European Regulated Online Markets Data Report

Regulated European Online Markets Data Report – Summer 2012 3

Contents

Executive summary 4

Section 1: UK data report

Market at a glance 6

Introduction 8

UK online sports-betting 12

UK online casino 16

UK online poker 19

UK online bingo 22

UK NGR evolution 24

Appendix 1: UK POC tax analysis 26

Appendix 2: UK revenues by domicile 27

Section 2

Italian online market update 30

Italian market overview 30

Italian data analysis 33

Section 3

French online market update 40

Section 4

Denmark data report 46

Summer 2012 – Regulated European Online Markets Data Report 4

The UK market is worth £1.71bnGamblingData estimates that the UK online gam-ing market was worth £1.71bn in 2011. We esti-mate that sports-betting is the biggest contributor at £650m or around 38 percent of the total with casino not far behind at £547m or 32 percent of total net gaming revenue. The report found that poker is the next biggest product at £260m or 15.5 percent of the total, closely tracked by bingo which was worth the same percentage or £256m.

William Hill grabs overallmarket leadershipThe number one operator across all products was William Hill which GamblingData estimates holds a 15 percent share of the total UK market. The Gibraltar-domiciled firm holds leadership in casino, at 21 percent of the total market. But in sports-bet-ting, where the firm has leadership among fixed-odds operators with 16 percent of the total market it is being pushed closely by online-only firm bet365 which we suggest might well have taken market leadership within the last 12 months.

The online-only competitorsstake their claimOther online-only winners include Betfair which GamblingData estimates has clear leadership in sports-betting with 23 percent of the total market. In poker, it is no surprise that PokerStars holds a dominant position with an estimated 40 percent of the market. More surprising, perhaps, is that this single-product operator also grabs a top ten posi-tion in the overall market table with a 6 percent market share.

UK tax conclusionIf the UK point of consumption (POC) tax is in-troduced, GamblingData estimates that it could expect to generate a maximum of £256.5m a year according to current estimates of the total market size of £1.71bn. This is at the proposed 15 percent rate. However, GamblingData estimates that be-tween 5.25-7.25 percent of the market would likely avoid paying the tax meaning that realistically the government could expect to generate between £239m-£242m on 2011’s estimates.

Italian and French updatesThe Italian market has benefitted from the introduction of cash poker and casino-style card games. The piecemeal nature of progress in Italy may be playing into the hands of the Italian gam-ing giants, including Lottomatica which is starting to assert itself within the Italian online market. Meanwhile, in France the tax debate rages but with a new socialist government newly installed the likelihood of the online industry seeing any favourable change seems as far off as ever.

Executive summary

Section One


UK online gaming market

Sports-betting Casino Poker Bingo

£650m £548m £256m £259m

Percentage of UK total:

38 32 15 15

Market total: £1.71bn

William Hill

Product:


£100m £114m £21.2m £17.7m

UK market share percentage:

15 21 8 7

GamblingData estimate for UK total NGR – £252.9m

UK gaming market share estimate: 15 percent

William Hill stated online net revenues to December 2011 - £321.1m

Betfair

Product:

Sports Casino Poker

£142.2m £29.7m £11.8m

Market share

22 5.5 4.5

Market total: £183.7m


Betfair stated online ‘core’ net revenues to April 2012: £349.5m

Bet365

Product


£122m £28m £6m £6m

Market share

19 5 2.5 2.5

Market total: £162m

UK gaming market share estimate: 9.5 percent

GamblingData estimate for bet365 total online gaming revenues to March 2011: £650m

Paddy Power

Product:


£77.6m £34.5m £17.3m £5.8m

Market share:

12 6 6.5 2



Paddy Power stated total online net revenues including Australia to December 2011: €295.3m

Fig 1

The market at-a-glance


Ladbrokes

Product:


£49.3m £55m £10.7m £10.5m

Market share

7.5 10 4 4



Ladbrokes stated digital net revenue to December 2011: £163.4m

PokerStars

Product

Poker

£100m

Market share

39

Market total: £100m


Gamesys

Product

Casino Bingo

£63m £27m

Market share

11.5 10.5

Market total: £90m

UK market share estimate: 5.5 percent

Gamesys stated turnover year to March 2011: £99m

888

Product


£5.7m £43m £17.4m £15.5m

Market share

1 8 7 6


UK market share estimate: 5 percent

Stated total 888 B2C NGR for year to December 2011: $284.2m

Sky Bet

Product


£25m £33m £17m 1

Market share

4 6 6.5 -

Market total: £76m


BskyB stated gaming revenues to June 2011: £76m

BwinParty

Product


negligible £21.1m £19.7m £33.2m

Market share

Neg 4 7.5 13

Market total: £74m


Bwin.party stated online revenues to December 2011: €795.8m

Rank/Mecca/Blue Square

Product

Sports-betting Casino Bingo Poker

£9.5m £6.2m £55.8m negligible

Market share

1.5 1 21.5 -



Stated Rank interactive revenues for year to December 2011: £71.8m

Gala Coral

Product


£17.2m £10.3m negligible £41m

Market share

2.5 2 - 16



Stated Gala Coral remote gaming NGR to September 2011: £68.7m


The UK’s online gambling market has been the most open in Europe since it rose to prominence in the late-1990s. This comparatively long track record, combined with the relative illumination provided by the UK’s listed gaming entities and the efforts undertaken towards data capture by the UK’s Gambling Commission, means that in comparison with other European jurisdictions there is a wealth of data to consider.

But the picture is still far from complete. There are many obstacles to be overcome when attempting to get a handle on the size of the UK online market. UK-listed entities, for instance, go some way in attempting to obscure the amounts they generate in net gaming revenue from any given territory, and their home market is no exception.

Among the biggest players across the major products are privately-held entities which themselves are under no obligation to make geographic revenue shares available – or in some cases declare any revenue amounts at all.

Meanwhile, the peculiarities of the UK’s system of regulation means that its own Gambling Commission has found itself lacking data from the larger players. At best, it is thought the numbers put forward by the Commission for the size of the UK online market underestimate the actual total by at least two thirds.

According to the statistics given by the UK Gambling Commission in its statistics report from June 2012, UK-licensed remote gaming operators generated £680.1m in gross gaming yield for the year to September 2011, the equivalent of net gaming revenue. This compares with GamblingData’s estimate of £1.71bn in annual NGR which is based largely on figures from 2011. The Gambling Commission breaks this down as comprising £553.9m of general betting GGY, £110.2m from betting exchanges, a mere £2.23m from bingo and £13.75m in remote casino. This breakdown shows how distorted the picture of the UK market painted by the Commission’s figures has become as more operators have opted to move offshore.

Estimates for the size of the UK market are easy to come by, yet detailed analysis of the shape of the market, distribution of revenues across product types, growth patterns and market share analysis is more elusive.

For instance, the recent report from Deloitte – commissioned by William Hill – quoted a Mintel report which came close to the GamblingData estimate for net revenues at £1.7bn. However, it also suggested that sports betting was worth 44 percent of total market compared with our 36 percent calculation, with casino at 23 percent compared to GamblingData’s 33 percent.

With a consultation process now taking place over the government’s plans for the introduction of a point of consumption (POC) tax, the time is ripe to further examine the data and make some informed judgements over the size by net gaming revenues of the UK market overall, detailed by each major product and contrasting the growth rates achieved over the past three years.

The methodology of our study has been to assemble publically available data and commentary from market participants and analysts to pull together a snapshot of the UK market as it stands. Necessarily, some of our estimates are based on informed guesswork and hence we have a built-in margin for all our final headline numbers.

Still, we believe we are left with a more accurate picture of what is taking place within the UK online gaming market at a vital time in its development as it moves towards the latest serious attempt at taxation.

Introduction


The big four in sports-bettingOf the top four big UK high-street bookmakers constituted by William Hill, Ladbrokes, Coral and Betfred/Tote only the first of these appears in our top four ranking of online sports-betting operators.

The other three members of our sports-betting top four are all what might be termed insurgent firms, each with unique reasons as to why they have attained a position at the top of the tree.

Betfair, the London-based peer-to-peer betting exchange has arguably been the most disruptive, with a technology and a unique proposition which truly shook up the UK betting scene back at the turn of the Millennium, and whose influence is still widely felt across global online markets.

Stoke-based bet365, by contrast, is the firm which in terms of fixed-odds sports-betting took up the opportunities afforded by the rise of the internet to challenge the established order with a market-leading technological offer, ground-breaking marketing and advertising and a willingness to lead the way in the increasingly important area of in-play betting and live streaming.

Lastly Irish betting behemoth Paddy Power is a marketing-driven success with advertising that has consistently positioned the firm as an outsider even as it has grown to be a leading player not just in sports betting but across the online gaming world.

So of the UK’s terrestrial betting powerhouses only William Hill has truly managed to leverage its leading position on the UK high street into the online world, partly via a transformational acquisition in 2008 but also by a willingness to go head-to-head with its online rivals in terms of the its offer and marketing.

The rest of the UK land-based industry now faces a tough task catch up with its rivals. Ladbrokes,

having originally been well-placed online has latterly lost ground, a situation that current chief executive Richard Glynn has vowed to turn around. Coral, meanwhile, has been mired by its parent company’s debilitating debt situation and Betfred expects, with the integration of the Tote now nearing completion, that it will finally be able to make more of its online offer.

But all three will be intensely aware of the difficulty of the task ahead. William Hill has shown with its own turnaround that it is possible to supplant the perceived order of things at the top of the online tree, but for all the promise of recent comments from Ladbrokes that it is starting to see something of a rebound in its online business, it is still growing at a slower pace than the firms above it in the pecking order. This dilemma extends to the other two firms as well. Organic growth simply might not be enough.

Fig 2


The online-only surprisesThe dominance of PokerStars within the UK poker scene comes as no surprise given its huge liquidity and player-base advantages, but the degree to which that single-product success story propels Stars up the overall charts is perhaps more surprising.

Also worthy of note is the success enjoyed by Gamesys in the casino, games and bingo fields, outpacing UK-listed online-only firms such as 888. But perhaps the biggest surprise is the degree to which the online-only firms are coming to dominate the UK online sports-betting market.

It is the well-documented rise of Betfair’s betting exchange which first catches the eye with a 22 percent share of that market. In fact, Betfair has been in a market-leading position for some time, and the question now being addressed by that company is to what degree its new fixed-odds sportsbook offering will address the issue of a lack of competitiveness in in-play betting and other areas of online betting.

Indeed, in terms of fixed-odds sportsbook, it is another online-only insurgent – namely bet365 - which is leading the way. Comparing the two biggest sports betting operators, it can be seen that the differing time periods of their financial reporting muddies the waters somewhat. Betfair’s financial year ends on April 30 while bet365’s finishes on March 31.

But still, according to figures seen by GamblingData and submitted to the UK treasury consultation process, on fixed-odds bet365 is comfortably the leader, and if the growth rates of the Stoke firm and Betfair are compared it can be judged that bet355 might take overall market leadership in the coming year.

Of course, William Hill would counter that it will have a say in the course of this race – its sportsbook has itself grown since December 2012 (58 percent growth in the first-quarter according to the company’s first quarter 2012 interim management statement) but in truth the argument can never be satisfactorily answered as long as the pair have differing financial year-ends.

The point of consumption (POC) tax debateMuch has been made of the observation that with the introduction of a point of consumption (POC) tax on bets taken from UK customers, a percentage of UK-facing operators will ‘opt out’ of paying tax.

There will undoubtedly be more comment within the consultation process being undertaken by the UK government about whether the 15 percent rate being proposed (the same as UK gross profits tax) is fair.

What is clear, however, is that in sports-betting the performances of bet365 and Sky Bet both demonstrate the point that not only is it feasible to operate within the UK under the current GPT regime, but it is also possible to thrive in such circumstances.

Still, it is likely that some elements of UK revenues will evade capture by any POC regime instigated in late 2014, but this rate of avoidance will differ by product.

Much of this will be informed by exactly how operators rationalise the consequences of not being regulated in the UK, and how this challenges their ability to advertise and market across the UK.

For instance, in sports betting the level of avoidance is likely to be very low. The ability to advertise is very important to many sportsbooks – and the saturation levels of advertising around televised sport is testimony to this.

Even at the lower levels of our list, where NGR

Fig 3


is counted in single-digit millions and big-scale advertising is beyond operators’ means, the level of tie-ups with sports clubs and leagues is high. In these cases, a particular ‘stick’ which the government might look at wielding could be some form of joint liability between significant partners (i.e. the football clubs themselves) and the betting companies.

In online casino, the sector is much more tied to online SEO and affiliate marketing where the ability of the UK regulator to influence either the gaming companies or the ISP operators is far more limited. In fact, it is here that we feel the rate of POC avoidance would likely be highest – and the opacity of the companies in the lower reaches of our market analysis would appear to make this more likely.

Still, as can be seen from the analysis contained later in this report the UK government could expect a point of consumption tax regime to capture the vast majority of UK-based online gaming activity. According to our estimates, just 5.25-7.25 percent of the existing market would avoid the tax.

Hence, from our estimates of £1.71bn for the size of the market, and based largely on 2011 financial figures, we calculate that the UK could expect to garner annual revenues from the sector of between £239m-£242m.

There is a marked difference between the GamblingData findings and those of the aforementioned Deloitte report. According to Deloitte, the rate of avoidance would reach between 22-43 percent depending on the rate of enforcement that the government might be able to impose in support of the tax.

Indeed, according to Deloitte the shape of the UK market would change dramatically with the introduction of the tax with over a quarter of UK-facing firms finding their EBITDA margins falling below 10 percent and thus becoming likely to exit the market. Seeing as this report makes no attempt to judge the profitability of firms, we cannot comment on who may or may not be able to ‘afford’ to pay the POC tax at a rate of 15 percent.

But we would add that newly-regulated markets such as Denmark and Spain have attracted new entrants to the market despite the potentially high

cost of marketing and with tax set at higher rates than is proposed in the UK. It is also impossible to speculate about what levels of enforcement might be necessary to encourage compliance with the new tax, but, according to industry sources, the Danish example would seem to suggest that politely worded letters are just as effective as ISP blocking or other forms of blacklisting.

We would concur with the response to the Deloitte report of analyst Nick Batram at Peel Hunt who stated that he was “not convinced” that the flight to the ‘grey market’ would be as significant as Deloitte suggests, noting that this prediction is based on the French, Italian and US experience. He added in a report issued in March this year: “These are markets with very different evolutionary profiles and compositions to that of the UK – which is more established and where the leading players have a high level of brand recognition.”

What are they taxing?A different question to whether a 15 percent levy is sustainable is to try and understand just what it is that you are taxing. Differing versions of what constitutes net gaming revenue populate our calculations. One question that is impossible to answer is what level of bonuses are included within these calculations, and whether this will be included within any POC calculations. The suggestion is that operators will have to determine how to handle such issues with the UK Treasury, though whether the Treasury will be interested in giving the industry any kind of hearing on this is a moot point.


GamblingData UK sports-betting net gaming revenue estimate: £650.4m

Sports betting overviewSports betting provides the backbone to many of the leading operators’ offerings. From established high-street names such as William Hill and Ladbrokes to new online-only giants such as bet365 and Betfair, the UK sports-betting market is one of the most vibrant and profitable online gaming markets in the world. Many of the leading names also now have parent companies that reside on the London Stock Exchange, therefore giving a substantial base of basic data from which we can build our estimates for the size of the UK market. This has the corollary that the companies are also well covered by analysts, meaning we have multiple viewpoints from both market participants and market watchers as to estimates for how much of each company’s total sports NGR is attributable to the UK. That said there remain some obvious black holes within the market, where information is either scant or non-existent. In these cases, we have made best-guess judgements. This is particularly the case with the sportsbook minnows. Here we would make the case that an across-the-board estimate for each gives our estimate some room for manoeuvre when it comes to the ‘unknown unknowns’, such as any further largely Asian-facing bookies or any ex-white list operators.

The top four

BetfairThe jumping off point is Betfair which according to our measures is the largest sports-betting provider by UK-sourced net gaming revenue. According to the firm’s latest full-year results, Betfair’s sports net gaming revenue hit £268.2m for the 12 months ended April 2012. There are caveats to this number – such as the unknown quantity of other bookmakers laying off on Betfair’s exchange – but the degree to which the company gained prominence in the UK market from a standing start just over a dozen years ago remains impressive. Yet, despite the disruptive nature of Betfair’s early years, the self-admitted challenge the company now faces is to catch up and compete against fixed-odds businesses which are taking the lead in key areas such as in-play betting and multiples. The company does not break down individual product geographic splits, but does say elsewhere in its documentation that the UK represented 53 percent of total net gaming revenue. Taking this at its plainest, it means that UK sports net gaming revenues for Betfair is worth circa £142.2m.

Market share estimate: 22

Bet365Perhaps the biggest surprise in our findings is that in sports betting, the privately-held Stoke-based online only operator bet365 is the second overall, and the top operator in terms of fixed-odds. According to figures that the company submitted to the UK Treasury consultation on the introduction of the point consumption (POC) tax, the company’s total UK-derived net gaming revenue (NGR) hit £162m in its year to March 2012. This represents a marked 22.9 percent improvement on the assumed number for the year to March 2011 of £131.8m, which can be gleaned from the figures posted with UK Companies House which show a gaming turnover total of £439.3m. GamblingData has not seen the total 2012 gaming revenue figures, but it is believed that the UK represents around 25 percent of the total, which would put bet365’s total NGR at somewhere close to £650m. The figures GamblingData has seen do, however, break down the total UK sports-betting figure at £122m, putting bet365 within

UK online sports betting

Fig 4


sight of the leader Betfair and ahead of the leading UK high-street representative William Hill. As with Betfair the rise of Bet365 makes it plain that the UK online market did not have the high barriers to entry that some at the established UK betting firms might have suggested when online was in its infancy.

Sport-betting market share estimate: 19

William HillAccording to chief executive Ralph Topping’s “back of the fag packet” calculation William Hill has a market share of between 12/14 percent. But GamblingData adds at least a couple of percentage points for its own estimate. The company has broken out in presentations its percentage of online revenues derived from the UK as being 75 percent. However, when it comes to sportsbook sources suggest that the percentage derived from the UK rises to just under 90 percent. According to the company’s full-year 2011 results statement, total sportsbook revenues came in at £111.1m, and at 90 percent this gives us net gaming revenue for the UK sportsbook of £100m. The fight for top place in fixed odds might be closer than these numbers suggest, given the staggered nature of bet365 and William Hill’s financial year ends - since the close of the 2011, William Hill has been boosted by a 58 percent rise in first-quarter net gaming revenue across its online estate according to its most recent trading statement.

Sports-betting market share estimate: 15

Paddy PowerThe Ireland-based firm has a strong position within the UK market, one which it has increased substantially in recent years with a marketing presence that was previously thought to be the very definition of ‘punching above its weight’. However, when looking at the company’s 2011 full-year results, it becomes clear that Paddy Power is only slightly behind the market leaders in terms of revenue. Sportsbook net revenue stood at €114.2m for 2011 out of a total for online net revenue (ex-Australia) of €199.2m. As with the other top players, Paddy Power’s online arm certainly has momentum on its side – according to the firm’s first-quarter trading statement growth in the online sportsbook ex-Australia was running at 30 percent. The same can be said for Paddy Power as for bet365 and Betfair – incumbency on the UK high street has proved to be no protection against nimble

and innovative opposition. Though the company doesn’t break out the UK in absolute revenue terms, it does break down where its users come from, saying that UK active customers in 2011 came to 710,043 from a total active user base of 906,723. The number equates to around 78 percent of users, and if we apply that percentage to total sportsbook revenues of €114.2m that gives us a UK sportsbook revenue total of circa €89.4m. If the figure is calculated according to the year average exchange rate for 2011 of £0.868 to €1, then UK sportsbook net revenue comes in at £77.6m.


The next bestLadbrokesPerhaps surprisingly given the brand heritage, Ladbrokes is the laggard of the big UK names. Despite the most recent set of results from the company boasting of a 22.4 percent rise in sportsbook net gaming revenue in the first quarter 2012, this rate of growth at best only matches the opposition. Indeed, when compared with the growth rates of the fixed-odds companies above it on this list - it still leaves Ladbrokes lagging behind. According to the company, the UK represents approximately 70 percent of its total online revenues however sources suggest that this likely understates the UK percentage in sportsbook and that 80 percent would be a fairer figure. In 2011, Ladbrokes’ sportsbook revenues totalled £61.7m, and at 80 percent it means the UK is worth £49.3m, or just less than half the revenues of its major UK high-street rival William Hill.

Sports-betting market share estimate: 7.5

Sky BetOver the years Sky Bet has always appeared to be hamstrung by its parent company, whether due to a squeamishness in making a blatant association between the betting brand and the pay-TV group or for strictly commercial reasons. But by all accounts, there now appears to be more of a willingness on the part of the parent to give Sky Bet room to breathe in terms of an association with the company’s sports broadcast offering. Looking at the numbers, it can be seen that Sky Bet is now something of a force. On the assumption that its


revenues are pretty much 100 percent UK-derived, it can be seen that Sky Bet’s total online net gaming revenue of £76m in the year to June 2011 is putting the company very much among the front rank of UK online operators. In terms of sports-betting, and again according to industry-watchers, it is reckoned that its sportsbook is worth around 33 percent of revenues or £25m. It should be noted, however, that, going by the current run rate for growth, Sky Bet is already quite a bit bigger than this. In its interim presentation in late January, Sky Bet’s first-half revenues stood at £46m, up 35 percent from its first half 2011 figure of £34m. If this growth rate is repeated in the second half of the financial year, Sky Bet’s UK sportsbook revenues will likely be north of £33m.


CoralParent company Gala Coral says very little with regard to online gaming in its various documents. The most recent results statement from December 2011, covering the period to September 2011, shows that its online turnover tumbled to £68.7m from £90.7m. There is no level of geographical breakdown on this, but through talking to market watchers GamblingData believes that it is probably near enough 100 percent UK. However, compared to others, it is bingo which contributes the lion’s share of revenues. One comparison would be to look at major bingo rival Rank, whose interactive division generates over 76 percent of its revenue from bingo. Even accounting for Coral’s bigger sportsbook presence, it still seems fair to suggest that at least 70 percent of Gala Coral’s remote revenues are bingo, and giving some room for casino and poker it would mean that the sportsbook can be worth at most 25 percent of the £68.7m or £17.2m. Given Coral’s presence on the UK high-street behind market leaders William Hill and Ladbrokes with around 1,600 shops, this appears to be somewhat lacklustre. But it does reinforce one conclusion from this UK data report; that having shops on every high street is no guarantee of online success.


BlueSqVery much a second string player, Blue Square nonetheless has some visibility in UK sports-betting although this segment is dwarfed within parent company Rank’s interactive division results by the Mecca Bingo business. Still, according to Rank’s results for the year to December 2011, Blue Square achieved total net gaming revenue of £9.5m.


SportingbetAnalyst notes estimate that the UK is worth 5 percent of Sportingbet’s net gaming revenues. In the year to July 2011, the total NGR was £204m which means that the UK is worth £10.2m. Sportingbet’s presentations suggest that, across its business, sport is worth 71 percent, which if applied to its UK business means that the money it generates from UK sports-betting is £7m.


888Sport888 does not specifically break out its sportsbook offering in its results statements but places it instead within its ‘emerging offering’ which also includes social media earnings. However, it is thought that sports betting accounts for the vast majority of the emerging offering net gaming revenues. According to the 2011 year-end results, the emerging offering was worth $21.6m (£13.5m). If we assume that sports betting is worth 90 percent of this – a reasonable assumption – that would put 888Sport’s net gaming revenues at £12.1m. The company then says that across its products the UK is worth 46 percent which puts 888Sport’s UK net revenues at £5.6m.


The known unknownsVictor Chandler/BetVictorVery little information is available about Victor Chandler, one of the earliest online sportsbooks which made something of a splash when it made much of offering tax-free betting before the introduction of gross profits tax in the late 1990s. One market participant suggested the company was “very aggressive” with its pricing, suggesting it still appeals to the high-roller end of the market, an impression gained despite the reasonably high-profile advertising campaign featuring Victor Chandler himself but promoting the recent brand re-launch to BetVictor. Having spoken to market-watchers, GamblingData estimates that Victor Chandler is probably much further up the chain than Stan James and Betfred, with UK sportsbook NGR perhaps in the region of £25m.



Betfred/ToteThe combined Betfred/Tote online situation is perhaps the most opaque of the larger operators. Despite figures for Betfred’s whole business being available via Companies House, there is no information that breaks out any online earnings. The sale of the Tote to Betfred in the summer of 2011 came with a price-tag of £265m slapped on it, but again no detail was ever given for the value of the online operation. Via the acquisition, Betfred became one of the UK’s largest high-street operators with an estate running to about 1,350 shops. But as with Coral, it is by no means a given that a high-street presence means anything when it comes to online sports revenues despite the obvious advantages that a shop estate brings in terms of marketing and advertising possibilities. Having spoken to market-watchers GamblingData thinks that a figure of £16m – roughly equating to Coral’s UK online sportsbook revenues - is probably fair.


Stan JamesIt is very hard to know where Stan James sits in the UK tree. The only solid information comes from the company’s acquisition of the loss-making Betdirect business from 32Red in late 2007. According to the 32Red announcement at the time, Betdirect had made £7.1m in gross win in the previous 12 months. That revenue would have been almost wholly UK, but making a guess on sportsbook revenues is difficult. If it was 50 percent, it would leave us with a figure of around £3.5m. Bearing in mind that, according to sources, Stan James itself would have been more than double the size in net revenue terms, it would leave us with a figure in late 2007 of around £8m in UK sportsbook revenues. Putting the two figures together and adding a (perhaps generous) arbitrary 20 percent growth figure gets us to about £14m.


The also-rans:12Bet, 188Bet, Bodog, SBOBET, Bwin, 32Red, WBX, Unibet, Betsson, Betdaq, Boylesports, JenningsBet, StarSports, Fitzdares, BetButler, Sporting Index, PinnacleAll of the above-mentioned companies have some sort of presence in the UK market – and may indeed be up there in terms of net revenues with some of the aforementioned companies at the lower end of our list. However, despite many of these having high-profile English Premier League shirt sponsorships/official bookmaker deals (or in the case of Bwin in more glamorous foreign locales), there is simply no way to estimate any actual net revenues for these individually. However, looking across this sweep of firms it might be fair to suggest that between them they represent at most £40m in sportsbook net gaming revenue. This would also cover for the imponderables again mentioned above of ex-white list operators, if there are any.



GamblingData UK casino and games market estimate: £548.4m

UK online casino overviewArguably, the UK online casino market is the hardest to assess with many participants simply unwilling to allow any level of disclosure. This is where we find the long tail of very much unsung market participants, and as we point out in our assessment of the ‘grey’ market below it is the area where we should emphasise the guess element in the phrase guesstimate. It is this degree of opacity which maybe has led to the historic underestimation of the importance of online casino to the total UK market. As can be seen by our estimate figure, casino is very close to sports-betting in NGR terms but William Hill aside, the market is reasonably fractured and seemingly ripe for further consolidation, either via acquisition or via further aggressive land grabs. As it stands, an often made comment on online casino markets generally is that there isn’t any great degree of brand loyalty. This is the area of the market where the so-called black arts of search engine optimisation (SEO) and affiliate marketing truly come into play, and could be one of the reasons for the wide spread of market participants. It is the acquisition of expertise in these areas which arguably propelled William Hill to the top of the heap, and is also the factor which lies behind the success of companies such as Gamesys and 888.

William HillWhen it comes to casino, it is the 2008 deal with Playtech that saw the latter take a 30 percent stake in William Hill Online in return for the injected Uniplay assets that transformed the company and left it with by far the largest, visible, UK casino and games segment. William Hill has recently taken to splitting its UK casino and games segment into two, with a Playtech casino element and a Vegas/games and skill segment. Both are roughly of equal size, but according to sources the UK splits for both segments are very different. The ‘download’ casino – that is what the company called its Playtech casino in its last full-year report for 2011 – totalled £81.4m in net gaming revenue but is apparently only about 50 percent due to the UK or £40.7m. The Vegas, games and skill element, meanwhile, is more UK-focused and like the sportsbook generates about 90 percent or £74m out of its total net gaming revenue of £82.2m from the UK. This means the total net gaming revenue at William Hill’s combined casino and games segment is £114.7m.

Casino market share estimate: 21

GamesysThis privately-held company is one of the UK sector’s most successful online players as evidenced by the double-digit growth rates the company talks about in its financial figures that are filed with Companies House. In the year to March 2011, the operator of the Jackpot Joy brand among others saw ‘turnover’ – which we believe to represent net gaming revenue – rise by 33 percent to £99m off a rise in total wagers of 48 percent to £2.27bn. As regards geographic distribution, apart from a Spanish-facing operation Gamesys revenues are pretty much wholly UK-derived, meaning that we think £90m is UK revenue. In terms of product, Gamesys is a purely casino and bingo operator with the split likely to be around 70/30, meaning that UK casino revenues are around £63m.

Casino market share estimate: 11.5

Fig 5

UK online casino


LadbrokesPerhaps surprisingly, it is in the combined casino and games area where Ladbrokes comes closest to matching rival William Hill’s dominance. According to the 2011 figures, the two segments – reported separately as £56.9m for casino and £16.6m for games – account for a combined £73.5m in net gaming revenue. With the UK probably worth slightly less than 75 percent of this total, GamblingData estimates Ladbrokes’ UK earnings at £55m, or still under half of William Hill’s.


888888 has bounced back from a torrid few years, partly off the back of a resurgent poker business. According to its 2011 results statement, the casino and games segment was worth $148m and with the UK worth approximately 46 percent of total revenues across the group, this gives us a figure of $68m or £42.5m.


Paddy PowerThe Ireland-based operator puts its non-Australia gaming, poker and bingo into one gaming and other net revenue segment, making it harder to pin down what casino and games is worth. The segment is worth €85m out of total ex-Australia online revenues of €199.2m. Using a very rough guide that casino is worth more than both poker and bingo combined, we are suggesting that casino revenues at Paddy Power are worth 60 percent of that €85m figure or €51m. The 78 percent UK split then gives us a UK casino total of £34.5m.


Sky BetMaking good use of the Sky Vegas and Sky Poker channels, Sky Bet has made great strides in online gaming away from the obvious competence of sports betting. We estimate that the combination of casino games and poker is worth two thirds of the Sky Bet total revenues of £76m. This gives us a casino/poker total of around £51m, and sources suggest that poker is then worth about one third of this total, leaving us a casino total of about £33m, after we have shaved off a small amount of possible bingo revenues.


BetfairBetfair’s games component encompasses its casino operation alongside more casual games via its ‘Arcade’ operation. For the twelve months ended April 2012, the company said that this part of the business was worth a total of £56m, and applying the 53 percent UK revenue percentage it gives us a figure of £29.7m.

Casino market share estimate: 5.5

Bet365Total UK earnings for Bet365 according to the company are £162m, and again according to the figures GamblingData has seen the total gaming take was £40m. We do not know the split from this point between casino, poker and bingo but using William Hill’s splits between casino and other games products, we think that a split of 70 percent casino is prudent, putting bet365’s UK casino NGR at £28m.


PartyCasinoOne of the pre-merger PartyGaming’s key strengths was its strong casino earnings and this has carried on under the BwinParty banner. According to the 2011 full-year results, the casino and games segment was worth €263.7m, and with the UK generally worth 10 percent of earnings, then that leaves us with a UK net gaming revenue of €26.4m or £22.9m.


32RedA UK-focused – and handily UK-listed – largely casino operator, 32Red is a useful yardstick if looking at what the growth pattern of UK casino has been in recent years. Having fought and won a trademark-related court case against William Hill, 32Red has been making headway with its single-brand focus. Total casino revenues according to its 2011 annual report stood at £21.8m and assuming that 95 percent of that is UK, it gives us a figure of £20.7m.


NetPlayThe interactive TV-focused NetPlay runs the wholly UK-focused Supercasino website and is also making headway in the mobile casino market. According to its 2011 full-year results, the casino business now generates NGR of £20.6m, making it one of the bigger visible UK casino players.



Gala CoralIt is hard to judge the worth of online casino to Gala Coral, particularly as with its other major products it is now in the process of changing supplier to Playtech. Still, with the vast bulk of online revenues of £68.7m swallowed up by the bingo and sports businesses, we are left with a rump of perhaps 15 percent being casino (and discounting virtually any poker revenues). This leaves us with £10.3m un UK casino revenues.


ProbabilityThe UK-listed mobile-only online casino operator is useful as a yardstick generally, but is particularly of note because of its exclusively mobile-generated revenues. If mobile has now come of age in the sports-betting field, then it is surely not far behind particularly in casino. If so, Probability’s net gaming revenue of £7.3m in the year to March 2012 could be only the beginnings of a very big sector indeed.


RankRank gives a figure for casino earnings, largely from its land-based brand Grosvenor Casino, as being worth £6.2m. For all intents and purposes, this is wholly UK-derived.


The grey market:Unlike the UK poker scene, where the lack of visibility is almost wholly due to the impossibility of gaining data on one large operator, the UK

online casino market has revenue visibility issues that are caused by a proliferation of sites where we have very little information as to their activities. It is not hard to divine which these sites are – they exist on well-known networks such as Playtech, which is a listed entity but doesn’t break down its income geographically, and Microgaming, an Isle of Man-based software supplier which is particularly secretive about revenues. Well-known Microgaming casinos that might have a proportion of UK casino customers include such names as Carmen Media’s Jackpot City and Spin Palace while Playtech has such online names as Titan Casino, Casino Tropez, CasinoPlex and Casino Europa. In both cases it is impossible to know whether these generate any UK income. We have to assume that in terms of Playtech licensees a fair degree of any ‘grey’ UK business will have been mopped up within the Uniplay assets deal with William Hill Online. However, this won’t have accounted for all of it. Meanwhile, it is known that some Microgaming licensees have a fair presence in the UK online market. Then there are other lesser network/operator lights such as Intercasino, once quite big in the UK but now shrunk beyond calculation. For the sake of having a figure which at least can be argued against – and go towards our market size totals – we are going to estimate that both networks account for about £20m in net gaming revenues each. Add in what we can very much term the grey market of small online casino operators working both within and without the white list system, then we are estimating a total of around £60m in NGR. We caution, however, that of all our estimates this is the most ‘finger in the air’.



GamblingData UK online poker net gaming revenue estimate: £255.6m

Poker overviewOf all the major products within the UK online market, it is poker which has most clearly seen both a rise and fall over the course of the past 10 years. Of course, some market participants have ‘enjoyed’ more of a rollercoaster than others, but generally it can be seen that the market is currently going through something of a trough. The willingness or not of the major players to invest in UK poker is not simply a question of whether it is worth attempting to acquire new players during a revenue slump. There is also the issue of the dominance of the market leader. We deal with the issue of how to estimate the largest and missing slice of the poker pie below, but it is undoubtedly the case that PokerStars’ prominence is the biggest issue anyone looking at the UK poker market has to face. Challenging them in the UK would be costly, and arguably there might be easier opportunities elsewhere in the market. So for the time being, the poker market looks to be a case of PokerStars against the rest, with nothing to be done commercially at least to change the equation. Whether external events might have a bearing on the market is beyond the competence of this report.

PokerStarsThe obvious starting point for a look at the UK poker scene is unfortunately the one where we have the least visibility. There is simply no way of judging how much PokerStars is making in terms of net gaming revenues in the UK. The

only yardstick we have are the poker tracking services and they would seem to suggest that globally Stars is at least seven times bigger than its nearest competitors Playtech’s iPoker network and PartyPoker. Given that there is no geographical breakdown, however, it remains a mystery as to how big PokerStars is in the UK and therefore, it makes the job of sizing the UK poker market particularly tricky – effectively describing a pie chart with a huge chunk of it missing. The problem isn’t confined to this report. As one poker site exec told GamblingData, for business planning purposes his company effectively ignores PokerStars and only tries to understand what is going on in the rest of the market. In making our calculation of the size of PokerStars in the UK, there are other factors that should be considered. The UK is an open advertising market, much as with Italy and France, and although PokerStars is leading in both those countries, it is not by the same seven times multiple. The UK is indeed much more of a mature market than either of these markets and many of the operators hold dominant positioning in other areas of gaming. Although PokerStars is thought to be even more dominant in tournament poker – where there are no tracking service numbers to go by – it is literally not the only game in town. From talking to market-watchers, we have therefore erred on the side of caution and estimate that PokerStars is likely worth at most five times its nearest competitors William Hill and PartyPoker and hence we think its UK net gaming revenues stand at around £100m, making PokerStars worth around 39 percent of the market total.


UK online poker

Fig 6


William HillMuch as with the company’s sportsbook operation, William Hill’s poker site is very much UK-focused, according to the company, with 90 percent of its business from UK consumers. According to its 2011 full-year results, William Hill made £23m in poker net gaming revenues overall, so at 90 percent this leaves us with £20.7m. This puts it first in the ‘betting without PokerStars’ list, just ahead of PartyPoker.


PartyPokerPre-merger with Bwin, PartyGaming said that 16 percent of its total revenues came from the UK. It also said that poker was worth €137m of PartyGaming’s total revenues of €309m or 44 percent. In its 2011 full-year presentation BwinParty said the UK was worth 10 percent of net gaming revenue. Its revenue mix by product showed that poker was worth 27.8 percent. With total revenues across the group hitting €816m, and with the UK therefore worth €81.6m, this would put UK poker revenues at around €22.7m or £19.7m.

Market share estimate: 7.5

888888 has made something of a Lazarus-like return from the dead when it comes to its business-to-consumer business, across all products but none more so than poker. According to the poker-tracking sites, at the very least 888Poker has added over a third more average daily users within the past year or more, and this push up the charts has started to show through in the firm’s financial results. In the year to December 2011, total poker revenues rose 58 percent year-on-year to $60.6m. The company says that the UK is worth around 46 percent of total revenues, so using that measure UK poker is worth $27.9m or £17.4m.


Paddy PowerOnce we have stripped out our casino revenue estimates for Paddy Power out of the €85m of gaming revenues at the company’s ex-Australian online operations, we are left with €34m in NGR. It is likely that poker is worth the bulk of this figure, with the rump being bingo. Conservatively, we think poker is worth 75 percent of the remaining €34m or €25.5m. At the 78 percent UK split, this gives us a figure of €19.9m or £17.3m.


Sky PokerAccording to sources, Sky Poker accounts for about a third of Sky’s gaming revenues, which itself is about two thirds of total net gaming revenues. Using the total revenue figure of £76m in the year to June, the gaming element is worth approximately £51m, and one third of that is £17m which puts it ahead of many of its competitors. This figure would likely include some bingo NGR but at such a small level of income that it is not worth splitting it out.


PKRAs with the sports-betting market, PKR falls into the category of known unknowns. Privately-held, the figures that can be obtained at Companies House do not give any numbers for the revenues for the UK operation but rather give figures for the supply of technology to the UK business alongside revenues from the French-licensed operation. It is known that PKR is almost wholly UK-focused, and again according to market-watchers, its revenues are thought to rival the above-mentioned Sky Poker and 888. In line with these two we are ascribing a conservative £15m in UK NGR.


BetfairBetfair has had its missteps with poker - having originally bought its own network and


then decided to go back to a network that has subsequently been sold – but its net gaming revenues have held up reasonably well. According to results for the year ended April 2012, poker NGR hit £22.3m, and using the 53 percent UK yardstick we get to £11.8m.


LadbrokesIn terms of the UK poker scene, the deal between William Hill and Playtech saw Ladbrokes very much eclipsed as the UK sportsbook with the largest footprint in the UK. Ever since that landscape-changing deal in 2008, Ladbrokes’ poker operation has been on the slide, and according to the 2011 full-year figures it is now languishing behind most of its major rivals with total revenues of £14.2m. Using the same percentage yardstick as the sportsbook of 75 percent being UK customers that leaves us with a total of £10.7m.


Bet365Having taken 70 percent away from Bet365’s 2012 UK total revenues of £162m and a further 20 percent for casino, we are left with a rump of £12m to divvy up between poker and bingo. Having spoken to market-watchers, we believe that poker and bingo have a rough even split of this amount, so we are going to make it a 50/50 share meaning poker is worth £6m in UK-derived NGR.


The rest:Virgin Poker, Golden Palace, Mansion, Titan, Victor Chandler Poker, Spin Palace, Genting Poker, Littlewoods Poker, Yahoo! Poker, WSOP, Racing Post Poker, Blue Square Poker, Poker Heaven, Gala Poker, Coral PokerAs with the casino sector, there is a long tail of poker providers that are visible on the big networks – iPoker, Microgaming, Ongame, IGT and 888’s Dragonfish being the well-known names - where the visibility on net gaming revenues is either slim or zero. However, as more than one market participant suggested, this doesn’t stretch much beyond the known UK bookmakers. Some of the more obvious operators that at least make a play for UK custom are mentioned above, but there are a lot more names out there that may or may not have some element of UK business. Again, as with the sports-betting operators, we are putting a number on their combined operations that is derived from a best guess on what proportion of the market they might represent. We think the long tail of poker operators has a combined NGR of somewhere in the region of £20m.



GamblingData UK bingo market estimate: £259.3m

UK online bingo overviewJust what are pure bingo revenues and what comes from the side games – slots, other games and scratchcard-type offerings - on the same sites is very hard to gauge. According to those with knowledge of the bingo market, the split between side games and bingo is around 70/30. In terms of the headline figure for the UK bingo market, then, this split should be borne in mind suggesting perhaps that actual bingo revenues are in the region of £75m with the rest being actually side games revenues.

Mecca BingoLike major rival Gala, Rank’s Mecca Bingo business would appear to do well enough from having a presence on the UK high-street. It also gives us a pretty clear picture of what could be the market leader, although the figures given by the company in its full-year results put bingo together with games, but separate from casino. Still, taken as stated it means that Mecca Bingo is the UK’s biggest bingo operator by net gaming revenue at £55.8m.


Gala BingoThough parent company Gala Coral does not break out its online gaming revenue figures, it is thought that bingo accounts for the lion’s share of the total figure of £68.7m. In percentage terms, we estimate bingo to be worth around 60 percent of that total, or £41m.


BwinPartyOn a strict reading of BwinParty’s results statements, only 10 percent of its total online bingo net revenues of €63.7m (£55.3m) can be ascribed to the UK or €6.4m (£5.5m). However, the vast majority of this bingo income comes from the July 2009 acquisition of Cashcade by the then PartyGaming. At the time, the company said that Cashcade revenues from bingo sites such as Foxy Bingo and Cheeky Bingo and casino sites Getminted and Foxy Flutter were worth £44.9m in the year to December 2008. Accepting that a proportion of total revenues is casino, it would still suggest that with Cashcade being almost wholly UK-facing, the share of UK bingo revenues is much more than 10 percent of the total. Sources suggest that at least 60 percent of the €63.7m in bingo net gaming revenue would be a more reasonable estimate leaving us with total revenues of around €38.2m or £33.2m.


GamesysGamesys made total revenues for the year to March 2011 of £99m, and of that the UK represents about 90 percent or £90m. The split between bingo and casino is thought to be around 30/70 which gives us a UK bingo net revenue figure of £27m, which makes it one of the larger businesses. Among its brands are Jackpot Joy and the perennial UK bingo favourite Sun Bingo.


Fig 7

UK online bingo


TombolaGive or take Tombola is a wholly online bingo and UK-focused firm, and hence although privately-owned its Companies House figures give us a pretty accurate picture. The numbers for the year to March 2011 show that turnover – which we take to mean net gaming revenue – rose 21 percent to £26.8m, helped by a shirt sponsorship at English Premier League club Sunderland, which happens to be the company’s hometown.


William HillAlongside the more obvious product lines, William Hill also does comparatively well in the bingo field with total revenues of £23.6m. For the UK percentage, we are going to rely on the 75 percent official percentage marker, giving us a total of £17.7m.


888Having bought the Wink Bingo business – and with its own 888Ladies bingo offering already proving popular – 888 is one of the UK market leaders in bingo. Bingo revenues for 2011 came in at $54m or £33.7m. Again using the formula that the UK is worth 46 percent of total revenues, this gives us a number of £15.5m.


LadbrokesAccording to Ladbrokes’ 2011 numbers, bingo has been doing comparatively well with revenues for the year standing at £14m, up from £13.7m in 2010. With a UK percentage of 75 percent, this gives us total UK net gaming revenue for bingo of £10.5m.


Bet365As discussed in the poker analysis, it is thought that bet365’s bingo business is worth about the same in terms of UK-derived NGR so that totals £6m.


Paddy PowerThe last segment of Paddy Power’s gaming revenues can be ascribed to its bingo operation, which after casino and poker are taken out is €8.5m or £7.4m. At the 78 percent UK split this comes to £5.8m.


Marginal players – the long bingo tailAll the various sportsbook operators have bingo operations – the likes of Paddy Power, Betfred, bet365 – and then there is what we might call a long tail of operators. These can be found on the bingo software and network suppliers such as Playtech’s Virtue Fusion, 888’s Dragonfish and GTech’s G2 Bingo network along with lesser lights such as Microgaming’s bingo network, Parlay and Cozy Games. These networks include such known names as Littlewoods Bingo, Virgin Bingo, Sky Bingo but also the lesser lights such as Bobs Bingo, Benidorm Bingo and Ruby Bingo. As with the lesser lights in the other categories, putting a net revenue calculation against the lot of these is a hard job, but working on the idea that the long tail is worth a similar proportion as the long tail in casino, we think a figure of £20m makes sense.



Sports BettingUsing GamblingData’s £650.4m estimate for the size of the UK online sports betting market in net gaming revenue terms in 2011, and working backwards using a blended growth rate of selected publicly-traded companies in the sector, the below chart attempts to map the evolution of the size of the UK online sports betting market from 2008 to 2011. Subsequent charts for the UK online casino and poker markets use this same method.

The GamblingData estimates indicate that the UK online sports betting market has undergone significant growth over the last two years, with a raft of new customer sign-ups during the 2010 World Cup combining with the rise to prominence of mobile and in-play betting to drive growth of over 50 percent from 2009 to 2011.

From available company accounts it is clear that Paddy Power and William Hill have combined to drive the lion’s share of growth among publicly-traded entities in the UK online sports betting arena. While Betfair has seen consistent high single-digit growth and Ladbrokes has remained broadly flat from 2008 to 2011, the offerings of Paddy Power and William Hill have seen runaway growth, each more than doubling in gross gaming revenue terms since 2009.

Aided by an explosion in mobile betting, which accounted for 38 percent of total sportsbook stakes on paddypower.com in the first 19 weeks of 2012, GamblingData estimates that Paddy Power’s UK online sports betting revenue soared 71.6 percent in 2010 to €78.1m (£57.5m) before climbing 34.6 percent in 2011 to €99.1m (£77.6m).

Reaping returns from significant investment in the firm’s online offering following the creation of William Hill Online in 2009, GamblingData estimates that William Hill grew UK online sports betting revenue a massive 95.2 percent in 2010 to £73.4m, before notching growth of 36.2 percent in 2011 to £100m.

Fig 8

UK net gaming revenue evolution


Fig 9 Fig 10

CasinoGamblingData’s estimates for the UK online casino arena paint a picture of a market that burst into life in 2011, growing just over 20 percent in 2011 to £548.4m in net gaming revenue following two years of single-digit growth.

The data found in available company reports suggests that growth has not been evenly shared among market participants since 2009, with Betfair, Ladbrokes and PartyCasino staying fairly static and 32Red, 888, Paddy Power and William Hill each seeing decent year-on-year returns.

Providing an example of a smaller operator which has been able to grab market share in a congested market is 32Red, which GamblingData estimates grew UK online casino revenue 89 percent to £19.7m from 2009 to 2011. Of the mid-sized operators, GamblingData’s estimates suggest that Paddy Power generated double-digit growth within the segment in each of the three years from 2009 to 2011 while 888 last year halted a prolonged period of stagnation by growing UK online casino revenue 22 percent to $68.1m (£42.5m).

Market leader William Hill meanwhile saw the sharpest growth in absolute terms in 2011, growing revenue from the segment an estimated 33.9 percent or £29m to £114.7m. GamblingData’s estimates show that the £114.7m top-line figure generated by William Hill last year equals just under treble what the firm generated in UK online casino revenue in 2007, underscoring the extent to which William Online has outpaced the wider market in recent years.

PokerIt is more difficult to map the evolution of the UK online poker market due to the fact that historical revenue estimates for PokerStars, a firm which is dominant in the UK arena with an estimated market share of 39 percent in 2011, are unavailable. The historical market size figures in the above chart are crude estimates for this reason and are based on blended growth rates of the visible UK online poker market only.

GamblingData’s estimates suggest that the market has remained comparatively stable in net gaming revenue terms since 2008, failing to match the year-on-year gains observed in UK online sports betting and casino. Following an estimated 6.2 percent decline in 2010, the growth of publicly-traded companies within the UK online poker space suggests that the market recovered somewhat in 2011, growing 4.2 percent to £255.6m.

Leading this recovery were 888 and Paddy Power, with the former halting a sequence of sharp declines to grow UK online poker revenue 52 percent to an estimated $27.9m (£17.4m) in 2011 and the latter continuing a run of double-digit gains, albeit off a low base, with growth of 24.6 percent to €19.9m (£17.3m).

The estimates indicate that, over the four years in question, both PartyPoker and William Hill have seen revenue from UK poker players stay broadly flat while Betfair and, to a larger extent, Ladbrokes have seen returns slide.


UK Point of consumption tax analysis: UK online gaming market as a whole

GamblingData market estimate: £1.71bn

UK tax take if 100 percent of the market pays POC tax at 15 percent: £256.5m

GamblingData estimate for rate of online gaming tax avoidance: 5.25-7.25 %

Taxable revenues if 5.25 percent rate of avoidance: £1.61bn

Taxable revenues if 7.25 percent rate of avoidance: £1.59bn

GamblingData estimate for annual UK online gaming tax take based on 2011 earnings figures: £239m - £242m

UK sports-bettingGamblingData market estimate: £650.4m

UK tax take if 100 percent of the market pays POC tax at 15 percent: £97.5m

GamblingData estimate for rate of online sports-betting UK POC tax avoidance: 4-6 %

Taxable revenues if 4 percent rate of avoidance: £624.4m


GamblingData estimate for UK online casino tax take: £91.7m - £93.7m

UK online casinoGamblingData market estimate: £548.4m

UK tax take (if 100 percent of the market pays POC at 15 percent): £82.3m

GamblingData estimate for rate of UK online casino POC tax avoidance: 10-12 %



GamblingData estimate for UK online casino tax take: £72.4m - £74m

UK online pokerGamblingData market estimate: £255.6m


GamblingData estimate for rate of UK online poker POC tax avoidance: 4-6 percent




UK online bingoGamblingData market estimate: £259.3 m


GamblingData estimate for rate of UK online bingo POC tax avoidance: 3-5 percent




Appendix 1


UK-derived revenues by domicile:From Gibraltar £950m

William Hill £252.9m

Betfair £183.7m

Bet365 £40m

Ladbrokes £125.5m

888 £81.6m

BwinParty £74m

GalaCoral £27.5m

Gamesys £90m

Victor Chandler £25m

Betfred £16m

Stan James £14m

32Red £20.7m

This equates to at least 55 percent of UK-derived revenues being due to Gibraltar-domiciled operators.

From Isle of Man £250m

Paddy Power £149.8m

PokerStars £100m

This equates to at least 15 percent of UK-derived revenues being due to Isle of Man-domiciled operators.

From Alderney £190m

Sky Bet £51m

Rank Interactive £71.5m

Gala Bingo £41m

Sportingbet £7m

NetPlay £20.6m

This equates to roughly 9 percent of UK-derived revenues being due to Alderney-domiciled operators.

Definitely UK:Bet365 £120m

Sky bet 25m

= c£145m

This equates to roughly 12 percent of UK-derived revenues being generated by UK-domiciled operators.

Appendix 2

Section Two


Italian market overviewThe progress of the online gambling sector in Italy has been followed closely by the rest of the European industry, but to understand the dynamics of the performance any analysis must arguably look for context at the broader Italian gaming market as a whole.

With both online and offline turnover now touching €80bn, Italy’s gaming sector is an important source of tax revenues, employment and, of course, profits for at least some of its participants. Of the €79.9bn total spend in 2011, €61.5bn was returned to players in winnings (leaving a margin for operators of €18.4bn) and €8.7bn was generated in revenues for the Italian government coffers.

But while turnover increased substantially year-on-year (from €61.4bn in 2010), the tax take remained virtually unchanged from the €8.8bn and €8.7bn generated in the previous two years. Still, margins increased €1bn from €17.4bn in 2010 as punters moved to products offering higher returns. And it is three such products that are proving to be the driving force behind the expansion; in the land-based environment video lottery terminals (VLTs), primarily located in arcades, betting shops and gaming outlets and in the online world casino and cash poker.

Alphabet cityOf the three it is the VLT rollout which has been arguably the most important. According to figures for February published by gaming authority AAMS, some 37,000 machines are now in operation. Although this represents a slight fall from the 39,000 active in January, operators still have the opportunity to install a further 20,000 before they reach the maximum limit of 57,000.

In 2011 turnover on VLTs amounted to almost €15bn, and according to figures from the research company Censis Italian players each staked an average €609 during 2010 playing these machines.

It is clear that a certain degree of this spend is substitution, apparently at the expense of lower payout ratio AWPs. Turnover on the 360,000 AWPs installed throughout the country slipped back for the first time ever in 2011 to €30bn from €31bn the previous year, at a time when the

rollout of VLTs was in its early stages. But still, the relatively small fall in revenues suggests AWPs are proving to be reasonably resistant to cannibalisation.

The only cloud on the horizon for the ten gaming machine operators, the largest of whom are Bplus, Gamenet and Lottomatica, is the spectre of the multi-million euro fines hanging over them. This relates to the long-running saga over disconnected machines that has been hanging over the industry since 2007, and which in late February was reignited when Italy’s national audit office suggested the companies in question should pay fines of €2.5bn. The dispute is yet to be resolved.

But the other products that have contributed most to the growth in turnover for the sector are online cash poker and casino which both launched in the middle of July. Even though spend on tournament poker has fallen sharply, overall turnover on poker has increased. The new products have been heavily advertised by all major operators since their launch leading to calls from some politicians for more controls – or even a ban – on the marketing of gaming on TV and elsewhere.

The Lottomatica EmpireThe one company most active in promoting its complete portfolio of gaming products is Lottomatica. The company is fortunate to be monopoly operator for the newly-revitalised Lotto game 10elotto and for scratchcards.

Recent analysis from Credit Suisse pointed out that its 25 percent upgrading of Lottomatica EBITDA estimates had been driven largely by its expectations for VLT profitability (twice the amount previously forecast), with the rest coming courtesy of better lottery prospects, with 10eLotto and the scratch and win concession both beating expectations. But Credit Suisse’s Matthew Gerard noted that Lottomatica might yet surprise on the upside.

“As has happened in each of the last two years, however, we would not rule out further innovation on scratchcard price points or distribution (an 8 percent planned increase in point of sale) to drive modest upgrades,” Gerard wrote in April this year. “We also note that our 2012 VLT estimates assume an 8 percent decline in terminal wagers per day as more

Italian online market update


capacity in the industry is added. To date there has been no slowdown in wagers/terminal and capacity growth across the VLT industry is not accelerating from the growth rates seen through most of 2011.”

However, Lottomatica has also been successful in developing its online business, in large part thanks to its widely-advertised ‘Lottomaticard’ online payment card which is distributed in many of the 97,000 retail outlets that form its retail network. Of that, 68,000 of the outlets offer some form of gaming (Lotto, scratchcards, horseracing pools games and sports betting) and of these some 32 percent have one or more VLTs on the premises.

It is no surprise therefore that the Italian public, still more cautious than other European neighbours about using credit cards online, have chosen a safe pair of hands that is available on every street corner - there are more Lottomatica outlets than banks and post offices put together - for playing online casino and other games. The company was also one of the first to offer a dedicated app for sports betting.

Lottomatica has by far the largest share of casino spend – 25.6 percent in May according to the latest figures available from gaming authority AAMS - and is in the top three for both tournament poker and cash poker with 11.2 percent and 14.2 percent respectively. It is also the top performer in online sports-betting.

Lottomatica’s main rivals for all online products include white-label provider Microgame – which also uses retail outlets in support of its online business - while in poker it faces up against PokerStars which also has a payment card but is much more focused on recruiting pure online players via aggressive promotional activity.

With SNAI in the doldrums due to the declines in stake levels of betting on both horseracing and sports, and SISAL also struggling in part as a result of its Superenalotto game being eclipsed by the 10eLotto frequent draw game, Lottomatica is beginning to dominate the whole sector. The company’s scratchcards business reached a record €10bn in turnover in 2011 whilst lotto bounced back to a buoyant turnover of €7bn as a result of the new variant. Add to this the fact that Lottomatica is also one of the top performers in the €5bn gaming machine business and it

is clear that it will be a tough job for any new entrant to gain a substantial share of the market.

Making casino payOne company that has dedicated substantial resource in upmarket TV advertising in order to carve out a niche is William Hill which has managed to gain a market share of around 6.8 percent in the fledgling casino business, which until recently was the only product currently on offer on their site. While overall growth in the casino segment has been fairly modest to date, the introduction of online slots in December is bound to stimulate turnover dramatically at both William Hill and across the market generally.

Power to PokerStarsHowever, as mentioned above, the operator that has enjoyed the most successful promotional campaigns is PokerStars which, with big money tournaments and big name players, dominates the Italian poker market. Even before the company obtained a licence it was, controversially, advertising its dotnet play-for-fun site widely and, with many Italian players previously registered on its dotcom site, it was able to hit the ground running when it did launch its pokerstars.it website in March 2009.

Now, with plenty of TV coverage, Pokerstars has secured around 31 percent of all of Italy’s poker business with only Microgame’s collection of operators using the People’s Poker network outperforming it in the cash poker sub-sector during 2011 - although by March 2012 Pokerstars had taken top spot here too.

The other major operator in the online space is Bwin which, overall, has a share of around 10 percent of all online gaming spend. Relying more on its partnership, acquisitions and sponsorship deals than major advertising campaigns, the operator has managed to secure third or fourth position in the rankings for each of the four main online products (sports betting, tournament poker, cash games and casino).


Sports-betting in the doldrumsHowever sports betting - both online and via retail outlets - is suffering a distinct bout of fatigue as the gaming authority’s tight control over the betting offer prevents any development to allow it to defend its corner in the new, more competitive, landscape.

The maximum winnings from betting on sports at fixed odds is a mere €10,000, a figure established when CONI, the government department that ran the Totocalcio pools game, first oversaw the launch of fixed-odds and set the modest limit to prevent cannibalisation of the historic football pools in 1998.

Fourteen years on, the pools are now insignificant but big punters are still limited to staking a maximum of €10,000 divided by the value of the odds. Therefore anyone wishing to bet big has to look offshore. Moreover, any stake or winnings over €1,000 have to be paid electronically, which can be a disincentive to many punters.

The most recent news on the possibility of AAMS opening up the ‘palinsesto’ to more games and markets – particularly when it comes to in-play - might provide some relief, though it would only be a measure of good news and will not solve all the issues. Still, while sports betting may have entered a period of decline, there remains a range of simple remedies which, if applied by the gaming authority, would undoubtedly turn around the fortunes of bookmakers.

The race is nearly lostIn contrast, the horseracing industry has seen stake levels halve in five years and will need something more like Harry Potter’s magic wand to cure its ills. The list of ills is long and familiar: fears over race fixing, an overly bureaucratic governing body that can boast few people knowing anything at all about horses or betting, low payouts (around 70 percent compared to around 80 percent for sports betting), disorganised calendars where often races from different meetings start at the same time, and disastrous decisions by operators close to the authority which ensured that racing was kept off mainstream TV and only visible in betting shops. All have contributed to the current state of affairs.

This year could not have got off to a worse start as workers in the industry went on strike for a month giving punters only overseas, better quality racing to bet on. With only platitudes coming from leaders of the racing industry and ever-growing competition from other products both in betting shops (VLTs, slots and, by the end of the year, virtual racing) and online, few would bet on a revival any time soon.

Overall, 2012 could prove to be an even better year for the gaming sector than 2011 in terms of turnover, margin and percentage growth levels. Machine operators will be adding to their VLT estates as they are only two-thirds of the way through their installation programmes. Gaming authority AAMS is working on decrees to allow exchange betting (most likely to be launched in the third quarter of 2012), virtual games (before the turn of the year) and the aforementioned expansion of the current restricted sports-betting programme. Online slots will go live on December 3, 2012, whilst several dozen new remote gaming licensees launched new gaming sites during the first half of the year.

A taxing timeApart from broader economic conditions, the only clouds on the horizon – horseracing travails aside – are mostly generated directly by the Italian government which has shown high levels of unfavourable interest in the industry of late. Those on the left of the political spectrum are increasingly hostile to the industry, calling particularly for controls on advertising and measures to combat problem gambling about which little is known.

Others in the centre and the right see the industry more as a cash cow that helps finance the current debt problems. Taxes are due to go up on gaming machines next year, and, from September 1, players who strike lucky when betting on numbers games (apart from online) such as Superenalotto and scratchcards will see their winnings hit with a 6 percent tax similar to that already applied to Lotto.

But Gerard from Credit Suisse suggests that Lottomatica management are sanguine about any possible changes to the tax regime. “Whilst it is difficult to dismiss the prospect of tax increases completely, Lottomatica management has appeared much more confident in recent conference calls,” he wrote. “The fiscal decree passed in February presented the Italian government with an opportunity to levy higher tax


rates on the industry which was not taken (despite lobbying from a small number of ministers) and the Italian government has a good track record at optimising gambling tax revenues by working with the industry on new product expansion – a theme we expect to continue. Since 2005 Italian government tax revenues from the sector have trebled, the total gambling market has grown 73 percent and Lottomatica’s Italian profits are up c175 percent.”

It appears that many of the ingredients are there for the online sector to continue to boom, with only government intervention causing any worries. With Italy’s economy having already hit rock-bottom and taxes for the country’s citizens soaring (VAT is now 23 percent), it appears that the Italian public’s interest in gambling shows no sign of waning.

Italian online data analysis:

The poker marketFrom its inception in September 2008, the Italian tournament poker market registered steady, yet impressive growth for a period of 16 to 18 months before swiftly levelling off in the first quarter of 2010. Month-on-month turnover growth within the segment averaged 13.6 percent in the 15 months between November 2008 and January 2010, before falliing to an average minus 1.2 percent in the subsequent 17 months between February 2010 and June 2011.

In the calendar year 2010, coming on the back of the 16-18 month ramp-up period, turnover averaged €262.2m a month to end the year at €3.15bn. The consistency of the monthly turnover figures over this 12-month period, encompassing the 2010 Football World Cup, speaks to the maturity of the tournament poker segment prior to the introduction of the cash form of the game.

Much of tournament poker’s player activity was predictably cannibalised following the introduction of cash poker in July 2011. Average monthly tournament poker turnover in the eleven months from July 2011 to May 2012 equalled €120m, less than half of the €260.1m averaged in the preceding 18 months.

Despite the significant cannibalisation of tournament poker, it should be noted that the introduction of cash poker has served to grow Italy’s legal online market in absolute terms. Average monthly gross gaming revenue from both forms of poker equalled €34.7m between July 2011 and May 2012, up 16.2 percent from the average €29.9m generated by tournament poker alone in the same period a year previously. This suggests that a significant portion of Italy’s online poker market was still occupied by unlicensed operators prior to the introduction of cash games.

Figure 3, shown on the following page, displays the extent to which the market has grown in gross gaming revenue terms since the July 2011 introduction of cash poker.

Fig 1 Fig 2


In contrast to the experience with tournament poker, Italy’s cash-poker market seemed to reach maturity immediately, registering flat average month-on-month growth in turnover between September 2011 and January 2012 and skipping the gradual ramp-up period observed in the tournament form of the game.

It is likely that cash poker’s rapid rise to maturity can can be traced back to a phenomenon noted in GamblingData’s September 2010 Italian Gaming Market Report of Italy’s poker tournaments averaging less than three players at a time and thus often resembling cash games. The GamblingData report stated: “The figures suggest that the tournament poker scene is much more akin to cash poker in the rest of Europe with players getting involved in a proliferation if micro-tournaments with small entry fees.”

Given this phenomenon, it is reasonable to surmise that the opening of the cash-poker market simply soaked up a pool of players that had previously been catered to with tournament offerings designed to resemble some of the feel of cash games in terms of game turnover and speed of play. With operators having already built brand loyalty and proven their back-end capabilities to existing tournament poker players, the cash poker market arrived fully-formed with a simple transfer of traffic from operators’ tournament tables to their newly-introduced cash tables.

The latest set of online gaming data released by Italian gaming authority AAMS reveals that Italy’s cash poker market generated gross gaming revenue of €18.0m in May, down marginally

from €18.1m in April. The sequential dip follows equivalent declines of 13.4 percent, 6.5 percent and 9.4 percent in February, March and April respectively and confirms a notable softening of the market since January, when Italian concessionaires collected €24.6m in cash poker revenue.

As shown below in figure 3, the recent dip in gross gaming revenue from the segment has marked a departure from a steadier six-month period from August 2011 to January 2012 during which monthly revenue stayed broadly within the range of €23-25m.

To explain the recent softening in cash poker takings, it is useful to take a look at the historical impact of seasonality on Italian poker revenue, as well as the influence that fluctuations in the market-wide hold rate have had on the market’s headline figure.

Thinking about the slowdown in revenue in seasonal terms, from the back-end of winter to the start of spring, it is worth noting that January was the most lucrative month of the year for Italy’s tournament poker operators in both 2010 and 2011. Cash poker’s average monthly revenue total from February to May equalled €19.3m, 21.5 percent below the €24.6m generated by the market in January. Similarly, average monthly tournament poker revenue in the February to May period undershot January’s total by 7.9 percent and 17.4 percent in 2010 and 2011 respectively.

This would suggest that seasonality has a significant role to play in determining

Fig 3 Fig 4


levels of activity, with Italian online poker players spending more time away from their computers as the weather improves from January to May.

While it is intuitive that the changing of the seasons has had a major role to play in cash poker’s recent contraction, the latest AAMS figures show that gross gaming revenue within the segment has fallen back more sharply in recent months than turnover; perhaps a purer measurement of player activity.

While gross gaming revenue showed month-on-month declines of 13.4 percent, 6.5 percent and 9.4 percent in February, March and April respectively, turnover in terms of amounts wagered saw slightly milder falls of 11 percent, 4 percent and 9.2 percent over the same three months. More notably, while cash poker turnover rose 1.6 percent in May, gross gaming revenue within the segment went the other way, falling 0.6 percent.

To explain this slight disparity, figure 4 on the prior page displays monthly values of the market-wide cash poker hold rate, calculated by dividing gross gaming revenue by turnover, alongside the number of cash poker concessionaires listed each month by AAMS.

The market-wide hold rate has declined from a level of around 2.8 percent during a relatively stable period between September 2011 and January 2012 to 2.58 percent in May – representing a dent of up to €1.5m or 8 percent to monthly gross gaming revenue from

cash poker. With poker rake held constant, the shrinking market-wide hold rate most likely reflects an increase in the extent of promotional bonusing deployed by operators in the face of increasing competitive pressures.

Indeed, the latest market share data included in the AAMS report lists a total of 58 cash poker concessionaires for May, up from 48 in January. The recent influx of new concessionaires, many of whom operate multiple white label sites or ‘skins’, is likely to have contributed to a phenomenon of increased promotional bonusing within the market.

With the anniversary of cash poker’s introduction to the Italian market taking place in July, it remains to be seen whether this recent trend of contracting market-wide hold rate is one that will be maintained over the rest of the year.

Casino gamesThe opening of Italy’s online market to cash poker was accompanied by the legalisation of online casino games, excluding slots. The data released by AAMS since the inception of this new market segment indicates that online-casino games have been similarly well received by punters, generating gross gaming revenue of €104.2m in the eleven months to May.

With casino activity driven to a large extent by cross-sell from operators’ established poker platforms, the figures reflect a product that has shown healthy growth since July 2011 but that, in a similar fashion to cash poker, was

Fig 5 Fig 6


adopted by Italian punters very quickly.

Month-on-month turnover growth from September 2011 to May 2012 has averaged 6.7 percent. Following six straight months of sequential growth in monthly turnover and gross gaming revenue, February 2012 marked the first down month for the online casino-games market, with the two metrics falling by 6.7 percent and 14.7 percent respectively.

Online sports-bettingOnline sports-betting turnover in Italy last year suffered from the absence of a major football tournament, falling 16.8 percent year-on-year to €1.13bn after two years of double-digit growth in 2009 and 2010. While the absence of the World Cup undoubtedly contributed to the year-on-year miss, with turnover falling 48.6 percent in June and 28.3 percent in July, it should be noted that 2011’s total fell short of the €1.22bn registered in 2009, the last year without a major football tournament.

Indeed, the sector has experienced year-on-year turnover contractions in all but one of the 17 months from January 2011 to May 2012. Online sports betting turnover displayed an average monthly year-on-year decline of 17.8 percent from August 2011 to February 2012, before registering two relatively flat months in March and April as a run of high profile European football matches involving Italian teams drew the interest of punters.

Notably, the average year-on-year decline in monthly turnover over the final five months of

2011 accelerated to minus 15.8 percent from minus 11.3 percent in the first five months of the year, suggesting that the introduction of cash poker and casino games in July 2011 has served to cannibalise a portion of Italian punters’ sports-betting expenditure.

While online sports-betting turnover fell 16.8 percent to €1.13bn in 2011, the market dipped just 1.9 percent in gross gaming revenue terms to €209m as market-wide margins rose to 18.56 percent from 15.73 percent in 2010. The fact that operators are now keeping a larger proportion of each euro staked on online sports-betting may be a reaction from operators to protect their bottom line in the face of shrinking spend, or simply reflect of a consolidated/less competitive market in the year following the 2010 World Cup.

With Italian-facing operators having competed fiercely for players’ betting wallets during this summer’s European Championship in Poland and Ukraine, online sports betting turnover grew 65.8 percent year-on-year in June to €85.3m.

Online BingoSince it was licensed in December 2009, the evolution of online bingo in Italy can be characterised by three distinct stages of growth. Aside from a minor blip in the summer of 2010, the sector exhibited steady growth from its introduction in late December 2009 until spring 2011, registering average month-on-month turnover growth of 9.8 percent in the 14 months between February 2010 and March 2011.

Fig 7 Fig 8


Player activity then stagnated and declined somewhat in the late Spring and Summer of 2011, with double-digit month-on-month decreases in turnover during June, July and August corresponding with the introduction of cash poker and casino games in July. In the five months from April 2011 to August 2011, online bingo turnover exhibited average month-on-month turnover growth of -11.7 percent.

The segment has recovered somewhat since that summer downturn, with month-on-month turnover growth averaging 2.2 percent in the nine months from September 2011 to May 2012.

In the 12 months to May 2012, Italy’s online bingo market generated gross gaming revenue of €47.5m on turnover of €160.3m (at monthly averages of €4m and €13.4m respectively).

Online HorseracingItaly’s horseracing sector has experienced a prolonged decline in popularity in recent years, with overall betting turnover of €1.37bn from both online and offline in 2011 equalling less than half of the €2.75bn generated by the terrestrial sector alone in 2007.

The deterioration in betting on the sport was felt even more keenly on the online side last year, with online wagers falling 30.6 percent in 2011 to €68.6m against a 20.2 percent fall in terrestrial wagers to €1.30bn. Online GGR within the sector displayed an even steeper decline, falling 31.2 percent in 2011 to €18.8m as operator margins narrowed marginally to 27.4 percent.

Fig 9 Fig 10

Section Three


A market overviewFrance regulated its online gaming and betting market in the summer of 2010 and the diagnosis is far from rosy as it marks its second anniversary.

It is a well-worn industry truism that if the Italian experience is the poster child for regulation of online gaming, then France is the perfect example of how not to open up an online gaming market. Very few operators within the country have remained unscathed by the experience of being regulated in France. It had the potential to provide a major lift to many operators, but it signally failed to do so.

Yet there are signs of optimism within the market. Recent months has seen a number of small operators begin once again to look at opening up to French customers, with Jeux 365 being the latest to throw its hat into the ring in March.

Others smaller names, meanwhile, have been bought out by bigger players, as happened with Eurosportbet being acquired by Unibet for a total of €7m, enabling the former Eurosportbet directors Oliver Ou Ramdane and Sébastien Bougon to pocket a tidy profit from the deal - they bought the company from main shareholder TF1 for nothing as part of a management buy-out in May 2011.

Another small player, horseracing operator Betnet, went into receivership in December 2011and sold its remaining assets – its customers’ accounts - to France Pari for €50,000, although the company still owed the French treasury close to €1m in unpaid taxes.

The main culprit for this state of affairs, as ever, is the oft-criticised taxation system on player stakes rather than on operators’ gross gaming revenues, a system that many argue is structurally loss-making and incompatible with the business models of many online operators.

Hopes of any positive changes were dashed by the results from the recent elections. The victory of Francois Hollande and his socialist party in the Presidential and parliamentary polls have put a stop to any impetus there might have been for a change in the legislation.

This means a switch to a tax on gross gaming revenues, the one measure that operators would like to see implemented above all others, is very unlikely in 2012 and is now unlikely to happen in in the following years either.

It is too early to say whether the Socialists will be in total opposition to any relaxation of the regulatory framework surrounding the sector, while a rise in the tax levels coupled with the maintaining of the tax on stakes, something which cannot be ruled out, remains the biggest worry for the sector in France.

Sports-betting analysisOnline sports-betting in France recovered slightly during the first quarter of the year compared with the downward trends that dominated the vertical in 2011.

Amounts staked rose 14 percent to €175m during the quarter, compared with €154m in the first three months of 2011, while gross gaming revenues were up 7 percent to €37m. This is their highest level since the €38m achieved during the relative high that followed the opening of the market in the third quarter of 2010 and compares well with the €35m recorded during the equivalent period in 2011.

The number of active player accounts over the period totalled 338,000 and French operators improved their performance by reducing payout ratios to their clients. With a maximum payout ratio set at 85 percent of stakes, betting companies averaged payout ratios of 81 percent, cutting down on bonuses and tightening their odds but also recording higher amounts staked

French online market update

Fig 1


on football, which were up 27 percent for France’s top two divisions (Ligue 1 and Ligue 2) on the same period last year. This was tempered by a 13 percent drop in the amounts staked on tennis, the second most-favoured sport for French punters.

The payout ratio figures are interesting for a number of reasons. In a market where sports-betting operators have described their offers as being poorer than those of unlicensed sites, meaning the latter are more attractive to French punters, they have still managed to generate more stakes from their customers even though their offer is, in theory at least, even less generous than before. The payout ratio during the quarter is actually a point lower than that averaged during 2011 in France and compares with 92-97 percent on average for offshore bookmakers.

Clearly this is counter-balanced by the higher amounts staked by punters during the period and operators cutting down on costs: staff, technical and marketing; and improving on their operational efficiency. But the improved trend in online sports-betting represents a welcome, if slightly unexpected, development for the sector in France.

As an aside, a cursory scan of the different Euro 2012 odds offered by unlicensed and ARJEL-licensed sites reveals only marginal differences in the prices offered by the various operators, which would appear to contradict French operators’ claims.

Marc Guigo, chief executive of Betclic France, the leader in terms of market share at around 38 percent, says operators have adapted to the size of the market and are cutting their cloth accordingly. His group has undergone a major and “much-needed” restructuring project, he explains, with staff reduction of 20 percent in the past six to eight months.

“The market has gone from being something people were curious about to being at a stage of consolidation and customer retention and starting to generate margins. It’s part of the process of adaptation,” he says.

Had Betclic overvalued the size of the market? “I think the sector as a whole had. We knew and had already stated that the regulation presented

a doubt over the long term future of the sector. But we’ve adapted now and are already feeling the benefits.”

According to recent data published by French gaming authority ARJEL, Euro 2012 generated betting turnover of €30.8m across 31 matches. While the data from the tournament was comparable to that of the World Cup two years earlier when turnover reached €65m from 64 games, the €30.8m total nevertheless fell short of ARJEL’s €35m forecast.

Horseracing analysisFrench online-betting on the horses continued its steady progress as the sector recorded a rise in stakes of 13 percent to €291m during the first quarter of the year, compared with €257m in 2011. Gross gaming revenues were also up 20 percent, to €69m during the quarter, compared with €58m in 2011.

PMU has been the major winner in this vertical with close to 85 percent market share, followed in second by Zeturf, with around 15-20 percent, and others such as France Pari, Betclic and Unibet feeding off the rest. Although horseracing isn’t the core product for any of those three operators, they are still keen to make headway into the vertical.

Once again it is important to remember that the horseracing market is skewed in France. This is because of PMU’s monopoly on land-based betting, which gives it a major competitive advantage when it comes to operating on the internet.

Fig 2


In addition, it has not split its online and offline entities, causing major complaints from internet-only competitors, and can draw on the huge resources it has at its disposal as the leading tote operator in Europe, with just over €10bn of revenues in 2010-11.

However, this may be about to change. France’s Competition Authority has been tasked with looking into the matter since the start of the year and sources suggest it will find against PMU and order it to split its online and offline divisions, while French regulator ARJEL is also keen on fostering competition in the sector.

The Competition Authority has already declared itself in favour of a corporate and operational separation of PMU’s off- and online activities. A formal decision from the authority would force PMU’s hand. This would be a major step as it would mean PMU would have to compete on more equal terms with the likes of Betclic and Zeturf.

PMU’s figures for 2011 show it recorded €1.3bn in online stakes and generated €233m in gross gaming revenues. But it is understood that, like its private counterparts, its online operations are loss-making because of France’s taxation model, which taxes stakes at 7.5 percent with another 6-7 percent going in a levy to the horseracing bodies. With the payout ratio set at a maximum of 77 percent, and with taxes set at around 15 percent of the 23 percent left in GGR, even the mighty PMU struggles to be profitable.

Poker analysis

Poker has been the star performer since the online gaming sector regulated in 2010 but the first signs of player fatigue linked to the heavy taxation on operators and the rake they are applying to their customers are starting to show.

Stakes for cash games dropped 5 percent to €1.93bn during the first quarter of 2012 compared with the same period in 2011, while tournament fees rose 26 percent on an annual basis, reaching €367m.

Gross gaming revenues dropped 3 percent to €83m, as a 3 percent increase in active player accounts for tournament poker failed to offset a 9 percent fall in actives for the cash form of the game.

Poker players blame the rake of between 5-7 percent taken by operators on each pot as the main reason for this drop in cash game revenues and subsequent loss of interest. This is especially true for players who on average would be small winning players but end up as losing players once operators have taken their rake.

Canel Frichet, chief executive of market-leading operator Winamax, comments: “There’s very little we can do about it unfortunately. Until the government changes the tax system, which works out at close to 45 percent of GGRs for poker operators, we have to work within those parameters.”

Fig 3 Fig 4


MarketingAverage marketing spend across TV, radio, print and online channels plateaued at between €10m and €20m per month according to ARJEL. Four operators generated over 80 percent of all marketing revenues during the quarter, Française des jeux and PMU among them, and two from the leading private operators Betclic, BwinParty, PokerStars and Winamax.

The French market – a market participant speaksUnibet chief executive Henrik Tjärnström said in a first quarter results presentation earlier this year: “BetClic/Everest Group is the market leader still in the French market. They’ve also though incurred significant losses to get to that market leading position which we actively chose not to do when we suspended our activity in France in Q2 2010.

“The Bwin Group has been active too and they hold also a strong position in the French market. In addition to that there is PMU, the horseracing monopoly, that has a strong position as well. And Francaise des Jeux also hold that.

“But we’re up there on a top five position already now with the reactivation with our old database on top of the acquired EurosportBet database. We hold not an insignificant market share already today and that’s without doing much marketing and we have a really strong brand name in France and we see that now during Q1 when we reactivated our customers that they are quite enthusiastic to come back to us and to play with us.

“But the terms and conditions are still very difficult to get any really good profitability and as we said before we’re not planning to run a loss-making business in France but we are planning to be there and be ready for when the terms and conditions improve.

“If there is not an improvement in the terms and conditions it will actually lead to lower tax revenues for the government and in this financial austerity period I would have thought that the government would want more tax revenues and improving terms and conditions would actually bring that to them. We would expect that to happen but it’s a question about when.

“Operators are cutting down on marketing to try to save bottom line and that leads to a shrinking of the regulated market rather than a good growth that it should be and it can only be then that the unregulated market is growing on the back of that because the customer behavior on going from offline to online is still very much there so I would expect that to unfortunately be the case that the unregulated market is increasing.”

Fig 5

Section Four


Denmark is the latest country to add to our sum of knowledge on the working of regulated online gaming markets. Following the introduction of a new regulatory regime in January of this year, the Danish Gambling Authority issued its maiden numbers for the first quarter of 2012 back in April (with the second quarter numbers expected sometime in late July).

Given the small amount of information that is available, it is very difficult to draw any long-term conclusions about the state of the market. The gaming authority itself made an attempt to draw out yearly revenue estimates from the first-quarter numbers, though this was a simple exercise in projecting ahead based on the single quarter figures.

According to this calculation, the DK470m (€60m) of gross gaming revenues made by Danish licensees for the first three months of 2012 will translate to a 2012 total of DK1.87bn (€250m). That would be 25 percent higher than the previous DK1.5bn (€200m) projection set out in the Gambling Act.

However, the regulator cautioned about the obvious dangers of drawing any conclusions from the first numbers. “There may be fluctuations during the year due to the Olympics, Euro 2012 etc. These events will have an impact on the turnover for betting. The turnover for online casino is also highly likely to follow seasonal patterns.”

There was very little further detail from the SKAT statement. Online casino and poker revenue for the market during the first three months of operation was in line with expectations at DKK185m (€24.8m). Sports betting, however, did better than expected, with operators’ tax returns indicating revenue of DKK285m (€38.3m) for the quarter.

The Danish market opened on January 1. The operator-friendly regulations led to a large number of license applications and while early figures indicate that the market may be growing, operators are in a dogfight for slices of the pie.

Morten Ronde, director of operator group, the Danish Online Gambling Association said at the time of the release of the figures that it was good news that the initial figures had come in ahead of expectations. But he cautioned: “We have to realise that there are more operators to share the profit than expected. We are going to need at least a year to be able to tell how it is really going for the operators.”

One early conclusion, however, would be that the Danish market is following the example of both the French and Italian markets and seeing the existing gaming monopoly Danske Spil surge into the lead.

The last figures available from Danske Spil come from before the market opened and showed that the company achieved a gaming turnover of DK10.2bn in 2011.

In terms of what other companies have said, there has been very little public comment from any of the listed firms. The only mention given by BwinParty about Denmark in its May-dated first-quarter trading statement came in passing when it suggested that the closure of its previous Danish-facing dotcom business ahead of regulation in January 1 had mitigated the grown across the whole sports-betting business as the new site hadn’t been customised in time to meet the deadlines for the new Danish legislation.

Unibet, meanwhile, in its May first-quarter statement suggested that it was aiming for a top two position in Denmark behind Danske Spil. The company added that its recently acquired Bet24 business was particularly Danish-facing with more than 50 percent of the 29,000 active player accounts that came with the deal emanating from Denmark. The company went on to claim that this move could help it challenge for the number one position within the country.

Fellow Stockholm-listed operator Betsson said it in its first-quarter statement that it had launched two brands in Denmark, Betsson.dk and Danmarksautomaten.dk. It said it would also be working with media firm Berlinske via a franchise agreement. However, the firm added no financial detail.

Denmark data report


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MG Communications Casino

NG Communications Casino

Nordic Odds Betting/casino

PKR Betting/casino

PokerStars Casino

Red Club Gaming Casino

Scandic Betting/casino

Skill on Net Casino

Spilnu Casino

Sportingbet Betting/casino

Stanleybet Betting

Tipico Betting/casino

Tivoli Casino

Unibet Betting/casino

List of Danish licensees:


About GamblingData

The global gaming industry is changing fast. With many jurisdictions in transition between pre-and post-regulation, never has it been so important to have access to reliable data information about the market.

GamblingData provides clients with essential country, sector and company analytics to help achieve the best possible understanding of the underlying facts, figures and trends in support of their business, competitor, product and market research activities.

GamblingData provides the facts, intelligence and analysis gaming businesses need to make the most of the opportunities in a volatile business environment.

We have a team of four dedicated business analysts researching, compiling and analyzing relevant gam-bling data points from over 150 jurisdictions.

We are able to provide tailored data research services specific to your company requirements and/or access to an online database with historical data going back over 30 years.

Our database is updated in real time so you can be sure you are accessing the latest available research and has some market leading functionality allowing very focused intelligence gathering.


DisclaimerIn preparing this report GamblingCompliance Ltd. has made every effort to ensure the accuracy of the contents of this report. However, no representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this report.

Any reader, or their associated corporate entity, that relies on any information contained in this report does so entirely at their own risk. GamblingCompliance Ltd. and its employees do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refrain-ing to act, in reliance on the information contained in this report or any decision based on it.

© Copyright 2012 GamblingCompliance Ltd. All rights reserved.

The intended use of this report is for purchasers only. No part of this report may be (i) copied, photocop-ied or duplicated in any form by any means or (ii) redistributed or republished without the prior written consent of GamblingCompliance Ltd.

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European Regulated Online Markets Data Report

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Transcript of European Regulated Online Markets Data Report