Subject: The 2005 Gambling/Gaming Industry Review
Author: Martin Oelbermann (MECN)

An exciting year and more to come – Looking back on 2005 and looking ahead to the new year:

We have been tracking the media and entertainment industry for quite a while now, and we have seldom seen any industry sector moving and shaking as much as today’s gambling and gaming sectors. Therefore, we would like to review the highlights of 2005 and look ahead to what is in store in the coming year. Let’s begin with our review of an exciting year.

2005 – The year that was:

We saw the gambling industry coming out of the shadows of the economy and becoming one of the rising stars of the stock markets. We witnessed private operators attacking state monopolies - sometimes successfully and sometimes not - and we saw state operators reacting to this threat. We realized that cross-border gambling will slowly become a reality, and more state operators will more and more hand over operative responsibilities for their businesses to private companies. All in all, 2005 was full of groundbreaking developments shaping the industry – we will highlight some of the most important ones.

Online poker – IPOs and Svenska Spel:

Online poker is a phenomenon that has been closely watched by many industry experts for quite a while now. But it was not until Party Gaming’s IPO, one of the biggest ever in London, that the world took notice. Suddenly online gambling was THE topic at stock markets all over the world. Many other IPOs followed, and stock prices of almost all online operators rose to P/E ratios previously known only from the good old Internet boom times. But as in all booms, many investors are on tenterhooks and anxiously wait for signs of decline and market saturation - but until now there has not been much to worry about.
What came as a surprise was the quick reaction of one of the forerunners of the state-controlled operators to the new threat of online gambling. As Scandinavia is one of the key regions for online poker, the Swedish state lottery Svenska Spel just recently announced its plans to launch its own online poker offer, which is expected to bring about USD 40 million annually to the Swedish state coffers. The question now is whether other state operators will follow this strategy.

Gambelli, Gambelli, and no end in sight:

What started in November 2003 with the advocate general of the European Court of Justice outlining his opinion in the Gambelli case seems to have become a never-ending story. Almost every month each side (state vs. private operators) can celebrate some kind of small victory.
On the one hand, several European supreme courts (e.g., Italy, Netherlands, …) decided in favor of the state monopolies and gambling was once again excluded from the EU-wide service directive. On the other hand, many national decisions are still pending (e.g., Germany), and the EU commission continues to be concerned about pursuing a common gambling market and regularly calls on countries to justify their regulations. At the moment the conflict seems undecided with no conclusive decision in sight.

Privatization – staying competitive:

It seems to happen quietly and without wide public notice – privatization of state-controlled gambling operators. The reasons are manifold and range from filling empty state budgets to trying to stay competitive in an increasingly tough market. More and more state operators are now owned and operated by private companies and shareholders. The list is already quite long and includes the Who-is-Who of state-controlled gambling (e.g., UK National Lottery / Camelot, OPAP, Asian Berjaya, …).
More privatizations are expected. In fact, more than 70% of gambling experts questioned in a recent survey anticipate an increase of privatizations in the gambling industry in the near future. Among the privatization prospects mentioned were Milli Piyango, the UK Tote, and a large number of casinos in Germany as well as many state operations in developing countries.

Macau – where Asia beats Las Vegas:

What poker is for online gambling Macau is for land-based casinos. Macau has long had a flourishing entertainment and casino industry, and with more than USD 4 billion in gambling revenue it will unseat Las Vegas as the Mecca of gambling. Three gambling licenses were signed with private operators, and more and more US large players (e.g., Wynn) open new mega-casinos in what is believed to be Asia’s gambling hub.
In our next newsletter we will feature an outlook for 2006.

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Related MECN reports:

- Online Poker – Driving Gambling to New Heights - www.poker.mecn.net
- Privatization of state-controlled gambling operators - www.privatisation.mecn.net
- Betting Exchanges - The eBay of the Betting Industry - www.mecn.net/Publications/Betting_X/betting_x.html
- Betfair - the betting exchange to beat - www.betfair.mecn.net
- The German betting market - www.wettmarkt.mecn.net
- The European Union and its Impact on State-Licensed Gambling Monopolies - www.mecn.net/Publications/EU_Monopolies_E/eu_monopolies_e.html
- Investing in the Gambling/Gaming Industry - www.mecn.net/Publications/Invest_in_Gambling/invest_in_gambling.html
- Potential investors and investment targets in the gambling/gaming industry - www.investments.mecn.net