The gambling industry is worth $475 billion and will reach $550 billion by 2023, according to Professor Leighton Vaughan Williams, director of betting research and professor of economics and finance at Nottingham Business School. The sector is clearly undergoing a revolution, and companies that play their cards right can win big. This is the concept Matthew Partridge explores in an article for MoneyWeek.
Opportunities for the American Market
The United States is one of the most attractive markets for the gambling industry. In 1992, President George H. W. Bush signed into law the Professional and Amateur Sports Protection Act (PASPA), which effectively banned sports betting throughout the United States. 14 years later, George W. Bush tightened the law by signing the controversial Internet Illicit Gambling Act (UIGEA) of 2006. All online sites were thus categorized as illegal. The UIGEA effectively prevented offshore bookmakers from accepting money from Americans.
The good news for the industry is that a 2018 New Jersey lawsuit overturned the federal sports betting ban (PASPA). This helped to avoid the impact of the UIGEA. Basically, if a state claims that a gambling outlet is legal, the UIGEA does not apply. So, as of 2018, states have more control over their own gambling markets.
As a result of these changes, there has been a sudden push for legalization. “More than 20 states have already legalized betting, and most of them allow online gambling in one form or another,” says Russ Mold of AJ Bell. “Another 5 bills are under consideration, and more than a dozen others may pass new laws for approval in 2021 and 2022”.
Of course, the removal of all restrictions does not mean that any operator will be able to enter the market. In a MoneyWeek article, Robin Wood, CFO and Deputy CEO of the FTSE 100 Entain gambling group, admits that virtually every state that has legalized online gambling so far has created many barriers to entry. Any company must spend a lot of money to reach “critical mass” in order to enter the American market. The market will soon be very consolidated. While the US market has many hurdles, companies that manage to get started in America will reap huge dividends. What’s more, Robin Wood predicts decades of growth for states like Texas, Florida, and California when they open their markets. It is estimated that total US online gambling revenue could reach $20 billion by 2025.
New Opportunities for New Markets
Gambling doesn’t end with the USA. Maksym Liashko, a representative of the bookmaker and technology holding Parimatch, believes that companies such as Parimatch cannot challenge large American players, while smaller companies can still take root in other jurisdictions. Many countries believe that the growing popularity of offshore gambling companies means they may have no choice but to formally legalize their activities. This is exactly what many are doing now, primarily in Germany, which is in the process of legalization.
As Liashko points out in a MoneyWeek article, fully legal gambling in China is just around the corner. The growth of the middle class in emerging markets as a result of decades of sustained economic growth is providing a boost to the industry’s bottom line and shifting the balance of power eastward. Professor Vaughan Williams notes that the Asia-Pacific region is already the fastest-growing gambling market in the world.
Entain spokesman Rob Wood argues that many countries have realized that bans can be counterproductive. Liberalization allows the state to get ahead of fraudulent firms and create a structure in which tax revenues and more money can remain in the local economy.
Perhaps the only significant fly in the ointment is the UK, where the pressure on gambling is increasing. Last year, the Gambling Commission introduced rules designed to make online casino games less harmful, including increasing the time between game cycles and removing displays of net financial position and elapsed time during gaming sessions, MoneyWeek notes. Richard Williams, a partner in gambling and regulation at Keystone Law, is currently working on another review that may recommend new rules such as “additional restrictions on advertising gambling” and even “possible mandatory deposit or loss limits.” It’s important not to overestimate the impact of such rules, Williams said. Any further restrictions will focus on casino gaming, with sports betting or lottery betting less affected.
The Future of the Market
One of the fastest-growing parts of the gambling industry is online casinos. While its sales still account for only 15% of the total sector ($60 billion), that figure is set to grow by 50% ($90 billion) over the next two years. Most of the gambling revenue still comes from the land-based segment. According to Professor Vaughan Williams, such establishments suffered during lockdown, but as vaccines are introduced and begin to take effect, they can expect to recover and grow. Russ Mould agrees that physical casinos have a future, especially high-profile resorts that have a brand name powerful enough to bring avid gamblers back and attract new ones. People will want to let their hair down, stay in a fancy hotel, watch a show, have a drink, and place a bet.
Rob Wood believes the gambling industry will ultimately be hybrid. The MoneyWeek article notes that most casinos use loyalty programs to link their online offerings to regular transactions. For example, MGM has a reward system that allows people who bid through the website to enjoy discounted hotel stays.