At the 2015 Malta iGaming Seminar (MIGS) Global Betting and Gaming Consultants’ Director Lorien Pilling gave the following presentation looking at the changes in the i-gaming sector over the last decade – from 2005 to 2015. 

If we had gathered here in Malta just ten years ago in 2005: 
• The Apple iphone, which helped revolutionise mobile betting, was still almost two years away from being launched 
• The letters “U I G E A” meant nothing to i-gaming operators 
• PartyGaming had just been included in the FTSE 100, as one of the UK’s largest publicly listed companies with a value of nearly 5 billion pounds. 
How things change.
In general interactive gambling has enjoyed a good decade between 2005 and 2015.
The sector has overcome some dramatic regulatory and economic episodes to see global gross win grow from US$ 16 billion in 2005 to a forecast US$ 41 billion in 2015.
Globally, interactive gambling had a 5% share of all global gambling in 2005. This is forecast to have increased to 9% share in 2015.
And a look at our iGBGC index of listed e-gaming companies also points to the apparent health of the sector. The index was started at a level of 100 on 1 January 2005 and now stands at 689 – an impressive increase over the last decade.
On closer inspection, however, things might not be as buoyant as they appear and the sector could struggle to replicate that historic rate of growth over the next decade.
A comparison between the situation in 2005 and 2015 can highlight what is changing in i-gaming and the impact it is having on the sector. 

2005 – 2015 

Tax and regulation have always driven the gambling market – the products that are viable, the bet types offered, the margins and the extent of an underground market.
And the nature of Internet gambling regulation has changed substantially over the last decade, especially in Europe.

Internet gambling was founded on the following pillars: 
• Low gaming taxes based on gross gaming yield 
• High payout to customers – made possible by the low taxes and giving online gambling an advantage over the land-based market 
• Offshore jurisdictions 
• One licence, targeting many markets 

In 2005 few major economies had regulation in place that would allow private e-gaming firms to obtain a licence. Indeed, it was only the likes of Malta and Gibraltar in the European Union that had regulation in place for internet gambling licensing. The UK had partial regulation at that time. Internet betting could be licensed via the existing regulation but there was no licensing for e-gaming. The UK Gambling Act 2005 was passed in April of that year but was not enacted until September 2007.
As a result, offshore jurisdictions found a niche for themselves in offering e-gaming licences. The argument was that by holding a valid licence in an offshore jurisdiction an operator could legally offer its services across borders into other countries around the world.
In 2015 21 of 28 EU member states have some form of i-gaming regulation in place or pending in the near future. Some of this regulation is restrictive, or excludes certain products or is limited to land-based operators. In general this EU regulation has brought with it higher gaming taxes and numerous tax agreements between offshore jurisdictions and the member states. 

Examples of EU i-gaming tax rates 
• Bulgaria: 20% on GGY 
• Ireland 1% on turnover
• Portugal: 8%-16% on turnover for sports; gaming 15%-30% of GGY 
• Romania: 16% on GGY 
• UK: 15% of GGY 

France is a good example of the new internet betting market. For all of their efforts, internet sports betting companies in France generated a total loss of €23 million in 2013. Internet horse race betting and internet poker fared no better with operating losses of €3 million and €9 million respectively. The reason is clear. Taxes, levies and VAT amounted to €352 million in 2013, which represented 51% of the companies’ gross win. It is hard to turn a profit in a low margin business with an effective tax rate of 51%.
The total number of licence holders has fallen from 35 in 2010 to 17 in 2014.
The French government is actually not too unhappy with having a loss making sector. Prior to regulation in 2010 the French government was not getting any tax from operators licensed offshore. In the almost five years since regulating the market in mid-2010 it has collected a total of €1.5 billion in taxes.
For government it has been an overwhelming success. 

The golden age for certain parts of e-gaming is over.
And the implications for operators as we enter the second half of the decade are: 

• Scale is becoming important in Europe to cope with the costs of individual licensing in each jurisdiction.
• Consolidation is occurring either to achieve scale or because companies cannot remain viable.
• Operators are being selective about which markets they choose to enter and are leaving some markets because the regulations are too onerous.
• Regulatory costs and taxes are increasing, so operational costs are coming under greater scrutiny.
• Customers in some markets are getting worse value for money and less choice under the new European set up because operators have to cover their greater costs. 

The changing regulatory position is highlighted in the changing proportion of revenues earned under local, onshore licences. In 2005 it was just 27% globally and 37% in Europe. This year these percentages have risen to 44% and 65% respectively. 

• The last ten years have seen new opportunities in i-gaming:
– New markets
– New technology
– New services like in-play betting 
• But it has come at the cost of more expenses:
– More marketing spending as competition increased 
– More regulatory costs 
– Higher taxes
These are the consequences of a sector that is maturing and being recognised by major governments, who all want their share of the pie.