Investing in the Gambling/Gaming Industry – Hidden Treasure or Risky Business?

Detailed industry report including results of a survey of financial investors, gambling companies, and state-owned operators.

More and more investors are beginning to realize that the gambling industry is a promising global growth industry and offers a wealth of opportunities. But gambling, in many respects, remains one of the financial community’s best-kept secrets. Due to various reasons, gambling companies often do not make it into the portfolios of investor.

The new report is bringing some light into one of the fastest growing and promising industries. The report will provide detailed information regarding many relevant topics, among others:

- Comprehensive analysis of the industry’s sectors
- Key growth drivers of the industry
- Investment opportunities and current status
- Industry benchmarks and company comparisons
- Financial figures, ratios, and metrics
- Investment volumes and return multiples
- Stock market analysis (e.g., Gambling Industry Index, …)
- Privatization of state lotteries
- Investment opportunities for state lotteries

The results are based on a unique survey conducted in association with one of the most renowned industry magazines, IGWB. Over 100 investors and gambling companies provided insights into the current status of gambling investments, opportunities and challenges, and future investments.

The report is mainly targeted at financial investors as well as at gambling companies that want to unlock the industry’s financial potential. This report will allow for a better understanding of the industry and its investment attractiveness and also help to identify ways in which the industry can improve its investor relations.

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1 Executive summary 4
2 Gambling – a hidden success story 7
2.1 Recent developments and definition 7
- Recent promising developments
- Gambling and gaming industry – definition and differentiation
- Overall market size
2.2 Religious and moral issues – leaving the profits to other investors? 8
2.3 Structural dimensions of the gambling market 8
3 Structure of the gambling industry 10
3.1 Lottery – gambling for the masses 10
- Introduction to the lottery sector
- Key financial figures
- Private operators and retailers
- Example of privately operated lottery
3.2 Betting – gambling for the sports fans 12
- Market structures
- Market size
- Betting on entertainment events
- Main areas for investment
3.3 Casinos – gambling and entertainment 14
- Casino products
- Business models of casinos
- The worldwide casino market
3.4 Online gambling – a sustainable winner in the industry 16
- Market size
- Two user groups – two kinds of offers
- Online gambling – one-stop shopping experience
- DDoS attacks
3.5 ITV and mobile 18
- ITV gambling
- Case study: PMU
- Mobile gambling
3.6 The technology and service providers 19
- Business models of technology and service providers
4 Regional differences 20
4.1 Europe – growth through liberalization 20
- Dominance of state-run operators
- Case study: the Italian layer model
- UK, Austria, and Malta – the more liberal markets
4.2 Asia and Australia – growth through gambling mania 22
- China lottery
- Honk Kong and Macau Jockey Club
- Macau – Asia’s casino hall
- Other Asian markets
4.3 United States – regulations preventing further growth 23
- Overview of legal regulations
- Market size
- Commercial casinos
- Native American casinos
- State lotteries
- Online gambling
5 Growth drivers of the gambling industry 27
5.1 What market insiders think 27
5.2 Increased liberalization of gambling regulations 27
- The “Gambelli” decision of the European Court of Justice
- WTO decision Antigua and Barbuda vs. USA
- Other developments toward a liberalized gambling market
- Relevance for investors
5.3 Continuing online growth 29
5.4 Online poker 30
- Rake – how poker rooms make revenue
- Betting operators and others move into the online poker market
- P2p, networks, and entertainment – major success factors
5.5 Betting exchanges – the eBay of betting 32
- Case study: Betfair - the dominant player to beat
- Relevance for investors
- Time for consolidation
5.6 FOBTs – bringing growth to UK betting 34
- Phenomenal growth through FOBTs
- Limited growth potential for the future?
- Relevance for investors
5.7 Interactive terminals 35
5.8 Bingo – from bingo halls to the Internet 36
5.9 Casino mergers – growth through synergies 36
5.10 New UK gambling bill and expansion of US casinos to the UK 38
5.11 Entertainment and gambling – no way around this synergy 38
Table of Contents (2/2)
6 Comparison of key financial metrics, ratios, and figures 39
6.1 Casinos metrics, ratios, and figures 39
- Volume indicators
- Management effectiveness indicators
6.2 Betting metrics, ratios, and figures 42
- Volume indicators
- Management effectiveness indicators
6.3 Lottery metrics, ratios, and figures 42
- Volume indicators
- Management effectiveness indicators
6.4 Online gambling metrics, ratios, and figures 46
- Volume indicators
- Management effectiveness indicators
7 Current status of investments 49
7.1 Investors’ opinions of the gambling/gaming industry 49
- Growth drivers of the industry in the eyes of investors
- Level of satisfaction with investments in gambling industry
7.2 Examples of private equity investments 50
- Average volume currently invested by financial investors in the gambling industry
- Average return multiple and number of investments
8 Selected investment opportunities 52
8.1 Preferred gambling sectors of investors 52
- Gambling sectors investors like to invest in
- In which gambling companies would investors put their private savings?
8.2 Gambling stocks – aggregated growth of 40% in the past 12 months 53
- Gambling Industry Index
- Market capitalization
- Top performers
8.3 Online gambling – still not too late to invest 56
8.4 Retail betting in continental Europe 56
8.5 Retailer for state lotteries 56
9 Privatization of state-run gambling monopolies 58
- Recent developments
- The opinion of state operators
10 Investment opportunities for state gambling operators 59
11 Investor relations for gambling companies – what is important and what is missing 61
11.1 Key issues for investors 61
11.2 Areas for improvement 62
- Areas to focus on
- Ranking of investor relations
- Best practice
12 Company profiles 65
12.1 Admiral Sportwetten 65
12.2 Arena Leisure 66
12.3 BetandWin 67
12.4 CryptoLogic 68
12.5 FLUXX AG 69
12.6 GTech 70
12.7 Harrah’s Entertainment 71
12.8 Lottomatica 72
12.9 MGM Mirage 73
12.10 Multimedia Games 74
12.11 MyBet.com 75
12.12 Paddy Power 76
12.13 Parlay Entertainment 77
12.14 Scientific Games 78
12.15 SportingBet 79
12.16 Stanley Leisure 80
12.17 TabCorp 81
12.18 William Hill 82
13 Methodology 83
14 Appendix 84
Exhibits
Exhibit 1: Estimates of total market size (turnover and
revenue)
Exhibit 2: Overview of some of the largest lottery and parimutuel
operators worldwide
Exhibit 3: Average turnover on betting per inhabitant
Exhibit 4: Non-sports betting events - examples
Exhibit 5: MGM Mirage casino Bellagio
Exhibit 6: Key elements of gambling revenue – from gamblers’
budgets to net revenues
Exhibit 7: Overview of estimates of online gambling market’s
size
Exhibit 8: Example of online site offering betting, casino, and
lottery
Exhibit 9: The largest online casinos
Exhibit 10: Description of PMU’s iTV offering
Exhibit 11: Structure of the Italian sports betting market
Exhibit 12: A fully liberalized European gambling market by
2009? Results of survey
Exhibit 13: Consumer spending on US commercial casinos
(2000-2003)
Exhibit 14: The largest US lotteries and their turnover
Exhibit 15: Growth drivers for the gambling industry - results of
survey
Exhibit 16: Gross win development of sales channels - example
Exhibit 17: Growth rates of volume indicators - revenues/gross
wins in 2002/2003
Exhibit 18: The biggest online poker sites
Exhibit 19: Example of online poker user experience
Exhibit 20: The largest online bingo sites
Exhibit 21: Key statistics about Internet bingo players
Exhibit 22: Impact of merger announcement on Harrah’s stock
price
Exhibit 23: Casinos - revenues and growth rates
Exhibit 24: Revenues per casino
Exhibit 25: Casinos - segment share of revenues
Exhibit 26: Casinos - share of games (table games vs. slots) in
relation to gross wins
Exhibit 27: Casinos - return on revenues
Exhibit 28: Casinos - operating income on revenues (operating
margin)
Exhibit 29: Return on assets and return on equity
Exhibit 30: Casinos - revenues per employee
Exhibit 31: Examples of betting shops
Exhibit 32: Betting - turnover and growth rates
Exhibit 33: Betting - gross wins and growth rates
Exhibit 34: Betting - gross wins by sales channel
Exhibit 35: Betting- gross wins and turnover by sports
Exhibit 36: Betting - turnover and gross wins per betting shop
Exhibit 37: Average stake per betting slip (retail) and call
(telephone)
Exhibit 38: Betting - gross win on turnover and operating
income on revenue (operating margin)
Exhibit 39: Betting - average staff cost per betting slip (retail)
and call (telephone)
Exhibit 40: Lottery - turnover and growth rates
Exhibit 41: Lottery - turnover per inhabitant
Exhibit 42: Lottery - operating expenses on turnover
Exhibit 43: Online gambling - turnover and growth rates
Exhibit 44: Online gambling - gross wins and growth rates
Exhibit 45: Online gambling - turnover and gross profit share by
segment (casino, betting, lottery)
Exhibit 46: Online gambling - ARPU for different regions
Exhibit 47: Online gambling - turnover per employee
Exhibit 48: Online gambling - costs for acquiring a customer
Exhibit 49: Online gambling - costs per active customer
Exhibit 50: Growth drivers in the eyes of investors - results of
survey
Exhibit 51: Performance of investments in the gambling industry
so far – results of survey
Exhibit 52: Selected private equity investments in the gambling
industry
Exhibit 53: Gambling sectors where investors like to invest –
results of survey
Exhibit 54: Preferred type of investment – results of
survey
Exhibit 55: Gambling Industry Index
Exhibit 56: Gambling Industry Index compared to other
industry indices
Exhibit 57: Index of gambling operators and technology
providers
Exhibit 58: The largest companies of the Gambling
Index by market cap
Exhibit 59: The top stock performers for the past 12- months
Exhibit 60: More privatization in 3-5 years? Results of
survey
Exhibit 61: Should state-lotteries invest in other ventures and
the investment plans of lotteries for the future -
results of survey
Exhibit 62: Target investments of lotteries outside their core
business – results of survey
Exhibit 63: Reservations of investors against gambling
companies – results of survey
Exhibit 64: Reasons why investors do not invest in the gambling
industry – results of survey
Exhibit 65: Necessary changes in order to increase investment
in the gambling industry – results of survey
Exhibit 66: Ranking of investor relations of 19 publicly traded
gambling companies
Exhibit 67: Overview of participants of survey
Exhibit 68: Investment sectors that took part in survey

GTech

Harrah’s

Henderson

Holtzbrinck networxs

Hong Kong Jockey Club

IL&FS Investment

Integral Capital Partners

Intermediate Capital Group

International Federation of

Horseracing Authorities

International Game Technology

Interpublic Benefit Protection

Interwetten

Intralot

ISIS Equity Partners PLC

J.P. Morgan

Jaxx

Kleiner Perkins Caufield & Byers

Koc

Ladbrokes

Las Vegas Sands

Lasseters

Legal & General Ventures

Loto-Québec

Lottomatica

Macau Jockey Club

Maltco Lotterie

Mandalay Resort Group

Massachusetts Lottery

MGM Mirage

Microgaming

Mikohn Gaming

Milli Piyango

Moliflor Loisirs

Morgan Grenfell

Multimedia Games

MyBet.com

NASPL

New York Lottery

NIB

Norsk Tipping

OPAP

Oyak

Paddy Power

Paradise Poker

Party Poker

PCA Retirement & Benefits

Philippine Amusement and Gaming

Corp

Philippine Charity Sweepstakes

Office

PMU

PPM Ventures

Rank Group

Regency Casino Thessaloniki.

Robeco Sustainable Equity Fund

Royal Bank Private Equity

Royal Mail Enterprises

Sammy

Schroder

Scientific Games

Shuffle Master

Siemens Wincor

Sisal

Snai

Société Générale

Sportech

SportingBet

Stanley Leisure

Station Casinos

STDM

Tab Limited

TabCorp Holdings

TDA Capital Partners

Technology Partners

Texas Lottery

Thales Electronics

Tipp24

TotalBet

Toto-Lotto Niedersachsen

TPS

UBS Capital

UKbetting

UK National Lottery/Camelot

UK Tote

UNIRE

UniTab

Vending Data Corporation

VirtGame

WestLotto

William Hill

WMS Industries

World Lottery Association

Wynn Resorts

Youbet

Aberdeen Murray Johnstone

Access

Administrazione Autonoma Dei Monopoli

Di Stato

Admiral Sportwetten

Alliance Gaming Corp

American Gaming Association

Arena Leisure

Atronic

BainCapital

Bally

Banque De Vizille

Beisheim Holding

Benchmark

Berjaya Group

Bet Internet

BetandWin

Betbull

Betdaq

Betfair

BetonSports

Boss Media

Boyd Gaming

BSkyB

Cadbury Schweppes

Caesars Entertainment

California Lottery

Camelot

Canalsatellite

Canbet

Candover

Cashpoint

Casino Austria

Cazenove

CES Software

Chariotlottery

Charterhouse Development Capital

Chartwell Technology

Cherryforetagen

Churchill Downs

Civen

CONI

Coral

Cryptologic

CSFP

De La Rue Holdings

De Lotto

DeAgostini

Domini Social Investments.

Dutch Rabobank

Earlybird

Ebet

eQuality Ventures

Essnet

FirstBingo.com

Fluxx

Fujitsu Services

G.A.T. Film-und Fernsehproduktion

Galaxy Casino Company

Gaming & Entertainment Group

Gaming Corp

Gatcombe Park Ventures

Gauselmann

Giza Venture Capital

Global Equity Partners

Group Genting

Groupe Partouche