A GBGC analysis has recorded the growth in interactive GGR in recent years as shown by the graph reproduced below. (See Adrian Goss, “Jay Cohen’s Brave New World: The Liability of Offshore Operators of Licensed Internet Casinos for Breach of United States Anti-Gambling Laws,” Richmond Journal of Law & Technology, vol. 7, p. 32ff (Spring 2001).)
This shows a rise from an initial low level in 1999, that took off sharply in 2001 and carried on increasing substantially through 2002 and 2003, but at a decreasing rate. It would appear that the market is still in an early phase of growth, but perhaps showing signs of heading towards maturity. The rates of increase per year are as follows; 2000 162.5%, 2001 233.3%, 2002 55.7% and 2003 31.1%. If the future annual percentage rates of increase remain at two-thirds of the previous year [i.e. in 2004 the increase is 20.5%, in 2005 13.5% and so on] then by 2012 remote gambling GGRs in Europe would be roughly €2.7 billion. Since the EU accounts for 90.5% of Europe’s total gambling spend, we may estimate that the EU would generate an interactive GGR of about €2.4 billion in 2012. This would be about 85% greater than it was in 2003. This estimate of €2.4 billion in 2012 can be contrasted with the earlier figure estimated from GBGC’s forecast for global interactive GGR that gave us €2.9 billion in 2012.
It should be borne in mind that these estimates assume that the EU companies’ share of Europe’s total interactive gambling spend (by company income, not consumer expenditure), is the same as its share of global gambling generally. It may be that the EU’s interactive operators going to be better positioned than the rest of the world because of favourable legislation, in which case their GGR for 2012 would be higher.
We cannot accurately estimate the share of the European interactive market that is currently held by EU-based operators. Certainly, a number of firms are licensed and operating with EU boundaries. British remote betting licenses earn substantial sums for UK operators, just as Maltese remote betting and gaming licences do for operators based there. Currently however, there are also significant jurisdictions in Europe that operate outside the EU, in particular Alderney and the Isle of Man.
Our forecast can be contrasted with global experience up to 2003, as illustrated by the graph reproduced below.
Globally, the percentage growth rates for the years 1999 to 2003 are lower than those for Europe and reflect the view that Europe is catching up with the global situation, as has been suggested above. GBGC forecast a global increase in interactive GGR of 102% between 2003 and 2012, with the greatest rates of increase being through mobile phones and iTV. GBGC also predict that betting will continue to dominate interactive gambling, despite rising levels of expenditure on gaming and lotteries. The rise of newer channels and products will serve to boost growth rates, but will not likely lead to a renewed sharp increase in the overall rate of growth of expenditure on remote gambling services.
Producing estimates concerning the future growth of remote gambling services in the EU generally may be easier than hypothesizing about growth rates in individual Member States. The EU based firms listed in the eGaming Review’s (eGaming Review of July/August 2005) “top 10” are Sportingbet, William Hill, BetandWin, Ladbrokes and Betfair [all British, except for BetandWin]. They—and the governments that tax their profits—would be the main beneficiaries of future growth if past patterns of development are followed. However, they have recently been challenged in court by the various national lottery operators, with little certainty how such endeavours will come out. If all national lotteries become effectively “remote-friendly” and are successful in their protected market claims, then each Member State could ensure that a large slice of local interactive gambling revenues will stay ‘at home’. If each Member State further allowed domestic gambling firms to offer remote services and encouraged them to do so in a competitive manner, perhaps by reducing their protection against overseas firms, then a greater proportion of revenues would probably stay ‘at home,’ at least partly because gamblers seem to have a preference for ‘home country’ operators, who will have an established brand and outlets where customers can seek advice and assistance. Governments that prevent their national operators from offering quality remote services and thus effectively competing in this global market will thereby force those operators to cede ground in the market or to emigrate in order to compete in it.
Another major factor in the development of the remote gambling industry is the economic dynamics of firm and industry growth. Currently, the interactive gambling industry is facing a process of rationalization, where some e-gaming specialist operators will be forced out of business, whilst others that have expanded will move towards public listing. We refer here to the ‘new’ specialist operators and not the large, established operators such as Ladbrokes and William Hill. Sportingbet is already listed on the London stock exchange, with profits of €29.12 million (£20 million) in the third quarter of 2004. PartyGaming was listed on the London exchange in June 2005 and its valuation rose to £5.2 billion (€7.5 billion) as of February 2006, making it the largest listed e-gaming company in the world.
Smaller companies have obtained listings on the Alternative Investment Market [AIM] in London. These include Empire Online, which raised €178.4 million, and Leisure and Gaming, which recently bought VIP Management for €35.6 million. Betfair seems to be preparing for a stock exchange listing. There is some evidence that online gambling operators are moving from their early days of dynamic entrepreneurial behaviour towards more bureaucratic business systems. For example, BetonSports was listed in July of 2004 and in 2005, issued a profits warning that wiped €145.5 million off its value. It has recently appointed a new Commercial Director and another new director responsible for Operations and Marketing.
Firms that succeed in stock market listings can use their capital to grow by acquisition and can develop their brands to obtain economies of scale and scope by offering a range of products in many markets. Economies of scale and network effects are important in interactive gambling games such as poker where the greater is the number of players registered with a single operator, the greater is the range of tournaments that that operator can run. Shares in remote gambling operations are seen by investment analysts as growth stocks, because they get cash ‘up-front’ and have no logistics or real estate. Merrill Lynch now offers an ‘Internet Gaming SWAP index’ to its clients. It is probable that the listed firms will expand and that the smaller firms will either be targeted as acquisitions of niche markets or be forced out of business. Recent history indicates that we can expect to see new niches developing and attracting revenues as new firms seek them out. There has also been a tendency for large firms to take over small firms in profitable niches and perhaps some of these large firms will eventually merge in order to gain market power. For these reasons, estimates of the size of remote gaming in the EU may €3.0 billion or more in 2012.
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