Yolo Group caused a stir last week when it announced it will pivot away from unregulated crypto casino into regulated markets. But what exactly could that shift in strategy look like?
Last Tuesday, Yolo announced plans to incorporate its Sportsbet and Bitcasino brands into the single Yolo.com brand, with the aim of bringing Yolo.com to Tier-1 regulated markets.
This followed a three-year process of research and preparations for the shift. With Yolo at a “crossroads”, as the company described it, founder Tim Heath and co have opted to leave grey markets behind.
However, having thrived as an unregulated crypto casino operator, the move does raise questions over the challenges and potential rewards of transitioning to regulated markets.
Entering regulated markets isn’t just a case of paying a licence fee, explains Juan Ignacio Ibañez, general secretary of the MiCA Crypto Alliance, an initiative aimed at simplifying regulatory compliance across the crypto industry.
“You might think getting a licence is just a fact of spending an amount of money on the law firm and telling them to go get it,” Ibañez tells iGB. “But it turns out that you need to actually adapt your processes a lot, right?
“In order to be able to report a lot of the items that you need to report in the process of getting a licence, you need to change your own internal processes, or set up processes that you didn’t have before. So organisationally, it is quite transformative to get ready to operate in a regulated market. It really changes how you function and your team.”
Why has Yolo made this move into regulated markets?
Yolo in part attributed its decision to pivot to regulated markets to the belief that crypto is becoming “mainstream”.
“It’s therefore our responsibility to bring the crypto casino experience to regulated domestic markets, working within sensible frameworks and combining speed and freedom with safety and oversight,” the company said.
Its previous strategy of operating in unregulated markets proved to be hugely successful, bringing cryptocurrency to the masses.
So why has Yolo made this transition?
Kovach agrees with Yolo’s claim that crypto has gone mainstream, saying the crypto gaming world is at a “pivotal point”.
“The genie is kind of out of the bottle,” Kovach explains. “Having been in the space for seven, eight years, it’s definitely moved beyond a very core niche into something much, much bigger.
“Obviously regulation in the US seems to be moving at a record pace at the moment under [Donald] Trump, but even under Europe with MiCA et cetera, it’s being accepted. Whether we agree with all of the regulations or not, it needs to be regulated. It is being regulated.
“But I think it’s more than that, and they [Yolo] see the opportunity now being within regulated markets. I think it’s going to be fascinating to watch how they go about that.”
Finland, Sweden and Canada seen as opportunities alongside the UAE
In its announcement, Yolo identified Canada, Sweden and Finland as three markets it plans to expand into.
The company also announced it is closing in on securing two B2B vendor licences for the soon-to-be regulated market in the UAE.
iGaming and sports consultant Stefan Kovach believes building credibility compliance in smaller markets before advancing into bigger markets could prove a successful strategy. This belief is based on his previous experiences with Poker Stars and Party Gaming.
“I think even if you’re a big and experienced operator like Yolo, you want to be taking baby steps initially,” Kovach says. “There’s definitely an advantage of getting in early, but there’s also an advantage of being a fast follower and not biting off more than you can chew.
“I don’t know what their exact plans are, but I would imagine the prize is in the bigger markets. And I would also imagine they’re pretty bullish on being able to innovate and disrupt even in markets in which most people are like, ‘you don’t want to enter because it’s done’.”
A double-edged sword
Ibañez agrees starting in smaller regulated jurisdictions could make sense, particularly if these regulators are more readily available to communicate over contentious regulatory issues.
“In smaller jurisdictions, you may have the opportunity to pick up the phone and ring the supervisor and use that relationship to go over any misunderstandings and so on,” Ibañez says. “There’s lots of paperwork, lots of formal errors and things that can go wrong procedurally.”
However, he also feels this could be a negative, adding: “At the same time, a smaller jurisdiction can be a more under-resourced jurisdiction, especially if they are late to the technology.
“So a single team supervising this within the supervisory authority needs to deal with various market niches, which means they will lack expertise here and there. So that can backfire.
“It can be that they’re a bit overworked, they don’t know the technology or the business model that they’re dealing with, and they don’t see this every day. That can also slow down authorisations and so on. It can go both ways.”
This could be a costly endeavour for Yolo too, especially with its plans to operate in a number of regulated markets.
“It’s not just cookie cutter, we do one regulated market and then we just take that and we replicate it in another,” Kovach continues. “There are different financial obligations.
“There’s different, albeit I think, increasingly similar, player responsibility, safety, KYC et cetera requirements. So yeah, there definitely are higher costs.
“I’m sure Tim and the Yolo group, they’ve been looking at this for three years, they will have done their homework and they’re a premium operation. Their customer service, their security checks et cetera are pretty close to being what Tier 1 requires anyway, I would imagine.”
Will regulators welcome Yolo with open arms?
Yolo itself acknowledged in its announcement that domestic regulators offering licences “are not keen” on continued operations in other pre-regulated markets.
Even its status as a crypto operator could cause concern among Tier-1 regulators, says Elizabeth Dunn, partner at UK law firm Bird & Bird.
Dunn notes the UK Gambling Commission has previously refused licences to companies due to not feeling comfortable with those business’ crypto-funded origins.
“Regulators in most Tier-1 markets continue to struggle with the idea of operators directly accepting cryptocurrencies and/or being funded through cryptocurrencies,” Dunn says.
“Yolo’s history as a crypto-first operator is, therefore, likely to come under scrutiny when regulators are assessing its suitability to hold a licence.”
However, Dunn also believes some regulators may view the licensed entry of a gambling giant such as Yolo in a positive light.
“Some regulators may see an operator like Yolo seeking a licence as an opportunity to bring previously unregulated activity within the scope of its regulatory powers and tax regime, therefore ensuring its residents are able to access Yolo’s services on a regulated, tax-paying basis,” Dunn explains.
A forward-looking investment for Yolo
In Ibañez’s view, this is very much a move with the future in mind for Yolo.
This is especially true for whether Yolo seeks additional outside investment.
“It’s a forward-looking move, is something I would speculate,” Ibañez says. “It really depends on the circumstances of what Yolo is looking for, right?
“If you are trying to get, for instance, some more enterprise customers or partners, some of these partners, they just might not want to work with unregulated partners or providers. So, it opens a different kind of game.
“And I guess it sort of makes sense. You start, you prove your business case in the unregulated market, you build sufficient capital, you build sufficient strength and brand recognition and then you’re ready to make the next step, which is sort of difficult to do the other way around.”
Significant impact expected on Yolo’s margins
In terms of margins, Kovach suggests this move could affect Yolo “quite significantly”, although, like Ibañez, he views this as a long-term play.
“You’re subject to the tax regime of that licence, so it will without question on any of the Tier-1 licences be significantly higher than if you’re operating on a Tier-2 or Tier-3 licence,” Kovach explains. “That’s an inevitability.
“But I also think as the world becomes more and more regulated, as the world adopts cryptocurrency and more than that the kind of culture that has permeated around crypto casinos, that is increasingly engaging. There’s just a massive opportunity there.
“The biggest opportunity actually is a generation that gambling companies are failing to engage with who do use crypto, who do expect a different experience and are increasingly in regulated markets. So you might well take a smaller margin, but actually, you have a bigger audience there and a more sustainable path to growth and value creation, if ultimately you want to spin this up on the stock market or sell the business.”
Where could Yolo excel?
Yolo prides itself on innovation and its role as a true pioneer in the crypto gambling sector.
The company says its next chapter will connect “land-based excellence with digital innovation”, with the hopes of providing seamless wallet experiences for players across physical and online betting.
It is that mindset that Kovach believes will stand Yolo in good stead as it transitions into this new era.
“I do think it’s a culture,” Kovach declares. “I do think it’s about understanding the audience and understanding that this crypto audience, which is becoming mass market, particularly among the younger generation, is demanding more.
“It’s demanding more from a user-experience point of view. It’s demanding more from transparency point of view, ease of payment point of view, community, game evolution, et cetera. I think it will be a big advantage for them.”
As crypto continues to evolve from niche to mainstream, Ibañez expects Yolo to be at the forefront of the movement due to its “native” origins to the sector.
“What we are seeing is that the way in which these more traditional Web2 companies are adopting this technology is a bit arm’s length,” Ibañez says. “If you’re native with a technology, you are using it to its fullest extent, right?
“And you are really just adopting partially something that is unfamiliar to you, because you want to ride a trend.
“Native acquaintance with the technology, and just the ability to operate with the technology at all levels of an organisation, allows you to use the full potential. That’s probably a competitive advantage.”
Could regulation harm innovation?
Dunn suggests the company’s entrance into regulated markets can be conducted in two ways.
“There are two options for Yolo here – enter markets organically or seek to acquire already licensed entities, which it may then rebrand with the Yolo offering,” Dunn says.
“We have seen at least one other crypto-first operator enter a regulated market through acquisition, and this can (rightly or wrongly) be seen as an ‘easier’ way of obtaining a licence.”
Kovach describes Yolo’s operation as “very shrewd and very sound”, although he also suggests the company’s move into regulated markets could steer it away from what has made it such a success.
“I think they will be able to deliver against what’s required,” Kovach adds. “But I guess the risk is it takes up more resource and more effort than they’ve certainly been used to. Does that then quash their ability to be as consumer-centric and innovative as they have been?”
Although he acknowledges the risks, Kovach believes Yolo is all-in on the move, in line with the company’s, and especially Tim Heath’s, core principles.
“What they’re doing, he’s not paying lip service to this,” Kovach concludes. “They’re obviously going for it.
“I know Tim, he’s a gambler. He likes to place big bets and I think he’s placing a big bet on it becoming more and more mainstream.”
A pioneer in the crypto gambling world, Yolo Group is entering a new era as it switches its focus to regulated markets.