GPWA Times Magazine - Issue 13 - June 2010

StructuralGrowthDrivers UnderpinaPositiveOutlookfor the InteractiveGamblingSector “Regulation tends to lead toan increase in interactive gamblingactivity asmarketsbecome moremainstream.” By Gavin Kelleher, H2Gambling Capital W hile interactive gambling has not been immune from the global financial crisis of the last two years, it has continued to deliver impressive rates of growth and has displayed resilience that other sectorshavenot.H2estimates that the global interactive gambling industrywasworth$26.6billion in2009, which was an increase of 13.2 percent over2008. So what does the future hold for the interactive gambling sector? While we arenot forecastinga significant economic recovery,webelieve theglobal interactive gambling sector can continue togrowand weare forecastinggrowthof 14percent in 2010 and 12percent in 2011. The general consensus at present is that the worst of the financial crisiscouldbebehindusand therearesigns that the first“greenshoots” of economic recovery have been seen. However, we are inclined to remain on the bearish side in terms of the economic outlook.High levelsofunemployment are likely to continue in most EU countries, and the cautious consumer is unlikely to increase spending any time soon. Additionally, certain countries’ fiscal positions remainaworry, suchasGreece, Spain, Portugal and Ireland. Sogiven that the economic backdrop remains cautious andasignificantrebound isunlikely in the short term, we believe structural growth driverssuchas regulation, innovationand penetration will underpin growth in the interactivegambling industry. Regulatorydrivers remainpositive Predicting how governments are going to act in terms of regulation is a difficult task. Throw in that the regulation would be surroundingany formof gamblingand that task becomes all the more difficult. However, we appear to be at a point in time where there are more countries/ jurisdictions looking to take a favorable approach to interactive gambling than thereare those thatare looking toprohibit it. Regulation tends to lead to an increase in interactivegamblingactivityasmarkets becomemoremainstreamduetoincreased marketingandmorecompaniesbecoming involved in the sector. Italy, which started to license its online gambling markets in 2007, is being viewedwidelyasasuccessstoryforproper regulation, which allows commercial competition. The regulated online poker and online sports bettingmarkets have grown impressively in Italy since late 2007, and the regulation has been successful in moving offshore activity onshore. The French regulatedmarket is set to open in 2010, andwhile initial tax rates imposed lookhighlypunitive for the industry, most operators are set to sign updespite theregulatoryconditions, thus moving “onshore.” Denmark is another country that is likely to regulate, and, outside Europe, Australia appears ready toopen itsmarkets toagreater extent. H2 believes that the deregulation of interactive gambling across Europe will be a slow process conducted on a country-by-country basis but that by 2020 there is the possibility that as much as 35percent (in the regionof €50 billion) of what could potentially be a €140 to €150 billon marketplace would be accounted for by interactive market channels.However,given the importance of economies of scale in iGamingand the concentration of value in just a handful of member states, H2 believes that the winners in the European marketplace will be decided long before this time as the Italian, French, Spanishandperhaps German and Greek markets are played out in thenear future. In the U.S., the regulatory backdrop is more complex and everyone is split on whether regulationwill be introducedon a federalorstate level,or ifanyregulation will be introduced at all. At this stage, UIGEA is set to be implemented on 29 Gazing into the Crystal Ball