It is always a good start to see where we have come from, where we are today, and then to decide what opportunities there are in the future.
We have been tracking the industry through our GBGC 50 index of leading shares for some time and their performance shows that gone are the arguments that gambling is recession proof.
This index is made up predominantly of the major land-based corporations such as Wynn Resorts, OPAP, LVS, Rank, Ladbrokes, William Hill etc.
The index reached a peak in January 2008 and the industry had done well. Smoking bans have not been enforced in Las Vegas and Macau but this was not the case for most of Europe. Then the credit crunch hit and caused gamblers to stay at home, tighten their belts as unemployment (or the fear that you could be unemployed) affected their lifestyle.
There is certainly less economic fear today but fear about unemployment remains. Most stocks, however, have recovered from their lows and this is encouraging.
The index of interactive gaming stocks, the iGBGC Index, tells a different story. As consumers stay at home rather than get the car out, fill it with expensive petrol, drive to a gambling location, and buy food and beverage at venue prices, the option of staying in to gamble has become more economically attractive. Add to this the continued roll out of broadband which enables customers to access information faster and thus achieve better value and you can see that this business model has resilience.
This is not to say the online industry doesn't have its own problems. While the growth drivers are in place and will continue to be there for the foreseeable future the main problem that the industry faces is that of government.
With the exception of the offshore jurisdictions, not one government is warming toward Internet gambling. They fear it and their response to it has been negative. Even the DCMS in the UK recently announced new measures for operators based offshore that take bets from UK citizens. Those operators must now licence in the UK and although Sports Minister Gerry Sutcliffe has said this will enable better protection for the consumer, the real reason relates to taxation and the funding of horse racing.
We were moving (albeit slowly) in the right direction toward more liberal markets. But we now seem to be lurching back towards protectionism both politically and legally. Results from the courts are confirming the current political mood and the competition authorities have gone quiet.
This trend toward protectionism coincidentally seems to have begun with France taking over the EU presidency in July 2008. It is with some regret that we see the UK - the last bastion of the free market - beginning a consultation process that will introduce licensing of foreign websites. If the UK continues on this course, other countries may take a lead from the UK, regardless of whether the idea will work in practice.
Land based operators could be forgiven for thinking that a clamp down on offshore operators will benefit themselves. This is doubtful because if governments were successful in preventing tax-free offshore gambling what would the tax rates be on shore?
Higher taxes will mean less value for the consumer and the online market will consolidate because of it. This, in our view, will precipitate a number of mergers and acquisitions.
At the beginning of 2011 there will be some significant bargain businesses either through liquidation or where the shareholders want out.
In fact during the last recession some really good businesses came to market when the worst is over and the good times are about to roll.
The reason is that many entrepreneurs found that the pain of running a business during the bottom of the downturn so exhausting, both physically and emotionally, that the whole experience burnt them out and as a consequence they decide that this opportunity to sell should be grasped with both hands.
2012 is the year we should start to see an improvement: unemployment should be at manageable levels; government revenues rising as unemployment falls; companies will become more profitable; and government will start spending in the economy; assets acquired in the previous two years will seem cheap.
This article is an abridged version of the presentation given by GBGC CEO Warwick Bartlett at the IGE Gaming Leaders' Seminar.