Current Trends in the UK Gambling Sector
By Jonathan Doherty.
Introduction Gambling is a large and significant part of the UK economy. The value of the industry has been calculated at £6.2bn by the Gambling Commission and research indicates that this will grow by 5.8 percent this year and will outperform the rest of the economy in the years ahead. IbisWorld, a business information consultancy, has predicted average annual growth of 4.6 percent to 2017 - 2018, compared to 1 percent for UK GDP as a whole. The gambling industry appears in rude health and, according to Management Today, is enjoying “an impressive counter-recessionary trend, particularly online.” According to Simon Oaten, betting and gaming lead at Deloitte: “The betting industry continues to make a significant contribution to the UK economy. Changing technology, such as mobile, smartphone and contactless payments, and regulation, including point of consumption and machines, will have a direct impact on the future contribution of the sector. Each will have the potential to drive significant change in the next 24 months.” Historically gambling has been dominated by retail betting shops and currently around 50 percent of sales are still channeled in this way. However, alternative venues are increasing in importance with casinos, online betting and bingo roughly evenly split with 12 - 15 percent each.
Source: Gambling Commission
Traditional betting channels According to a report by Deloitte commissioned by the Association of British Bookmakers the non-remote British betting industry contributes £2.3bn towards GDP and has a total economic contribution of £5bn in terms of Gross Value Added (GVA). The sector is dominated in the UK by just four operators - William Hill, Ladbrokes, Gala Coral Group and Betfred (owner of the Tote), who hold 85 percent of the market as at March 2013. Horse racing is by far the biggest focus of gambling with around 56 percent of off-course sales. Dogs and football follow with around 15 percent and 12 percent respectively. There have been no clear trends in terms of popularity with individual sports fluctuating in different years. In the bingo sector the market is more open with independent or small operators having around 48 percent of the market. Gala Coral Group is the biggest single operator with just under 21 percent of the market, while Rank Group - Mecca Bingo has just over 14 percent.
The UK casino market is relatively small with 144 casinos operating as of 31 March 2013. Three companies own the majority of these - Genting UK (29 percent), the Rank Group (26 percent) and Gala Coral Group (19 percent). Betting shops have seen a fall in their popularity in recent years and in an attempt to counter this have invested in fixed terminal machines based on site in retail outlets. This ensured a figure for gross gambling yield (GGY) of £1.515bn in the period to 2012, a substantial year on year rise from £1.183bn in 2009-2010. The take from machines has surpassed the revenue from over the counter (OTC) betting, which actually fell between 2009 - 2012, from £1.464bn to £1.437bn. However, revenues for retail are likely to be affected by the new Machine Games Duty (MGD), introduced in February at 20%, with costs to the sector estimated at £60million (£7,000 per shop). Indications are that traditional operators are moving more of their offering online via Fixed Odds Betting Terminals (FOBT) and mobile apps. FOTBs allow customers to play casino games, racing games and many others and to place bets quickly, which is proving a popular option for players. These machines have courted controversy however. Gambling Watch UK has strongly criticised their presence in betting shops, arguing that they are a prime route to addiction. In any case, there are continuing doubts about the viability of the retail gambling channel. With the convenience, welcoming environment and ‘always on’ nature of remote gambling we may see a permanent shift in both players and revenue away from physical outlets and towards online alternatives. One of the long-standing issues with betting shops has been their focusing on male customers, effectively excluding women. These are a growing customer base and one that is helping to fuel the rise in popularity of gambling. Research by the Gambling Commission showed that 55 percent of women had gambled in the preceding month. However, these and a number of other groups are often reluctant to pass through the 'threshold' of a betting shop and gamble instead by logging on. Dr. Mark Griffin, a psychologist at the International Gaming Research Unit at Nottingham Trent University has spoken about the ‘feminisation of gambling’, describing online gambling environments as ‘gender-neutral’. Gambling via the lottery continues to be extremely popular among UK citizens. The Gambling Commission surveyed 4,000 adults and found that 47.5 percent had played the lottery. Camelot, the operator of the National Lottery generated record ticket sales of £7bn for 201213, a healthy increase of 6.9 percent on the previous year. In the last ten years National Lottery ticket sales have increased by 50 percent. Rise in online gambling The UK Internet gambling sector has been described as “one of the most fiercely competitive and open markets in the world” and there are few restrictions in many key areas, such as the number of licenses, type of activities permitted or the ability of companies to advertise. In addition, from a provider’s perspective, the cost of setting up and running an operation is much lower than for traditional outlets. According to Michael Caselli, editor in chief of iGaming Business magazine, “The computers do the work. Financing a huge casino and hiring a hundred dealers isn’t necessary.” Online gambling in the UK has enjoyed unprecedented growth within a relatively short space of time. In 2012 sales passed the £2bn mark making it the biggest global market. One of the key factors in this growth was the Gambling Act 2005, introduced by the Labour government under Tony Blair. This legislation permitted companies to advertise gambling services in the UK and also expanded the territories to include the EU and several “white-listed” countries, including the Malta, Isle of Man and Gibraltar. Reflecting the growth in the online gambling market, Gibraltar employs 2,400 people in its online gambling industry out of a total population of 29,000, while Malta has over 5,200 working in the industry (total population of 419,000). This proved crucial in the emergence of online gambling and led to the UK’s pre-eminence today as the leading market worldwide in online gambling.
The EU has indicated that it does not intend to harmonise gambling legislation across the Union and instead will leave it to individual countries to regulate the industry in their countries. The UK passed the 2013 Gambling Bill which introduced taxation at the point of consumption, designed to secure tax revenue from players of online games, as opposed to from providers, who are often beyond of the reach of HMRC. Due to come into force in 2014-2015. the estimated tax take has been put at £300m. In terms of how this will affect the online gambling industry, the indications from countries that have standard corporate tax regimes in place are that online games may be detrimentally affected. However according to IBISWorld industry analyst, Patrick Ross, “remote gambling will remain crucial for the industry over the next five years and is expected to erode the dominant market share held by traditional bookmakers." One potential threat to the online medium is match-fixing, which has become a concern for authorities in some sports in recent years. In February of this year Europol announced that it was conducting an enquiry into 680 matches in 30 countries with a total of 425 suspects involved. Later, in May three Indian cricketers were arrested over allegations of spot-fixing in the Indian Premier League. Cases such as these often centre on ‘In play’ bets, an emerging form of betting that allows customers to bet on incidents taking place during a game, such as when a goal is scored. ‘In play’ betting has proven very popular with the public due to the variety of bets and added excitement involved. However, if scandals that depend on this form of betting continue to occur it may lead to legislation restricting or outlawing the practice. Restrictions in this type of betting would particularly affect online gambling sites, which heavily promote this type of betting. Gambling via the Internet is a growing phenomenon and shows every indication of gaining momentum, particularly on mobile devices. The Gambling Commission surveyed 4,000 adults in 2012 and found that 12.4 percent had participated in at least one form of remote gambling during in the previous four weeks. Similar results were found by Epiphany Solutions, a Leeds based digital marketing agency, who estimated that 11 percent of all Internet users have gambled online. Mobile devices Technological advances based on Internet functionality have greatly expanded the possibilities for gambling in the UK. Between 2008 - 2012 sales increased by 80 percent from £1.27bn to £2.28 bn and this looks set to grow almost exponentially in the years ahead due to the impact of mobile devices. In Great Britain smartphone ownership has seen a meteoric increase in just the last two years the number of individuals owning a smartphone increasing from 13.2 percent in 2011 to 62 percent in 2013. The indications are that this trend will accelerate. According to research firm Gartner, 470,000 tablets and 2.1m mobiles will be sold by 2017. “As technology improves all the time, we may soon get to the point where [mobile] outperforms the traditional PC as the preferred mode of placing a bet, playing poker or enjoying various casino-type games,” - Brian Wright, the Director of the Remote Gambling Association It is difficult to underestimate the importance of mobile devices to e-commerce in general and to gambling in particular. In the UK sales through mobile devices hit £7.5bn in 2012, equating to 12 percent of the total £62.4bn e-commerce market. During 2012 the number of searches by a mobile device grew by 75 percent and sports betting was the biggest category. According to a Mintel/GMI survey 29 percent of users who have gambled online have done so via a smartphone. Juniper Research estimates that betting on mobile devices alone will be a staggering $100bn worldwide by 2017, with the ability to gamble anywhere, including on planes. Steve Donoghue, a consultant to the gambling industry says, ‘The buzzword is “ubiquity”.’ As Donoghue has explained, on a regular Saturday William Hill will post six million bets - more activity than the Nasdaq. “Ever since the launch of 3G data services, mobile gambling has been a key priority for operators as they concentrate on delivering new betting experiences for their
customers. In terms of the future, the rollout of 4G phones, with its ultra-fast wireless connection will only see the importance and popularity of mobile gambling grow further in the years to come.” - Ben Wright Social gambling (using virtual currency) is another interesting development in the online world and one that research by SuperData estimates will generate $2.5bn by 2015. Morgan Stanley, the investment bank, calculates that social gambling will grow worldwide from $1.7bn to $2.5bn by 2015. Facebook has begun to develop its paid gaming options, teaming up with UK gaming company Gamesys in 2012 to launch apps that allow users in the UK to gamble real money. Since then it has also formed associations with other providers, like Zynga to expand the offering available on the portal. The indications are that Facebook is using the UK as a test market for worldwide gaming on the platform. The number of social gamblers is also significant. The bank estimates that around 12 percent of the world’s population play one or more forms of online social gaming every month and the industry is dominated by poker, which has 47 percent, followed by slot machine games (27 percent), casino (17 percent) and bingo (8 percent). In all, the social gambling market is around 5 percent the size of real money gambling. Similar to other forms of gambling, mobile devices are important and Morgan Stanley has estimated that around 20 percent of all social gaming revenue is generated via mobiles. In recent years online providers such as Zynga and King have achieved exceptional popularity with titles like Mafia Wars, Farmville and, most recently Candy Crush and Candy Crush Saga. All of these games were launched via Facebook and achieved exceptional popularity. Candy Crush Saga is currently the most popular game on Facebook, with 45.6 million average monthly users and 10 million downloads in December 2012 alone. However, these games are free and providers have struggled to monetise them substantially. Trends in popularity Online betting with UK based companies has demonstrated the continuous and growing popularity of football with a rise in revenue between 2009-2012 from £172.19m to £307.83m a 79 percent increase. In contrast, online betting on horse racing has declined from £201.29m to £113.55m in the same period - a 44 percent fall. The online casino sector has seen a steady demand for card games at around £46.04m in revenue by UK based companies in 2011-2012, while slot machine games are proving extremely popular with revenues of £304.87m in the same period and table games also a major draw, with £354.24m in revenue for 2011-2012. Sports betting and particularly ‘in-play’ betting is one of the leading sectors of the UK online gambling market. In 2012 it was worth more than £2bn, according to Econsultancy, the digital marketing company. The most popular sport to bet on is horse-racing followed by football. The latter has enjoyed exceptional popularity in recent years, growing by a full 69 percent between 2011 and 2012. While sports betting currently holds around 45 percent of the online gambling market, casino, bingo and poker are also significant players. In particular, poker has benefited from the broadcasting of television programmes, such as Late Night Poker featuring colourful characters playing games like Texas Hold-em and 5-Card Stud. Also fueling the popularity of online poker are high profile competitions such as the annual World Series of Poker, which has captured the public imagination with its multi-million dollar prize fund. Similarly, in the UK the UKIPT is a highly popular poker tour of Great Britain and the Republic of Ireland and is sponsored by online provider Full Tilt Poker. The growth of online gambling has also seen interesting differences in the types of games enjoyed by men and women. According to research by Morgan Stanley, the split in players of online poker is 67/33 in favour of men while for online bingo it breaks down 80/20 in favour of women.
Conclusion Traditional forms of gambling in the UK, principally betting shops, remain popular among consumers, although these are having to adapt by introducing fixed terminals. These in themselves have incurred criticism and may face challenges in the future for political or social reasons. Increasingly people are opting for technology driven forms of gambling, particularly through mobile devices, such as smartphones and tablets. With the market shares that are projected looking ever more likely to be realised the dominance of these devices is likely to be accelerate.
Sources www.bbc.co.uk www.casinocamreport.com www.computerweekly.co.uk www.deloitte.com www.digitaltrends.com www.econsultancy.com www.gamblingwatchuk.org www.gbgc.com www.huffingtonpost.co.uk www.ibisworld.co.uk www.independent.co.uk www.managementtoday.co.uk www.store.mintel.com www.tax-news.com www.thirdsector.co.uk www.wikipedia.org www.worldbank.org Reports Gambling Commission: ‘Industry statistics April 2009 to September (http://www.gamblingcommission.gov.uk/pdf/Industry%20Statistics%20%20June%202013.pdf) Morgan Stanley Blue Paper: ‘Social Gambling Click Here to Play’