By Scott Longley, Editorial Director - Regulus Insights
‘The booster’s enthusiasm is the motive force which builds up our American cities. Granted. But the hated knocker’s jibes are the check necessary to guide that force. In summary then, we do not wish to knock the booster but we certainly do wish to boost the knocker.” Sinclair Lewis in an editorial entitled ‘The Needful Knocker’, 1908
Hyperbole and online gambling are inextricably linked. From the very first inception of the form, online gaming has surfed a wave of enthusiasm based on double-digit player number expansion rates and sky’s-the-limit predictions for continued future growth.
But even as the online gambling boosters continue to preach the message of state-by-state regulation in the US, it might be argued that their argument is in danger of losing its lustre as other forms of gaming, unencumbered by existing tight regulation, grab the headlines - and crucially the players.
The latest eruption of online gaming hype comes in the form of Amaya. It’s share price performance in 2013 was one of the stories of the year within the global gambling sector as the company moved to complete the coup of the decade in completing the C$4.9bn reverse-takeover of PokerStars.
The legitimation of PokerStars and its holding company Rational Group – at least in the eyes of the investors and the institutions which bankrolled the buyout – has provided all the encouragement that was needed for those that believe that Stars’ belated entry into the regulated US online gambling market will kickstart what has otherwise been a lacklustre – not to say moribund – beginning.
This is not just about New Jersey, where PokerStars is tipped to gain entry to the market in the first quarter of 2015. It’s also about California where the Stars’ presence among the market entrants is seen by many as a pre-requisite for a poker-only market to have any chance of not being stillborn.
Appropriately perhaps US state-by-state boosterism is perhaps the last bastion for the cheerleaders of online gambling, and PokerStars in particular has become the totemic cure-all - the one necessary ingredient which will unleash the flow of revenue in any given virgin market.
All of which might well be true; in truth no one knows because the company and its product is yet to be tested in any regulated US market. We know that in terms of gross revenues PokerStars has been successful in regulated markets in Europe – though whether that extends to profitability remains open to question.
What we do know is that PokerStars and its new owners have a number of reasons to be hopeful; as David Baazov, chief executive at Amaya Gaming, made clear in his interview with Forbes magazine in September last year PokerStars has 89 million registered customers.
That number means a lot, particularly if Baazov and Amaya succeed in the stated aim of successfully converting those to date poker-only customers to casino and sportsbook. But the number is still worth examining in the context of other online phenomena currently also underway in the US.
The 89 million is global lifetime customers. According to Forbes, monthly actives stood at a more digestible five million. That is still a substantial number, given the likely revenue per player per month figures that accompany it. But it should be seen in the context of the kind of numbers being racked up by the social casino sector.
Playtika – owned by whichever is currently the most solvent of the Caesars corporate entities knocking about at present – and its Slotomania offering achieved in the third quarter 5.64 million average daily active users and 17.8 million average monthly active users.
Double Down – bought by IGT back in 2012 for what seemed an outrageous sum of $500m – achieved a daily active users number in the quarter to September 2014 of 1.82 million and a monthly active users figure of 5.72 million over the same period.
Over at Zynga the social casino segment saw revenues grow 77% year-on-year in the third quarter while monthly average users rose 35% sequentially, and there are more such impressive figures further down the feedchain from the likes of GSN/Bash Gaming, Big Fish Games (recently bought by Churchill Downs), Williams Interactive, PlayStudios and many more.
Crucially this growth comes unhindered – mostly – by the type of regulatory mantraps that ensnares gambling companies. Regulation plays the statutory role of the knocker in our booster analogy, as the owners of the social casino operators are all too aware. From inception, they have lobbied – to date successfully – for social casino to remain outside the remit of the various gambling regulators.
(It’s likely all the more galling that many of these social gaming operations are owned by largely land-based gaming entities, but that’s a not altogether unimportant side issue).
But social casinos aren’t the only sector enjoying life without regulatory frontiers. Growing at a similar pace in recent years has been the daily fantasy sport operators. Enjoying a form of favoured trading status with the all-powerful US sporting bodies, the fantasy sports operators such as Fanduel, Draftkings and Draftday have successfully swerved any regulatory restrictions or prohibitions.
It was the subject of a carve-out from the UIGEA legislation in 2006 and two court decisions – Humphrey v Viacom in the US District Court of New Jersey in 2007 and Langone v Fanduel in the US District Court for the Northern District of Illinois in 2013 – have agreed that participation in daily fantasy sports does not constitute having a bet or a wager.
While the dotcom operators were hounded, prosecuted and otherwise harried out of the dotcom space from the early 2000s onwards, fantasy sports found, like social gaming, the ‘online games’ field vacated and quickly filled the vacuum. According to widely publicised figures from the Fantasy Sports Trade Association, the industry now has over 41 million customers and counting in the US.
Online gambling still has its champions – Amaya’s 2014 share price performance is proof of that – but they are now operating in an increasingly complex environment where the competition will be unlikely to give up ground easily.
Whether state-by-state gaming – whether poker-only or not – will be able to generate enough excitement to gain any substantial traction is very much open to question. The fear among the pro camp must be that it is now seen as a form of online gaming participation whose time in the spotlight has already been and gone.
Boosterism in the US was originally driven by the railroads, a form of transport which was superseded by the introduction of the automobile. It might be the fate of online gambling to find itself similarly overrun by a newer, faster and nimbler form of transport.