The chief executive officer of Coolbet-owner GAN Ltd. says they decided to shutter the bookmaker's operations in Ontario because it was competing with a swarm of promo-happy and familiar-looking online sports betting sites in what some call “the most competitive market in the world.”
Irvine, Calif.-based GAN reported its financial results for the three months that ended December 31 on Thursday, which came in the wake of the company’s decision to withdraw its online sportsbook and casino, Coolbet, from Ontario.
The fourth quarter was tough on GAN. The technology provider recorded a $147.7-million loss that was chiefly due to a non-cash impairment charge triggered by lower expected cash flows from its business-to-business (B2B) division, a decision to scrap its original content strategy, and a “re-assessment” of growth plans for its business-to-consumer (B2C) segment, which is Coolbet.
GAN’s plans for Coolbet have changed and are now aimed at Latin American markets such as Mexico, rather than Ontario, Canada’s most populous province. Ontario debuted a regulated market for internet gambling in April 2022, and Coolbet was one of the first operators to launch before announcing it was exiting the province earlier this month.
“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,” GAN CEO Dermot Smurfit said during a conference call for analysts and investors on Thursday. “To that end, we have exited the Ontario market described by some industry experts as the most competitive market in the world.”
Coolbet's sportsbook is now closed in Ontario: pic.twitter.com/NNK3AHjAin— Geoff Zochodne (@GeoffZochodne) March 23, 2023
Smurfit cited the “sheer number of entrenched operators and heightened promotional environment,” which he said did not present an obvious path to profitability or provide the same sort of return on investment as the company’s Latin American opportunities.
The CEO added that the resources earmarked for Ontario sports betting would instead go toward “higher-return markets” and generating cash flow. Later in the call, Smurfit said Ontario was plagued by a “competitive, promotional-orientated mania” in the first few months of the new regulatory framework that was driven by new entrants and operators that were previously available in the province’s “grey” market.
“A lot of the U. S. brands were pushing north very, very aggressively, combined with the entrenched operators who’ve been there for many, many years indeed,” Smurfit said.
The comments highlight the challenges that smaller iGaming operators face in Ontario’s regulated market, which now has more than 75 sites offering legal sports betting, poker, and casino games. Some of those operators have been taking bets from Ontarians for years, too, as the province previously had a robust grey market in which companies licensed and regulated abroad or outside its borders were available to residents.
Coolbet’s exit prompted speculation about others following its lead, especially as some iGaming licenses will soon require renewal. But so far, no other company with a profile like Coolbet’s — which formed partnerships with Canadian athletes such as sprinter Andre De Grasse — has announced a similar decision. Coolbet will remain available in other Canadian provinces — just not in Ontario.
GAN also had unique issues. Its interim chief financial officer said during the earnings call that given its recent results and plans, it’s possible the company could violate the terms of a loan and potentially speed up the need for repayment. The company is negotiating with its lender over amending the loan agreement to remain in compliance, but there is no guarantee of a deal.
The company also noted during its Q4 conference call that it was embarking on a strategic review process to try to find ways of maximizing shareholder value, which follows financial results Smurfit admitted had not lived up to its expectations. GAN's stock price was down more than 25% Friday morning following the release of its Q4 results, to around $1.20 a share.
“Let me be extremely clear on a very important point: I and my entire executive group firmly believe that there is tremendous unrealized value in our proprietary technology offerings, our patented IP, and a growing, profitable B2C business that generated annual revenue of nearly $90 million this past year, which is well north of our current trading market cap,” Smurfit said. “The board and I feel it's highly prudent at this time to explore all options to realize this value.”