Editorial: The Craziness of this Gambling Industry

20 July 2006

Just as I finished reading all the news reports on the investigation of BetonSports in the United States, I received information from bwin (formerly BetandWin) concerning its gross gaming revenue margin from sports betting operations of the World Cup. It was 6.7 percent--well below the range obtained in the previous quarters of between 8 percent and 10 percent. This amazed me because the first results show that the WC in Germany had a turnover of more then twice the turnover for the 2002 tournament.

But my astonishment grew even more when I received word from Germany that prosecutors were watching workouts of German soccer teams in shirts with the bwin logo.

We already informed the readers of Igamingnews that the German 2nd Bundes Liga (second division soccer league) club, 1860 München, and the Bundesliga (the soccer major league) club, Werder Bremen, have sponsor and shirt advertising contracts with bwin. At the same time, bwin contracted two more top soccer teams in Germany: SC Freiburg and VfB Stuttgart 1893--both Bundes Liga soccer teams. I do not have to bet, but I’m sure that the local prosecutors will also attend those clubs' training sessions tomorrow morning.

Above that, in the German Parliament, Bündnis 90/Die Grünen (the Green Party) on Wednesday pleaded for keeping the sports betting monopoly, but the highest court, the Federal German Constitutional Court, decided that in 2007, with regards to sports betting, a new coherent and consistent law should be introduced. Do not expect anything from the European Union. The commissioner for the Internal Market and Services, Charlie McCreevy, states that his priorities are “eliminating remaining barriers to an effectively functioning internal market for services across member states.” However, he seems have forgotten the gambling industry completely. On his Web sites, you cannot find any information on gambling.

bwin World Cup Results

Between June 9, 2006 and July 9, 2006, betandwin recorded (excluding statistics from its Ongame unit):

  • 763,000 active customers, including 293,000 new active customers (sports betting).
  • Almost 430,000 new registrations.
  • Over 500,000 bets on the top games.
  • Customer frequency of up to 220,000 active customers daily.

Thanks to World Cup marketing, goals of 160,000 new active customers, as well as reactivation of existing customers, were exceeded. At the same time, the World Cup was used for a market launch in Mexico.

Favorable Outcome for the Customers

Numerous favorites won in the preliminary rounds of the World Cup (between June 9 and July 9), creating an unfortunate situation from the bookmaker's point of view; a gross gaming revenue margin from sports betting operations of only 6.7 percent was achieved, well below the range obtained in the previous quarters of between 8 percent and 10 percent. In the period between April 1 and the start of the World Cup, the margin was 8.8 percent, while in the period between June 9 and June 30, it was 6.2 percent. This means that in the short term, gross gaming revenue was lower than budgeted for the second quarter of 2006.

The average number of active customers per day rose during the World Cup to 182,000. In the period before the World Cup (April 1 – June 8), on average 78,000 customers were active daily. The ratio of new active customers to registrations (conversion rate) rose to 68.2 percent during the World Cup. During the same period last year, the conversion rate was 60 percent.

Investment in the Technology Platform

Thanks to the investment made in the technology platform in the run up to the World Cup, an average of 14 bets per second was processed on World Cup games, with up to 220,000 active customers a day. At the 2004 European Championships, 1.3 bets were placed per second, with up to 32,000 active customers a day.

Since bwin will only see the full earnings potential of customers gained during the World Cup in subsequent periods, a significant negative EBITDA will be posted in the second quarter due to the heavy investment made in marketing. betandwin's World Cup marketing activities were an important step in the company's global expansion and in evening out the geographic distribution of gross gaming revenues.

The legal situation in the United States is being carefully watched by bwin's top management, and steps will be taken if necessary. Since betandwin does not offer sports betting to U.S. residents, the company assumes that the betandwin Group will not be affected by the investigation of BetonSports.

Rob van der Gaast has a background in sports journalism. He worked for over seven years as the head of sports for Dutch National Radio and has developed new concepts for the TV and the gambling industry. Now he operates from Istanbul as an independent gambling research analyst. He specializes in European gambling matters and in privatizations of gambling operators. Rob has contributed to IGN since Jul 09, 2001.