"The casino business is being overshadowed by regulatory changes"

Dieter Kuhlmann, Gauselmann Group Management Board member, gaming operations, provided insights into the most significant challenges Merkur Casino faced throughout 2019, which, according to the executive, was marked by regulatory changes that are still increasingly influencing the business and its economic success.

The casino business, Kuhlmann says, is being affected by these changes in many countries, both nationally and internationally. In Germany, the past year was very strongly marked by the implementation of the Technical Directive (TD) 5.0, which brought significant changes, adversely affecting gaming fun and consequently also earnings performance. "Players were at first reluctant to accept the new, modified product, only gradually adapting in the current year," he explained.

In spite of this, Kuhlmann said that, since September, Merkur Casino has again been performing above the previous year’s level. "The current legislation is continuing to produce additional effects, resulting in the closure of further arcade licenses, but we are counteracting this trend by building or buying new venues or arcade operating companies. For 2020, we will continue to expand and maintain business on a par with today. At the same time, we expect more clarity from politicians with regard to the new State Treaty on Gaming 2021."

According to Kuhlmann, the UK —the company’s largest international market— has developed exceptionally well. "We have been working very successfully on optimizing our gaming arcades for two years now. This applies to staff qualification as well as to the redesign of the venues with considerable adaptations in terms of machines. We see great potential for the further development of our company here. Further opportunities arise from changes in the market. Many betting shops are closing, combined with a corresponding reduction in B2 machines. This opens up opportunities for expansion in the coming years."

As regards Spain, viewed by the company as an expansion market, Kuhlmann explained that its current legislation has brought the country to an almost complete standstill. "Since 2018, we have opened 15 locations offering a combination of amusement arcade, bar and sports betting. At present and in the near future, it is almost impossible to obtain new licenses in almost all Spanish jurisdictions, so expansion through new construction is therefore virtually impossible." He said that acquisitions or partnerships remain the only option, and irrespective of this, the company is continuing to expand its online presence there (Merkur Magic).

In Serbia, the company has had a partnership with Balkan Bet since 2017. According to Kuhlmann, the country has developed very positively from year to year during this period, including in 2019, both in the land-based and the online and sports betting businesses. Further location optimization and expansion are planned for 2020. He added that Croatia will be further developed on a small scale.

In the Czech Republic, regulatory interventions combined with site closures continue to have a very strong impact on business, Kuhlmann explains. In addition, there is a considerable tax burden (35%), which influenced the land-based business in the past year, but a stabilization became noticeable in the course of the year. "For 2020, we will continue to focus strongly on the operation of large casinos, including live gaming. Player registration and control have established themselves and will also lead to positive developments next year. We will turn our attention to the online market in due course."

Kuhlmann also mentioned the jurisdiction that poses the greatest challenges for the company: "we currently face the biggest problems in the Slovakian market. Over-regulation combined with player verification and site closures are putting a strain on business and will have a considerable economic impact in 2019. At best, a slight stabilization is expected for 2020."

Finally, in the Netherlands, he said the company’s business is stable, but with a high tax burden (30.2%). Expansion is planned to a manageable extent.

"In general, it can be said that regulatory interventions or threats of them are affecting many countries. Only our broad national and international positioning gives us the flexibility to further develop our company even in difficult times. We will strengthen and further establish our Merkur brand in each of the countries in which we operate, developing it into an international gaming brand," Kuhlmann concluded.