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EU Gambling Industries – ECONOMIC CONSIDERATIONS

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Gambling Industries of EU Member States

The veritable backbone of the economic side of this Report consists of 25 separate presentations of the gambling industries of individual EU Member States. Those presentations systematically integrate all of the useful and prima facie factual data received from stakeholders and (where necessary and very much subject to availability) countryspecific data to be found in economic publications and other secondary sources.

Those presentations offer an enormous potential for analytical research into various aspects of gambling in Europe, which potential has by no means been exhausted by our Study.

Within the constraints of available time and resources that were put at our disposal, the economics research team has focussed its attention on those points which are essential to the current report, namely the size and structure of the EU’s gambling industry and the ways in which its underlying economic parameters are likely to react to different possible stimulations. Much more research needs to be done in order to underpin future policy making and future researchers will certainly find the country-specific presentations in this report to be an invaluable resource.

Indeed, if future policy in the EU is going to be based on accurate data and factual information, and advised by evidence based research, then there is going to have to be a greater commitment by Member States and EU institutions to addressing these information and research shortcomings. The fact that gambling services in the EU are already characterized by revenues in excess of €50,000 million, as well as substantial contributions to tax revenues and good causes, suggests that this should be a fairly high priority. It implies a commitment to develop official statistics to cover the gambling services industries of the individual Member States and of the EU as a whole. It also requires much more attention to be paid to individual sectors of the market for gambling services, especially the media gambling, sales promotional and charity gambling sectors on which so little information is currently available that they are the subject of hardly any analysis in this Report. That is probably the most important conclusion of the research team that has compiled this Report.

The Aggregate EU Gambling Industry

For the purposes of this Report, the economics research team has extracted a number of important aggregate statistics from the 25 country-specific presentations.

Gross Gaming Revenues (normally referred to in this Report as “GGRs”) generated in each EU Member State during at least the years 2000 to 2004 inclusive, in so far as the relevant data is available, are individually presented for each of the following sectors of the gambling industry: lotteries, casino gaming, machine gambling outside casinos, betting and bingo. Those figures have in turn been consolidated into EU-wide aggregates, which reveal the following highly pertinent proportions of the total GGRs that are attributable to each sector:

  • Lotteries 44.6%
  • Casino Gaming 14.6%
  • Machine Gambling outside casinos 18.8%
  • Betting 17.2%
  • Bingo 4.8%

Although these figures are almost certainly not exact, they do indicate the relative importance of the various sectors of the industry. That is a consideration which should be borne in mind when looking at any part of the current Report.

For further clarification, each of the abovementioned market sectors is subsequently statistically analysed by comparing Member States and distilling EU-wide aggregates.

The Report contains a number of other analytically important statistics, including spending per capita in each market sector and the EU-wide propensity to gamble in each sector. As concerns the ratio of Gross Gaming Revenues to GDP for the 25 Member States for the year 2003, it is noteworthy that the ratio remains under one percent for all Member States except for Cyprus; Malta, where the betting services sector is characterised by a much higher than average proportion of services supplied remotely; and Slovenia, which has a casino industry that attracts a significant portion of its GGRs from cross-border custom or international tourism.

Based upon the statistical data so compiled, the following general observations and conclusions have been drawn by the economics research team about the legal gambling services markets in the European Union.

First, as a result of the Study, the team was able to determine that the five largest sectors of the EU gambling market generated Gross Gaming Revenues (operator winnings, less payment of prizes) of approximately €51,500 million in 2003.

Secondly, the market frameworks for gambling in the EU are very much heterogeneous.

Commercial and government owned gaming industries of Member States are organized under a wide variety of ownership regimes and market structures. Ownership and market structures are affected by numerous factors, including Member State laws and regulations; restrictions on product types, characteristics, points of sale, availability, and marketing effort; economies of scale; network effects; and impacts of new technologies. Generally speaking, most EU commercial gaming industries are significantly constrained by law and regulation, as well as by ownership structures and statutory objectives. As a result, they operate in ways that – in comparison to what unrestricted free markets in gambling services with reasonable allocations of property rights and provision of legal protections would bring about – adversely affect the quality, quantity, price, and availability of gambling services. It is accordingly necessary to pay close attention to the particular economic characteristics of each market sector in each Member State, as these can have important welfare implications. The Report takes specific account of the following characteristics:

– monopoly franchises
– other restrictions on competition
– network effects
– economies of scale
– geographic constraints
– regulatory constraints
– consumer protection
– extraordinary tax structures

Thirdly, certain comparisons with overseas gambling markets are illuminative. As against the EU figure of approximately €51,500 million in 2003, the legal American gaming industries in 2003 generated (According to Christiansen Capital Advisors, “Gross Annual Wager of the United States 2003,”) Gross Gaming Revenues (GGRs) of US$72,800 million (€60,700 million (Computed at an exchange rate of €1.00 = US$1.20.)).

Though aggregate GGRs were similar between the US and EU as of 2003, their composition differed considerably between the European Union Member States as a group and the United States. For example, in the United States, commercial and tribal casinos generated about US$42,100 million of the total US GGRs in 2003 (58% of the US total), whereas in the EU, casinos comprised only about €7,500 million of GGRs (15% of the EU total.) In the United States, gaming machines (also referred to as slots, Electronic Gaming Devices, or Video Lottery Terminals) outside of casinos are still relatively uncommon; in 2003, such devices generated GGRs of US$3,900 million (5% of the US total) whereas in the European Union, gaming machines generated GGRs of €9,700 million (19% of the EU total.) Lotteries in the United States generated GGRs of $17’400 million (excluding Video Lottery Terminals), 24% of US GGRs, whereas in the EU, lottery GGRs were €23,000 million, 45% of the EU total. Betting services, including on-track and off-track betting on horses and sports, amounted to only US$3,900 million, or 5% of US GGRs, whereas in the EU, the comparable statistic was €8,900 million, 17% of the EU total. Finally, bingo services and charitable gambling generated about US$4,000 million, or 5% of US GGRs, and in the EU, bingo services were also a relatively small component in the EU, at €2,400 million, or 5% of the EU total.

Finally, EU gambling markets are dominated for the most part by relatively “mature industries,” whose revenue growth is more or less paralleling growth in aggregate personal income in the 25 Member States. This has clear implications for future perspectives. It can in particular be expected that many of the gambling services sectors at the country level will experience single-digit growth in the years ahead, unless there are substantial changes in either the legal or the regulatory environments that determine the types of games, the quality and availability of games that can be offered; or in the technological aspects of games and wagering opportunities that might affect their over-all attractiveness to consumers or to potential customers.

Comparisons with overseas markets suggest (Refer to the end of Chapter 2 (“Dimensions of the legal gaming services industries in theEuropean Union), of the 2nd Part of this Report, under the heading, “Discussion”.) that aggregate consumer demand for gambling services –as measured by the ratio of country Gross Gaming Revenues (GGRs) to country GDP – may be quite elastic with respect to various supply factors, such as the availability, variety, accessibility, attractiveness and pricing of gambling offerings.

Therefore, if new legislation substantially changes the legal and regulatory environment for a particular gambling services sector, it may have dramatic effects on that sector, and – depending on the strength of cross-elasticities of demand – may affect other sectors as well.

In a similar vein, if European Court of Justice or European Commission rulings change the fundamentals of competition or rules of engagement, then significant shifts in spending patterns and sectoral profitability may also follow.

Thus, we can expect gambling services sectors to act like mature industries as long as the external legal and competitive environments are stable. Exceptions to this “mature industry” hypothesis can occur when supply conditions are changed. This can be illustrated by a number of recent examples. The rapid expansion of Fixed Odds Betting Terminals (FOBTs) in the United Kingdom in the early 2000s has led to a substantial increase in handle (turnover) and GGRs in betting shops in the UK. In a similar manner, the introduction and launch of the National Lottery in the UK in November 1994 created a new gambling services sector in that country that generated total annual lottery sales of about £5 billion (€7.5 billion) each year thereafter. This did not seem to have significant adverse impacts on the other gambling services sectors in the UK market, but rather served to increase the total proportion of personal income spent on gambling services in the UK.

One could expect that the recent passage of the Gaming Act 2005 in the UK will have significant supply side impacts that will affect the various gambling services sectors in a variety of ways, but also increase the aggregate spend by British citizens on gaming services in that country. In general, for all EU member states, if legislative changes or conditions brought about significant casino resorts of the size and style found in Las Vegas, in Australia, or South Africa, then the casino sector would likely grow dramatically in the countries affected. In late 2005, the American firm Harrah’s Entertainment announced strategic initiatives in Slovenia and Spain that could ultimately lead to destination resort casinos with capital investments of between €500 million and €1 billion. If indeed these come to pass and depending on what catalytic effect they would have on other countries, these kinds of development could change the relative importance of the casino sector in the EU and lead to a more significant role of gaming in the aggregate (as measured by the ratio of GGRs to GDP) throughout the EU.

© European Union

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