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Thursday, November 5, 2015

Sorting Out Investing In The Online Gambling/ Gaming Industry In 2016

The continuing consolidation in the online gambling  and social casino   sectors begs the questions as to the future of the overall online gambling sector as a growth or consolidation play.  Essentially, is the sector still offering new and engaging games to players that  result in  the growth of players and revenue?   Growth rate predictions for the online gambling sector are only in the single digit category,  Social casino  is also slowing and entering the single digit growth category. However, acquisitions such as the Candy Crush acquisition by Activison in the social casino category  make for interesting opportunities for truly knowledgeable investors.

The surprising 2015  launch of Fantasy Sports as a semi-regulated "skill game" presents new and  interesting opportunity for gaming operators going forward. The "skill" category as a gaming category that can garner a large following of players has been a pleasant surprise to gaming operators. 2016 may see some interesting "regulatory" challenges to this business model requiring existing or potential fantasy sports operators to   factor in regulatory compliance fees into their business models.

The online gambling market is estimated at 40 billion USD .  The size of the online gambling market is significant. However, The  online gambling space is far from homogeneous making it difficult to fully comprehend it as a single sector. It is also highly fractured from  a regulatory perspective making a proper assessment of its potential growth rate challenging. Some jurisdictions are regulated and some are not.   In addition, there are many different forms of online gambling; casino, sports book, etc.  From an activity/regulatory perspective gambling has traditionally included three elements; chance, consideration and prize.  However, that is beginning to change with "skill" gaming/fantasy sports entering the mix of legalized gambling.  In the US the skill  sector is  regulated and limited to certain states . Nevada's recent move to regulate  fantasy sports  as a gambling activity adds more complication to the notion of what is and is not gambling. 

In the social casino  sector  the virtual currency payout format has been used to avoid standard gambling regulation. However, from a pure experience perspective the virtual currency payout does not change the fact that players are still wagering.  Many of the traditional  online gambling and in some cases land based casino  operators realize this and  are engaged in both the  'real money" and  social/virtual currency casino  space. 

Other factors making it hard to fully understand the sector is the existence  of regulation in some markets and no regulation in others.  Regulated markets usually keep track of player activity and unregulated ones do not or have questionable numbers. Even  in regulated markets such as the United States  many Americans regularly play games hosted in territories that are not regulated such as Costa Rica and Panama.  

Given all of the moving parts in the gaming/gambling sector  it will take a very savvy investor and or organization to make the proper  decisions on how to enter  the online gaming space, stay in the sector or  make acquisitions in 2016. With this said the complicated nature of the sector favors knowledgeable investors and existing businesses in the online gaming space. There are certainly  new opportunities in the "skill" game arena and in the consolidation of gaming models such as skill, chance and social gaming. Fantasy sports and its "skill" category will also draw the attention of traditional  sports book operators as they have access to sports activity content and feeds that can be leveraged in fantasy sports.

Kevin Flood is the CEO of Gameinlane, Inc. Gameinlane  has developed, launched and operated Internet gambling sites in Europe.   The company engages with land based casino  operators, online gambling operators, social casino operator and game developers to assist them in determining their strategy and implementation  of game content.  Gameinlane   develops "social and real money" casino games for third parties. Kevin has worked for and with US land based casino operators helping them evaluate social casino and iGaming platforms for the purpose of joint ventures and acquisitions. Kevin can be reached at kflood@gameinlane.com.


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