In terms of gross gaming revenue, FDJ ranks second in Europe and fourth worldwide and is also France’s tour de force in off and online sports betting. Following FDJ’s completed IPO in 2019, the Group aspires to consolidate its position as the leading gaming operator in France and strengthen as a leading player in the international gaming and services sector. Pallez has her eyes fixed firmly on the future, but looking back on a storied career, it’s her work ethic that has been the impetus to persevere despite the obstacles, and there’s been no shortage of those, especially in the past year. Due to circumstances surrounding the pandemic, stakes cumulatively reached €11.3bn ($13.53bn) at the end of September, down 10% compared to the first nine months of financial year 2019. Stakes and revenue were also down by 18% and 15% respectively at the end of June.
But if the worst is behind us with no further point-of-sale closures, cancellations or postponements of major sporting events, the FDJ Group predicts a slight stake uptick in Q4, supported mostly by a strong lottery schedule with the relaunch of Keno, Mots Croisés and Amigo, and the launch of a second phygital game, “Qui veutgagner des Millions” (Who wants to be a millionnaire?). But from week to week, vigilance is paramount and being able to create or utilise contingencies at a moment’s notice. It’s these kind of qualities and skills that Pallez brings to FDJ even as global circumstances intensify.
“I try to pay close attention to the world around me,” she says. “It’s a big part of who I am and how I work.” Pallez has worked in many public and private sectors, including the French Ministry of Finance, the CCR reinsurance group and telecommunications group Orange, always keeping an eye on and anticipating trends in other professions both domestically and abroad. So when she arrived at FDJ in late 2014, she wanted the company, she says, to project itself into the future to imagine consumer patterns and envision the future of the business. “For example, we’ve digitised the company, setting ourselves the target of reaching 20% digital stakes by 2020. That target has now been reached. So we offer our customers new ways of using our products and services, in particular our distribution network, which is the largest in France with around 30,000 points of sale. And we’ve diversified into adjacent activities, such as B2B solutions we offer on the international market and entertainment.”
She is also a firm believer that companies don’t just exist to play an economic role in society. They also have a major social impact. “I was very keen on joining the FDJ Group because it’s France’s historic lottery operator with a unique history. Since it was founded 85 years ago to raise funds for wounded veterans of the First World War, FDJ’s business model has been based on performance, responsibility and solidarity towards the most vulnerable people. The Group’s social commitments are a core part of our identity, something all our employees are very proud of.”
I was very keen on joining the FDJ Group because it’s France’s historic lottery operator with a unique history. Since it was founded 85 years ago to raise funds for wounded veterans of the First World War, FDJ’s business model has been based on performance, responsibility and solidarity towards the most vulnerable people. The Group’s social commitments are a core part of our identity, something all our employees are very proud of”
These are still unpredictable times, however, and sticking fast to the trends and habits of consumers is vital to business survival. Screen time has especially increased in 2020 as a result of the pandemic, on top of how consumer habits have evolved over the last few years. So digital is becoming more of a necessary investment, which is something FDJ is all too aware of. “The COVID-19 crisis has definitely highlighted the need to accelerate and scale up some of our transformation initiatives,” says Pallez. “The decision made five years ago to steadily invest in digital, for instance, has proved highly relevant. Our customers are increasingly connected, and digital stakes have grown in step with this trend. This was confirmed during the worldwide health crisis and the two lockdowns we experienced in France. The public health context has considerably sped up consumer adoption of new technology, a shift we’ve also seen among our customers.”
Across France, and in both physical and online networks, digital stakes, digitisation and the overwhelming adoption of electronic payment methods are now firmly established in consumer behaviour, and FDJ has stayed in lockstep as the technology has improved. “We already offered digital play slips, which users can set up in an app and validate at a point of sale, and electronic payments,” Pallez adds. “Online stakes have also grown significantly, as has the number of new players on our website. Online stakes grew by more than 40% in the third quarter of 2020.”
And with the launch of new phygital scratch games purchased at points of sale but continued online, FDJ is getting more creative in ways to enhance the customer experience. To do that, there needs to be a better understanding of customers to give them a more seamless experience. Being proactive about these key changes in consumer behaviour is one of Pallez’s main priorities.
Understanding how to differentiate strategies between digital and mobile is obviously paramount, and Pallez is focused on developing an omnichannel strategy, which involves investing in a range of different distribution channels that complement each other, including physical networks, websites and apps. Since most of their games are available both online and at point of sale, customers like to have options, so someone who plays at a point of sale may also like to play online at certain times. “These aren’t mutually exclusive,” she says. “In our physical networks, we’re continuing to invest in digital to streamline our customer experience. For example, our Parions Sport sports betting app allows users to prepare their bets in advance and validate them at a point of sale.”
Speaking on land-based operations specifically, Pallez is confident FDJ’s games, distributed through a network of 30,000 local businesses across the country, will remain an essential part of the Group’s development. “It helps us build a very strong connection with our players and people everywhere, in the heart of cities and villages across France,” she says. “The retail network generates around 94% of the stakes collected by the Group. Continuing to develop this network is a top priority. That includes continuing to digitise it and add new services. That’s what we’ve been doing, and what we will continue to do. For instance, in 2019 we won a contract with the French Finance Ministry. Our gaming terminals now let users in France pay their taxes, fines and bills for public services, such as childcare and hospital fees, at tobacconists, enabling us to provide an innovative local payment solution. This contract demonstrates the Group’s ability to capitalise on its point-of-sale network, fully equipped with FDJ terminals, and on its technology and payment expertise.”
We offer our customers new ways of using our products and services, in particular our distribution network, which is the largest in France with around 30,000 points of sale. And we’ve diversified into adjacent activities, such as B2B solutions we offer on the international market and entertainment
Sports betting is also a growing asset at FDJ, despite the suspension of sport throughout the spring. It makes up more than 20% of the company’s overall stakes, and it’s where it has been seeing the strongest growth. According to FDJ’s Q3 2020 report, annual stakes could amount to around €16bn, a decline of only 6% over the year, taking into consideration the effect the pandemic had on its activities. On this basis, with the assumption of an annual player payout (PPO) close to that recorded at the end of September, and given the cost reduction plan for more than €80m when compared to the Group’s initial 2020 budget forecasts, the Group says it would generate revenue of around €1.9bn, down about 7%. It would also create an EBITDA margin of around 21%, and a free cash flow conversion rate (or cash flow generated by operations after operating investments) maintained at more than 80%. The increase in PPO for Q3 led to a PPO of 68.1% at the end of September, almost stable compared with the first nine months of 2019 (68.2%), and slightly increased compared with the first half of 2020 (67.3%).
Overall, though, sports betting is a relatively young market in France, but with a lot of growth potential. “In 2019, sports betting increased by 16%, generating more than €3.5bn in stakes,” says Pallez. “This year, sports betting was of course affected by the cancellation of virtually all global sporting events starting in mid-March. Competitions, especially football, gradually resumed in June and then picked up significantly during the summer, and our sports bets grew 27% in the third quarter, both online and at points of sale, coming to nearly €1bn. Our aim is to continue to gain market share online while maintaining a growth dynamic at points of sale. To that end, we will continue to develop our offering. For example, we’ve just renewed our partnership with the NBA, which will be a powerful growth driver for our sports betting platform Parions Sport in the coming years.”
This is indicative of the front-foot mindset Pallez brings to FDJ as they’re always on the lookout for potential developments. This is nothing unique for any large-scale organisation, but FDJ is especially proactive. For example, in 2019, they expanded their international B2B offering by acquiring Sporting Group, a global leader in technology and trading for sports betting. They’ve also accelerated the Group’s international development over recent years, in particular with the launch of their B2B gaming services subsidiary, FDJ Gaming Solutions. They also offer their expertise to international lottery and sports betting operators.
We’ll see how 2021 unfolds with the pandemic and the circulation of the virus. I sincerely hope the situation will improve. But come what may, we will continue to invest to drive growth in our business lines
Plus, FDJ has been working to digitise the company for several years, which has made the company more agile in its working procedures, organisation, and relations with stakeholders and retailers in their distribution network. So with the emergence of COVID-19, FDJ very rapidly activated its business continuity plan. “The aim was to ensure optimal health and safety and working conditions for employees,” says Pallez. “A huge majority was able to work remotely thanks to the tools and technological infrastructure we’d already put in place.”
But there’s no time for self congratulation as the operator is always looking to be more streamlined, strengthen its B2C business in sports betting, and ramp up diversification in payments and services. None of this is easy in the best of times, much less during a pandemic that is proving increasingly difficult to quash, despite billions of vaccines being manufactured and rolled out. But sensing the difficulties early, FDJ was able to pull together at the start of the public health crisis and rapidly implement an €80m cost-saving plan, so its impact on the Group was limited. As a result, stakes were back at their 2019 level at the start of June, but damage limitation could only go so far.
“While the crisis will weigh on our 2020 results,” Pallez says, “we’ve proven that our business model is solid and it confirmed our strategic direction based on four basic pillars: resilience of the lottery, technological excellence, rigorous balance sheet management and growth in digital.” So FDJ, with Pallez at the helm, was and is still able to weather the storm better than most. “We’ll see how 2021 unfolds with the pandemic and the circulation of the virus,” she adds. “I sincerely hope the situation will improve. But come what may, we will continue to invest to drive growth in our business lines.”
