GBGC Releases Revised Post-UIGEA Figures

21 May 2007

U.K.-based consulting firm Global Betting and Gaming Consultants (GBGC) in April released revised projections for the global gaming industry in the post-Unlawful Internet Gambling Enforcement Act (UIGEA) era. GBGC found that the effects of the legislation may have been far worse than first expected.

GBGC initially released post-UIGEA projections in January, showing revenue growth for the industry at $20.9 by 2008 and up to $26.2 billion by 2012. The firm arrived at that number by observing the decrease in player traffic to leading gaming sites immediately following the enactment of the U.S. legislation, and adjusted the average player yield accordingly.

The firm's revised data, however, based on the Q4 market reports of all 51 listed companies, predict revenues of only $16.9 by 2008 (a 19 percent difference) and $23.9 billion by 2012, (an 8 percent difference), all the while noting that, with the current pace of global regulatory development, the industry is likely to be dramatically different at that point.


GBGC points out that the Placanica ruling, which determined that an operator licensed in another European Union (EU) country could not be kept out of Italian markets by use of the nation's criminal law, in conjunction with the multiple infringement procedures launched against many EU states last year, would have only a minor impact on the global industry's bottom line.

GBGC does believe, however, that several European sports-betting markets will be liberalized by the end of 2007.

For instance, a Munich court last week ended an eight-month dispute between Austrian Internet sports-betting company bwin and the German state of Bavaria when it ruled that it is 'technically not possible' to ban online sports betting.

Bavaria attempted to ban online sports betting in September as a means of protecting its state-run lottery, claming that all other betting operations were illegal. But the Munich court found that it is impossible to bar Bavarian residents from using online sports betting services, such as those offered by bwin.

North America

As expected, the United States and Canada have contributed considerably less to the global Internet gaming market since the enactment of the UIGEA, and both markets have suffered significant setbacks, both legally and financially, the report said.

Granted, problems in the United States began in July 2006 (pre-UIGEA) when former BetonSports (BoS) CEO David Carruthers was arrested in Texas while en route to Costa Rica. The ensuing indictment of Carruthers, BoS, three other related companies and 10 related individuals, resulted in the complete destruction of the BoS enterprise.

But the enactment of the UIGEA forced publicly traded companies immediately out of the U.S. market, and the subsequent months saw more companies back out of the region.

Then, in January, Stephen Lawrence and John Lefebvre, co-founders of payment processor Neteller, were arrested by U.S. authorities and charged with conspiracy and money laundering in connection with illegal Internet gambling. The two men are still awaiting indictment in New York.

Three days after the arrests, Neteller pulled out of the U.S. market, citing the impending UIGEA regulations.

Meanwhile, the Canadian market was not without trauma. Several companies in March announced their exits from Canada, adding to the gap in revenues from that region of the world. And in April, Virgin Games pulled out of Canada. But, the report notes, that Virgin's decision was believed to be a result of the fact that the company's software supplier, WagerWorks, was heavily entrenched in the Canadian land-based casino industry.

Despite the losses the industry has suffered at the hands of prohibition, the United States may be poised to make regulatory changes regarding gaming.

Rep. Barney Frank, D-Mass., on April 26 introduced the Internet Gambling Regulation and Enforcement Act, which would establish a licensing and regulating regime in the United States, overseen by the Financial Crimes Enforcement Network. If passed, the legislation would open up the U.S. market to legal offshore Internet gaming companies, which would be subject to financial and corporate scrutiny. The legislation also stipulates that these operators must establish operations in the United States.

While Frank has said he would not introduce the legislation for a House vote unless he is certain it would pass, it is scheduled for debate sometime in June.

Meanwhile, Rep. Shelley Berkley, D-Nev., on May 3 introduced a bill proposing a one-year study of Internet gambling. Her bill, backed by the American Gaming Association, recommends the study be conducted by the National Research Council, a branch of the National Academy of Sciences.

While GBGC has downgraded its previous projections, the numbers paint a lighter picture than those issued by U.S.-based analyst Michael Tew of Capital HQ, who in December predicted the industry would shrink to $5.5 billion in revenues by 2010 as a result of the UIGEA. Prior to the controversial legislation, Tew estimated that the industry would grow by 8.7 percent annually to reach $15 billion in 2010.

Tew's attributed his estimates to the mass exodus of publicly traded gaming companies from the U.S. market post-UIGEA, and warned investors and consumers to be wary.

Tew plans to release revised numbers following the full implementation of the UIGEA, which is expected this summer.

"I will look to revise my industry estimates up only, probably not down," Tew told IGN in December. "I'm sure I'll be revising them up."

Emily Swoboda is the senior staff writer at IGamingNews. She lives in St. Louis, Mo.