As part of the Study leading up to this Report, a survey instrument was developed and disseminated to all known remote gaming operators in the EU, as well as the regulatory authorities in Gibraltar and in Malta. As of mid-February 2006, a total of 19 companies from Malta, Gibraltar, Finland and the United Kingdom had responded. Because we did not have any information on the size (as measured in GGRs) of the respondents relative to the size of non-respondents, we were unable to use the survey results to estimate the aggregate size of the remote gaming sector in the EU. However, we could draw other conclusions from the survey data based upon the assumption that the companies that did respond are representative of the sector as a whole.
In the estimation of the 19 respondents, they were generating GGRs in 2004 of approximately €1.2 billion, having expanded from only about €115 million in 2001. They forecast that their GGRs would grow to in excess of €6 billion by 2009. This would suggest an average annual rate of compound growth from 2004 to 2009 of about 40%, considerably greater than the GBGC global forecast (discussed below.)
Based on an unweighted average of the 19 respondents on this question, betting services generate over half of the GGRs for remote gaming service companies, casino games about another third and virtual slot machines much of the balance, with the remainder picked up by bingo, internet poker, and lottery products.
Based on overall GGR estimates for the remote gaming sector, the 19 companies that responded to this survey reflect about half of the remote gaming services industry for the year 2004. Though we cannot assign much accuracy to this, we can use it as a rule of thumb to roughly estimate certain parameters for the entire industry, such as levels of employment.
If indeed this cohort of respondents reflects about half the remote gaming industry in the EU, then the employment growth for the sector went from less than 500 in 2000 to around 5,000 in 2004. Forecasts for future employment growth would push total employment (within and outside the EU) to about 10,000, of whom about 6,000 would be employed within the EU.
Thus, even though the remote gaming sector may become an increasingly important part of the gambling services sector in the EU, it is likely to remain a relatively small employer.
The remote gaming companies were also asked to provide information on the demographics of their registered players. All respondents reported a growing number of registered players within both their primary EU country of operations and other EU Member States. They reported an aggregate of 63% of all registered players to be within the 18-35 age group, 32% to be within the 36-55 age group, and 5% to be of age 56 and over.
Respondents were also asked to differentiate between the percentage of their EU gaming revenues that were generated within the Member State where they are primarily based versus cross-border GGRs within the EU. (For the purposes of this analysis, responses from Gibraltar were treated as if they were primarily based in the United Kingdom.) The respondents indicated that between 15% and 30% of their revenues came from other Member States between 2000 and 2003, increasing to about 45% in 2004 (probably due to the expansion of licenses in Malta.) The forecast through 2009 had the percentage of EU cross-border spending in the 20% to 30% range.
It is interesting to compare these primary figures with published estimates, each of which assume only clearly predictable changes in the policy context. For example, Gaming and Betting Global Consultants have issued (in their leading publication which is presented at the very beginning of this Part and which is normally referred to in this Report as the “GBGC analysis”) figures for GGR from interactive gaming in Europe showing a rise from an initial low level in 1999, that took off sharply in 2001 and carried on increasing substantially through 2002 and 2003, but at a decreasing rate. It would appear that the market is still in an early phase of growth, but perhaps showing signs of heading towards maturity. The rates of increase per year are as follows; 2000 162.5%, 2001 233.3%, 2002 55.7% and 2003 31.1%.
If the future annual percentage rates of increase remain at two-thirds of the previous year [i.e. in 2004 the increase is 20.5%, in 2005 13.5% and so on] then by 2012 remote gambling GGRs in Europe would be roughly €2,700 million. Since the EU accounts for 90.5% of Europe’s total gambling spend, we may estimate that the EU would generate an interactive GGR of about €2,400 million in 2012. This would be about 85% greater than it was in 2003.
Figures published by the River City Group and by the Association of Remote Gambling Operators indicate that the global interactive gambling market currently provides a GGR of about €5,700 million (US$7,000 million) per annum as of 2003, with the EU share being about €1,630 million (US$1,980 million). The global remote and internet gaming industry is forecast to grow from about US$9,000 million in 2004 to US$25,000 million in 2010.
Based upon a review of these studies of remote and internet gaming – as well as survey data collected as a portion of our own Study – the economic research team’s best estimate of the size of the European Union remote and internet gaming sector (that sector which offers gambling services via the internet, through mobile phone services, and through interactive television wagering) represented between €2,000 million and €3,000 million in GGRs from EU consumer expenditures in 2004, and growing rapidly.
If the above estimates hold true, then the economic importance of remote gambling is likely to continue to rise, but not beyond 5% of the total EU gambling market by 2012. This estimate takes account of both factors favoring growth and factors that could restrict it. In those EU Member States which have poorly developed land-based gaming sectors, the importance of remote gambling as a proportion of the total market for gambling services could rise well beyond 5%. It is possible that some EU Member States will try to effectively prohibit remote gambling with overseas operators or foreign operators generally, but consumers would likely still find a way to indulge their passion – as the USA has found.
Firms that offer land-based as well as remote gambling services will pursue the remote business to extend their sales in total, even though some of it will undoubtedly substitute for their land-based sales. Relative taxation levels will be an important factor in determining the relative extent of remote versus land-based gambling. If remote gambling, due to its situational mobility, were able to induce governments to offer it lower tax rates on income than is paid by land-based businesses, that might be particularly conducive to growth. Low tax rates on remote gambling could, however, be counterweighted by the lower profit margins that may emerge if indeed it turns out to be more competitive than land-based gambling, due to easier entry into the market and depending on the ultimate resolution of legal challenges with respect to the right to offer remote gambling services in various Member States.
Although the above estimates probably reflect a set of reasonable speculations that would be forthcoming from remote gambling industry professionals and analysts, it is appropriate to include some words of caution.
First, although our economic research team agrees that remote gambling is unlikely to replace land-based gambling, it thinks that the two forms of gambling are increasingly likely to merge, for example in branding and marketing, and in the context of retail outlets such as internet sports cafes where it is possible to gamble on remote sites.
Secondly, new forms of gambling are likely to emerge which particularly suit delivery by remote means and which secure a very large share of the market very quickly. This has already occurred with poker – a game of skill where consumers endeavour to play with others of approximately the same skill levels and similar tolerance for losses; the internet makes organizing such games easier than in traditional physical settings. Lottery and bingo games may prove to be especially suitable for provision by remote means, for different reasons such as the easy access of the billing system. It also seems plausible that people will find ways of betting on the games they currently play on play stations and this might further extend the remote market. In general then, much of what will happen with remote gambling over the next decade may not be able to be anticipated today.
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