An iGaming Insight – Profits Overview

Posted by Harry Kane on Wednesday, June 12, 2019

In many ways, the relentless growth of the iGaming market is one of the UK’s worst-kept secrets. After all, this sector continues to enjoy double-digit growth year-on-year, as it becomes a significant part of the gambling industry’s total GGY.

If the recent statistics revealed by the UK Gambling Commission (UKGC) are anything to go by, the eye-catching growth of the iGaming sector has distracted from an apparent decline across all other industry verticals.

In fact, it may be argued that the iGaming niche is the gambling industry’s only growing vertical as we approach the end of the second quarter in 2019. But will this trend continue, and should it be a cause for concern among investors and operators alike?

What Are the Latest iGaming Figures from the UKGC?

The UKGC recently unveiled its latest bi-annual findings, as it charted the performance of the UK market for the 12 months ending September 2018.

During that period, it was noted that the total GGY for the gambling industry peaked at £14.5 billion, which in simple terms represents a marginal 0.1% increase from the figures published last March.

Whilst there’s a little ambiguity surrounding these figures (as the UKGC’s official report suggests that the total GGY has actually declined by 0.4%), it’s clear that the industry has largely plateaued as 2019 has progressed.

This contrasts sharply with the performance of the iGaming niche, which has continued to showcase consistent and exponential levels of growth whilst claiming an increasingly dominant market share.

More specifically, the GGY for the iGaming niche reached £5.63 billion in the year ending September 2018, up from £5.4 billion just six months earlier. At the same time, iGaming saw its total market share increase from 37.1% to an impressive 38.8%, with this 2.9% hike coming against the backdrop of increasingly stringent regulatory measures and several impactful legislative changes.

If we break these figures further down, we see that both online casino gaming and sports betting have experienced growth since March 2018. The GGY for casino games increased by an estimated 1.8%, for example, accounting for revenue of nearly £3 billion overall.

Whilst online race and sports betting actually achieved minimal growth to deliver a turnover of £2.1 billion, a staggering 21% hike in exchange betting activity more than compensated for this. As a result, online betting saw its total GGY increase by 3.7%, as it showcased a faster rate of growth than the often celebrated casino vertical.

Not only this, but online bingo also recorded a particularly impressive rate of growth in the year ending September 2018. In total, this niche grew by 7.6%, peaking that £177.6 million and contributing heavily to the growing dominance of the iGaming space.

But What About Offline Gambling in the UK?

There’s a clear trend emerging here, as the iGaming market continues to grow at a far faster and more pronounced rate than the gambling industry as a whole.

This hints at a significant decline across all offline gambling verticals, and the latest figures from the UKGC certainly seem to add weight to this assertion.

Whilst land-based bookies delivered the second-highest industry GGY with combined revenues of £3.2 billion, for example, this number is a hefty £94 million down from the previous period.

The revenue generated by highly controversial gaming machines and fixed-odds betting terminals (FOBTs) also declined by £5.6 million to £1.83 billion, whilst it’s notable that this is the first backwards step taken by the category since the UKGC began publishing its findings.

We’ll talk a little more about this later, but there’s no doubt that this marked decline is indicative of a wider trend throughout the online gambling sector.

It’s also interesting to note that the number of active betting shops in the UK fell to a new low of 8,423, from 8,555 in the previous period. This number also falls below the market-high of 9,128 in March 2012, thanks primarily to the decision of GVC Holdings to increase its efficiency and close numerous Ladbrokes and Gala Coral outlets.

We should expect this trend to continue in the near-term, as operators continue to look to streamline their business models and optimise profitability by transitioning their ventures online.

But What About the Other Niches?

Well, National Lottery sales were essentially flat at £6.9 billion, whilst the GGY for land-based casinos declined by a whopping 11.4% to £859 million. At the heart of this was a decline in the revenues produced by the Punto banco baccarat iteration, which tumbled by two-fifths to just £138.8 million.

Overall, these figures make for alarming reading if you’re active in the offline gambling niche, whilst there’s evidence to suggest that things could get worse over the course of the next few years.

The Impact of New Legislatory Measures in the UK

We spoke earlier about the decline of land-based bookies and gambling machines, and it’s interesting to note that this came prior to the UK Government’s proposed reduction in maximum betting stakes.

This legislation moved to slash the maximum betting cap from £100 to just £2, whilst it only took effect on April 1st and after the 12-month period covered by the latest reports.

So, whilst the number of FOBTs in operation at the end of this period fell to just 33,190 (a marked drop of more than 500) and reached its lowest level in seven years, further and more significant declines are expected in the longer-term.

When you consider that this type of fixed odds gambling machine accounts for an estimated 59.2% of bookmaker’s GGY in the UK, it’s clear that the government’s cap will have a huge impact on the offline gambling industry and force operators to completely restructure their business models.

This will also hasten the decline of offline gambling in the UK, which was already embarked on a downward trajectory and losing considerable ground to the iGaming space. There’s no doubt that casino and sports betting brands will look to intensify their focus online in the months ahead, whilst also looking to invest in similar markets overseas.

The takeaway here is clear; as iGaming continues to grow largely at the expense of offline gambling whilst simultaneously distracting from the decline in verticals such as land-based sports betting and fixed-odds gambling machines.