Gambling Industry Acquisitions and Financial News — Weekly Round-up for August 31, 2018

Spanish Online Gambling Market Strong In Q2-2018

Good year-on-year growth reported in most verticals

New figures from Spanish regulator Dirección General de Ordenación del Juego (DGOJ) this week show that the Spanish online gambling market continued to grow strongly in Q2-2018, with the following highlights:

  • Overall online gambling revenue soared 40.1 percent year-on-year to Euro 167.2 million;
  • Sports betting revenue rose 46.7 percent year-on-year to Euro 87.6 million, with pre-match betting up 32.7 percent;
  • Online casino revenue rose 36.9 percent y-o-y at Euro 56.5 million, with slots the best generator delivering 51 percent of online casino revenue;
  • Online poker rose 34.8 percent y-o-y at Euro 19.5 million, although observers were quick to note that Q2 revenue was almost 9.6 percent down on Q1-2018 revenue. The sequential decline (cash games 18.1 percent and tournaments 3.8 percent) was blamed on the distractions of the World Cup football by some analysts;
  • Online bingo revenue was up 16.9 percent year-on-year at Euro 3.3 million;
  • Customer registrations rose a third in the second quarter on a year-on-year basis, reaching 268,000, with overall monthly regulars up 31.7 percent at 860,000;
  • Online gambling companies spent Euro 81.3 million on marketing in the quarter, up 55.2 percent y-o-y, with Euro 41.1 million invested in promotions, Euro 3 million on sponsorships and Euro 8 million on affiliate marketing.

Operators are expected to benefit substantially from the government’s smart decision to reduce online gambling taxes from 25 percent of GGR to 20 percent.

Portuguese Regulator Reports Continued Growth In Q2-2018

World Cup football assists in boosting revenues

Despite its high tax levels, it appears that Portugal’s 13 online gambling licensees continued to prosper in Q2-2018, judging by numbers from regulator Serviço Regulação e Inspeção de Jogos do Turismo de Portugal (SRIJ), which included:

  • Online sports betting revenue of Euro 20.5 million in the quarter, up from Euro 13.9 million reported in Q2-2017 and the Euro 17.4 million achieved in Q1-2018. Observers attributed the boost to the World Cuip football championships;
  • Over 103,000 new customer registrations in the second quarter;
  • Sports betting turnover of Euro 89.8 million, with football the most popular (almost 75 percent) followed by tennis (14.2 percent and basketball (7.2 percent);
  • Online casino revenue (including poker) at Euro 16.8 percent, an increase of Euro 5.4 million over the corresponding period in 2017 Slots remained the biggest generator at 55.4 percent;
  • The taxman made Euro 16.9 million , up Euro 3.6 million from Q2-2017.

Enhanced Problem Gambling Precautions Come At A Cost For Veikkaus

Finnish gambling group reports Euro 10-15 million hit to digital GGR; Euro 78–170 million by 2021

Veikkaus, a Finnish online and land gambling group comprising slots, lottery and racing and sports betting verticals, has posted its H1-2018 results, highlighting:

  • Overall turnover down 0.3 percent year-on-year at Euro 1 587.2 million;
  • Profit up 2.5 percent at Euro 505.5 million;
  • 57.1 percent of turnover from land outlets and 42.9 percent generated by digital channels;
  • Revenue up 1.8 percent at Euro 875 million;
  • Sports betting turnover slipped 1.6 percent to Euro 281.4 million, despite the opportunities afforded by the 2018 FIFA World Cup;
  • Retail betting turnover declined almost 10 percent;
  • Digital betting improved 2.1 percent on a y-o-y basis;
  • Veikkaus’ share of the Finnish overall gambling market was estimated at 89 percent. The market is currently worth Euro 981 million, up just under 2 percent y-o-y.

In his report, president and CEO Olli Sarekoski noted that competition for customers is toughest in the digital channels; therefore success in the digital operations of the business will be one of the cornerstones of the revised Veikkaus strategy.

He also commented on measures to guard against problem gambling, which have come at a cost for the group, saying: “According to our estimates, moving to comprehensive identification on
decentralised slot machines will reduce gaming proceeds, depending on the gaming restriction concept. The impacts of the different proposed implementation options on the gaming revenue would amount to Euro 78–170 million in the year 2021 according to our estimates.

“In addition to this, the lottery tax and our partners’ retailer commissions would be affected significantly. In order to minimise the negative impacts, it is of primary importance that we can rapidly adopt effective means of promoting identified gaming and secure our opportunities to develop gaming operations in the digital business.”

Sarekoski went on to reveal that the gaming restriction concept reduced the growth of the GGR in Veikkaus’ digital channel by ca. Euro 10–15 million during the first six months of the year.

Asian Online Gambling Market Increasingly Competitive

Playtech’s profit plunge underlines the extent of competition among providers in the market

Online gambling software developer and provider Playtech‘s announcement this week that its adjusted profit in H1-2018 has taken a 34 percent hit (see previous InfoPowa report) was another illustration of the competitive pressure the company faces in Asia as new providers enter the market with cut-throat pricing.

The company noted that if its Asian market results were excluded from the H1 numbers it would have actually made a decent double digit reported profit.

The impact of fierce Asian competition was not a new experience for the Isle of Man based company; InfoPowa readers will recall that in July this year the company shares took a hammering after it issued a significant profit warning based on Asian revenues, which were worse than expected due to “a particularly aggressive pricing environment from new entries into the market”.

In short – a price war with Playtech singling out Malaysia for special mention.

However, it is probably also China where Playtech is feeling the pain; Credit Suisse has estimated that 40 percent of its profits emanate from that region.

Eight months prior to that, Playtech issued its initial profit warning, and its current share price is now roughly half of what it was back then.

The competitive maneuvering in Asia has prompted many observers to warn against an unsustainable “race to the bottom” but this does not seem to have deterred continued price cuts from both new and established international and regional companies entering the market over the past year or more.

Among them are several major European companies with big reputations who are now competing vigorously in the region, with some analysts claiming that competitive firms with quality products have been slashing their revenue sharing offers to operators by as much as 50 percent…and there is every indication that this situation will persist for some time.

Younger (and presumably hungrier) European providers have entered the market in force, along with new and established Asian suppliers.

How Playtech is handling this is not entirely clear, but chief executive Mor Weizer has previously revealed that the company intends to maintain its prominent market positioning despite the competition, and will “further support” its partners in Asia.

That could entail a larger presence in the region in the form of staff and offices, and a higher profile through expos and conferences, a tactic adopted by many international companies.

Players in the region are benefiting in terms of the range of online casino games flowing from the influx of new and in many cases quality and innovative providers now in the market, observers note.

The bottom line for providers is that intense competition is likely to remain a major challenge in the region for the foreseeable future, requiring careful focus and planning by providers whilst maintaining the highest levels of client service and product quality.