 World Cup – Q218 rev- enue was $8.8M, with adj. EBITDA of $1.1M (excl. the non-cash derivative liability related to the convertible debenture and share price volatility through Q218). Non-GAAP betting turnover in Q218 was $100M (+101.6% y/y), and $190.6M (+86.3% y/y) for the H118.NWGI is on track to exceed its 2018 pro- jected turnover target of ~$300M. NWGI has obtained final SOGEI certification just in time for the start of the 2018/2019 Italian soccer season. Odissea is now independently connected to the regulator and completely free from third party processing.

Several reasons why we like Newgioco are:

(1) NWGI currently has the 20th largest share of the Italian online market – a tremendous opportunity exists in rolling up smaller opera- tors beneath it while staying under the radar of the larger players. (2) With over 150,000 events per season and more than 90,000 events in Live mode, Newgioco has a highly competi- tive game offering for bets and sporting events through its Odissea platform. (3) Newgioco’s management team has a combined 100+ years’ experience in gaming and technology devel- opment. An extensive network in the Italian marketplace among operators and government regulators should be beneficial as Newgioco expands in the region and seeks opportunities abroad. (4) Newgioco launched the first phase of its Artificial Intelligence (AI) technology on its ELYS Odissea gaming platform with the release of CHATBOT – CHATBOT is an AI betting technology using customized pat- tern recognition and machine-learning algo- rithms to determine the relevant features of customer interactions and to develop a com- prehensive customer betting profile. (5) We expect Newgioco to start showing business-to- business (B2B) revenue on white-labelling its platform by the end of this year, and use it as a vehicle for international expansion – including the US sports betting market.

Is an amendment to the Federal WIre act oF 1961 next?

Despite the PASPA ruling, it would still be illegal to bet across state lines – even if the respective states in question have legalized online sports- betting. Evidence has shown that a high number of gaming and gambling companies have used blockchain technology to raise money and fund startups. In total, more than $4B has been raised via ICOs, according to Autonomous NEXT. Business Insider reported a $500M ICO to build a floating cryptocurrency casino in Macau. Gambling with cryptocurrencies – as opposed to fiat money – can currently be conducted without the need to provide identification docu- ments, or in some cases, without the need to create an account. Demand for anonymous gambling is evident in the relatively high use of pre-paid cards – such as the paysafecard– on gambling websites, and in consumer behaviour surveys. What about setting up a blockchain platform, to allow sports betting across state lines via smart contracts between the bettor, operator and respective states involved where betting is legal and taxes are collected. We note that both Stars Group and Newgioco have blockchain and AI capabilities already in place.

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