GPWA Times Magazine - Issue 42 - October 2018

This questionwas posed recently in relation to the potential of the U.S. sports betting market, which changed dramatically back inMay when the SupremeCourt abolished the Professional and Amateur Sports Protec- tion Act of 1992, creating a path for states to offer legalized sports betting. It is a question affiliates should ponder as they develop their strategy for finding sports betting partners in the United States. Global Gaming and Betting Consultants has used the data it collects for its gam- bling reports to assess the issue. The original question was, “How many sizable brands can exist in a mature mar- ket? New Jersey is looking at 20-plus on- line brands in a population of 9 million people. But what is realistic long-term?” The answer depends on several factors: POPULATION A gambling market’s population is a good starting point in assessing how many iGa- ming brands it can sustain. In the extreme case, a market with no population will be unable to sustain a gambling market. But beyond that point, assessing the ability of a market to sustain gambling operators based on population alone is difficult. A number of other influences have to be considered. Alongside population size, a measure of the propensity to gamble within that population is required to judge the level of brand activity that can be sustained. Hong Kong is an infor- mative example. Hong Kong has a population almost one-fifth lower than New Jersey, but has a gambling spend per capita of $566, one of the highest in the world. Yet Hong Kong seemingly “sustains” just a single gambling operator: the Hong Kong Jockey Club. REGULATION AND TAXES Hong Kong highlights that regulation and taxes will influence the number of iGaming brands a market will sustain. The issue is not solely dictated by com- petitive forces of supply and demand. The government of Hong Kong restricts the regulated market to a monopoly license and charges a high tax on the monopoly’s betting activities. But the demand from consumers is such that the market could easily sustain more operators, as witnessed by the supply of unregulated gambling in Hong Kong, despite the severe penalties. Restrictive regulation and high taxes can suppress the number of brands a particular market can sustain compared to what population size and consumer demand suggest it should be able to sustain. The French and U.K. markets are a reflection of this influence. Both countries have similar-sized popula- tions, yet the U.K. regulated market is some six times larger (as measured by GGY in U.S. dollars). France has a high-tax gaming environ- ment and prohibits casino gaming online. A consequence of this is that France only has 15 iGaming licensees running around 20 different brands. When the French market opened up for competition in 2010, it was clear that an operator would struggle to turn a profit, given the tax rate, VAT and levies. Nevertheless, companies still applied for licenses. Each one hoped to be the “last man standing,” having seen off their ri- vals, then taking a greater market share for themselves. This situation seems to have been reached, with the number of active licenses stable around 15. Those license holders, however, have secured themselves a share of a market stunted by regulation and taxes. It is also hard to turn a profit in a market that in some previous years has had an effective tax rate of 53% of gross win. In the lower-tax, fully competitiveU.K. mar- ket, there are almost 1,000 remote gambling licenses. Clearly, there is a long tail of very small operators and brands. Behind the 10 leading brands, however, the secondary and tertiary brands do at least have the opportu- nity to secure a niche in a market six times greater than the French market. ONSHORE VERSUS OFFSHORE The attractiveness of a brand’s iGaming services to consumers is also determined by regulation and taxes. Are casino games permitted, for example? What payout does the sportsbook offer? This, in turn, influ- ences the nature of the offshore sector targeting the market and, therefore, how many brands the regulated market can sus- tain. In the U.S., some states are proposing very high taxes on sports betting license holders, which will lessen the betting of- fer’s appeal to consumers. SIZEABLE BRANDS AND DYNAMIC MARKETS iGaming markets are dynamic, and the number of brands that can be sustained will fluctuate. New operators can launch a new product or new brand that can carve a niche for itself, succeeding for a period before competitors catch up or copy. Brands also rise and fall in their fortunes at different points in time, maybe as a result of a strategic error by management or a marketing campaign Hong Kong has a population almost one- fifth lower than New Jersey , but has a gambling spend per capita of $566 , one of the highest in the world . Yet Hong Kong seemingly “sustains” just a single gambling operator : the Hong Kong Jockey Club . How many iGaming brands can a particular market sustain? G P W A t i m e s . o r g 45