July 25, 2024

Surviving the Storm: Nigerian Sports Betting Platforms Fight for Their Lives

14 min read

President Bola Tinubu

The Nigerian President, Bola Tinubu’s administration has remained consistent in sending shockwaves down the spines of Nigerians with a pattern of misplaced priorities and unfulfilled promises.

During his speech to mark one year in office, none of the factors which have contributed to the high cost of living crisis were addressed, instead, the president chose to re-adopt the country’s old national anthem with little consultation. The Tinubu administration deemed this gesture a priority, as opposed to addressing more pressing issues like the unfulfilled pledge of 200-billion-naira intervention fund for Small and Medium Enterprises (SMEs).

The rise in uncertainty in Nigeria’s macroeconomic environment has had staggering implications including the shutting down of 767 manufacturing companies and the inability of numerous businesses to engage in strategic planning. This trend has affected all business sectors including the sports betting industry.

To gain insight into how smaller sports betting platforms are weathering this economic storm, SportsBoom (https://www.sportsboom.com/en-ng/betting/) sat down with the Chief Marketing Officer of Frapapabet, Charles Dungor and the Executive Chairman of Yanga Sports, Derrick Kentebe. 

The role of consolidation in survival

As the CMO of Frapapabet, what has been the most significant economic headwind that has impacted your platform’s growth and sustainability in the past year?

Charles Dungor (PHOTO: LinkedIn)

“For us as a business, I’m sure you know sports betting is focused around creating an avenue for growth and is more like a prospective business where people try to earn extra income. What has really impacted us in the past year has been the increase in the price of petroleum products.”

“Frapapabet’s core customers are the middle to low-income earners and with the fuel price increase, it’s been a tussle for them to have the extra income at hand to place bets. It‘s been a case of survival of the fittest for the past one year. So, I think the pronouncement of the fuel subsidy being removed a year ago, has led to stunted growth for our business,” he told SportsBoom.com.

Did Frapapabet envisage the likelihood of the past year’s events playing out the way they did economically- whether it be the fuel subsidy removal or the introduction of a new tax regime to position itself to weather the storm?

“When we had done our own review for the year in focus, we knew that with the change in government, there would be components that would also potentially be affected as a result of that change. We looked at the manifestos of the top 3 individuals who were vying for the presidency and used that to assess what to prepare for. We knew there would likely be a shift which would affect our customers’ purchasing power.”

“However, what we didn’t envisage was the astronomical change. We definitely knew that inflation would occur as a normal trend which comes with a change in government that is often accompanied with policies being reviewed or changed. These were factored in during our sessions, but we didn’t picture a drastic rise of about 500% increase in petrol. We never saw that coming.”

How have you been able to adapt your business model having factored in all that has come into play economically in the past year?

“It’s been tough. We had to lay off some of the staff and take drastic measures because it was a case which I would like to revenue versus income, and we had to stick to the reality of the situation. There’s a mantra which we set for our business and at no point were we ever going to owe employees’ salaries or reduce their earning capacity.”

“Our plan has always been an upward review, never downwards. So, at a point we got to a phase in the Nigerian economy which began to negatively affect the growth of the business. In addition to layoffs, we had to opt for the narrowing of some departments in the business that combined some job descriptions. We also had to shut down some businesses across 7 states.”

“We’ve also considered opening the retail arm of the business, so that we can focus more on growing that arm. That’s because at some point, we were more focused on the online sports betting component of the business, so we had to channel some of the expenditure towards retail to see how best we could expand that, which is still ongoing at the moment.”

When it comes to customer acquisition and retention, how have you leveraged affordable digital solutions to stay competitive with the larger platforms marketing budgets?

“What we’ve worked with is slightly different from what the bigger businesses in the same sector have engaged in. When Frapapabet first started out, we wanted our focus to be the core grassroots and so we had a lot of conversations with ‘local influencers’ who were really focused on sports betting. We built strong relationships with over 200 local influencers who would go on social media platforms to credit potential games and ask their followers to engage with Frapapabet using a code which would get them some earnings. People win, people lose but they have some level of trust in those local influencers.”

“This was our approach as opposed to having to pay the big bucks to place adverts at media outfits or to use billboards. We opted for the local route since we didn’t have the deep pockets to finance that. We also sponsored local community/ grassroot games across various states including Lagos and Ogun states, where we supported those communities in football tournaments and the likes to build more visibility for the brand.”

“We even collaborated with music personalities like Reminisce- he was a brand ambassador for Frapapabet just before the movie ‘King of Boys’ came out. We opted for individuals like him, as he was one of the few personalities who aligned with the core mandate of the business which is ‘grassroots penetration’. We also opted for out-of-home advertising, and we were able to manage expenditure to maneuver our way through when it came to marketing.”

Do you see your business model or your niche focus changing based on the challenges you’re faced with at the moment?

“For now, we don’t see that changing. I think what we need to do now is improve on our adaptability model with the current trend of the economy. We’re optimistic in our approach to our strategies, so we reckon that at some point things will stabilize and customers will still seek to earn some extra income off of sports betting platforms. We’ve put out a name ‘Frapapa’ which is a street lingo, and it resonates with our core customers. Any departure from the grassroots would mean a change in the name of the business, rebranding, remarketing, and many components.”

“We’re just trying to see the best approach we can take to build confidence with our customers and increase the level of engagement with the platform. We categorize our customers based on the investment they make and offer them freebies. We know people want to have some level of hope, so when they see platforms as empathetic as ours engaging with them in that manner, we tend to think that it will draw them in and endear them to us in the long term.”

Is consolidation on the table at all?

Consolidation… it’s tough… to be honest, we’re just trying to really reposition ourselves again, so when it comes to these conversations about consolidation, they have neither been frequent nor deep. It’s something we may do at some point, but for now we’re just trying to focus and build around customer retention and satisfaction.

Now that it’s been a year since this administration took over and you’ve experienced firsthand what small businesses have gone through, what advice, caution or appeal would you give to this administration?

“For us as a business, we would like to appeal to the government to understand the power of the MSMEs across global communities and economies. MSMEs and SMEs are the lifeline of any system. In order for these businesses to propagate, grow or develop and garner global attention, the government should consider certain policies- whether regulatory or operational, as such either enhance or hinder investment in Nigeria.”

“Frapabet is a business that has had local and foreign investors come in, but at the moment, we see such investors taking the backseat to observe what’s going on. Most of the time when these decisions are taken by the government, it’s solely tied to the economic and political policies that are being played around in the system.”

“So, if I were to advise the government, I’d ask them to have more consideration for the MSMEs and understand what’s really of concern to us including which monetary policy will positively impact us, as well as what tax regime would be positive or negative to us.

Some questions need to be asked like ‘are there going to be restrictions to certain regulatory agencies that interact with MSMEs?’ Because there is a lot of cross carpeting across the regulatory agencies that are making business more difficult for us.”

“I would also appeal to the government to engage with the model which the previous administration tried to work with but never really came into fruition. A lot of businesses in the gaming sector have collapsed and there is a lot of consideration about mergers because the ease of doing business has become weak with the current trend of policies of this administration which are on ground.”

Dialogue with stakeholders and the need for banks to step in

The Executive Chairman of Yanga Games Technology, Derrick Kentebe, seconds Dungor’s suggestion about the need for the government to engage in dialogue with key stakeholders of the betting industry. However, unlike Frapapabet, Yanga games doesn’t appear to be fully open to the idea of consolidation to survive as a business.

Derrick Kentebe

Can you quantify the impact of the rising operational costs on your platform’s profitability over the past year?

“The crash of the naira has significantly impacted our operational costs. Our platform providers are paid in foreign currency and of course our revenue is in naira. So, currently it’s costing us double or triple the price, when compared to what was the case a year ago.”

“Some of the things we’ve had to do to overcome the additional expense, is to ramp up our expansion plan so that the extra revenue can make up for the additional cost in forex,” he told SportsBoom.com.

How have the recent regulatory changes like the increased licensing fees in taxation affected your ability to remain competitive in the market?

“It has affected us negatively and had a great impact on the small and mid-sized gaming companies, the larger ones will feel the impact albeit on a smaller scale. As far as taxation is concerned, it’s clear that the tax authority would need to be more considerate of the gaming industry, but I think some of the gaming associations are starting to educate the tax authorities better. However, the impact has been huge on us.”

What specific challenges have you faced as regards attracting and maintaining tech- savvy customers due to the limited resources for technological innovation?

 “Well, our customers are becoming more and more tech savvy, so we understand that we have to spend a lot of money to improve technology. For instance,  Artificial Intelligence (AI) and personalized marketing cost a lot of money especially on the online side of things. It’s indeed challenging and part of what we are constantly discussing and trying to find lasting solutions to.”

So, how far have you gone in terms of potential solutions to the aforementioned?

“In line with our expansion plan, we’ve been having discussions with our platform provider, and they’ve been very dodgy at implementing and upgrading their platforms for incorporating more AI tools. But we’ve been speaking with them in the past few weeks and we’re already beginning to see some positive results. So, for that reason, I think the future looks good and we’ll be able to resolve these challenges?

Considering the financial constraints in the industry, do you care to share some of the creative strategies that you might have implemented to carve out a niche and differentiate your platform from the larger competitors?

“From the inception of Yanga sports, the idea was to be different, so we knew that we would take a longer time to position ourselves in the market. It also took a few years to get the punters and agents on our retail side to understand that Yanga is going into this business from a different angle.”

“One of the things we did differently in recent times was to sign an agreement and partnership with the federal ministry of sports development and this is the first time such has happened in the Nigerian gaming history. We are the only gaming company to actually work with the federal ministry of sports development.”

“It’s a big deal and makes it clear to our competitors that Yanga is definitely trying to come up with something different that has never been done before. The logic behind this strategic partnership is to support the ministry and their initiatives by raising funds through our raffles and jackpots.”

“That’s just one of the niche ideas that we had, we have many others in the works, but I don’t want to share that, as it’s part of our trade secrets to further help us stand out.”

The partnership you have with the ministry of sports is truly exceptional. But, according to financial experts, this introduction of the new tax regime and the harsh economic realities of doing business in Nigeria will lead to the unintended consequence of consolidation. Is that on the table for Yanga sports at all?

“Umm… yes, it’s on the table…it’s something I’ve thought about and it’s something that makes sense. But it’s not as easy as it sounds because first of all, for those of us who have had companies abroad in western countries, we have a vast understanding of consolidation, but it’s not something which is quite common in Nigeria because of challenges like trust issues.”

“However,  speaking specifically about Yanga sports, we are no longer considered a small operator, we are now mid-size and there are not so many mid-size sports betting companies. So, to consolidate, will be a little bit challenging, because the few mid-size sports betting companies have the mindset that they are on their way to becoming big and this is not the stage that they would want to consolidate. This is because they probably just need a little bit more funding to be in the big leagues.”

“For the small ones, I would say they should seriously consider consolidation. I think Yanga has passed that stage, but if Yanga opted to go in that direction, it would be with a much bigger operator that can leverage on our uniqueness and what we bring to the table.”

You mentioned that for individuals like yourself who have run businesses in western countries. consolidation is much different as opposed to what is the case in Nigeria. If you could give advice to the smaller betting companies that might be considering consolidation, how would you advise them to go about it?

“Well, first of all,  I would let them know that the gaming industry in Nigeria right now is more about knowledge, not money. Its knowledge based. This is because a lot of companies start off spending a lot of money and without the knowledge, they go out of business in a year and would be lucky to last for two years. I think there is this impression that it’s just about how much money you can bring in, but knowledge is very scarce as there are not too many people that really understand the industry.”

“A lot of companies make the mistake of seeking out consultants when starting out, but the only true consultants in the gaming industry are the operators, especially those who have operated or started the business from scratch and understand it from the ground up. Now, that is the kind of person such platforms need, but there are just not that many in Nigeria.”

“Most of the people who really have the knowledge are not the ones you see in the various conferences that take place, they are usually more quiet, behind the scenes and busy trying to run their companies because, it’s very challenging and they have a deep understanding of which companies are going to stand the test of time and those that aren’t.”

“The gaming industry is sort of counterintuitive. For instance, I have been in 4 different industries, but the gaming industry stands out because it does not follow the same economic principles as other industries. You must understand it from the grassroots. There are multiple challenges, but it can be extremely rewarding once you get it right.”

On a final note, I’d like to get your take on the role the government should play in helping small and medium scale businesses thrive, as opposed to what has been the case in the past year that has led to businesses going extinct or considering closing up shop?

“The first thing I would tell them to do is to have some sessions with the captains of the industry. Get to hear from the operators of the gaming industry and let them explain their challenges.”

“I’m of the opinion that once the government hears the term gaming company, they instantly think there is so much money to be made. I think the yardstick most of them are using is Bet9ja- so they think all betting companies are making the same amount of money and to cash in on that, the government opts to leverage on taxation and increase tax. By doing so, the opposite is being achieved- it’s killing all the small companies.”

“So, I think they just need to sit down and intentionally want to help and then they need to understand that the gaming industry has so much growth potential. Therefore, the government must be very careful in order to save and keep the industry.”

“I would also like to let the government know that in a way, it’s truly lucky, I’ll explain. It’s lucky in the sense that the market leader in sports betting is Bet9ja and as luck would have it they are running a fantastic operation. They are doing good because they have the right philosophy and ideology.”

“They have created a lot of jobs in Nigeria,  they treat their workers very well and are very particular about practicing responsible gaming. So, I say they are lucky, because it’s nice to have a market leader that’s very responsible and I think the government should have Bet9ja and the rest of us at a roundtable to share our challenges and determine how the government can assist in how to grow this business.”

“Also, I think the Nigerian banks need to play more of a role in trying to help with loans, as they do not support the industry in any way, shape, or form except when you’ve started making money. It’s at that stage that they want to get involved in your business because they love to see that inflow coming in. Hence, the banks should play a role in sharing the risk and then they can partake in the reward when it happens.”

Conclusion

In the face of Nigeria’s economic storm, small sports betting platforms like Frapapabet and Yanga Sports stand as resilient beacons, weathering the onslaught of rising costs, unfavorable regulations, and technological hurdles. Their stories serve as a rallying cry for the government to foster an enabling environment through inclusive dialogues, targeted support, and a deep understanding of the industry’s nuances.

By embracing the wisdom of seasoned operators, streamlining regulations, and facilitating access to capital and resources, the Tinubu administration can pave the way for these vital economic engines to thrive, creating jobs, driving innovation, and propelling Nigeria’s sports betting industry to new heights on the global stage.

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