The 2026 iGaming Pivot: From Operators to Suppliers | Ep. 776

Charlie Horner (00:00.979) We all know how difficult it is to be running an online casino or sportsbook in 2026, especially across increasingly heavily regulated markets. But what damage is it doing to operators' ability to raise cash and secure long-term investment? And as the sector focuses much more on long-term sustainability and greater efficiencies, it's the type of business that becomes attractive for investors changing too. Welcome back to iGaming Daily, supported by... Tom (00:15.032) you Okay. Charlie Horner (00:29.169) Opt to move the creator of positionalist marketing and the number one player engagement solution for sports betting and iGaming operators. I'm Charlie Horner and today to help me answer some of these questions we've enlisted the help of somebody who is a genuine expert in the field. So I'm delighted to welcome Tom Waterhouse, the founder of Waterhouse VC to the show. Tom, how are you doing? Tom (00:50.953) Thanks, Charlie. Yeah, great to be on. Yeah, really good. Thank you. Charlie Horner (00:54.037) Thanks for coming on the show, really appreciate your time. We'll start things off by just setting the scene a little bit. How difficult has it become with the market conditions that we're dealing with in some of these heavily regulated markets? How is that impacting the way that investors are viewing online gambling operators in 2026? Tom (01:16.013) Look, it's been a real shift over the last 10 years. remember when I was at William Hill, I was so bullish on William Hill as a company and one of the execs said to me, he said, look, I'm not so sure about it. goes, every time that William Hill announced a profit increase, there's an increase in tax. And that wave really hit the UK over 10 years ago, hit Australia. Obviously the tax increases dramatically increased from 0.3 % in turnover tax 15 years ago to now there's 4 or 5%. So about 40 to 50 % of gross gaming revenue or gross revenue. America, what's been different about America is it's happened much quicker. So while it was a 10, 15 year period in UK and Australia, it's really been a three year period. You've seen them go from basically opening up to 50 % of the gross gaming revenue going intact. So it's a much steeper increase, much quicker. And obviously the play has always been where you want to be with the scale operators, but The landscape's dramatically changed, with prediction markets and scale is not necessarily the clear winner at the moment. You can't back those big operators just to win in a market like you could 10 years ago in Australia or before that in UK. Charlie Horner (02:29.588) It's certainly been a rapid shift, particularly in the US and we'll come onto the US a little bit more later on. I'm just curious because we know that, you know, we read in the news on podcasts like this that taxes are going up, there is more stringent regulation across... Tom (02:41.995) you Charlie Horner (02:46.056) global markets, all over the world this is happening. Do you think investors are sort of baking that into expectations or is there still further causes for concern because it is happening? It's not just expected to happen, but it is happening. Tom (03:02.403) Yeah, I think the play, if at least when I speaking to investors that look at those betting in the regulated markets and those large listed operators, their play was always to back scale. know, Flutter has been the darling of the market trading in a much bigger multiple than the other listed. betting companies really because they believe that they were great at going into markets would roll out the similar playbook to what they've done in the UK, then Australia, that they do it over Eastern Europe, the US, Brazil and so on. And that scale would dominate and they were the clear pick. I think that investors have known that taxes would increase. I think what has changed is that the rate the taxes are increasing does the increase in top line. to actually flow through the bottom line. You saw 10 years ago that top line and bottom line were growing 30 % year on year in Australia. Now taxes and obviously regulatory change is really shifting, but it just doesn't flow through. And so the bet from investors is, well, are they going to be able to grow enough to justify investing them at these multiples or is the tax landscape and the regulatory landscape moving away from them too quickly? And that's, we don't invest obviously in B2C. We invest in B2B suppliers at Waterhouse BC, but if you're investing in the operators, that's the bet you're taking. Charlie Horner (04:28.5) And do you think that we're coming to the end of that era of scalability and or Scalability on on a large scale because perhaps until 2024 maybe 2023 2024 a lot of these large listed operators were scaling Rapidly, they were expanding their horizons all over the globe But the last 18 months it seems Like things have started to stunts a little bit. Do you think we'll? Tom (04:49.8) you Charlie Horner (04:55.804) coming to the end of that era of mass scalability. Tom (05:00.953) I think that I'd want to bet on that we're still on a cycle of increased regulation, increased taxation and that scale ultimately wins. think just what has changed is the US is such a large market that what's happened from a regulatory point of view in the opening up of prediction markets, it's not clear who the scale winner is going to be. know, the companies that are involved in the US, you've obviously seen likes of Cauchy going from a $1 billion valuation to now 20 something billion dollar valuation. And you've seen big players join into that prediction market space. Is Flutter the clear scale operator? Is M-Tain, you know, is DraftKings? That is not as clear as it once was. And I think that's really thrown a spanner in the works. But I think ultimately in regulated markets, scale is very important. Charlie Horner (05:52.853) Prediction markets have completely shifted the landscape since the beginning of last year as we all know and it's reflected in the share prices of some of those big operators in the US. think you mentioned Cal-Sheep now valued at $22 billion. I think that's higher than or that's greater than Flutter's market cap at the moment. How have prediction markets upended the way that investors interact with the online gambling sector and Maybe as a follow-up to that, how big is the risk of that when this entire sector is essentially going to hinge on a Supreme Court decision in the years to come? Tom (06:34.114) Yeah, so it's changed from betting on scale and who the winners are is you're betting on what is the architecture of the US regulatory landscape, you know, and that's why it's so... you can either take a very strong position against the likes of a Flutter or Entain or you can go actually there. They're amazing value. know, it's hard to know. that's the US is such an unpredictable market in that space. As an investor, you could say, well, the US is going to be the same playbook as Australia and UK and so on. But it's just completely different. The thing that's amazing about Cauchy and Polymarket is that they are really getting into the mainstream of discussion. know, there wouldn't be a day that goes by that you don't see some of those prediction markets about what's happening with just normal everyday news. And when it becomes viral and it's pushing the limits of in terms of people, ultra engaged, the regulatory landscape often moves in that direction because consumers want it. And so I don't know what the landscape, I don't know if they're going to be able to have it. federally where they can have not only sports book but some sort of iGaming product. I don't know if they're going to have the same game parlays. I don't know if they're going to be able to get any of these things long term but they're definitely winning the customer race and globally whether you're in the regulated or unregulated space it's about who can acquire customers and then once you acquire customers can you retain them and get the most value per player out of them and they're doing the acquisition piece very, very well. And it's one of those things where I feel very thankful we're not in the B2C investing space because you could take a very different view and make a sensible argument for both sides. Charlie Horner (08:31.219) Yeah, it's a particularly volatile period in that B2C space, isn't it? I think, you you could bet on, you know, the likes of Flutter, Entain, DraftKings continuing to struggle and the share prices might reflect that. think Entain, DraftKings and Evoke, as another example, their share prices have all dipped around 30 to 35 % in the last 12 months and I think Flutter is touching on 60%. But reports in the last... Couple of weeks have suggested that some investors remain bullish on the likes of Entain and Flutter. I think some investment companies have increased their positions on those operators in particular. Do you think there's optimism amongst investors that these operators can sort of turn the fortunes around, or is it just a case of buying the dip, essentially? Could you give us a bit of a glimpse of what the thinking might be on that? Tom (09:27.921) Look, as I mentioned, we don't invest in B2C. But I know the investors that you're talking about in terms of followed them and obviously had conversation during my time with William Hill and they're investors that know this space well. And they're backing seasoned operators. The reason why we don't invest in B2C is because there is so much outside of its control. know, it's a regulatory and tax impacts and we feel that you're in an ever increasing cycle. You're getting, if you believe ultimately they can win and the regulation, it's just a small blip in terms of changing in that it's not state by state in the US allowing online gambling and that this federal ruling will be overturned at some point. Well, Flutter's, you know, You can't get better operators over the last 20, 25 years. know, they've just done an amazing job in Tain also, you know, so I can definitely see why they're backing them and those investors, know this space very, very well. But for us, we find there's easier things to invest in than trying to understand what's going to happen from a US regulatory landscape and what's going to happen from a tax point of view. And it doesn't look as simple to us as just backing. large scale, well run operators, which Flutter definitely is. Charlie Horner (10:59.923) Sure, sure. Tom, we'll take a quick break and we'll come back and we'll talk a little bit about the B2B side of things. Charlie Horner (11:09.669) Welcome back to iGaming Daily, I'm joined by Tom Waterhouse of Waterhouse VC. Let's talk about the solution to some of the operators problems then, Tom. I guess with a much greater need for efficiencies, with weaker margins and tax increases, guess suppliers could be massively important and beneficial for operators at the minute, or rather the choice of suppliers that they use is increasingly important. What's your investment strategy towards iGaming suppliers, and how you make those investment decisions? Tom (11:44.2) Okay, yeah, look, so we started the fund about seven years ago and we saw the obviously the increase in tax and regulation in the operators and thought, well, these supplies are becoming more and more important. And the reason why they're becoming more important used to be able to just put up a brand ad for William Hill or Patty Power 10, 15 years ago and acquire lots and lots of customers do bonusing free bet promotions and customers would just come in and, and it was much, much easier to acquire. What's happened now is not only has it become much more difficult through regulation and advertising restrictions, but the taxation, you need to make sure those customers that you're getting are ultra valuable. And that's really shifted that operators have shifted from, okay, well just massive brand acquisition to how do we create something that's a really interesting product that customers are coming to us for, but also how do we increase the lifetime value of those customers and make them ultra sticking in that we get the largest share of wallet. And so we started the fund seven years ago, really focused on the supplier side. And what we realized is it's hard to pick winners. know, it's in any sort of investing, it's very difficult to know, especially when you're at the early stage of a business, whether they're going to be the winners or not. There's so many things that can be of a risk. it's regulation, taxation, macro events, interest rates and so on. And so our strategy was really rather than making large investments in these supplies is go and find supplies that are doing something unique, that are revenue generating, have a contract, but are yet to expand globally and buy options in those supplies. So we buy an option for three years and agreed to strike price upfront, but have three years whether we converted or not. And what we're really looking for is a business that's doing something unique, generating revenue, but needs an injection of capital, needs help expanding their technology, needs expansion of contracts and introductions globally. And we really try and find those operators that we think Tom (13:52.687) the businesses globally that we know will need that product. And so it might be an e-sport state of tool. It might be a horse racing data supplier. It might be a payment solution. It might be KYC verification tool. It might be like just on a business that provides where it uploads the market that you're viewing on a football match or on a cricket match uploads into the app in real time. We like looking at betting syndicates because they've got unique data edge that's very valuable to bookmakers. So anything that supplies some sort of service that's not facing the customer are businesses that we concentrate and look at. Charlie Horner (14:36.902) And so you mentioned that you're looking at investing in early stage companies, those who are generating revenue but still in those early stages and looking to expand. Is it the technology that you're looking at to make those decisions? Is it the potential of that technology or is it more the vision of the founders and the management teams that you're looking at as getting that potential? How do you make those decisions? Tom (15:00.506) It's really is it solving an issue for the operators? And do we spend, we probably look at 30 plus businesses a week, but we also spend a lot of time speaking to the operators. So is it something that's solving an issue that we know that the operators are looking to solve? And then in terms of the founders, we really look at the business and the technology first, but the founders, you can, we spend a lot of time obviously going. doing the deal with them. And we really see there's a big difference in the urgency of the founders in how successful they're to be. So if they're ultra quick to respond, quick to come back, just by working at a cycle, it's very fast. Generally they're the great operators that we deal with. Anything that's slow, ultra delayed, take a long time. Even if we don't do a deal with them, but the cycle is very slow. they generally just don't move at a fast enough pace to be successful. Now, sometimes that's very big generalisation, but that's what we find. Charlie Horner (16:08.51) I guess when you're trying to scale a business that there needs to be a sense of urgency. No matter if you're trying to... Yeah. Tom (16:13.783) Real urgency. And you want them to be rather, you get the feeling that they would rather die or something than for that business to fail. It's everything to them. And they're doing whatever it takes to try and not only get the deal done with us or not get the deal done with us, but they're moving at that rapid pace that if it's not gonna work with us, they're moving on to the next thing. They just can't waste time. that, we find those businesses, we're really excited when we're part of business like that. Charlie Horner (16:44.422) And as you look at the landscape at the moment of B2B suppliers for the industry, do you think we're in a good spot? Do you think there's a lot of exciting businesses at the minute or do you think there's room to improve? How do you assess what the B2B landscape looks like at the moment? Tom (17:02.846) I don't think that there's ever been a better time. the reason being, and I'm not just saying that because I run a fund investing in B2B, is that I just remember when we had our online betting business, TomWoodahouse.com and then William Hill, it would be a little bit of a drag to go to the conferences. You you'd be like, why am I going the, I don't know, the open bets of this world, they know us, they'll knock on our door or we'll knock on their door. What's the point? A lot of the large businesses in the space were publicly listed and they had large institutional investors as their investors that were looking to get a dividend. So you weren't really seeding back into the supplier space where now the largest operators in the world, a lot of them are founder led. know, the big crypto operators, they're founder led and the industry they know better than any other industry and better than anybody else is their own industry. And they are putting back into creating these amazing ecosystems that add on to their existing business. Stakes are a really good example. same with sportsbet.io, investing back into their infrastructure. And so they're making large profits and putting those profits back into the industry. And when there's money being pulled back into the industry, well, obviously it attracts talent because money attracts talent. And so you're seeing these conferences now that are just ultra dynamic and huge crowds like you're getting 50,000 people, they're hiring out stadiums when you go to these big conferences. So it's ultra exciting that it's full of young, really innovative individuals, you know, and that's really exciting to see. it's, yeah, I think the ecosystem is very, very strong. Charlie Horner (18:49.458) Well, that's very good to hear because I guess there is a school of thought that as operators or regulated operators in these sort of heavily regulated sectors, as they sort of have squeeze on their margin and their bottom line is hampered, that they might start to cut budgets and therefore suppliers struggle as well. But I guess from your anecdotal experience that that isn't the case and the supplier side is continuing to thrive. Tom (19:17.812) Yeah, you are not going to stop people gambling. know, it's the longest running industry, isn't it? People have been gambling since the beginning of time. And in regulated markets, the tighter they screw those regulated markets, the leakage goes to other places. So the money is sloshing around somewhere. And those operators that are making the money and making great profit, well, it shifted now that those operators that are making the really big profits are putting those profits back into the industry and into the supply. So I think it's, yeah, just because the regulated market's getting higher and higher tax doesn't mean that there isn't money going into investment and innovation and stuff in the industry. Charlie Horner (20:00.882) Brilliant. Well, as we begin to wrap things up, Tom, and we really appreciate you coming on the show, where do you see the most interesting or left-field market opportunities, or where is the value in the iGaming sector over the next sort of three to five years, Tom (20:19.858) I think from a large cap point of view, it's very interesting businesses. And we've been a long-term, very small investor in evolution, but those large cap businesses that have large distribution. So evolution is into 800 plus bookies. We see a really interesting supplier and the hardest thing is they have a great piece of tech, but to get it into the product pipeline of the operators and to get mass distribution before it gets replicated is quite difficult. So you're seeing businesses evolution is quite interesting because it's got obviously integrations with so many, many hundreds of bookmakers. It's got a leading live dealer product as plus many other great products, but it's highly cash-generated as a business. So I think that you can maybe get a business like that becoming a super acquirer. know, the, I think that's a very different angle that they have those, that sort of business. So I think that's interesting. And I think from the smaller supplier side, I think In regulated markets, it's amazing the money that's being made in this KYC segment, like knowing your customer, problem gambling, making sure that you verify the customers correctly, that they're not on like, they shouldn't be like on certain lists that you're not accessing, know, so all of this data type of making sure that you're complying with the regulations. And then an area that we like that we think we've got some real insight. compared to other funds is the data and the edge the professional betting syndicates have. So we really like looking at this space like data pricing where you've got pricing edge is an interesting space we like to look at. Charlie Horner (22:07.836) Well, it certainly seems like scale, as on the operator side, is really important, as well as just being aware of what's happening in the market. guess those are two really crucial things to be able to secure investment and to continue growth over the next couple of years. Tom, look, thanks ever so much for coming on the show today. Really appreciate your expertise and your insights. Thanks to Optomove for supporting the show. As always, and to our audience. Thanks ever so much for tuning in to today's episode of iGaming Daily and come back tomorrow to keep up to date with all the latest global gambling news.