1.Rising long term interest rates
Gambling is now a mainstream leisure activity. Consequently, its fortunes are predicated by the economic cycle. The UK is out of recession with most economic indicators pointing in the right direction. Interest rates according to the Bank of England will remain low for a year but the bond market is pointing to higher long term rates. Refinancing costs, therefore, are likely to rise and the listed companies need to lock into lower rates wherever possible.
2.Mergers and Acquisitions – Ladbrokes
It would be sensible for companies to consider their options ahead of the introduction of Point of Consumption Tax at the end of 2014. The Ladbroke shares price seems to attract buyers around £1.60 regardless of any weak news. I think Ladbrokes could become an M&A target in 2014.
The largest casino gambling market in the world will continue its double digit growth. I have never seen such a compelling investment case. New mega casinos are being built to cope with demand yet in any one year only three percent of Chinese people have visited Macau. There is more to come. The Hong Kong-Zhuhai Macau Bridge will open in two years enabling people to drive to Macau from Hong Kong. I predict MOP 395 billion in gaming GGY in 2014 an increase of 16% over 2013. The growth will be fuelled by more wealth creation in China as the stock market ends its six year bear market.
Following the success of Singapore and Macau more countries will warm to the idea of creating resort casinos. Japan and South Korea will both bring forward legislative plans for their development in 2014.
Europe, in general, and Spain and Italy in particular will emerge from their economic troughs pushing the stock markets higher in those countries. It will take some time before the benefits hit the street and people start to feel more optimistic but the worst maybe over and I would expect to see some uplift toward the end of 2014.
I do not see UK POC tax causing a migration of operators from Gibraltar, Alderney or Malta. The cost to move is high and Gibraltar and Alderney have the advantage of no VAT on operators’ marketing expenditure. Malta has created an e-gaming hub building an ICT infrastructure that is attractive to operators. The Isle of Man has done well to attract Asian sports books and casino sites as well as software suppliers that are more or less insulated from POC.
We have become reliant on QE for growth and with the US announcing the taper we could see a tail off in demand. So we now have three factors driving the economy: interest rates, energy and QE. Interest rates are low but as I said in (1) are rising at the long end and QE is being tapered. Cleverly the US President is engaging with Iran and Iraq is now producing oil for export causing two major oil producer countries to export oil into the market. Add to this the great shale bonanza in the US and more economic use of fuel and the pressure on the price of oil has to be down. Hopefully this will soften any potential rise in interest rates and the QE taper. Lots of ifs and buts but I expect 2014 to be a good year.
According to The Times the UK Government has had some analysis done on the minimum wage. It shows that if there was a 50p per hour rise it would save the Government £1 billion a year in welfare. So the Government is incentivised to increase the minimum wage which is now being labelled a ‘living wage’. I think that during 2014 we could see a rise of £1 per hour offset by cuts elsewhere to encourage the unemployed back to work. The rise will have no effect on e-gaming where salaries are high but it will hit the High Street bookmakers where many staff are employed on part time shifts. This will be partially offset by the low wage betting shop customers having an above inflation rate increase in their wages.
Within the next five years 80% of High Street shop leases are up for renewal. This is going to create a lot of movement and vacant units. Bookmakers are likely to continue the process of relocating to better premises which will no doubt bring forward the call for planning restrictions as the betting shop becomes more visible. However, with so many purchases now on the Internet most retailers are likely to give up their units and concentrate on the major centres such as Westfield, Blue Water, and Trafford Centre. I predict lots of empty shops and the realisation that a betting shop which increases footfall is better than an empty shop.
Advertising spend will break previous records. Mobile betting will exceed online for the first time. England will not win (hope to be proved wrong on that). Will the World Cup be good for the bookmakers? It will be great from a marketing perspective and if England struggle through the group to the next round but then fail in the knock out stage the UK-based sports books will do well. Historically the most consistent teams are Brazil, Italy, Germany and Argentina.
Italy would be a big loser in Europe. My pick? Argentina
In Germany, the regulatory fiasco will continue with the process starting all over again in 2014, with maybe some decisions made towards the end of the year. But do not hold your breath waiting. Singapore will licence Internet gambling but will take small baby steps by granting duopoly licences to Singapore Pools and Singapore Turf Club.
New Jersey’s first month of trading has not set the world on fire. GBGC’s original predictions were at the lower end of all other forecasts at US$285 million for a full year 2014. Operators were faced with many problems on payments and geo-location – people just could not open accounts!
New Jersey needs to produce some meaningful figures if the rest of the US is to regulate e-gaming, so many states are in “watch and wait” mode and those planning to go ahead may have second thoughts. Nevertheless the best prospect stand alone state is California and I expect they will license egaming in 2014 (fingers crossed, so many false dawns in this market).