Senior Editor Traders News Source
Mark Roberts
Elys Game Technology, Corp. CEO Interview with Michele Ciavarella
Senior Editor Traders News Source
Mark Roberts: “For our readers new to your company and those unfamiliar with the gaming sector, could you briefly describe your business model?”
ELYS CEO Michele Ciavarella: “Elys is a leading technology provider in the multi-billion dollar global leisure betting industry. Leisure betting is the type of gaming entertainment that people do everyday such as sports betting, lottery, online casino and poker, compared to resort style casino gambling where people take a getaway to visit the properties. Our business is not building bricks and mortar properties but is technology based, and Elys has recently developed one of the most innovative and proven technology platforms in the industry.
We operate as both a B2C operator in the regulated Italian market where our technology is provided directly to customers through with the online and land-based channels, and we have now launched on a B2B basis in North America. Elys was the first in the U.S. with a small business deployment model in a restaurant bar in Washington, DC and recently at Ocean Casino Resort in New Jersey and later in 2022 we will launch our digital and mobile product with Lottomatica.
Our model is to charge a revenue share to both online and land-based operators that offer sports betting and other online gaming to their customers.”
Senior Editor Traders News Source
Mark Roberts: “How were your B2C land-based operations impacted by Covid-19, and are land-based operations improving now?”
ELYS CEO Michele Ciavarella: “Our land-based channel was definitely affected because they were closed due to restrictions, however we only offer sports betting at land-based locations like bars and café’s but the fact that there was no sports being played anywhere other than some less known events like table tennis was more impactful. However, its important to note that Elys’ technology is omnichannel, so our online i-gaming business increased dramatically, especially in online poker and online casino, so the wide diversification of our business helped Elys navigate the challenges faced during the pandemic and now not only are we back to full speed, but have maintained the level of turnover and revenues we gained during that period as a result.”
Senior Editor Traders News Source
Mark Roberts: “Do you believe Your emerging operations in North America will ultimately grow beyond your European operations and if so, when?”
ELYS CEO Michele Ciavarella: “Yes, without a doubt, but I also want to emphasize that we expect our European operations to also increase significantly because of the structuring that we have been making behind the scenes. We still have a goal to double our size in Italy due to opportunities being presented with the upcoming federal license renewals. Our growth in US and Canada is significant because we built Gameboard U.S. to be highly scalable, and opening state to state and in Canada in the land-based channel is meant to be a cookie cutter process that is expected to exponentially grow earnings. Our next launch will be in the digital channel where we will offer our sportsbook technology through Apollo owned Lottomatica later this year. We reasonably believe that we will be building a strong footprint through 2023 and are on pace with our Italian operations by 2024 and 2025 meaning our revenue goals will be in the $150 to $200 million range on a consolidated basis, in a reasonably short period of time.”
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Mark Roberts: “Can you talk about your different verticals attributing specific revenues (or percentages) to each?”
ELYS CEO Michele Ciavarella: “Our two verticals are firstly B2C distribution in Italy where Elys, through our Italian Newgioco brand, is the licensed operator, like a DraftKings, where we compete in both land-based and online channel against some of the industries largest and most experienced operators like Bet365, William Hill, GVC BWIN, The Stars Group and industry leader Lottomatica. In this vertical we generate revenues by earning commission revenue from online casino and poker ranging 4 – 8% while also generating revenue from spread on sports betting which is by far the highest gross margin B2C product generating from 12 to 15% annually. The second vertical is our B2B revenue share license fees in the U.S. from providing our cutting-edge technology to sportsbooks at restaurants, bars, resort casinos and other land-based operators as well as the upcoming digital and mobile deployment through Lottomatica in 2022. In this vertical we charge a license fee to the operator but don’t take the spread risk on sports betting. These fee structures are wide ranging from 5% to 49% depending on the level of technology and provision of bookmaking selected by the operator.”
Senior Editor Traders News Source
Mark Roberts: “Congratulations on the recent GLI Certification in Washington DC. Is that a process you will go through for each state/province where you want to operate in North America?”
ELYS CEO Michele Ciavarella: “In order to operate in regulated markets, the technology must fall under very strict certification standards. In Italy, there’s only one jurisdiction – Federal, so there is one consistent certification obtained through the regulator, while in the US, GLI-33 is the gold standard accepted across the nation, however, each state may have its own unique attributes that the tech must ascribe to for example responsible gaming, internal controls and so on that may vary from state to state. This means that all technology providers, including Elys, need to obtain those separate modules to operate in those states. In addition, states like New Jersey and Nevada have an even further independent body that runs certification tests that adds another layer of complexity. So, a note to your audience could be that its not as easy as saying we are GLI-33 certified and away we go across the country. It doesn’t work that way, GLI-33 is only a start. What sets Elys apart is that our tech stack was designed and built in the rigidly regulated Italian market, this means that setting up in other regulated markets, including each separate state in the U.S. make getting certification and regulatory clearance mush more effective as Elys recently proved in New Jersey.”
Senior Editor Traders News Source
Mark Roberts: “Between sports betting and casino style gambling, whether online or land based, where do you see strongest growth potential for the company?”
ELYS CEO Michele Ciavarella: “We expect to see growth in all product diversification, except that sports betting will likely see the most immediate growth since the U.S. and Canada will likely be the largest regulated combined market and is now just opening up since the repeal of PASPA in May 2018. It is still relatively early days in development of this huge market. We also believe that i-casino and online poker will be the second phase of significant growth in North America as state regulators and resort casino operators adopt digital technology as a distribution channel to leverage their robust client bases and loyalty programs.”
Senior Editor Traders News Source
Mark Roberts: “You’ve reported an unaudited 22% growth in revenues for 2021 and a 39% increase in G&A expenses. Do you anticipate those percentages to scale more evenly in 2022?”
ELYS CEO Michele Ciavarella: “Elys is a growth company that is in the process of expanding the footprint of our cutting edge technology around the globe and more specifically in the massive potential in the US. This means we have a front loaded but metered rate of spend. There is no doubt that the revenue will tail the expenses because, to get to the revenue we need to spend on technology, certification, licensing, human capital and so on. We expect the spend rate to continue for at least two more years as we expand in the US and Canada, but at the same time, we are spending because the addressable market exists, and we are signing customers for our products and services. These costs are unfunded until we launch the client and then the scaling rate should turn-over such that revenue will exceed the expenses significantly.”
Senior Editor Traders News Source
Mark Roberts: “Can you give our readers an estimated timeline for your expansion plans in North America with specific goals?”
ELYS CEO Michele Ciavarella: “Elys is already well underway with US and Canada deployments. Our game plan was to launch one segment of our technology at a time. So far, we launched our small business module through Grand Central Restaurant and Sportsbook in Washington, DC. This proves that our technology stands alone by being able to provide a sportsbook in small business like a sports bar. There really is no other sport betting tech provider that we know of that can cost-effectively operate in a small business like a restaurant bar where a significant amount of sports betting exists, so Elys is in a league of its own in this segment. Then on March 1 this year we launched our large property module at Ocean Casino Resort in New Jersey. These two deployments for Elys bookend the land-based segment in the US and Canada and now we can confidently expand with a cookie cutter approach across North America in land-based applications. For digital and mobile expansion in US and Canada, in January this year we signed a deal with Apollo owned Lottomatica which plans to go-big in the US to challenge DraftKings, FanDuel, BetMGM and others to be a market leader on the interactive channel. So Elys is creating a bespoke sportsbook platform for this application and when you compare our hold performance in DC against these large operators, I think the combination of Elys and the Lottomatica brand to be launched here in North America we will be a major threat to these incumbent operators.”
Senior Editor Traders News Source
Mark Roberts: “Michele Ciavarella and Gold Street Capital Corporation, owned by Gilda Pia Ciavarella, appear to own 43% of the outstanding common shares with GSCC actively acquiring shares in Q3 last year. Can you confirm this information and comment on the stock accumulation?”
ELYS CEO Michele Ciavarella: “Elys insiders and founders collectively own about 47%, and Gold Street which is my personal family fund is a significant holder of about half of that. The takeaway, I hope, is that as a management team, we are all vested with our investors and shareholders. Our success is their success.
In terms of takeaways from insider buying, we clearly are limited on what we can discuss in the public about what is in the operational and commercial mill, but what we can do is project our confidence in what is going on behind closed doors by buying in the open market when we can. Hopefully, the message is that even though management holds the lions share of ownership, we are still accumulating in the market when the opportunity presents itself and this, we hope, is a strong indicator of future confidence of management in these developments.”
Senior Editor Traders News Source
Mark Roberts: “While ELYS has experienced steady growth at the top end, net income has yet to come. Can you identify a revenue level, or offer a timetable when the company could achieve a positive net income?”
ELYS CEO Michele Ciavarella: “The Elys project started about 2013 when the industry started to hear insight about the potential opening of the US sports betting market. As you know, prior to 2018 with the repeal of PASPA, sports betting the U.S. market was prohibited other than in a few states like Nevada. Sports betting occurred in the U.S. but was operated offshore or illegally.
If you look back at our history, the company has been in this business for over 20 years. During that time our B2C operation have been profitable on the bottom line but with limited top line growth in the challenging Italian market. We announced this project in January 2014 as reflected in our SEC filings. At that time, we started planning our strategy and business plan to come to the US, which meant we started making significant investments in core technology build. This also needed us to expand and strengthen our mobile and land-based distribution in Italy. The investments were made to build Elys through both prudent management of earnings from operations in Italy and new investments from capital raising efforts here in North America.
You can see that in 2017 we had positive earnings reaching about $2.5 million in profit due to the investments we made from 2014. In 2018, the U.S. market liberalized with the repeal of PASPA in May, at which point we started to make investments in both market presence such as head count planning, technology build and then bookmaking expertise. These are critical ingredients that are needed to be successful in the professional bookmaking business. The fact that our topline has grown significantly is a reflection that we established the right plan.
Now, as we recently announced, the small line showing B2B revenue from U.S. deployments is making an appearance and we expect that the investments we made from 2018 through 2021 will now start converting to revenue and earnings over the next 12 – 24 months. The fact that we generate profitable segment operations in Italy, puts Elys in an enviable position to support the growth in North America that is now underway, and we expect the high margin B2B earnings to far exceed our European B2C business which gives investors a gauge of the scalability, which is where we believe Elys is headed.
Your company recently participated in the Virtual Growth Conference, presented by Maxim Group LLC.”
Senior Editor Traders News Source
Mark Roberts: “What was your impression of the conference and were any specific connections made with potential clients?”
ELYS CEO Michele Ciavarella: “I find that the conferences are very helpful in educating investors on our industry and noticed that there is a good wide variety of approaches to the business. Early in 2018, there was a lack of available information for investors to make informed investment decisions due to the rapid launch of sports betting in the U.S. It’s exciting to see that more investors are taking an interest in not only Elys but the industry as a whole, which in the U.K. and Europe gave investors many opportunities to build positions in a variety of issuers in our space.”
Senior Editor Traders News Source
Mark Roberts: “Is there any message you would like to convey to investors that are either already involved in the sports betting space or interested in the space but are unsure about what the underlying differentiators between the players in the space are?”
ELYS CEO Michele Ciavarella: “My view is that because the industry is so new to North American investors, some are looking at the wrong end of the value proposition. For instance, some investors are looking at potential investments based on popularity of the name brand, or who they believe will capture the largest share of market due to advertising spend. Or alternatively they may be looking at the investment candidate from the “sports bettors perspective”. The difficulty is investors should understand that sports betting is a unique business, there is no other business that the customer is actually competing with the business itself. Sports betting operators are “professional bookies” they offer odds on the outcome of events that have not happened yet, while bettors are trying to take the bookies money. From an investors perspective, it is worth resetting their investment analysis for this business, because as we have recently seen, some early movers are losing a heck of a lot of money because they are not very experienced in the business, especially those who have not been in the sports betting business. Keep in mind that Fantasy Sports is not sports betting. Investors should look at the landscape of the U.S. and how this product is offered. There are numerous casinos, OTB’s, route operators and soon there will be many, many small businesses such as restaurants that will offer sports betting as an ancillary revenue stream in their business, and its these businesses that will be a force to be reckoned with against the incumbent operators that investors may be now familiar with. These organizations will be leveraging their customer relationships and loyalties to offer the product both at their venue and on a mobile device under their own brand, so in the early years many investors have leaned towards sports betting operators that got out of the gates early with a mobile product but are failing from a gross margin perspective. Elys took an experienced industry-based approach by ensuring we develop a market specific product for the U.S. compared to European sports betting lines and product specifically for these future operators. From an investment perspective, it might be worth considering holding a position in a company that will be the go-to provider of the technology to service such an immense and evolving segment of a fast growing market.”
Senior Editor Traders News Source
Mark Roberts: “Are you actively seeking acquisitions?”
ELYS CEO Michele Ciavarella: “Elys is in the enviable position of having a proven, cutting edge technology which allows us to couple accretive opportunities due to businesses that have developed over several years in this business and now find themselves with antiquated technologies. Because of the enthusiasm over growing new and growing markets for participants, there are very opportunistic acquisition possibilities in the space.”
Senior Editor Traders News Source
Mark Roberts: “The Metaverse is upon us. Can you visualize a place for ELYS there and have there been any discussions within the company on that subject?”
ELYS CEO Michele Ciavarella: “Our business and the underlying products exist in the real world such as live sports, online poker games among competitors and casino games. We currently do not have a viable “gambling” market in the metaverse, but this could change perhaps if virtual sports or competitions become mainstream. The key will be how random number generation systems in that sphere can be regulated to permit patrons bet on the outcome of events can be monitored for fairness to players. I see a future where the metaverse will give people an opportunity to have very unique experiences in a variety of fields, not the least of which will be gambling.”
Mark Roberts: “Thank you for your time Mike”
Michele Ciavarella: “Thank you for having me.”
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