Gambling: online share of the market

After almost two decades the online sector’s share of global gambling is around 10%-11%. A few factors have influenced this market share. First, online gambling’s rise coincided with the growth of Macau as a land-based casino market. Second, various gambling sectors in the USA e.g. lotteries have not been able to offer online activities for much of those two decades. There last few years in the US brought some hope that the situation might be changing but the new opinion on the Wire Act by the Department of Justice in 2019 throws some doubt on that. 

Falling values for gambling companies

Investors in betting companies with UK-exposure had a dire year in 2018, almost entirely due to Government intervention.   The stakes on Fixed Odds Betting Terminals (FOBTs) will be reduced to £2 in April 2019, accompanied by a 6-percentage point tax increase for internet gaming, and a plethora of regulation bringing forth new fines.


All of this has taken its toll on the capital values of the companies.  Just over a year ago GBGC wrote about how difficult it would be for gambling companies to maintain their positions in the FTSE 100 and FTSE 250 index.

GVC Holdings entered the FTSE and was listed in 78th position on 4 September 2018.   At the time of writing GVC is now 97th – a fall of 19 places. This means that the other companies in the index have generally done better and so have the industries in which they trade.  Investors have choice and can invest in any company and will choose to invest where the returns are greatest.  How a company performs against the rest of the market is a clear indication of where it sits in the wider economy. The story in 2018 was not good for gambling companies, and they have been punished because of it. 

It is not only GVC.  William Hill is now number 210. I recall them sitting at 94 when David Harding was the Chief Executive.  Paddy Power Betfair was ranked 64 on 27 February 2018 and now it is 82nd, a drop of 18 places. 

What makes the investment in gambling worse relative to the market is the FTSE in general has performed badly when compared to the Dow and the S&P 500, the latter being 17% higher over three years.  It is generally acknowledged that the FTSE has been oversold because of the protracted negotiations caused by Brexit and the economic uncertainty caused by it. To perform badly in an index that is performing badly itself is hardly reassuring. 

There is much talk that gambling companies are making too much profit but when judged against the wider market this is not the case.

Written by Warwick Bartlett

2019: Out with the old world, in with the new world

Changes to the Italian gambling tax regime are becoming as much a part of the New Year celebrations as champagne and fireworks. But operators in Italy will not be welcoming in 2019 because the tax increases introduced will cost them tens of millions of Euros. Italy, however, is not alone amongst the key European gambling markets where licence holders could face more testing conditions this year.


Two of the key gambling tax increases see the rate of online gaming tax rise by five percentage points to 25% and the online sports betting tax go up by two percentage points to 24%. In 2018 Playtech took a large bet on the Italian market with the acquisition of Snaitech.  But Playtech has calculated that the new taxes will reduce its adjusted EBITDA “by approximately EUR 20 to EUR 25 million” before it undertakes any attempts to mitigate the tax rises. Of course, these tax changes come on top of the ban on advertising and sponsorship for gambling in Italy, which was announced last year.

The UK e-gaming sector is plotting a similar course to its Italian counterpart in 2019. Late in 2018 a voluntary “whistle to whistle” ban on pre-watershed television gambling advert during live sports was agreed by the UK’s gambling companies. The Industry Group for Responsible Gambling (IGRG) will amend its advertising code in the new year and the ban will come into force in the summer of 2019. Unlike in Italy the gambling sector is attempting the self-regulation of gambling adverts. The intention is to stave off a government-mandated total ban on gambling advertising, like that imposed in Italy. The UK’s remote gaming duty is also due to increase by six percentage points to 21% in April 2019, as part of measures to mitigate the loss of tax revenues from fixed-odds betting terminals.

Between them, Italy and the UK account for 41% of the entire European e-gaming market. For some individual operators they are even more crucial markets to their source of revenues and profits. 2019 will place even greater regulatory, taxation and compliance pressures on those profits. This pressure has already been reflected in the share prices of the listed gambling companies. 888 Holdings’ share price has fallen by almost 40% in 2018; Paddy Power Betfair by 27%; and GVC Holdings by 26%.

Europe’s operators, therefore, would be forgiven for turning their attention westwards to the “new world” in 2019 as they seek to grow their businesses.

The repealing of the ban on sports betting in the US in May 2018 was a real boost for the sector and the European brands have been jostling for position and partners. 2019 will see a continuation of the individual states’ deliberations as to their sports betting regulation. GBGC forecasts that the US sports betting sector will generate almost US$ 1 billion in revenues in 2019, based on the current states which have implemented regulation. This figure could rise to almost US$ 2 billion by 2022. If more states get involved, so the opportunity increases. But the concern in some states is that they see sports betting as an easy source of tax revenues and set the tax rates accordingly. This attitude limits both the ability of licence holders to earn profits and for the states to fulfil the potential of their legal betting markets.

In both Brazil and Argentina the final months of 2018 did bring some good news for the gambling sector to take into 2019. Brazil’s outgoing president finally signed legislation that allows for the introduction of fixed-odds sports betting, both online and retail. It is not clear what the market will look like – monopoly or competitive – but after years of delays in signing other, more extensive gambling legislation, it is a step in the right direction.

The key province of Buenos Aires in Argentina also introduced budgetary legislation that would enable online gambling in the province. With a proposed tax rate of 15% (plus 2% administration payment) and a restriction of seven licences for a population of almost 17 million people, it could develop in to a good market for those operators that secure a licence.

Globally, GBGC estimates that total global gambling revenues will increase to US$ 468 billion in 2019. Within that total, the global e-gaming sector will also rise in 2019, surpassing US$ 50 billion in revenues, and accounting for almost 11% of all gambling. The ever-increasing amount of e-gaming revenues earned under local licences continues its trend in 2019, with some 57% of e-gaming revenues being earned under a local licence. This trend is helped in 2019 by the new licensing regimes in Sweden and the Netherlands. 
 
But, as has been highlighted above, a consequence of regulation is that gambling operators will be relinquishing a higher proportion of those revenues to governments and regulators in the form of tax and compliance costs.

Gambling creates its Indominus Rex

Watching the film Jurassic World on television over Christmas in a stupor of mulled cider, mince pies and Quality Street, it seemed a barely credible plot that someone would choose to create a dinosaur like the Indominus Rex which is so perfectly designed to put their entire venture at risk. But then, in a moment of Christmas clarity as startling as the arrival of Marley’s ghost, it became apparent that the UK gambling sector is doing just that.



In the film, the Indominus Rex is created as a new attraction to satisfy the visiting public’s insatiable demand for something new and exciting. The creature’s DNA is a mix of Tyrannosaurus Rex, Velociraptor, cuttlefish (for camouflage) and various other hazardous species. The result is a large, efficient, violent predator which inevitably escapes it confines and wreaks havoc.

Going into 2019 the UK gambling sector is being complicit in creating a monster equally dangerous to the sector’s survival in order to satisfy the demands of politicians, regulators and opponents.

Consider the genetic components of gambling’s “compliance carnivore” in 2019:



1. A voluntary advertising ban during pre-watershed, live, televised sport.
2. Major banks – including Barclays, Halifax and Santander – enabling customers to restrict payments to gambling services.
3. The creation of a sector-wide database which lets customers exclude themselves from accessing online gambling.
4. A tax increase of six percentage points for remote gaming in 2019 purely to make up a shortfall in tax from another area of gambling which was curtailed for political reasons.

If the above operating parameters were offered to an entirely new business sector, it would not seem like an appetising offer for investors: limiting the means of promoting your services; banks creating means to prevent customers from sending you money; offering tools to customers to let them stop using your services; and if you do manage to take money from customers a tax rate based on political posturing.

The share prices of those gambling firms with a reliance on the UK market have fallen heavily over the last year. The bloodbath could have been even worse, had the US Supreme Court not thrown them a lifeline in the form of a story to sell investors about the prospects for US sports betting.

The Indominus Rex of the film is finally defeated by the heroine releasing the Tyrannosaurus Rex from its enclosure and the two predators battling it out to the death. The final scene shows the T.Rex surveying its kingdom, reinstalled as the top predator.

For gambling, its own T.Rex is the spectre of illegal or unlicensed gambling in the UK. Underground gambling might not be “released” as consciously or deliberately as in the film but the combination of operating parameters listed above could contribute to its emergence – an unintended consequence of trying to create the perfect compliance carnivore.

Happy hunting!

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