Online gaming market on the verge of an explosion

June 23, 2010

LEISURE PARTYGAMING

-Richard Law is CEO of GB Group. The opinions expressed are his own.-

Online gaming is currently experiencing exponential growth and all the signs are there for this sector to sky rocket over the next few years. This is particularly relevant in Europe, where governments are seeking to capture tax revenues by regulating online gaming.

A recent report by KPMG entitled ‘Online Gaming: A Gamble or a Sure Bet?’ echoes this statement, stating cash-strapped governments around the world may consider relaxing current online gaming rules and restrictions in order to provide a much needed boost to tax revenues.

The global report reveals that where technology and social media are driving new forms of online entertainment, the likely move by some countries to bring internet gaming revenues on-shore, could soon see what has in some cases become an underground economy go mainstream.

Figures released in February by the UK National Gamers Survey Report revealed British gamers spent 280 million playing online casual games in 2009. Similar studies carried out in other countries revealed that French players spent 220 million and Germans 440 million over the same period.

The survey, carried out by TNS and Gameindustry.com, estimated there are 13.3 million Brits playing on various game portals and gamers in the UK were said to have spent  170 million on mobile games in 2009.

These figures confirm the incredible growth rate this sector has seen over the last couple of months, which is only expected to accelerate. Based on a recent study by Deutsche Bank, regulation, further broadband penetration and product evolution are the three main reasons for this expected surge.

This same report by Deutsche bank claims online gaming market penetration is expected to reach 9 percent by 2012. With global online gaming having recorded growth of 23 percent since 2001 and with home broadband users expected to reach 750m by 2012 (up from 481m in 2008), coupled with rising online gaming regulation across the world, these forecasts look very achievable.

Missing opportunities

Apart from the obvious business prospects for gaming companies following such expected growth, a lack of online gaming regulation could mean governments are staring a missing opportunity in the face. As such, many of them are quietly rethinking their opposition to online gambling.

For example, gaming tax could exponentially increase money flowing into countries. While many companies turn their backs on online gaming from a social responsibility point of view, we are expected to see a change of heart as a robust approach to regulation by governments will see them become more open to exploring these opportunities, while keeping social responsibility at the forefront of what they do.

In other markets

On October 13, 2006, President George W. Bush signed into law the Unlawful Internet Gambling Enforcement Act, which virtually illegalises most online gambling within the U.S. This move cost online betting sites billions and had an immediate negative impact on the online gambling industry. However, but in November 2009 the Treasury Department and Federal Reserve Board announced that enforcement was being delayed for six months to June 1, 2010. Bills to regulate and tax online gaming have also since been introduced, suggesting that the policy debate thought resolved in 2006 may be revisited.

Back then analysts said the measure would effectively bar online gambling companies from operating legally in the U.S., fundamentally altering their business models and perhaps even forcing some vulnerable operators out of business. Shares of many of these companies plunged, with some losing more than half of their value within minutes following the announcement.

The question of whether online gambling is, or in fact should be, legal is a hot topic in not only the U.S. but other countries around the world. There is a sharp contrast between the European Union countries and the U.S. with the former adopting a pro-gambling position and the latter trying to prohibit online gambling.

Many European countries have recognised the numerous advantages of legal internet gambling. For example, legalisation means that industry standards can be developed and imposed and that problem gamblers can be more easily identified and offered assistance. Legalising online gambling also offers players greater consumer protection against crooked online casinos.

Also, those in favour of legal online betting argue that people will continue to gamble online regardless of whether or not it is prohibited – which supports an earlier comment that the government is missing out in millions of dollars of revenue.

However, both the U.S. and Europe have recently started to move in the opposite directions. U.S. Congressmen Barney Frank is leading the fight to lift the UIGEA as he believes this prohibition is an affront to personal freedom.

At the same time and despite several protests declaring that Norway’s proposed Payment Act did not conform to EU regulations, the legislation received royal assent last week, meaning that it will soon be illegal to process unauthorised gambling transactions in the region.

The new ban will make it illegal for online operators without a Norwegian domestic license to process payments from players for remote gambling in the Scandinavian nation – with a hard-line approach promised to those who violate the new legislation.

The online gambling market is certainly an interesting one at the moment and regardless of which direction the U.S. or other European countries take, one thing is clear: this market is on the verge of an explosion.

Picture credit: A computer screen displays an online gambling website, October 2, 2006.  REUTERS/Toby Melville

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