Seven Billion Dollar Nambling Market Predicted

A recent "strategic research report" by Frost & Sullivan (http://www.frost.com) titled, "World Markets for Online Gambling", predicts that the turnover of on-line gambling will be $7 billion (US Smackeroos) by the year 2004.

The full report costs US$1,950 and if you want a copy in a hurry (so you can charge off, get some money from investors and open your own cybercasino), then email the lovely Louise Runkle at lrunkle@frost.com. If you can't afford the two grand or you're a cheapskate, well then you will have to settle for those bits of the report Mr. Nambling has been able to scrounge for free.

Messieurs Frost and Sullivan say that "Online Gambling is expected to grow exponentially throughout 1998."

Well I could have told you that for $1.95 and saved you near two grand. Still, let's hear what else they have to say about the here and then of Internet Gambling, which is expected to experience phenomenal growth in the years to come. The online gambling operations segment of the report focuses on online casinos and sports books where players can gamble with real money via electronic cash transactions. In 1997, the market generated $444 million in wagering transactions, and accounted for 96% of the total Internet gambling market. High profitability, historical precedent, and international gambling cultures will propel this market to phenomenal growth.

This estimate of a handle of almost half a billion in 1997 was apparently drawn from inside information, as Frost & Sullivan told me, "For the purpose of the report, total industry figures combine both revenues for software developers AND online gambling operators; obviously, these two revenue flows are different, but we wanted to cover both in the report. We spoke with many software developers and online gambling operations, and took a 'bottoms-up' approach towards deriving this figure. Some factors included number of fully-operating gambling sites, average bets per account, number of accounts per site, total number of Internet users, etc."

• $444 million estimates the total wagering that was conducted, or the handle.
• $4.5 million estimates the amount of revenue sharing received by software developers in their licensing agreements with online gambling operations.
• $11.4 million estimates the amount of licensing revenues received by software developers.

Again, as the estimate of the number of people in the US online was much lower than a lot of estimates, I just had to ask them how they worked that out and they replied, "In an ISP/OSP study conducted by industry analysts at Frost & Sullivan, the number of ISP/OSP accounts in the US was estimated at 21 million. 'Internet Access' does not take in to account entities where several individuals have access to one accountb(e.g. businesses, schools)".

The Frost & Sullivan forecasts for nambling revenue 1997 through 2004 are:

Now that's some prediction, namblers. Using a per-person expenditure of, say, $500-a-year Yankee dollars, that's a player base of 14, 816,000. Their research seems to me to indicate an average player expenditure of closer to Yankee $ 1,500. Now that means some five million players come the year 2004.

Given that, some research companies are suggesting that there will be a few billion people on-line in 2004, that 5 million seems a little on the low side, doesn't it? Hmmmm... What does Frost & Sullivan know that we don't?

Well, I asked them how they arrived at this number and they replied that they arrived at this figure, "Based on estimates of 500 million people, worldwide, with access to the Internet in 2004, the assumption is that 1% of all users will be gambling online."

On one hand, I agree with what they seem to be saying. I think that the Internet nambler will generally be a high spender in terms of the Internet player (nambler) and will spend a lot more than the "average" punter.

But!!!... The average player is and always has been a statistical myth. The nambler will be a person with a much higher than average income, an interest in gambling, and a love of technology, I think a nambler will either be a sports better with an interest in casino table games or a person with a lot of time to kill and not much to do. (You see this in chat sites, people looking for entertainment and excitement on-line.)

I also think the nambler is a person who wants to beat the system and, thus, gravitates to the hard end of the gambling spectrum.

To the casual and social gambler, the Internet will be too much trouble and too expensive. To the American sports bettor, it will be a godsend to the rest of the gambling world. The Internet will have little to offer beyond the real world (except in say China where you, officially, can't gamble). I do have a feeling that online Bingo or social games may have a place and surprise us all, I get this feeling from both participating in chat sessions and I can see that combined with say a simple "Church" bingo.

What we don't know is the size of the small change, boredom-fighting play that might evolve for say on-line slots, keno and bingo type stuff. There are a lot of people who are online at work and dive off into things like chat to kill time. I've seen night shift hospital staff popping into chat in the wee small house when all is quiet. Even a Sheriff's office staff member from a small US town (obviously with no crime to speak of) popping in and out of chat. I also remember some guy at an island military base logging on for someone to talk to and some company. Online gambling like this will have to cheap, very low cost per play so that a small amount of cash lasts a long time—the sort of thing I see in real world slot sites where they have one cent and two cents per spin slot machines.

I asked Frost & Sullivan why they felt their (lower) figures were so different from some forecasts—like those of Sebastian Sinclair, who predicted a potential of $1.8 billion in 1997 and $8 billion in 2001 (http://www.msnbc.com/news/103427.asp)—and a spokesman said, "Several analysts have estimated that the market will reach between $8-25 billion by 2000.

While we don't dispute these figures, we feel it's important to be aware of the fact that, although the Internet is growing rapidly, in the short run, much of this growth will not be derived from private users, but rather from corporate and academic users (Asia, Europe, etc.) who will not have free access to the Internet for personal use. This assumption accounts, in part, for Frost & Sullivan's estimates that may seem comparatively low. In the long run, we are certainly aware that the market could surpass $20 million. Growth in PRIVATE access to the Internet is a key driver to growth in the online gambling market".

Well that's reasonable I suppose, still 7 to 8 billion dollars as the handle for Internet gambling is not a lot in gambling industry terms. With a vig of, say, 20%, that gives you a hold of $1.4-1.6 Billion, a nice cottage casino operation. It means that, world wide, this report suggests a cybermarket about the size of the state of Victoria in Australia or Colorado in the USA—about 1.5% of the 1997 USA handle, maybe .5% of the world market in 1997. Just assuming a small growth in overall gambling handle 1997 to 2004, we are talking about nambling being less than .5% of all worldwide gambling by 2004, based on these estimates. Illegal local real world sports betting, card clubs, illegal slots and game machines, backroom casinos, illegal numbers and illegal cross border sales of state run lotteries will still be a bigger business in the USA.

This sort of puts things in perspective and shows how far ahead of reality the US legislators are getting, (Read and weep NAAGS).

There are many factors this report has not been able to take into account: the growth of government-backed online forms once the lawmakers make their moves for and against; the integration of the Internet with cable or digital television, which could make a big difference for racing and sport betting; a new form of on-line gambling we have not thought of yet, a Pong that captures the home punter.

There is, of course, a lot more in the report, and the committed who want more will have to put their hands in their pockets. For the moment, namblers, this is as much as I can tell you.

For more information on the report, "World Markets for Online Gambling, April 1998" (report code number 5840-70; Price: $1,950)—and no, Mr. Nambling does not get a commission, dammit!—contact:

Louise Runkle
2525 Charleston Road,
Mountain View, California.
USA CA 94043
Phone International + 1 + 650-237.4933 (direct)
Fax International + 1 + 650-903.0915
Or, Email lrunkle@frost.com
Or, visit the web site at: http://www.frost.com
Or, Email me 2 grand and I'll tell you what I think! ;-)