Just a couple of decades ago the online gambling world was a relatively unknown fledgling industry, trying to make its way to the top
by Katy Micallef
A few years into its youth and the industry was pulling in the billions, luring thousands of starry-eyed businesses to its side with its grit and determination to survive. For Europe however, the belle epoque feels like it’s on the way out, and many would argue that European markets have become over-saturated and are starting to leak hard-won gains.
Changing demographics and tightening regulation, while not a definitive bellwether of the overall health of the European gambling scene, would suggest that perhaps the continent may have reached its peak gambling point. High points are so often followed by a dip in fortune; this, coupled with a growing air of anti-gambling sentiment, has provoked caution amongst operators, affiliates and suppliers.
Right now Asia is rising as one of the biggest gambling markets globally, and if the upward trajectory continues its meteoric climb, we can expect to see a massive shift eastwards. Land-based casinos are certainly seeing a noticeable change in attitude, as have lotteries and horse racing, with countries like the Philippines more than happy to welcome the tourism and taxes generated. The online sphere has seen somewhat less enthusiasm; however there have been shifts towards more open acceptance in recent years, with change almost certainly on the horizon.
The different ways in which European markets are structured, as well as the sky-rocketing costs of living have undoubtedly played a role, as have cheaper rates and growing populations in Asia. Many younger players in Europe find the cost of playing prohibitive and their appetite for game innovation creates a conundrum for existing operators in addition to a fight for competitive products that millennials are used to.
Of course this isn’t to say that profits aren’t still rolling in for established European operators, affiliates and suppliers, with many still enjoying generous profit margins and high levels of acquisition activity. It is the smaller operators who may find extra costs propel them further afield in search of a better deal.
Despite their growth, Asian markets still present some challenges for European operators and affiliates to break into. Conservative values coupled with traditionalism have long been obstacles preventing wider legalisation of gambling across Asia.
Speaking exclusively to SiGMAgazine, Harmen Brenninkmeijer, Managing Partner at Dynamic Partners, a Hong Kong-based gaming consultancy, had some caution for speculators that might turn up for the gold rush, “When you’re used to continuous growth, as the operators have been in Europe, and the consolidation trend takes over to push the growth, entrepreneurs will always look for new markets to generate that level of growth they have to come to expect. However, Asia is not for the faint hearted. It’s difficult and not transparent. One is not protected and there is a fine line to run proper operations that build value versus those that are just after cash flow. Africa and Latin America offer better opportunities currently if you want to show growth and develop a sellable business. But if one is willing to commit the proper resources and focus, Asia is bound to become one of their biggest markets.”
The global online gambling market is estimated to grow at a rate of 11% between 2018 and 2022, resulting in over $35 billion in incremental growth. What’s particularly telling is that 44% of this growth will come from the APAC region alone.
There are several gambling destinations in Asia-Pacific tipped for success; Japan will remain a key market to watch in 2019, even though the implementation and approval process for newly drafted laws is moving relatively slowly. The formation of an oversight body to manage casino regulation is expected to come into effect from July 2019.
Harmen Brenninkmeijer agrees that Japan is a market that holds potential, but warns that the barriers to entry can be high, “Asia has enormous diversity in gaming. If you add up the numbers then by far the most successful market is Japan. It’s one of the world’s largest gaming markets with over 4 million Pachinko machines. However the market is hard to enter as IGT and Aristocrat have found out at a tremendous cost over the years.”
China is a different beast altogether, it involves a much broader market pattern, making it by far one of the largest gambling markets globally. Gambling is illegal in mainland China, except for the state-sponsored Chine Sports Lottery, which is out of favour with consumers as it offers very poor returns to players. This has heaped pressure on the government to wield a firm hand over the industry, and in fact, in recent months regulators have started to crack down on corruption attached to online gambling by limiting the number of visas it gives to the mainland Chinese to visit the outside zones such as Macau.
SAR, Macau, has long been a hub for gambling, with the area likely to continue to transition into a premium mass market, at least until the terms of China’s deal with the Special Administrative Region comes to an end and China takes on a more active role in the region.
“Because of the limitations of gaming products offered legally in China, Macau will continue to grow. It’s estimated that 2.9% of the Chinese population have visited Macau, of which most are from the connected provinces. There is a tremendous interest for many more Chinese to travel to Macau but many can’t at all, or are limited by getting a visa limited to one or a few visits. Only when Macau can handle more traffic and it offers a fuller entertainment experience will it be able to get more people and surely the Chinese government will allow for that. Especially as the VIP play will slowly lessen and more mass play will solidify Macau as the entertainment capital of China.
Overall as the Chinese get used to playing more, gambling will be more a part of their day-to-day activities. Subsequently, outlets for this demand will need to be created. The products currently offered by either the Welfare or Sports Lottery are not enough. Until the Chinese government regulates a broad spectrum of products more comprehensively (versus just abolishing activities), the market will find its own way to be self-regulating and will have to deal with all of the risks and characteristics that come with such an approach,” continues Brenninkmeijer.
When Macau outstripped the annual gambling revenue of Las Vegas back in 2006, it motivated other Asia Pacific countries to take steps towards legalisation themselves. This has helped whip up interest in online gambling. In India for example, where active gambling is prohibited but no laws for online gambling exist, online opportunities have been plentiful.
“The most successful land-based markets in numbers are Macau, Singapore, South Korea and the Philippines. The picture will change in the years to come with the rise of Japan. However, from a variety of games, suppliers and products, the Philippines is probably the most open and interesting market. That doesn’t mean it’s the largest, but it’s growing at a healthy pace.
The online landscape is interesting as things are more fluid. Today the Philippines are still by far the largest market from where operators attract their business. But due to the complexities and costs of the licence a numbers of operators have relocated, bringing with them labour knowledge and service provision,” said, Brenninkmeijer.
Companies like SiGMA hope to build bridges between continents, strengthening bonds between Europe and Asia and making for a more globalised iGaming community. SiGMA’s expansion eastwards brings not only the Asian community closer together but also offers extra value to European suppliers, affiliates and operators. SiGMA Group hopes to take advantage of the huge interest in Asia with the launch of SiGMA Manila in 2020.