Evolution Prepares to Retaliate After Unmasking Playtech as Its Accuser

Playtech has been revealed as the company that commissioned a 2021 report accusing Evolution of doing business in illegal markets. The information made its way into the public sphere through several intermediaries, and it has taken Evolution years in court to force the disclosure of the originating party.

The disclosure opens the door to retaliatory litigation by Evolution against the much-smaller Playtech. Investors sold off in response to the news, erasing 25% of Playtech’s valuation in under an hour. Ironically, that crash came one day after Playtech completed the latest leg of a €50 million share-buyback program for its employee benefit trust.

What Accusations Was Evolution Facing?

Evolution is among the world’s top five gambling companies by market capitalization. It’s second only to Aristocrat among those that focus primarily on business-to-business services.

In particular, Evolution is famed for its live dealer casino products, which allow online casino players to interact with real humans streaming games from a studio environment. For several years, Evolution held an effective monopoly on such products in the US, and Playtech is now its primary competitor there. Playtech is also known to the poker world as the owner of the iPoker Network.

Evolution also owns numerous slot development studios, which provide games to online casino brands around the world. Some of these casinos, the report claimed, do business in markets where gambling is illegal or that are subject to U.S. and E.U. sanctions, such as Iran.

Bloomberg published a widely-circulated article based on the report. In the aftermath, Evolution’s stock plunged, erasing about $3 billion in market capitalization amid an investigation by the New Jersey Division of Gaming Enforcement.

That investigation ended in 2023, with the DGE concluding there was no evidence of wrongdoing on Evolution’s part. A defamation lawsuit by Evolution began in 2021, shortly after publication of the report. However, being cleared by the DGE gave the company greater leverage to demand transparency into the origins of the report.

Getting that transparency has been the legal equivalent of peeling an onion, however. The report was released by the law firm Calcagni & Kanefsky LLP. It took until this spring to force the firm to reveal its client: an Israeli private investigation firm aptly called Black Cube. After Calcagni & Kanefsky denied any knowledge of who had hired Black Cube, it took many more months to compel the agency to expose Playtech as the originating party.

Regulatory Complexities of the Dot-Com Market

Many jurisdictions that have legalized online gambling opt for a ring-fenced model, forcing companies to operate locally and serve only local clientele. That includes all U.S. states where online gambling is legal.

Although there are business downsides to ring-fencing, it’s much simpler from a regulatory perspective than the global “dot-com” market.

Even when it comes to business-to-consumer operators, U.S. regulators have always had some trouble deciding how closely to scrutinize international gray markets. Historically, that has led operators to play guessing games about how much they can get away with. Before the wave of U.S. legalization began in 2018, most countries were seen as fair game, even if they’d made online gambling illegal, as long as they didn’t have enough political sway to convince international regulators in Malta, the Isle of Man, and elsewhere to respect their decision.

New Jersey and other early-adopter states were similarly lenient. However, there are signs of that changing and operators have grown more conservative in response. For instance, Entain (half-owner of BetMGM) was nearly denied a license in Nevada on the basis of illegal activity in Turkey by a subsidiary. Now, most companies with US ambitions have abandoned operations in formerly important gray markets like China and Russia.

However, B2B companies add an additional layer of complexity. Evolution’s client list includes many companies with no plans to operate in the U.S., many of which may still play loose with gray markets.

Evolution has claimed that it has solutions in place to prevent its games from being deployed in sanctioned markets. Notwithstanding that, and despite plenty of finger-pointing between third-party suppliers, holding such companies responsible for their clients’ business practices is a largely unexplored area of U.S. regulation.

Evolution’s Hold on U.S. Live Dealer Continues

The revelation that Playtech is the culprit might surprise some, but there were only two likely possibilities. The choice of time and place to release the report provided enough circumstantial evidence for the court of public opinion to conclude that the goal was to break Evolution’s stranglehold on the U.S. live dealer market. Courts of law have a higher standard, and only time will tell if they reach the same conclusion.

Although the expansion of legal online casino gaming in the U.S. has since come to a screeching halt, in 2021, the expectation was that it might soon come to additional big states like New York, Illinois, and Indiana. If the specter of regulatory non-compliance were to have delayed Evolution’s licensing in such states, then would-be competitors would have enjoyed a head start — the opposite of the situation in New Jersey.

Earlier in 2021, Playtech had announced its intention to launch live dealer products in the U.S. Its first two studios, in New Jersey and Michigan, went live in December, one month after the release of Black Cube’s report.

Aside from Playtech, the only other company to have challenged Evolution for U.S. live dealer market share was Light & Wonder. It obtained the necessary technology by buying Authentic Gaming in November 2021, the same month that the Evolution report came out. However, it wasn’t until 2023 that it brought its product to market, and it abandoned the idea less than two years later.

Evolution appears to have emerged unscathed from the ordeal. Its North American revenue was up 23% year-over-year in its latest financial report, despite the lack of new markets. Its stock is down 50% from 2021 highs, but that drop is more recent and likely has more to do with the stagnation of international business.

Evolution Releases Statement

In response to the news, Evolution issued a statement calling Playtech’s actions “deeply disturbing,” and offering a timeline of the saga from its point of view.

Black Cube has a well-documented history of using deceitful methods to sway public opinion by launching smear campaigns on behalf of its clients. As part of its so-called investigation, Black Cube used highly unethical tactics, including initiating meetings with current and former Evolution employees and board members under false pretenses and secretly recording those interactions; using disguises and falsified identities; and cherry picking edited recordings to fabricate evidence to achieve its desired, false narrative. It is notable that the subjects of Black Cube’s report disavowed the allegations and said the report entirely misrepresented their comments.

[…]

Although Playtech has finally been identified after years of trying to keep its involvement in this smear campaign a secret, Black Cube continues to evade the Court’s discovery orders by withholding relevant information. We will continue to hold Black Cube, Playtech, and all the other players in this defamatory scheme responsible for their misconduct. We are confident in our legal position and look forward to finally holding Playtech and its accomplices to account for the significant harm they have caused.

Evolution’s statement ends by confirming that it has added Playtech as a defendant in its ongoing suit against Calcagni & Kanefsky LLP and Black Cube. It says that will allow the litigation “to proceed in earnest,” but that it will still extend through 2026.

Playtech on the Rocks

Although the revelation of Playtech’s identity has been devastating to its share value, there has not been much in the way of a corresponding uptick for Evolution.

That may largely come down to the difference in scale between the companies. Before today’s losses, Playtech’s market cap was barely above $1 billion, and now it sits at about $820 million. 

Evolution, on the other hand, has a capitalization of $150 billion. So, even if we assume the loss of value for Playtech equates directly to a future settlement payable to Evolution, that would still be just a fraction of a percent of Evolution’s value.

Evolution could try for even greater damages, but there will be a limit to Playtech’s ability to pay. This is the second huge drop in share price this year, though the last was the result of its decision to distribute the proceeds of its sale of subsidiary Snaitech as dividends.

CEO Mor Weiser has been trying unsuccessfully to sell the company. In 2022, Aristocrat offered $2.8 billion for the company, but Playtech shareholders rejected the proposal. Even the sale of Snaitech proved controversial with investors, given that up to 15% of the proceeds from the sale were paid out in bonuses to Weiser and other leaders at the two companies.

Between buying up its own stock, issuing dividends, and paying bonuses, Playtech may not be leaving itself in a position to pay much to Evolution if it loses the case.

Evolution will be holding an earnings call on Thursday, during which today’s news will surely feature prominently.