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You want to get a better valuation, more liquidity, and lower capital costs. Improve sustainability

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Robert Montgomery and Steven Myers presented a novel approach to sustainability within the gaming industry last year. As they prepare for the release of their FiNTEL Sustain industry ranking, Robert Montgomery and Steven Myers share with iGB the lessons learned from this process.

Gaming industry is a unique opportunity for the gaming sector to embrace sustainability.

This allows for the industry to move away from its present reputation and back towards business inclusion. This will increase the benefits of competing on regulated markets with transparent reporting.

Other industries have a history of greenwashing and ineffective regulations. Gaming is a great way to combat these issues. It will help to establish a reputation for being a responsible and thoughtful actor on markets with heavy regulations.

This would mean taking a leaf out of the playbook used by the alcohol industry. This sector has embraced sustainability for its own benefit. The harmonisation between leading companies of the performance criteria, along with a uniform approach to measuring was what made this possible. Now it is reaping its benefits.

Investors, analysts and investors will be more inclined to take a positive view of the company if it embraces applicable Sustainable Development Goals.

Robert Montgomery, FiNTEL SUSTAIN says that the gaming industry could learn a lot from the Alcohol Industry when it comes sustainability.

It would appear that the gaming industry can do the same. The sustainability factor can be used to achieve a much more positive outcome.

In our role as researchers and advisers to the regulated gaming sector, we have set out in June 2023 to publish a paper that will frame these issues.

FiNTEL Sustain was formed in response to the overwhelming support we received for our initial initiative. The report rated and ranked the 20 largest gaming companies from Europe and America. We assessed B2B companies and B2C businesses using the framework described in our whitepaper.

These results provide a roadmap for the financial optimization of the sector. These ratings are a guideline for how and where operating companies should develop their sustainability muscle. This results in financial gains for their shareholders.

Need for sustainability metrics specific to gaming

FiNTEL Sustain, unlike many ESG/CSR reporting tools that only report on environmental and social factors (ESG), also includes operational and financial measures in order to produce a useful dataset. The data reveals where improvements can be made in comparison to peers.

The measures have been tailored to the regulated gambling sector. The sector-specific factors and variables are included. The vast majority of reporting on sustainability is not industry specific. However, customized metrics provide more useful and relevant data to companies, regulators, and capital allocations.

This scoring method is entirely based on public data from 11 different data sets, with an emphasis on transparency. Five out of 11 of these are built on United Nations Sustainable Development Goals within ESG areas (Environmental, Social and Governance).

Other six important indicators include:

  • Financial compliance and regulatory
  • Market exposure
  • Responsible gambling
  • Boards of directors, both executive and non-executive
  • Performance of regulatory agencies across market sectors
  • Shareholder risk and asset performance

A further layer of granularity is added to the analysis, containing 12 additional sub-datasets that are weighted in accordance with risk profiles. These measurements are based on more than 170 data points across all businesses.

Before publication, all scores are subjected to a rigorous review based on measures like percentage tolerances or the outlier position in comparison with the entire sector. There are also assessment protocols for companies that have the capability to measure but do not report.

These scores and ratings are based on transparency, accessibility, and measurement of evidence.

Land-based gaming outperforms online gaming

It is interesting to note that the highest-ranking operators were those who are regulated and have a large footprint on land. The ratings were lowered despite the increased exposure of environmental factors. Our findings indicate that this can be partly attributed to the underperformance of a number of igaming firms.

Despite increased environmental risks, Land-based outperforms igaming in the rankings, says Steven MYERS of FInTEL SUSTAIN

Reporting appears to be more organized and thorough for businesses with a land-based focus compared to those whose business is primarily igaming. The report shows that despite the seemingly stricter environmental standards and a lack of experience in sustainability reporting, businesses with a large land-based component are more structured.

It would seem that the compliance standards and reporting would be excellent, as this industry must focus on compliance. In reality, significant improvements are needed to reap more benefits for both individuals and groups. Or, worse still, to prevent adverse effects.

It is obvious that companies need to simplify reporting, and the gaming industry should speak with one voice as much as they can. It is equally important to choose objectives that are easily understood by the majority, if they can’t be all, of the firms within the competitive basket.

Investors can interpret the sustainability performance of a company or industry by comparing it to that of other companies.

Industry sustainability: Room for Improvement

The review revealed further important insights.

  • Inconsistencies, reporting flaws and variations in the emphasis/focus of all companies were found. Reporting shortcomings are often easily overcome to increase scores in multiple areas. For instance, transparent targets or measurement criteria could be added to approaches for responsible gambling.
  • The companies are more inclined to provide information that they feel reflects their strengths or allows them to shine in their perceptions. This is not what we should measure in terms of sustainability generally or FiNTEL sustain factors specifically. These are the data that enhances, for instance, UN SDG data with operational and financial data.
  • Companies that have had a track record of settling regulatory issues (fines), are more likely than others to take a comprehensive approach towards responsible gaming. It is evident in the reporting of their actions. In most cases, however, there is a lack of detail and measurement.
  • M&A strategies by acquisitive gaming companies can increase the risk of their business. It is particularly true if the targets reside in countries with weaker regulations. Integration can also pose risks, as companies try to understand or connect alien systems and processes. As a result, the industry has experienced numerous breaches.
  • In sustainability reports, companies often concentrate on the environmental aspects. They may even dumb down or omit reporting responsible gaming without reaching a balanced conclusion.

An integrated approach to sustainable gaming: benefits for all

Nearly all companies could improve both their FiNTEL Sustain score and overall sustainability rating. It is only a matter of more thorough reporting that adheres to a broad range of reporting criteria and not what the company chooses to emphasize.

Confusion is engendered by a lack cohesion in deciding what’s important and where to put your focus. The capital allocators may not view the sector as a whole. They look at the ability of the industry to assess and respond to the sustainability risks that are present in the particular sector.

Industry should not take the melancholy performance of individual sectors as a sign that the world is ending. The industry’s lag in terms of sustainability should not be greeted with negativity.

This is a great opportunity. This industry adheres to strict regulations and has numerous procedures aimed at protecting both the company and its customers. This is a sector that goes above and beyond most others in many respects.

Transparent Reporting

Transparent reporting can improve sustainability scores by improving the way in which such actions are reported. It is possible to take the gaming industry’s sustainability performance to the next stage in an age of increasing reporting requirements. A sector that is as committed to reporting and compliance as the regulated gaming industry should have no problem with this.

To reap the financial rewards, the gaming industry must not only take sustainability seriously but also approach it uniformly and unified.

This is evident from our exercise in rating and ranking of the 20 best companies. The industry has many great initiatives, but it is unclear whether they can achieve better rankings as a group.

All stakeholders will benefit from the upside.

Robert Montgomery is a successful investor, entrepreneur and the CEO of First Maximilian Associates. He also runs Axel Industries. Robert Montgomery focuses on gaming, technology and media, entertainment, as well as business services, sustainability, investment, and the sustainable development industries.

Robert is an experienced executive, advisor and investor who has worked for many years in the media, technology, marketing, and gaming industries.

Steve Myers, of Praxis Consulting and Advisory, has over 20 years experience in the gaming industry. He spent 13 years managing Genting EMEA’s development department as the region’s director. He’s a senior gambling adviser for DRD Partnership and the co-founder and director of Gaming Knowledge Centers. This initiative brings together academic, industry and regulatory research to develop best practices globally.

Steve has worked in both the public and private sectors, working with clients from igaming as well as land-based gaming environments. His focus has shifted to ESG and the reputation of industry. Steve graduated from UNR’s executive development program, where he taught. He also holds a Masters degree in major programme and law management.

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