Sophie Faragher, Senior Finance Manager at Games Global, a multi-jurisdictional content provider. “MFX have assisted greatly with our currency and hedging needs and provide a comprehensive, competitive and friendly service,” she said.
Today, eGaming is a truly global operation, with consumers spread to all four corners. This provides operators with a wealth of new revenue-earning opportunities.
But where opportunity exists, so too does risk. And one big area where risk certainly lurks is in foreign exchange (FX).
Whenever there is a requirement to engage in international currency transactions, companies lay themselves open to the vagaries of the money markets. If not managed correctly, making a bad FX call can cause a big dent in revenues. In the worst-case scenario, it could even lead to an operation being forced to cut ties with certain jurisdictions or shutting up shop altogether.
So what risks are there for eGaming firms engaged in international currency exchange?
The following example in these two graphics reveals what can go wrong.
Looking back to the way the markets reacted to recent momentous events:
- firstly Covid
- secondly, the virus’s ongoing impact together with the realisation of Brexit and the US presidential election
- thirdly, the Russia/Ukraine war together with the effects of interest rate divergence and inflationary pressure.
The first slide demonstrates what happened to the markets when showing the relative performance of sterling versus the dollar (white line) and sterling versus the euro (blue line).
The second slide shows the brutal cost of volatility - if foreign exchange exposure isn’t properly managed. Taking 2022 as an example, using sterling as the base currency, when buying €1m euros or $1m dollars, depending on the timing of the purchase, this would have created a colossal difference in revenue.
From a corporate perspective, a currency swing of between 13%-35% could have easily wiped out any profit a company planned to make - dependent upon the budget level set by the business. Or put another way, it would almost certainly spell the difference between a thriving business and one that is, at best, surviving.
Beware of present-day events
That was then – and this is now. And world events keep coming thick and fast, meaning there is rarely a dull day in the currency markets. Yes, there are periods of relative calm, but we are now facing a very uncertain period, with escalating tensions in the Middle East, resulting in merchant shipping in the Red Sea coming under increasing threats from Yemeni rocket attacks.
This is starting to have a serious impact on global supply chains. Never slow to react, the currency markets are already looking twitchy. If the conflict intensifies and potentially widens throughout the region, then market reaction could start to turn very ugly.
Even if online gaming companies aren’t involved in shipping physical products from one location to another, every time an international currency transfer takes place, there is exposure to currency market risk.
Beyond this, 2024 heralds a US Presidential election year, which is also likely to create further ups and downs in the markets. The potential pitfalls seem to be around every corner.
Hedging strategies to mitigate against currency risk
In international currency transactions, the best way to mitigate against risk is by hedging. However, this can be especially challenging for operators who aren’t familiar with the process or who are utilising a currency provider that isn’t experienced with hedging strategies.
Without hedging, FX can be something of a gamble. Given that a company’s profitability will depend on making the right call with every trade undertaken, this isn’t something any operator should leave to chance.
This is why specialist FX companies come into their own for internationally focussed gaming businesses. FX providers are there to manage foreign exchange exposure cost effectively, thereby protecting profit margins. A very useful ally to have in your armoury.
Developing an effective hedging strategy, whereby the timing and pricing of each trade is fixed to ensure the best currency outcome – in both the base and overseas location - can help gaming businesses alleviate any unnecessary business pressure. This not only saves valuable time but also safeguards those all-important profit margins.
How can MFX assist eGaming operators?
MFX is a dedicated Isle of Man-based foreign exchange brokerage. Established in 2014, we work with some of the biggest names in the online gaming industry and are partnered with moneycorp, world leaders in international payments. They have decades of experience handling cross-border transactions in all types of market conditions. So, you are in safe hands.
MFX is a wholly owned subsidiary of the AIM-listed MFG Group and a sister company of Conister Bank.
If you operate in the online gaming industry on the Isle of Man and are looking for an alternative provider, or you would like a second opinion on your current foreign exchange arrangements (always a good idea), call MFX directly on 01624 694722 or email david.shimmin@mfx.im.