The NIO and GiG merger.

February 27, 2015 — by Robin Reed0

Gaming Innovation Group (GiG) recently signed a share exchange agreement with NIO Inc. (NIO) I have since received requests for information. GiG believe in a transparent approach. This blog will be used to share information about GiG, and function as a window into our company life. In this first blog post i will be reasoning over the merger with NIO and share some stats and input on our business model.

Why Merge?
A couple of weeks back we signed the Share Exchange agreement with NIO after heavy considerations.

In the years leading up to this offer, GiG had progressed well. We had gone from MEUR2 in revenues in 2012 to MEUR 13 in revenues for 2014.  It was quite hard.

In 2013 there was significant startup cost associated with Guts. We initially had no marketing budget and margins were slim due to expensive supplier agreements. In 2014 we made major investments into obtaining our own remote gaming license and development costs of iGamingCloud, while still being on expensive supplier agreements for the good part of the year.

In the end, we did not only sustain, but excelled.

In  2014,  we signed very competitive rates and terms with most of the major suppliers including Net.Entertainment, MicroGaming,  IGT, WorldPay, PayPoint, Neteller, Moneybookers, and many more.
Once all these  business partnerships were in place,  and integrations was fully tested and complete, we launched our b2b platform. This platform is our most ambitious project to date and all our hard work came to fruition with the launch of Betspin and early results are positive.

We also obtained significant interest for this platform by exhibiting the beta at the largest trade show for iGaming , ICE, in January.

We are now finalising features and some design work  and will then be able to share the technology with the wider industry from April and onwards. Having branched out from marketing, to operator, and platform provider, we were on target with our roadmap.

When accepting to sell to NIO these were our considerations;

  • With Betspin as a platform customer, we had the opportunity to follow them closely. We were really impressed with the direction they wanted to go, particularly with their vision for interaction design and customer centric operation. They have a great team.We have been following the launches in iGaming over the last years, and their launch was good.  Still early on, but it is looking very promising, particularly in the very important mobile space.
  • CEO Kjetil Aasen. His knowledge and network in sportsbetting also impresses us. Getting the best people in the most important fields is tremendously important, and his community is a type of talent that is very hard to find.
  • NIOs GridManager application and their automated data driven approach to price up markets and risk were attractive both for our plans with iGamingCloud and b2c brands.
  • With the platform we are in a great position to invest and consolidate. The stock exchange listing provides a powerful tool to accomplish such transactions. The Letter of Intent with Spaseebi AS, a very exciting digital marketing firm for iGaming, is an example.
  • The new management of NIO shares our values and to get onboard their project to turn the company around really intrigued us.  Together we will seek to make NIO a transparent and credible company, known for best practice and customer orientation.  That challenge inspires us.

Business Model
This would be the first iGaming company listed on the Oslo Stock Exchange. Following the release by NIO we have observed several wrong assumptions and we would like to defend our stand on the two most important ones;

1.      There are not enough funds to finance the business and the growth.

GiG is self sustained and through the due diligence we have confirmed the financial position of NIO. It is sufficient to execute the business plan of Betspin. We would not have merged our business and locked up our shares if there was financial uncertainty.

To further explain our business model;

Our income is from the deposits made online with cards and other payment methods. We have been fortunate in signing excellent settlement terms with leading providers. As such we can collect deposits rapidly, allowing us to pay winnings immediately.  As we are paying royalties to game vendors in the following month, we are collecting incomes before some of the major expenses occur.

Then there is the marketing;

Henry Ford had a great quote: “We know half of our marketing is working, the mystery is which one”.

In conventional above the line marketing this is true. However we have grown our business through affiliation and performance marketing by applying very precise online targeting and tracking techniques. As such, we are only paying for advertisement that is proven through accurate data points.  A lot of our marketing is also paid pro rata, hence after income has been generated.

By utilising a lean model for cash flow management and a precise marketing, we have been able to scale our business. If we chose to raise additional funds after a merger, it will be used to scale faster by opening new distribution channels, not to cover existing costs.

2.      GiG is not profitable and a merged GiG/Nio would need to raise funds.

A fair point, in 2013 and 2014, we were been running break-even. Why?

The more volume we generate, the more we earn per EUR1 in sales due to tiered royalty deals.  Hence a new customer makes a current customer more profitable. This model significantly scales and a smaller change in margin on the top line results in a huge difference in the bottom line.
Better margins allow us to return better products, services and price points towards our customers. We have ideas and technology we believe are pretty disruptive and would like to pursue these on a large scale.

Finally I would like to mention that all shareholders in GiG have actually agreed to lock up most of their shares if the transaction is approved. Those shares that are not locked up are to provide shareholders with means to pay taxes and other commitments. Shares will be locked up for the next couple of years.  If this merger would not take place these would be liquid assets. When doing so it is because we are very confident in both company’s ability to grow.

Some KPIs:
In January we had 12000 players signing up with Guts. Over the last few months we have had 24693 unique real money players. These are records. Deposits made through mobile phone in the last three months was up 308% over the same months one year ago.

It feels great to be writing about this and I am looking forward to posting  frequent updates about our company. E-Mail me at [email protected] if you have any questions.