Redburn Atlantic Raises Concerns About Evolution Amid Regulatory Probe

Evolution, a leader in online casino product development and advanced IT solutions, finds itself facing significant challenges following a report by Redburn Atlantic, the public equities arm of Rothschild & Co. The report highlights the regulatory scrutiny the company is under, which it identifies as a potential risk to Evolution’s valuation.

Regulatory Challenges and Evolution’s Response

In December 2024, the UK Gambling Commission (UKGC) announced a review of Evolution’s license due to the presence of its games on unlicensed websites accessible from Great Britain. In response, Evolution took swift action by removing its games from unregulated platforms in the UK, Sweden, and Romania. Martin Carlesund, Evolution’s CEO, emphasized the company’s commitment to supporting licensed markets and preventing unlicensed traffic.

We are now taking forceful action using all technical tools available to us to ensure that our games are only available in the UK through Commission-licensed operators -Carelsund

Carlesund stated that the company is doing all it can to make sure the games are only available through the legal channels in the UK. This proactive step reflects Evolution’s intention to maintain compliance with regulatory standards.

Broader Implications of Regulatory Scrutiny

Redburn Atlantic’s report delves deeper into the implications of the UKGC’s review. It points to diminishing reliance on aggregators as a key issue, arguing that these intermediaries are losing their ability to distance Evolution from unlicensed operators. The report describes the UKGC license review as a sign of the “waning value of aggregators,” which could impact Evolution’s ability to navigate regulatory landscapes.

Additionally, the report raises concerns about Evolution’s exposure to unregulated markets, particularly in Asia. Analysts question whether the company can sustain its presence in both regulated and unregulated markets while remaining a publicly listed entity. Redburn highlights Evolution’s use of “conditional IP address blocking” as evidence of its control over access to its game servers. The report predicts that aggregators’ relevance in the supply chain will continue to decline as Evolution’s technical operations are better understood.

Evolution Disputes the Claims

Evolution has firmly rejected claims that it fully controls access to its games. The company clarified that “several sites may use the same integration without any technical involvement from Evolution,” which can create longer distribution chains for its games. This explanation counters the notion that the company has complete oversight of game access.

Adding to the pressure, Sweden’s financial regulator, Finansinspektionen, has reportedly initiated an investigation into Evolution for allegedly failing to disclose the UKGC’s license review. This lack of disclosure coincided with a significant drop in Evolution’s share price, which fell by 10.1% in December 2024.

Stricter Global Regulation and Market Shifts

Redburn’s report also highlights a global trend toward stricter gambling regulations. Analysts note the decline of previously unregulated “grey” markets due to enforcement actions in various countries. Examples include player arrests in Japan, the shutdown of Philippine Offshore Gaming Operators (POGOs), and Turkey’s efforts to crack down on illegal gambling activities. This shift signals a challenging environment for operators like Evolution, which have historically relied on unregulated markets for growth.

Despite these challenges, Evolution has continued to expand its offerings. In September, the company announced an agreement with Arcadia Gaming Solutions to enhance its live casino portfolio, underscoring its commitment to innovation and growth even amid heightened regulatory scrutiny.

About Evolution

Over the past few years, Evolution Gaming has demonstrated robust financial growth, solidifying its position as a leader in the online casino solutions industry. In 2023, the company reported revenues of €1.80 billion, marking a 23.47% increase from the previous year’s €1.46 billion. This upward trajectory continued into 2024, with a 27.9% rise in operating revenues during the third quarter, reaching €579.0 million compared to €452.6 million in the same period the prior year. The company’s EBITDA also saw a significant boost, increasing by 30.3% to €415.3 million, reflecting a margin of 71.7%.

In the competitive landscape of online casino solutions, Evolution faces rivalry from several notable companies. Key competitors include Sisal, Kindred Group, Mr Green Online Casino, and Yggdrasil. Each of these companies offers unique gaming experiences and has established a significant presence in the market. For instance, Kindred Group operates multiple brands catering to diverse player preferences, while Yggdrasil is renowned for its innovative game development.

Despite its financial successes, Evolution has encountered challenges that test its operational resilience. In mid-2024, employees at Evolution’s Tbilisi, Georgia facility initiated a strike protesting over pay, harassment, and unsafe working conditions. The situation escalated with hunger strikes and confrontations, leading to the company cutting 1,000 jobs and considering withdrawal from Georgia. This incident highlighted the importance of addressing labor relations and maintaining ethical workplace practices.

In terms of responsible gambling, Evolution is committed to promoting safe gaming practices among its users. The company has implemented measures to ensure player protection, including self-exclusion tools, deposit limits, and reality checks to help players manage their gaming activities responsibly. Additionally, Evolution collaborates with regulatory bodies and supports initiatives aimed at preventing problem gambling, reflecting its dedication to social responsibility within the gaming industry.