Managing Editor
Galaxy Gaming won’t become part of Evolution’s global empire after all, but the failed deal presents an opportunity for the casino game developer to pursue grander ambitions on its own. Backing out of the merger forced Evolution to pay a $5.2 million cancellation fee to Las Vegas-based Galaxy. From Evolution’s point of view, that’s a paltry sum to get out of what it describes as an excessive amount of bureaucratic overhead related to the deal.
Galaxy has, until now, focused largely on developing and patenting side bets for blackjack and other popular casino games. It’s best known for 21+3 Blackjack, dealt at brick-and-mortar casinos around the country, as well as in Evolution’s live dealer studios. It makes its money by licensing its patents for these other companies’ use. For Evolution, the appeal of acquiring Galaxy would have lain partly in avoiding the need to pay royalties and, perhaps, in controlling its rivals’ access to the games.
Nevada and Louisiana regulators had objected to the deal on the basis of the alleged availability of Evolution’s games in illegal markets. New Jersey and other states where Evolution operates directly have not found fault with its conduct abroad, but Nevada takes a less lenient view of the gray areas that inevitably arise in the world of international business-to-business casino content distribution.
Evolution’s decision not to go through with the acquisition might be a blessing in disguise for Galaxy’s owners. On the one hand, they get only this $5.2 million consolation prize instead of the $85 million payday that would have resulted from the sale. On the other hand, they get to keep their company, now with a fresh infusion of cash.
Galaxy Gaming Looks to Become an iGaming Supplier
Galaxy hasn’t been entirely specific about what it will do with that cash. However, there are strong indications that it plans to pursue iGaming ambitions.
“We have never been better positioned to invest in our best ideas,” CEO Matthew Rebuck told investors in the company’s Q2 earnings report. “I am excited about what this team will build, and how efficiently we are now able to build it.”
Those words, which explicitly referenced the $5.2 million from Evolution, immediately followed a mention of the company’s new Chief Technology Officer, Anand Singh. Although Rebuck doesn’t say the “best ideas” are digital, it seems heavily implied.
Singh spent nearly 20 years working for Light & Wonder, one of Evolution’s main rivals in the online supplier space. He joined the company last month, just as the Evolution deal fell through. Furthermore, that deal was pending for almost exactly two years, during which time Galaxy and Evolution would presumably have been discussing how to integrate Galaxy’s designs with Evolution’s technology.
As things stand, Galaxy already has an iGaming section on its site, with a few dozen titles. However, their implementation is a bit bare-bones and would have a hard time standing out in the increasingly competitive U.S. online casino space. Singh was presumably brought on board to help Galaxy give its designs the level of polish they need to shine.
Evolution’s Pocket Change is Galaxy’s Treasure Trove
It’s worth emphasizing the dramatic difference in scale between the companies. Evolution has a market capitalization of over $15 billion, or nearly 200 times the price it had offered to pay for Galaxy.
For Evolution, $5.2 million is almost just a rounding error — about 1% of its net earnings for a quarter. For Galaxy, on the other hand, it is equivalent to nearly an entire quarter’s gross revenue, or its net earnings for a year.
Executive salaries being what they are, a good chunk of that may be going to pay for Singh. Nonetheless, it’s game-changing money for such a small company, with only a few dozen employees.
As for Evolution, it likely won’t spare much thought for the missed opportunity. U.S. iGaming expansion has stalled out as prediction markets dominate the conversation at present. Although its North American revenues continue to grow, its focus in years to come is likely to pivot towards Latin America and other emerging markets. State-by-state regulation has been a thorn in Evolution’s side in the U.S. in any case. Internationally, its top-earning products are proprietary “game show” experiences set in high-tech studios. However, U.S. regulations require it to build separate studios in each state, which dramatically increases the overhead for those titles. Ultimately, its margins will be better in markets that allow it to stream from the international studios into which it has already invested heavily.
Image Credit: European Southern Observatory (license)
