Evolution: The Live Casino Juggernaut

Evolution is the quiet giant of the B2B gambling world, making its fortune by taking the legacy casino industry online. It's one of the most impressive business stories of the last decade, achieving a revenue growth CAGR of 49% from its IPO in 2015 to 2023, with an EBIT margin north of 60%. Let's trace the steps, strategy, and innovative spark that have crowned Evolution as the reigning kingmaker in the gambling world.

• From startup to giant: Evolution transformed from a small Latvian studio into a near-monopoly in live casino and one of Sweden's largest companies by market cap in less than 20 years.

• Financials few can match: With a 49% CAGR since its 2015 IPO and 60%+ EBIT margins, Evolution's meteoric rise is almost unheard of.

• Best-in-class ROIC: Savvy business moves, like co-funding studios with clients, have driven a remarkable ROIC often exceeding 100%.

• Relentless player focus: Chief Product Officer Todd Haushalter credits Evolution's success to a "relentless focus on the player," shaping every game and experience since 2015.

• Still room for growth: The U.S. market is beginning to legalize online gambling on a state-by-state basis, unlocking a vast and largely untapped opportunity.

This article was written in collaboration with Speedwell Research and draws on their 74-page research report.

Our story begins with two childhood friends, far from the casino floors of Monte Carlo or the flash of Las Vegas, brainstorming about how to revolutionize an industry most saw as mature and set in its ways. It was 2006, and Jens von Bahr and Fredrik Österberg were contemplating what had always seemed like an exciting market: online gambling. But they saw a way to do it differently – to make online gambling feel as immersive and exciting as the real thing. Why not bring the thrill of a live casino experience directly into people's homes, allowing players to feel like they're right in the action, even while lounging on the couch?

From that spark, Evolution Gaming was born. It started as a high-stakes bet on video streaming technology, charismatic live dealers, and high-tech studios. They set up their first studio in Riga, Latvia, not with the intention of becoming just another gambling operator, but to provide a next-level experience for players. Instead of chasing players directly, Evolution aimed to be the engine that powered casinos.

That was almost 20 years ago, and Evolution is now one of Europe's most impressive financial success stories during the last two decades. Since its IPO in 2015, the company's stock price has surged an astonishing ~58x. The numbers are hard to ignore: revenue has increased by 26x since the IPO, and the EBIT margin – starting at an impressive 27.6% – has expanded to 65.1% on a TTM basis, with a return on invested capital frequently exceeding 100%.

When we set out to write this article, we decided to reach out to one of the most prominent figures behind Evolution's success: Todd Haushalter, Chief Product Officer since they went public in 2015. There's no one better to ask about what keeps them ahead of the competition. Here's how he put it:

There are obviously more secrets to unfold. Let's find out what makes Evolution's story one for the books.

Evolution's founding story is as much about timing as it is about vision and risk. In 2006, online gambling was booming, but still primitive in many ways. While online poker and digital slot machines were already thriving, there was something crucial missing: the real-time thrill of live-dealer games. Most platforms struggled to replicate the experience of a real casino – the live tables had low-quality video, lagging streams, and dealers who lacked the spark and joy that make a casino feel alive. That's when Evolution's founders stepped in with an ambition to fill this gap.

Jens von Bahr and Fredrik Österberg weren't cut from the same cloth as your typical tech founders. Before Evolution, Jens had lived a life that could best be described as eclectic. He wore many hats along the way: running a second-hand sportswear store, working in Vietnam's travel industry, earning an MBA in Australia, and serving as CEO of makeup operations in Sri Lanka for Oriflame. It was a pretty unusual trajectory, and none of these ventures quite lit fire in him. He was still searching for his true calling.

Meanwhile, Fredrik was carving a different path in the digital sports world. He worked with Sportal, a pioneering digital sports media platform, during the early days of the internet. His experience gave him a front-row seat to the tech world's rapid evolution, and he began to grasp the untapped potential of online platforms to reshape traditional industries. The two childhood friends frequently kept in touch, swapping business ideas and dreaming of starting something together one day.

While many entrepreneurs were betting on poker and sports betting, Jens and Fredrik zeroed in on live casinos. The idea was straightforward: players craved the immersive experience of a live casino but wanted the convenience of playing from home. It was a bold idea, especially since live-streaming technology at the time was still clunky and unreliable. But the two founders were convinced that if they could deliver a high-quality, seamless streaming experience with engaging dealers, they'd be onto something big.

According to Speedwell Research (2023), the first big test for the founders came with a pitch to Unibet founder Anders Ström, a rising star in online gambling at the time.

Ström thought the concept had potential but wasn't sure the technology could live up to it. Looking back, this decision is likely Ström's "biggest miss" financially. His encouragement however seemed to light a fire under Jens and Fredrik, who still needed funding to turn this ambitious idea into something real.

Enter Richard Hadida, a British entrepreneur who believed in their vision and had the connections to make it happen. He introduced Jens and Fredrik to British real estate moguls Richard and Ian Livingstone, whose backing helped secure the capital needed to launch their first product. Hadida joined as the third co-founder and creative director. With funding secured, the trio was ready to get building, and Evolution Gaming was officially born in 2006 (now called simply "Evolution" following an official name change in 2020).

The founders set up their first studio in Riga, Latvia, that same year. The choice of location wasn't accidental; Latvia offered favorable business conditions, a talented workforce, and relatively low costs. Evolution invested in high-definition cameras, fast internet connections, and a team of professional dealers. The objective was unique at the time and marked a stark contrast to the RNG-based (Random Number Generator) casino games of the era, which arguably sought to "automate" the casino experience. Evolution wanted to make it as alive as possible.

In 2007, Evolution launched its first live dealer games, including Live Roulette and Live Blackjack. It wasn't exactly smooth sailing from the start. Selling this product as a newcomer to already established operators proved challenging, especially since the infrastructure still had its flaws.

A critical shift began working in Evolution's favor once the product reached a certain quality level. Rather than building its own player base from the ground up, Evolution chose to focus on B2B partnerships – a strategic move that allowed them to tap into established user bases. A breakthrough came in 2009 when it signed a deal with Unibet, showing that the investor pitch for Ström might not have been a waste of time after all.

Another major milestone came in 2010 when one of Evolution's first clients took a bold step and gave live casino games a dedicated tab on its website. The result? An instant hit. Players flocked to the live games, not just for the thrill of real-time action – it turned out they trusted human dealers over digital "randomness," which some worried could be rigged. Was this a lucky break or a strategic masterstroke by Evolution? That's up for debate – but the impact was undeniable.

The success of live casino games suddenly became proof of just how big Evolution could get, and everyone in the industry was starting to take notice. Back in 2010, most online gambling operators were still heavily invested in sports betting or poker – nothing close to the live experience Evolution was introducing. And honestly, being an online gambling operator is no cakewalk. Operators were mainly just repackaging sportsbooks and other third-party games onto their platforms – a pretty commodified setup that still works the same way today.

To stand out, these operators were throwing huge budgets into marketing, fighting tooth and nail to attract players, which meant the whole industry was feeling the pinch on margins. Evolution's live casino model, though? A totally fresh product it could cross-sell to the sports bettors and poker players already on board, setting them apart from competitors who hadn't jumped on the live casino bandwagon yet.

Soon, it was almost a race among operators to partner up with Evolution's live games thanks to the massive appeal. And here's the genius part: while Evolution provided the content, it didn't have to spend a dime on customer acquisition. The same live streams could also be sold to several operators simultaneously, just adding more clients to the same infrastructure it had already built. How's that for operating leverage?

In Evolution's own view, the live casino value chain consists of three main layers: technology providers, operators, and end-users. Evolution firmly positions itself in the first category as a B2B technology provider, supplying the picks and shovels for the modern-day gold rush towards online gambling. And, as history has shown, the real winners in any gold rush are often those who sell the tools, not those chasing the treasure.

Evolution's position allows it to support the "diggers" without getting its hands dirty – meaning it remains extremely capital-light, avoiding the need to acquire customers directly or even build its own studios in some cases. Yes, Evolution has occasionally had clients co-fund new studios or cover the entire cost. This approach allows the company to expand its studio capacity efficiently while also catering to each operator's unique preferences. This is what's behind Evolution's impressive ~100% ROIC and 65% EBIT margin.

Evolution's position in the online casino value chain.

Evolution's position in the online casino value chain.

By 2010, Evolution had established itself in the European market and won the EGR Live Casino Supplier of the Year award for the first time – a title it would go on to secure on multiple occurrences. Innovation continued with the launch of Live Casino Hold'em in 2010, one of its first poker-based live dealer games, and Live Baccarat in 2012, marking its first Asia-focused game. Evolution's approach was clear: continue innovating within the live casino space rather than competing in the broader online casino market dominated by slot machines and RNG games.

With a strong grip on the European market, Evolution set its sights on an even bigger prize: global expansion. It went public on March 20, 2015, on the Nasdaq First North Premier Exchange, a European platform for high-growth companies, valued at around €330 million (about $340 million). Evolution did not raise any money at the IPO; instead, one can assume it served as a strategic signal to the industry that Evolution was on the rise – or rather, going global – building credibility with institutions in a heavily regulated industry.

By this time, Evolution had already earned a reputation as the best in the business, snagging the "Live Casino Supplier of the Year" award four times in just five years. And while the company had already seen impressive growth with a CAGR of 24.6% between 2012 and 2014, the real growth explosion was still around the corner.

The 2015 IPO prospectus revealed an interesting snapshot of Evolution's ownership. The first big backer Richard Livingstone still held a hefty 33% stake, while founders Jens and Fredrik each controlled 17%, with Hadida holding 10%. In other words, Evolution's leadership still had massive skin in the game almost a decade after the company was born. This ownership structure was powerful, not just on paper, but in practice. With a rock-solid team and full commitment to live casino, Evolution stood out as the only company putting 100% of its focus here, riding the advantage of being a true first-mover in the space.

However, some shareholders decided to cash in a bit during the IPO. Altogether, about 40% of the company changed hands as existing investors sold portions of their stakes. Jens von Bahr and Fredrik Österberg each reduced their holdings from 17% to 10%, and Livingstone sold down his 33% share to 16.5%.

According to the IPO prospectus, Europe's gambling market in 2013 was valued at €95.9 billion, with online gambling making up €14.5 billion (15% of the whole market). Live casino games accounted for just €771 million, or 0.8% of the total market. This was even after Evolution had gained traction from 2006 to 2013.

But things were shifting. Online gambling was steadily chipping away at traditional land-based casino revenue, while live casino games were quickly carving out a larger share within the online sector itself from a small base – where Evolution was the best. This created a dual structural growth engine and arguably ideal conditions. Adding to this momentum, continued advances in internet speed, payment options, bandwidth, and the growing shift toward mobile gaming all stacked the deck further in Evolution's favor.

At this stage, Evolution's ambitions were clear: to dominate globally.

Martin Carlesund and Todd Haushalter joined Evolution Gaming in 2015, becoming two of the most influential figures in the company's journey. They brought an explosive mix of strategy and creative innovation that kicked off Evolution's next era. Carlesund initially joined as CEO of Evolution Malta with extensive experience in tech and online operations, and was quickly promoted to Group CEO in 2016. His background offered a unique blend of tech and operations – qualities he brought to Evolution with a clear goal: to scale fast and become a global leader. Carlesund saw Evolution as "one of the most exciting companies" in the gambling sector, providing the perfect playground to push for hyper-growth. Jens Von Bahr stepped down but remained as Chairman when Carlesund was appointed CEO, a position he still holds today.

Appointed as Chief Product Officer, Haushalter complemented Carlesund's strategic drive with a customer-focused vision honed at MGM Resorts and Shuffle Master. His philosophy was simple yet bold: make online gambling as entertaining as possible. Haushalter's creative mind fueled groundbreaking products like Dream Catcher and Lightning Roulette, which weren't just new games but an entirely new experience that players hadn't seen before (more on this later). His influence helped position Evolution not just as a game provider but as a major entertainment brand within the online casino world.

Both Carlesund and Haushalter saw something in Evolution that made them jump at the opportunity. For Carlesund, the appeal was a live casino niche that was just about to explode; Evolution had the potential to lead the pack if it could scale quickly and innovate continually. For Haushalter, it was the platform itself – a blank slate where he could test daring new ideas and, as he puts it, "reinvent what online gambling could be." Together, they formed a power duo: Carlesund driving strategy and market expansion, and Haushalter injecting creativity and a keen eye for what players truly enjoy.

If there's a cornerstone to their success, it's their obsessive focus on customer experience. Carlesund believes that every product and service should revolve around what the player wants, not just what the company thinks will make money. He pushed Evolution to consider what players actually experience during each game – right down to the smallest details.

Since the 2015 IPO, Evolution has grown from being valued at around €$330 million to over €20 billion. Carlesund credits this growth to their "passion for product," which translates to a long-term focus rather than short-term profit chasing. Evolution's commitment to player-centric games, backed by strong financial discipline, created a virtuous cycle: popular games attracted more players, which funded even more innovation.

Haushalter's mission was clear when he joined: innovate beyond the traditional live table games and craft experiences that didn't just replicate the casino floor but went beyond it. Early successes like Dream Catcher, Evolution's first "game show" title launched in 2017, introduced a live wheel format unlike anything seen before.

So, what exactly is a game show? It's sort of a hybrid – combining the classic experience of table games and money wheels with the excitement of world-famous game shows and board games. A high-energy format that's immersive, interactive, and downright fun. Not only did Dream Catcher set the stage for a new era in online gambling, but it also cemented game shows as one of Evolution's most powerful competitive advantages.

Here's Haushalter's own description of Dream Catcher in a press release from 2017 (sourced with Quartr Pro):

Another successful game by Evolution is Lightning Roulette (also a game show). Launched in 2018, this game became a hit due to its innovative use of random multipliers (ranging from 50x to 500x) combined with the classic roulette format. As you might have guessed, Lightning Roulette has won multiple awards including the prestigious "Game of the Year" title, and it remains one of the most-played live dealer games worldwide to this day.

Carlesund had his sights set on taking Evolution global, and in 2018, he kicked things off in North America, planting the company's first flag in New Jersey with a live casino studio. But this was just the beginning. Evolution kept moving quickly, securing licenses in key states like Pennsylvania and Michigan as online gambling took off in the states. The North American expansion was instantly a major win, giving Evolution a launchpad to tap into the rapidly growing and large market. And it didn't stop there. Evolution set up for growth in Canada, Latin America, and beyond. By 2018, Evolution had grown its revenue from €76 million in 2015 to €245 million, representing a 48% CAGR, with EBIT margin rising from 28% to 36.5%, and it had just entered North America.

This is also where their big acquisition journey kicked off. Evolution made its first move at the end of 2018 by acquiring the competitor Ezugi for $12 million in cash, with the chance to add another $6 million in earn-outs. This deal didn't just bring new licenses in places like South Africa; it also pushed them further into big markets like the U.S. and Asia. Ezugi was in fact the only other licensed live casino supplier in the U.S. at the time, which meant Evolution would be the sole player in a market just beginning to legalize state-by-state.

Here's another compelling insight from Speedwell Research (2023):

In essence, while others tried to corner operators with contracts (more on this and competition later), Evolution saw a better way to capture loyalty – creativity and gameplay innovation. By constantly rolling out new, engaging games, it secured the spot as each operator's key supplier without forcing exclusivity. This philosophy of thriving on competition, rather than shutting it down, was echoed by Martin Carlesund already back then. His words in the Q1 2019 earnings call, now almost a tagline for Evolution's approach, went like this:

With North America booming and profits climbing, Evolution now had plenty of firepower for more acquisitions. By 2020, revenue had soared to $561 million, and EBIT had jumped to 53.4% (up from $245 million and 36.5% just two years prior!). Riding this wave of success, Evolution made a bold move that year and acquired Swedish NetEnt for ~€2 billion. This was its first step into slots (RNG) and marked a shift from its sole focus on live casino.

NetEnt's portfolio gave Evolution access to one of the most established digital slot libraries, adding immediate variety to its offerings. But this acquisition wasn't just about content; it was about infrastructure. With NetEnt's distribution channels and relationships, Evolution gained a much stronger foothold across Europe, boosting its leverage in global markets and opening doors for cross-promotion of live and slot games. That's probably why Evolution was willing to pay a seemingly hefty price – about 10x sales and 35x EBIT – to bring NetEnt into the fold. Evolution acquired two more slot-makers in the following years, Big Time Gaming and Nolimit City.

However, if Evolution's leadership has made any missteps, it's probably the hefty price tags on these RNG acquisitions. Speedwell Research comments:

RNG however achieved an 8% year-over-year growth in Q3 2024, marking a positive shift after several quarters of falling short of their high single-digit growth target. This could indicate a turning point in the performance trend. Time will tell.

In the same year that Evolution acquired NetEnt and embarked on an aggressive M&A strategy, it launched what would become the most successful live casino game in history: Crazy Time. The game centers around a large, colorful spinning wheel divided into segments featuring different prizes, multipliers, and bonus games. Players place bets on the segment they believe the wheel will land on, but the real excitement lies in the bonus rounds.

Crazy Time offers four dynamic bonus games – Coin Flip, Cash Hunt, Pachinko, and Crazy Time – each with unique mechanics and the potential for massive payouts. From the thrill of a coin toss with high multipliers to the high-energy chaos of the Crazy Time bonus round, the game has become a benchmark in live casino entertainment.

An in-game visual of Crazy Time, Evolution's most popular game.

An in-game visual of Crazy Time, Evolution's most popular game.

Below is the aggregated monthly average player data for Evolution's English-speaking game shows globally. As illustrated in the chart, Crazy Time accounts for about half of the player numbers:

Aggregated monthly average player numbers; globally, English-speaking Evolution game shows (data: Alinea Analytics).

Aggregated monthly average player numbers; globally, English-speaking Evolution game shows (data: Alinea Analytics).

It's 2021, and Evolution practically owns the live casino space and just keeps growing. Since going public in 2015, sales have grown at a 56% CAGR, and the EBIT margin has now hit 61%. Market cap has reached €27 billion ($32 billion), putting them nearly on par with giants like Spotify and H&M – not bad for a live casino supplier. But you know how it goes: when things seem almost too perfect, there's usually a pullback. Evolution was about to face its most turbulent period since the IPO.

In November 2021, a report from an alleged short-seller accused Evolution of enabling gambling in blacklisted markets, including U.S.-sanctioned countries like Iran and Syria. These allegations suggested that Evolution's games were accessible in regions where gambling is strictly prohibited, raising serious legal and ethical concerns.

The report's claims were not about revenues from "unregulated" markets – areas without explicit gambling laws – but rather about operations in countries where gambling is outright banned. If true, these allegations could imply that Evolution was facilitating access to its games in regions under U.S. sanctions, potentially leading to severe penalties.

And the market reacted; Evolution's stock dropped by over 30% in a week. The report however seemed to misunderstand Evolution's business model. As a B2B provider, Evolution supplies its gaming content to licensed operators, who then offer these games to end-users. It's thus the operators who handle all monetary transactions with their end-users who hold the responsibility here.

In response to the allegations, Evolution published a press release just days after the accusation. An excerpt from the release (sourced with Quartr Pro):

Even though Evolution handled the whole situation pretty well – with no fines or penalties from regulators – the stock is still down about 30% from its 2021 peak. Part of that drop is however just the stock settling back after the pandemic-fueled surge that boosted demand and sent the price soaring.

Alright, so here we are in November 2024. Revenue has increased by 26x since the IPO, and the EBIT margin has expanded to 65.1%, with a return on invested capital frequently exceeding 100%. The absolute numbers are €2 billion in revenue, €1.3 billion in EBIT, and €1 billion in free cash flow on a TTM basis. The revenue growth in the last quarter was 15% and Evolution's market cap is now ~€18 billion.

Over the last decade, Evolution has grown its revenue and EBIT by 57x and 122x respectively.

Over the last decade, Evolution has grown its revenue and EBIT by 57x and 122x respectively.

So, here's the big question: where can this go over time?

Let's start by looking at the size of the market. H2CG, a leading market data and intelligence consultancy specializing in the gambling industry, updates the market data each new quarter (this is the source that Evolution itself often references in its earnings reports).

H2CG estimated that 2023 brought in around $536 billion globally in gross wins for regulated (white/gray) gambling. In the gambling market, gross win (sometimes called gross gaming revenue or GGR) refers to the total amount of money wagered by players minus the payouts or winnings paid back to them. In simpler terms, the gross win is the "house take" – the money that stays with the gambling operator after all player winnings are accounted for.

In 2023, online gambling took up 24.6% of the total $536 billion gambling market, hitting a record $132 billion. Live casino games made up around 20% of that online segment, meaning live casino alone accounted for about 5% of the total gambling market. It's been the fastest-growing part of online gambling for a long time, with an impressive annual growth rate of 24% from 2019 to 2023. Speedwell Research on how this relates to Evolution:

The 5% share of the gambling market held by live casinos, along with the rapid growth in this niche, suggests that there's still plenty of room for Evolution to expand.

Evolution splits its revenue into two main segments: Live, which makes up a big 84%, and RNG which brings in the other 16% (Q3 2024). Unlike live casino, the RNG business has been slow-growing in the low single-digits range since the acquisition. Evolution's management has however stayed optimistic, regularly saying they expect higher growth in this area – and they're just starting to see it with 8.5% growth in the last quarter.

In terms of the geographical split, Asia has emerged as the largest region by revenue, accounting for 33% of the total in 2023 (with 40% of this coming from regulated markets – more on what this means later). Each region is experiencing steady growth, driven by the structural trends outlined above. North America is currently Evolution's fastest-growing market, with year-over-year growth of 18% (excluding "Other," which primarily includes Africa and contributes only ~4% to total revenue).

Evolution revenue breakdown: segment and geographical split.

Evolution revenue breakdown: segment and geographical split.

Evolution serves a diverse range of clients, from major global brands to specialized niche operators. Notable names include DraftKings, FanDuel, William Hill, BetMGM, and 888 Casino. The larger partnerships often feature customized elements like branded gaming tables, client-specific logos and colors, dealers in branded uniforms, and dealers trained to cater to particular player groups. This customization not only boosts customer satisfaction but also explains why new studios are frequently co-funded by clients.

By the end of 2023, Evolution's client base included around 800 customers, spanning online operators and land-based casinos. The revenue details in the 2023 annual report also show that the largest customer made up about 13% of Evolution's revenue, with the top five customers contributing around 41% collectively (sourced with Quartr Pro).

By working with a wide range of operators across multiple markets, Evolution lowers its risk of relying too heavily on any single source of revenue. This is especially crucial for Evolution because, by spreading its customer base across different regulatory environments, it also reduces its regulatory risk.

In the gambling world, revenue splits into two main streams: regulated and unregulated markets. Regulated markets are simply places where the law has given a thumbs-up to gambling – under certain rules of course. These rules may limit game types, restrict advertising, or enforce taxes. In contrast, unregulated markets don't have specific laws for or against gambling. It's a legal gray zone; no one's given the green light, but no one's put up a stop sign either.

Balancing these two revenue streams can be tricky for companies like Evolution. Regulated markets often mean stability. Evolution operates with country-specific licenses in places like the UK and Sweden. That means it follows strict rules, paying local taxes, and meeting regulatory standards. The upside? Regulators in these countries are clear on what's legal and what's not, so there's less guesswork. The downside? Higher operating costs due to taxes, fees, and compliance requirements. Still, the predictability and potential for long-term growth make regulated markets more appealing. As you're probably aware of, the capital markets are not a huge fan of risk or uncertainty – this can be seen clearly in the gambling world where companies with lots of exposure to unregulated markets are given lower multiples.

Unregulated markets – sometimes called "gray markets" – bring in revenue from areas where laws are vague, outdated, or non-existent. Asia, Latin America, and parts of Eastern Europe fall into this category. Here, Evolution usually supplies games to so-called aggregators. An aggregator handles contracts and integrations with multiple casino suppliers, offering operators a single, seamless integration to access a full range of casino content. Evolution doesn't need to apply for licenses in these cases, and there are typically fewer regulations around player identity verification and anti-money laundering. The appeal is lower operating costs, no direct taxes, and often rapid growth potential. The key risk is that regulatory environments can change suddenly. Countries that are "gray" today might impose a crackdown tomorrow, cutting off access without much warning.

For Evolution, the choice between regulated and unregulated markets isn't binary – it's arguably more of a balancing act. On one hand, regulated markets give them legitimacy and access to stable, long-term revenue streams (and greater validation from the capital markets). On the other hand, unregulated markets offer fast growth with fewer barriers and, of course, a much larger market than if Evolution operated only in regulated markets.

The company has increasingly focused on regulated markets in recent years, especially as more countries open up to legal online gambling. But Evolution doesn't want to give up on the gray markets for obvious reasons – unregulated revenue was 61% of the total as of Q3 2024. In 2020, 65% of revenue came from unregulated markets, so the split has remained fairly steady over the recent years.

So, Evolution's revenue story is much about managing both sides: playing by the book in regulated markets while keeping an eye on shifting sands in the unregulated ones. As more regions are regulating gambling, it's likely Evolution will continue leaning into licensed markets, but the gray market still offers growth, opportunity, and, yes, a bit of risk.

There's however a strong argument – highlighted in the press release following the 2021 short report – that makes Evolution's position in the value chain quite solid for unregulated revenue. Operators are responsible for ensuring players can legally access games, verifying player identities (through KYC protocols), and implementing anti-money laundering measures. As a supplier, Evolution generally isn't held accountable for who plays their games. Speedwell Research adds:

When discussing regulated vs. unregulated gambling, it's important to mention that legal gambling brings several benefits to society compared to black or gray markets. It shifts gambling from shady, hidden backrooms to regulated, transparent spaces and, of course, brings in tax and creates "real" jobs. Here's why it can be of benefit:

Job creation: From casino staff to tech jobs in online gaming, legal gambling creates thousands of jobs and brings in tax.

Player safety: Regulated gambling ensures players are protected with safeguards like age checks, addiction support, and anti-money laundering measures. It's far safer than the underground alternative.

Cuts out illegal gambling and crime: By legalizing it, the crimes tied to the black market gets mitigated.

With this in mind, and given Evolution's place in the value chain, it's reasonable to assume that 1) we might see a continuing wave of markets turning "white," simply due to government incentives and 2) the risk associated with the company's unregulated revenue might not be as high as some argue – especially considering that this revenue is spread across numerous regions.

At the heart of competition in the live casino industry is the battle for players' time and for operators to choose one supplier over another. It really all comes down to who has the best games and the right infrastructure to support them at scale. Evolution has actually said a few times that even companies like Coinbase, Robinhood, and Netflix count as competitors since they're all fighting for players' attention and likely because there haven't been many "real" competitors to speak of (this is beginning to change however, more on this later).

Evolution has long been regarded as a near-monopoly. However, a few other players worth mentioning exist. In Europe and North America, Evolution's main rivals are Playtech and Pragmatic Play. There's also Vivo Games, which actually won the EGR live casino award in 2022. In a 2022 presentation, Haushalter listed 41 B2B casino suppliers when talking about the competitive landscape for context. So, while there are plenty of competitors, few of them are significant for Evolution.

So, how has Evolution managed to establish such a dominant position in what might seem like a simple and straightforward business? After all, building studios, hiring, and training staff should be all it takes to compete, right? Yet, it's far from that simple.

Haushalter has a way of explaining Evolution's tech that makes you realize just how intricate it all is. From the outside, Evolution's live casino games might look like a simple stream of a dealer spinning a roulette wheel or dealing blackjack. But as Haushalter often points out, what's happening behind the scenes is a whole different story.

He's described Evolution's setup as this complex mix of high-end studio production, advanced live-streaming, and the kind of game mechanics that make everything run smoothly, no matter how many people are playing. Imagine managing multiple HD cameras, high-quality sound, real-time streaming, and keeping everything lag-free – all while handling real money transactions at a massive scale. And if that wasn't enough, Evolution's tech also has to fend off cheating attempts, which have been tried occasionally.

As you've now understood, Evolution has a highly complex infrastructure and tech that really has to work flawlessly – at a very large scale. According to Haushalter, it's this unwavering focus on quality that's been baked into Evolution since day one. We asked Haushalter how Evolution ensures it stays ahead of the competition, here's what he said:

He's also mentioned that Evolution's platform can handle huge numbers of players at once, across every device you can think of. This isn't easy when you're talking about keeping streams stable and sharp during peak times. Haushalter says that everything from their streaming tech to security systems has been designed to make the player experience as immersive as possible. And it's this level of complexity coupled with the relentless focus on the player, Haushalter believes, that gives Evolution a real edge in the industry.

Now, let's have a brief look at Evolution's two closest competitors, Playtech and Pragmatic:

Playtech was founded in 1999, when Israeli entrepreneur Teddy Sagi set out to change online gambling by building games aimed at helping operators attract players. In the early days, Playtech focused on traditional online gambling – slots, table games, poker – the essentials for any online casino operator.

When the live casino scene took off, Playtech followed closely behind Evolution. But Playtech took a different approach than the one outlined by Haushalter above. While Evolution focused on innovation and the player, Playtech locked in operators with exclusive 10-year contracts. Sure, this provided some stability, but it also meant Playtech's growth strategy was more about securing clients than pushing the boundaries of the live casino experience. Over time, this "lock-in" approach didn't quite deliver the long-term advantage they might have hoped for.

Playtech also earned a bit of a reputation as a "copycat" of Evolution. This has ironically worked to some extent since they're now the second-largest player in live casino. But the strategy arguably comes with an admission that they're content with the number-two spot, essentially leaving the leadership crown to Evolution.

In 2023, Playtech achieved €1.7 billion in revenue with a 13.5% EBIT margin, reflecting a 6.6% CAGR in sales over the previous five years. This €1.7 billion in revenue is roughly on par with Evolution's. Playtech's business is however much broader, encompassing both a B2C operation and a B2B segment with a wide array of products and services, including online casino software, poker platforms, bingo systems, sports betting solutions, and live dealer games. Exactly how much revenue its live casino offering generates is unfortunately not public information.

Pragmatic Play was founded a bit later than Playtech, in 2015. The story however starts in 2008 when a company called TopGaming Technologies was making waves in the online gambling world for their buggy games and some sketchy business practices. Players reported strange occurrences: jackpots that weren't always paid out, slot symbols vanishing, and low return-to-player (RTP) rates. For those unfamiliar, RTP is the percentage of total money bet that a player can expect to win back on average; for example, an RTP of 90% means that the player gets back 90% of what they put in on average, with the house keeping the rest 10% as profit. For reference, Evolution has over 99% RTP rates on several games – known for being the highest in the industry. TopGaming shut down in 2015 after some turbulent years, and Pragmatic Play was born.

Despite its unpromising beginnings, Pragmatic found solid footing in the slots market. A major milestone in the company's growth came in June 2018, when it acquired Extreme Live Gaming from the Novomatic Group, marking Pragmatic's entry into the live casino space. Extreme Live Gaming's founder, Darwyn Palenzuela, brought impressive credentials having served as Evolution Gaming's first Chief Technology Officer from 2006 to 2011. Though Palenzuela didn't stay long with Pragmatic, the acquisition gave the company a substantial boost, positioning them as one of the acknowledged challengers to Evolution. Speedwell Research adds:

Pragmatic, like Playtech, has also done some copying of Evolution, though they aren't criticized for it as much as Playtech. This suggests that Pragmatic's goal may be to secure the #2 spot in the live casino industry rather than directly challenge Evolution. The message from Evolution's closest competitors is quite clear – they aren't even aiming to beat them – at least not yet.

However, there is compelling data on the aggregated average number of players (globally, for English-speaking game show titles) suggesting that Pragmatic Play is quite rapidly capturing market share from Evolution. This arguably marks the first time in Evolution's history that a significant competitive threat has emerged. We believe this partly explains Evolution's year-to-date stock performance (-18%).

Evolution vs. Pragmatic Play and Playtech: Aggregated monthly average player numbers (data: Alinea Analytics).

Evolution vs. Pragmatic Play and Playtech: Aggregated monthly average player numbers (data: Alinea Analytics).

There's a lot of fascinating ground to cover on capital allocation. When it comes to operational decisions – such as building new studios, which account for most of the CapEx – Evolution has been extraordinary. However, capital allocation at the board level raises some questions.

Evolution has an insane track record of delivering exceptional returns on capital. As we've previously discussed, being a B2B provider offers key advantages: it doesn't need to acquire end customers; it can connect multiple customers to the same studios; and co-funding new studios with clients often results in jaw-dropping returns on invested capital, frequently exceeding 100%.

This is undeniably impressive and indicates that Evolution should focus more on deploying additional capital. The company however faces a natural and common limitation: there's only so much capital it can deploy at such high rates due to its consistent dividend policy since IPO (paying out at least 50% of net income annually). This policy has constrained Evolution's ability to reinvest more or pursue other value-accretive activities, like share repurchases.

A prime example of this tension emerged with their acquisition of NetEnt. The deal was financed with stock rather than cash or debt, leading to significant dilution for existing shareholders. In hindsight, this decision effectively traded a share of Evolution's booming live casino business for NetEnt's less profitable and slower-growing slots segment. The dilution might have been less severe without the constraints imposed by the dividend policy. Speedwell Research adds:

The dividend policy, combined with an M&A history that's not flawless, arguably suggests that Evolution's board is not fully considering opportunity costs when making capital allocation decisions. This is a common issue, partly due to the "this is how things are usually done" framework and the desire for existing shareholders to have a consistent cash flow stream. However, Evolution has significantly increased its share repurchases since 2021.

All that said, Evolution arguably has both signs of strengths and weaknesses in its approach to capital allocation. Without the constraints of the dividend policy and with greater flexibility as a consequence, it might have delivered even greater shareholder value.

All eyes in the gambling industry are currently on the North American market, which only began legalizing online gambling state-by-state a few years ago. And the numbers? In 2023, the total North American gambling market was valued at around $120 billion, according to Modor Intelligence and Grand View Research. What's interesting is that online gambling has just started to claim a share of this enormous pie – with Evolution best positioned to lead. While there's uncertainty here, a $30 billion share for online gambling in the next five years isn't out of the question.

There's however a big question mark regarding the timeline, due to the uncertain timing of state by state legalization. Evolution currently holds licenses in all the states that allow online casinos: Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, and West Virginia. The company was quick to enter these markets, and its acquisition of Ezugi – already licensed in several states – helped secure a strong foothold early on as we addressed earlier. However, competitors like Playtech and Pragmatic have since entered the scene.

To understand the U.S. gambling market, we need to take a look at the Wire Act. Passed in 1961, the Wire Act was crafted to combat organized crime by cutting off a major source of income for the mob: interstate betting operations. Officially called the Interstate Wire Act, this law makes it illegal to use wire communications to place bets or wagers across state lines. This meant telephones at the time, but as technology evolved, the law has been interpreted (and reinterpreted) to address internet and digital communications.

The Wire Act was first designed with sports betting in mind. In fact, its language specifically mentions "bets or wagers on any sporting event or contest," so while it clearly targeted sports gambling, it didn't necessarily address other types of gambling. The Wire Act has however for long been interpreted as such that any form of cross-state online gambling has been on shaky legal ground. The idea was simple: stop bets from crossing state borders, and you limit organized crime's reach.

Then came the 2000s and the explosion of online gambling. Everyone was suddenly betting online, and there was a big question mark around what exactly the Wire Act applied to in this digital age. In 2011, the Department of Justice issued a pivotal opinion that changed the game: they stated that the Wire Act's prohibitions only applied to sports betting and not to other types of online gambling, like poker or casino games. This opened the door for states to legalize and regulate online gambling within their own borders, without fear of violating federal law – so long as they kept the wagers from crossing state lines. Speedwell Research notes:

This 2011 interpretation fueled the rise of legal online gambling in places like Delaware, New Jersey, and Nevada, which pioneered online casino and poker markets. The Department of Justice revisited the Wire Act under a new administration in 2018, issuing a new opinion that the law applied to all forms of interstate online gambling, not just sports betting. This flip-flop created uncertainty and even led to a lawsuit by the New Hampshire Lottery Commission, which feared the revised opinion would threaten its online lottery operations.

By 2021, a federal court ruled in favor of New Hampshire, affirming the 2011 interpretation that the Wire Act only applies to sports betting. This ruling reestablished some stability, particularly for online casinos and poker, allowing them to operate legally as long as they don't cross state lines with their bets or data.

As we've already mentioned, exactly how live casino will develop in the U.S. is still uncertain. There's however a significant potential for more states to legalize online gambling – a shift that would greatly benefit Evolution. In case you've forgotten, it controls roughly 90% of the U.S. live casino market according to expert commentary. Also, the need for a separate license and studio in each state makes it challenging for competitors to enter the U.S. market. This requirement likely strengthens Evolution's competitive advantage in the U.S. even more than in other regions.

All in all, the North American gambling scene is a fascinating mix of fast-paced growth, evolving regulations, and game-changing technology. It's an industry that's reshaping itself year by year, driven by a mix of economic opportunity, consumer demand, and the promise of digital transformation. But as it grows, it'll have to keep navigating those tricky waters of addiction prevention, privacy, and regulation. One thing seems certain: it'll be a market worth watching in the years to come.

Evolution's journey is remarkable. By staying laser-focused on delivering top-notch live dealer experiences, the company has managed to capture nearly the entire market in North America and a significant share globally, often leaving competitors playing catch-up.

In an industry known for high stakes, Evolution's primary successful "gambles" have arguably been its relentless focus on live casinos, staying narrow in its niche. It has also emphasized what truly matters – having the best products – while making smart business decisions like operating solely as a B2B provider and co-funding studios with partners. As the U.S. and other regions slowly move toward broader legalization of online gambling, Evolution's potential only continues to expand.

For now, Evolution is well-positioned as the gold standard of live casino, and with every state or country that legalizes online gambling, its future only gets brighter. The house may not always win – but if Evolution's track record is any indication, it sure seems like this one does.

Last but not least, a huge thanks to Speedwell Research once again for allowing us to draw from their Evolution research and collaborating with us on this deep dive.

Primary Sources:

• Speedwell Research (2023)

• Evolution IPO Prospectus (2015)

• Evolution annual and quarterly reports, press releases, and transcripts (Quartr Pro)

• H2 Gambling Capital (2024)

• Alinea Analytics (2024)