A Busy Half

21 May 2008

A duo of shrewd investors takes an interest in the M-gambling sector; a mobile operator reveals its first fully profitable quarter; a leading C.E.O. argues the sector is several years from catching fire long sought. Indeed, across the first half of the 2008 calendar year, mobile gambling has seen its share of significant developments, as much on the financial side of the business as the operational.

In March there was the announcement that Mark Blandford had invested £1.55 million in Mfuse, the mobile technology specialist, which lists a number of high-profile I-gaming companies among its clients. Mr. Blandford's investment followed hot on the heels of the news that Probability, the London-listed mobile gambling operator, had raised £1.7 million via an investment from Intercapital Private Group Ltd., a holding company in which Michael A. Spencer is a majority shareholder.

While the two investments -- by pounds sterling alone -- might not comprise terribly large sums, the fact that the two men have decided to get involved in the mobile gaming sector is certainly of interest. Mr. Blandford is often described as a pioneer of Internet gambling, having sold his traditional betting shop chain to establish Sportingbet, an online sports betting operation, in 1998, while Mr. Spencer created City Index, the spread betting firm, in 1983, and later founded ICAP, a U.K. based inter-dealer money broker.

So the two men could claim some previous successes when it comes to spotting a growth market. Of course, having just invested in mobile technology companies, both Mr. Blandford and Mr. Spencer were bullish about prospects for the sector. The former said that mobile functionality was still in its infancy but that there was a "significant opportunity" with the inevitable expansion of mobile applications and services; the latter, meanwhile, described M-gambling as "one of the most exciting growth areas in the gaming arena over the next decade."

Probability also reported its first full-quarter operational profit for the three months to December 31, 2007. Although the specific amount of profit was not revealed, recording a profit is something of a milestone for any new company.

This profitable quarter included "exceptionally strong" trading over the Christmas period, with the company reporting that December 23, 2007, was its "busiest day to date" in terms of bets placed. It is interesting to note that in the subsequent update for the three months to the end of March 2008 Probability makes no mention of a second consecutive quarter of operating profit. Net gaming revenues for this period, however, were up 25 percent to £1.16 million on the previous quarter.

Probability also had to pay out more than £200,000 to a single player who went on a week-long blackjack winning streak on his mobile phone. This was the largest payout by a mobile gambler to date, and Probability, fittingly, is trying to make the most of the event in its marketing.

It is not too surprising to learn that the lucky winner was a U.K.-based Chinese man who played during his breaks at work. With a high penetration of mobile phones and a love of gambling, Asian markets are put forward as being central to the success of mobile gaming. For example, mainland China’s state-sanctioned lotteries offer their products via mobile phones, and the Hong Kong Jockey Club also has a service that allows customers to bet on football, horseracing, and the Mark Six game through their phones.

With regard to M-gambling growth in Asia, Spin 3’s announcement in February of its partnership with PacificNet could prove to be significant one for the sector. Through its PacificNet Games subsidiary, PacificNet already supplies gaming machines to a number of land-based casinos in Macau and other Asian markets. Other of its subsidiaries, moreover, already operate in the mobile telecommunications sector in mainland China.

For its part, Spin 3, a mobile gaming developer with ties to Microgaming, can offer a mobile version of baccarat, a casino game which is hugely popular with Asian gamblers, in addition to its experience in mobile gaming entertainment. This combination of regional expertise, products and know-how could lead to some interesting developments.

Gigi Levy, the chief executive of 888 Holdings, offered insight into how his company views the mobile channel during the discussion of its 2007 results. While Mr. Levy revealed 888 maintains "hundreds of active money players on mobile," mobile gaming, in general, he said, is not yet delivering what the industry expected it would deliver.

Mr. Levy argued that the mobile sector was a closed environment and the current regulatory environment made it too difficult to get onto the portals of mobile networks in certain countries. He anticipated that mobile gaming would become a significant part of the business in the future, adding now was the time to be preparing for when real convergence occurs between devices and channels. To this end, 888 has already done deals with mobile operators in some jurisdictions, either to provide free-play games or, simply, to lie dormant until the regulatory picture changes.

The impression with mobile gambling is that several of the established I-gaming operators still do not view it as an essential part of their service. Many operators offer a mobile product but do not appear to support it with as much investment as their other channels. Mr. Spencer talked of mobile gambling’s potential over the "next decade" when he invested in Probability, while Mr. Levy expects to see "no major numbers" for mobile gaming in 2008 -- and probably not in 2009, either. Despite the recent developments, the gold at the end of the mobile gaming rainbow will likely prove elusive for a few more years to come.

Lorien is a research analyst with Global Betting and Gaming Consultants, and currently resides on the Isle of Man. Prior to this, he spent three years at a leading United Kingdom gambling firm, providing regulatory and market research for its various international e-gaming ventures.