Beware the Pee Wee Hermans of online gaming!

I often get asked the question of how much money I think you would need to develop an online gaming business from scratch in today’s world. Everyone knows I started with $10k in 1993/4. Back then though, I was starting a software company, not an online gaming company, and because the industry did not exist, I was able to finance my growth by preselling software that I hadn’t yet built. I was a contractor, but I was smart enough to retain source code ownership of anything I built.

I also was able to do nearly every job in the business myself, short of actual coding. I did legal, accounting, moved furniture, designed business model strategies, was the only software QA, was the marketing department, conceived the brand model and was the head of functional design of web dev. I also was in charge of conferences and networking. So these two things contributed to me being able to get Bodog off the ground with no money.

So fast forward to today. What does it really take to launch an online gaming brand? We know that a number of groups have spent between $20m to $100m trying to break into the European markets and have lost everything. We also know of groups that recently attempted to penetrate Asia on a shoe string budget of around $2m and have had to write off their entire investment. So I thought, instead of just relying on my experience, I would ask a long time industry professional for his opinion on the subject.

Patrik Selin, CEO of Bodog Europe and famous in the industry for building up Pokerroom.com to where it was sold to Bwin for around €500m, told me this… “I would not even think of attempting to start an online gaming business from scratch, with no infrastructure or international brand behind me, with less than $500m US committed to the project. The days of starting on a shoe string were over a decade or so back. Now you need millions just to get your infrastructure in place, millions more to build your team and millions more to get your brand message out. You are not just signing players up now, you are prying them from the hands of extremely experienced and well branded global brands like Bodog.”

My experience would confirm this estimate. The only exception would be if you were developing and launching a product that is entirely new, something the world has never seen before. But if you are just opening an under-financed ‘me too’ operation, who would be stupid enough to do business with you? eCom is your first challenge. In many markets, China for example, there are numerous eCom hurdles to overcome. Why would a processor waste its capacity on an operation that is doomed to fail, when this failure would likely blow up banks, or worse?

Software is another challenge. Why would anyone want to have their software associated with an under-financed operation that is very likely going to implode with spectacular radiation? Licensing will be another challenge, as all jurisdictions now require proof of adequate financing in order to get a license. This means the project is essentially still born from a regulatory perspective.

The last challenge is staff. No competent staff would want to sign on to work on a sinking ship. For example, managing Customer Service for an under-financed company would be the same as having a job rearranging the deck chairs on the Titanic after it hit the iceberg. The only way to get competent staff would be to overpay them, but if you are under-financed and overpaying… Well, you don’t need me to answer that question.

The basic answer is that the world has moved on, so if anyone comes to you with a startup idea that is just a ‘me too’ online gaming concept, make sure that you do your due diligence. Force them to confirm financing of north of $100m and have a very, very tight business plan drafted up. If anyone is looking for another set of eyes to review a plan, I can likely help you very quickly discern who the Pee Wee Hermans of the industry are.

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