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Whenever the gambling industry makes headlines in the UK, it always seems to be bad news. Most recently, we’ve heard that the Government is going to limit the amount that people can spend on roulette machines in outlets belonging to bookmakers down to £2 from where it currently stands at £100. That move is expected to cost £1.8bn a year in revenue to the gambling industry, and also put a hole of £400m in the country’s taxation income. To make matters worse, the Government plan to plug this £400m hole by increasing Remote Gaming Duty, which is a tax levied against online casinos. That’s an attack against the gambling industry on two prongs, and for that reason, you’d probably suspect that this isn’t a good time to invest with gambling firms.
Amazingly, that isn’t the truth. The industry is thriving, and new players are coming to the market. And it’s all because of a change that’s happened in the United States of America.
A Helping Hand From Uncle Sam
Earlier this year, sports betting became legal in the United States after decades of prohibition. Whilst putting an accumulator bet on the day’s results is a staple of watching sports on weekends for the Brits, it’s a pleasure that’s been denied to Americans for longer than most of them have been alive. The anticipated market for this form of betting is massive, and as it goes live across the tail end of 2018 and early 2019, those firms involved should make huge amounts of money. Because we live in a globalized economy, that includes firms who are based in the UK, who either have a US presence or a US sister company. Increases in income across the pond will be reflected in bank balances here, and that makes them an interesting prospect for investors.
The March Of Online Gambling
The other factor in play here is the unstoppable march of online gambling. Even though limiting what can be spent in physical machines at physical outlets will affect the profitability of those outlets, that’s likely to be the maximum extent of the problem. Some outlets may close if they can no longer balance the books, but the companies who own them are unlikely to care. They will continue to make more money year on year regardless, because their customers are moving online.
It’s difficult to overstate exactly how much the past ten years have changed the face of the gambling industry. Innovations like mobile gaming, virtual casinos, and tailored slot games to appeal to niche interests have gone a long way to making the online casino world more lucrative than the offline one, and it’s possible that point has already been reached. New websites like Money Reels, which was launched in May 2018, offer hugely diverse ranges of games to appeal to as many potential players as possible. Creation of new online slot websites suggests strong demand for online casinos by gamblers with money to spend.
Looking at the figures for a moment, the sharp increase in the global gambling market is quite a thing to behold, and projections show it continuing to increase over the course of the next two years. With listings made in US dollars, the global gambling market in 2009 was $20.51bn. Next year, it’s projected to be $55.19bn. That’s despite global economic uncertainty, recessions, turmoil in the Eurozone, Brexit, and everything else that’s been blamed for economic downturn in almost every other market. If you’d made a strong investment with a major gambling firm in 2009, you’d be very happy with its performance now. So is it time to look at the way the trend is progressing, and make that investment now instead? Is the market likely to continue growing?
A Boom Or A Bubble?
Nobody can predict the future, and it’s foolhardy to even try. What we can tell you, however, is that the online gambling sector in the UK only has done even better than the global graph suggests; it’s increased by just short of 150% since 2009. As many as five and a half million people in the country class themselves as at least ‘occasional’ users of online gambling facilities, and whilst regulators and Governments seem very keen to limit what can be done in a bookmaker’s shop, they’re less inclined to meddle with proper casinos or the online world.
Taking individual examples; when news broke that the laws in the US had been relaxed, the impact on the stock prices of major UK betting companies rose sharply. William Hill was up by 8.3%. Paddy Power went up 9%. Sportech jumped up a full 11%. The markets knew what the ruling meant for these firms, and was excited by their prospects. They’ve remained fairly constant still, and there’s likely better news to come.
Although giving a ‘precise’ figure on black market betting is impossible for obvious reasons, experts believe that Americans were spending around $150bn per year on illegal sports bets. If even half of that money transfers into the legitimate economy, then you’d expect the stock prices for all of the major firms to shoot up again. That makes it an exciting time to be a gambling company, and potentially an even more exciting time to be an investor with money to spend.
As a note of caution; we are not your personal financial advisers. We won’t pretend to know your individual financial circumstances, or your attitude to risk. We are not personally recommending that you invest in anything. But it might be worth speaking to your own financial adviser and getting their take on all of this information. If they’re good at their job, they should already have an eye on what and who is making money, and what and who isn’t. There’s already been a solid decade of growth in the gambling market, during a time when many more ‘traditional’ stocks and shares have stagnated. If there’s another decade of growth on its way, we’d want to be riding the crest of that wave instead of watching from the shoreline.
