Playing a clean game pays off for Dermot Smurfit jnr
The young pretender to the Smurfit crown on gambling, gaming and the ability to assess and manage risks rather than just take them
Dermot Smurfit Jnr: “I think Michael has respect for me. . . I would be super disappointed if he didn’t say: ‘Dermot is a good operator’ ”
In 2002, Jefferson Smurfit group was taken private in what at the time was one of the biggest ever European private equity deals. It resulted in a huge payday for the Smurfit family, with patriarch Michael Smurfit alone pocketing about €200 million. Not long afterwards at a family meeting Game Account Network (GAN) was born.
“It sounds very formal but it wasn’t. It was over dinner. The question was posed by one of the hierarchy: ‘Lads, you are the next generation: what are we going to invest in now?’ ” says Dermot Smurfit jnr.
“I said internet gaming. As long as we keep our noses clean, don’t prejudice our family reputation or our business interests worldwide – let’s get involved,” he recalls of the family discussion 12 years ago.
The idea was not as leftfield as it might seem. The son of Dermot Smurfit – brother of Michael – Dermot Jnr had eschewed the opportunity to join the family firm. He qualified as a lawyer in the UK before going to work for a merchant bank in New York, where he caught the tail end of the dot.com bubble. Amid all the chaos he saw the popularity of online poker and the potential to bring other skill-based gambling games online.
Gambling was not unfamiliar territory for the Smurfits. His uncle Alan had combined running Smurfit’s South American operations with being a professional card player. He was banned from several casinos and played under an assumed name. Horse racing was the vice of choice of most of the other Smurfits.
“Casino was a very big part of the environment in which I grew up. There were stories of legendary games of Chemin de fer . . . of Alan Smurfit using a pseudonym,” he says.
GAN’s initial focus was on consumers, but it quickly refocused on developing games that could then be licensed to third parties for their websites. Their first customer was UK Betting plc (now SkyBet). Well known brands such as Paddy Power, Sportingbet and William Hill followed, and in 2009 they landed a deal with Lottomatica, the Italian lottery giant.
The Smurfit name opened doors and the company had the backing of both Dermot Desmond and Andrew Black, the founder of Betfair. Desmond’s Betdaq was at that stage competing ferociously with Blacks online betting exchange for market share.
Dermot Smurfit had joined the company at the outset but became chief executive officer only four years ago. By 2010 the company was turning over £18 million but not yet profitable.
The original decision, in 2002, to “keep its nose clean” meant it was something of an also-ran in the exploding online gambling industry, which was unregulated and based offshore to get around national regulatory barriers.
“I had executives openly mocking me, saying, Dermot you’ve got to be in the US, you’ve got to be over here, you’ve got be over there.” His response was that the money was filthy and he was not interested.
The decision has started to pay off now as the US slowly opens up to online gambling and former activities of potential suppliers such as GAN are subjected to close scrutiny by regulators. “They are going to spend months coming to investigate you, your family – people you went to school with,” he says.
Real-money gamingGAN’s reward came in October 2013 when it partnered with Betfair to provide Trump Plaza Hotel and Casino with the technology to offer regulated real-money online gaming from November 2013. Andrew Black is a 9.8 per cent shareholder in GAN.
The potential of the US market – expected to be worth $8 billion by 2018 – convinced the Smurfits and the other investors in GAN to turn down a takeover offer and float the company on the AIM market in London and the ESM in Dublin. It was valued at £75 million.
“We took a gamble. We doubled down on our bet as shareholders in the business. We said look, 18 months ago we had an offer from a major land-based manufacturer of casino slot machines for £30 million; step forward 12 months we have got an offer for £52 million – so clearly somebody thinks we are on an up,” he says.
Things are certainly going in the right direction and revenue last year was £29.7 million and profit before tax is £1.6 million.
Capitalising on the US market will take time, he says. “We have two or three years to get market share. That is step one, and step two and three is deriving a value from the market share. There are 1,000 casinos in the US. Only about 150 sit within regulated markets.”
Repeating the process as other countries regulate their online gambling markets will be equally slow.
“The race is not to the swift. The race is to people who have a very specific view of what the reality is of regulation. Only 2 per cent of the global internet gaming market is regulated and five years ago it was zero. We are in the two per cent pool. That sounds really painful and it is. It is like a Samuel Beckett play.”
The equity markets in which GAN now lives are not known for their patience but Smurfit believes he has something to keep them sated as his long-term plan plays out.
Social gaming refers to the plethora of sites on social-media platform (such as Facebook), offering gaming. The players play free of charge but eventually come up against a barrier, which requires a payment in virtual currency to allow them continue.
Smurfit wants to get established casino brands to offer these sorts of games on their websites using GAN’s technology. “It’s not for money,” he says. “It works on the basis that 1, 2 or 3 per cent of people will purchase additional virtual currency in return for extended time playing online.
Latent gold mines“We invented a product we called Simulated Gaming, which sits roughly equidistant between real-money gaming and social gaming,” he says. “We turn those websites – which are latent gold mines for the casinos – we turn them into online casinos.”
US casino operators are nervous about the concept, he says. But they need to realise that their customers are already playing online and they just don’t know it. “That is the environment which you walk into and say: ‘Lads, this is what is really happening. Let us help you to move online. You need to move online. Your customers have moved online without you and are spending money.’ ”
But the real opportunity for simulated gaming lies in Asia, and particularly in Macau, the former Portuguese enclave that returned to Chinese control in 1999. Like nearby Hong Kong, it enjoys a degree of autonomy and its casino business is 10 times the size of Las Vegas.
“Macau’s casinos are insanely large. They are printing money faster than the Federal Reserve, as far as we can see.”
Simulated gaming. he believes, will allow them access pent-up demand in mainland China. “The mainland Chinese will be able to play on a simulated gaming website, packaged as an online casino associated with the hotel brand, not the brand of the casinos operating in Macau.”
“It is not for the faint of heart. It’s about as close to naked addiction [to gambling] as you will ever see .”
This brings us to the unavoidable question about building a business around what for many people is an often ruinous addiction. His answer is that GAN provides technology and it is up to its customers to wrestle with the ethical issues.
“It’s up to them what socially responsible practice and procedures they operate,” he says.
Smurfit is a finalist in this year’s EY Entrepreneur of the Year programme. His idea of what it is to be an entrepreneur is remarkably similar to the views expressed by his uncle in his recently published autobiography; namely the ability to assess and manage risks rather than just take them.
Dermot Smurfit, however, adds a rider: “It’s also about the consumption of risk and the ability to carry it internally.”
Is the similarity between his view and that of his uncle a coincidence or some sort of creed drummed into young Smurfits from an early age?
He reckons he arrived at his position independently but it would have been discussed openly in the family. Warming to his theme he expands: “Entrepreneurs take a lot of risk and can live with a lot of risk. It manifests in different ways. Some become alcoholics functional or otherwise. Some people get up to lots of strange things.”
His own coping mechanisms seem decidedly pedestrian. A bit of tennis. Some running on a treadmill. Too much coffee. “Somebody asked me what do you do for fun? I do business for fun. I find the invention of the business and constant re-engineering of the business fascinating.”
Seeking approvalThe shadow of his uncle inevitably looms large. In another part of his biography Michael Smurfit wrote that it was not until his father’s death that he realised the extent to which his own career had been framed in terms of seeking his approval.
Dermot Smurfit seems to take his father’s approval for granted. “Dad’s awesome, in many different ways to Michael. He is very much more a people person. I think I have got a lot of his traits. I will have chinwag with anybody.”
His relationship with his uncle seems more complex.
“For the last few years I have actually had, for the first time in my life, a genuine relationship with Michael the person as opposed to Michael my uncle; this distant very grand figure who has achieved so much in his life.”
In his opinion his uncle values two things: hard work and never giving up. “I only became CEO four years ago, but this business is something I supported over a long period with my money and my sweat equity. Michael says to me don’t worry about it – it took me seven years to become managing director of Jefferson Smurfit. Drove me crazy every single year.
“I think Michael has respect for me. I am not his sons’ generation really. The next step down really. I would be super disappointed if he didn’t say: ‘Dermot is a good operator.’ ”
“Tony has very much helped me build this business from a mentoring standpoint. I think he manages an extraordinary number of people, but he finds the time every other day to give me a call and have a chit-chat about what’s going on.”
His interest in his younger cousin may not be entirely altruistic: Tony Smurfit is an 8.54 per cent shareholder in the company and his father holds 9.8 per cent. Dermot Smurfit’s stake is 13.11 per cent.
The relationship has had to change since GAN went public. “I say, sorry Tony, love to talk but I can’t. Tell you what. I will give you a call after the results. That drives him wicked crazy, ” says the young pretender to the Smurfit crown, laughing. CV Dermot Smurfit Name: Dermot Smurfit
Age: 39 Job: Chief executive officer of Game Account Network, a provider of internet gaming systems to casinos and other third parties.
Background: Son of well known businessman Dermot Smurfit and brother of actress Victoria. Born in Ireland and moved England with his family in 1975. Brought up in the home counties and studied law at Exeter before pursuing a career in investment banking. Set up Game Account Network, in 2002, with the backing of his family.
Family: Married to Charlie, with three children. He lives in London.
Other Interests: Was an enthusiastic hang- and paraglider until his board put a stop to it.
Something you might expect: His family’s wealth and connections were very helpful when setting up GAN.
Something that might surprise: He does not consider himself a typical Smurfit. He thinks that growing up in England, where the family was relatively unknown, and being “neither 100 per cent Irish or English” gives him a different perspective.