Silver lining for gambling industry amidst global clouds

Political and economic uncertainty prevail as we enter 2016, but that’s not necessarily a bad thing for the global gaming industry. In fact it may be one of the few bright spots on the global investment stage in 2016 and 2017.

The U.S. Presidential elections will not create much needed stability and this will have an impact on the economy worldwide. Europe will grow a little more than in recent years, but further disruptive measures will have to be dealt with, from the write down of some Greek debt, to mounting economic pressures, especially from Spain, Italy, France and central Europe.

The Chinese will focus on getting their own house in order and the Russians will have to deal with the results of the Syrian war and the continuing drop in oil prices, while trying to settle the conflict with Ukraine.

Interest rates will rise, stock markets will fall and as a result, the private equity industry will look at where money can be put to work more profitably.

For the gaming industry, all this is not necessarily bad news.

Governments will have a hard time balancing budgets, so progress will be made in a number of countries where economic troubles force a change of heart towards the gaming industry. Brazil’s vote at the end of last year to legalize gambling and create a framework for online bets was a very clear example.

The global backdrop will create a number of opportunities and enable the innovative, aggressive and financially stable companies to take advantage. It will also invite new players into the field, especially financial players. The need for funding is acute as few gaming companies are cashed up.

Private equity will look at where money can be put more profitably. Gaming will be one of the few bright spots on the global investment stage in 2016 and 2017, especially as it’s a cashflow positive industry. Examples include the PE investments in the online and supply side of the business.
So my 10 predictions for the year are:
1.   More countries will be pressured into embracing gaming. Some examples include expansion in Russia beyond the current gaming zones; the Ukraine for tax collection reasons; India, potentially starting with sports betting; or the opening up of mobile gaming on mainland China.
2.  Macau will stabilize, but has not reached that point yet. Developments in the non-gaming, but tourism sector, on Hengqin Island adjacent to Macau, will be approved and a more serious roadmap will emerge as to how Macau sees its future. This will be done in cooperation with mainland China and great consideration will be given to sustainable tourist development able to attract mass players.
3.  VIP play will decrease throughout Asia as a percentage of total turnover. Junkets will refocus their business on a more comprehensive offering and more investment will be made outside their core business. The number of junkets will fall and more travel agencies will pick up the slack, but on a smaller scale. The junket model will change considerably from what it is today.
4.  The online gaming industry will come under more pressure to be regulated on a local level, ie by country or territory. The Asian online gaming industry will face more difficulties in moving money and more monetary rules will be enforced to make it more difficult to take the same amount of bets. In the US, it will remain a concept for the future.
5.   Japan will open its casino market as it enjoys the tourist expenditure and desperately needs the thousands of hotel rooms that casino developments would bring. The likely increase in visitation from China would engender goodwill for Japan, despite some geo-political pressure related to the South East China Sea dispute.
6.    The supply side of the industry is under pressure to come up with product that will attract an audience beyond the baby boomers. Their time is far from finished, but the casinos need to show that they can innovate and attract a new audience. Products being considered, but which have not yet made it to the floor, include hybrids between gaming and gambling, such as skill-based games.
7.    Regulators are in a tough spot, they need to learn and adjust to the new technologies that are out there, providing casinos with the flexibility to attract as many different players, as technology opens up many new ways to place a bet. Why not have the casinos open up cloud-based gaming that only could be funded via the brick and mortar casino? The level of control and the guaranteed tax revenues would make this an attractive option. Progress will be made but it will only be lead via the international markets.
8.  Sports betting will continue to grow, especially as in the U.S. fantasy sports will become part of the regulated sports betting world. More countries will open up to sports betting and more product will be able to attract new players. As more locations are opened across the world, tackling match fixing will become a higher priority.
9.  Route operations and electronic casinos will expand. It’s a good alternative to prevent money from flowing out of the country, or as an alternative to online gaming. The lotteries are interested in this area and will try to get more video lottery machines out there. It’s an easier “sell” to the public than full-scale casinos and opens up the industry to many more operators.
10.  The industry will be driven to develop an ever greater variety of games. But as skill games enter the market and as more local regulations are put in place, the developers will see opportunities beyond their comfort zone. With regulators slow to follow and operators hesitant to be the first, it will take time and substantial financial strength to break through with a new product.
Overall 2016 will be a year of consolidation, focus and trying to preserve what the larger companies have. Let’s make sure the casinos are safe as an attack would have major ramifications for the gaming business. Gaming companies will experiment little, invest conservatively and rebuild their cash reserves. There will be few surprises. It will be a year in which the companies strengthen their balance sheets, train their staff and focus on the quality of the business going forward.

Regulators will work on making the industry attractive for the introduction of new product as the investors are there to invest. Their involvement and cash will enable the industry to grow as the products are out there and opportunities will be created by the economic reality in many countries.

* Harmen Brenninkmeijer has more than 25 years of experience in the gaming industry in various roles. He has a specific focus on electronic gaming in Asia and emerging markets.