Last week, Max Drayman explored the past, present, and future of e-gaming according to Bear Stearns, in the article e-Gaming Still Thriving. This week, he looks at The Future of Online Gaming.
As last week's article noted, the Bear Stearns report clearly demonstrated that the online gambling industry is growing - and will continue to grow if industry heavyweights have anything to say.
The report explains that recent changes on the political front could have a strong and lasting effect on the industry. Those most likely to benefit from changes to existing legislature would be the large American gaming corporations, which simply dwarf any single e-gaming interest.
The report confirms that Vegas is carefully reaching out to the Web, with MGM Grand and Harrah's launching "Play For Fun" sites; these moves are widely seen as attempts to test the waters. According to Bear Stearns, "recent events are sending the message to regulators that the Internet is too valuable for those within the [brick and mortar] gaming industry to passively watch as others capitalize on the phenomenon."
In other words, Vegas will move online because of the opportunities for growth. And with enormous financial resources at their disposal, the brick and mortar casinos (aka BAMs) aren't just going to cause ripples in the e-gaming industry, they'll hit it like a tidal wave.
Central to whatever the BAMs do on the online gambling front is the ever-evolving legal climate in the U.S., which has been grappling with attempts to ban Net gambling for several years. First there was the Goodlatte Bill, which failed in part because a number of lawmakers were opposed to the exemptions made for the pari-mutual wagering (primarily horse-racing) and lottery industries. To a certain extent, the same was true of the Leach Internet Gambling Prohibition Act.
As an epilogue to these legislative attempts, former president Clinton signed an appropriations bill just before leaving office which "included language that it was in fact legal for states to operate off-track wagering systems and to transmit wagers between states ... the bill gives the states the right to decide the legality of such matters." This in effect left the fate of online gambling up to the individual states, as demonstrated by attempts in Nevada and New Jersey to legalize Internet gambling.
In spite of the shifting legislative winds, online gambling's silver bullet may have arrived in the form of GPS (Global Positioning Systems). GPS tracking could be used by casinos to track a players' country --or state-- of origin, and ban players from jurisdictions where online gambling is illegal. As Bear Stearns puts it, "we believe that technological development holds the key to the future of Internet gaming." Whether that key is used to open the door or lock it remains to be seen; we'll tackle implications of GPS in a future article.
In terms of individual sector growth, Bear Stearns sees a brighter future for lotteries than casinos and sportsbooks. "Lotteries have extremely large potential as future Internet gaming plays, particularly because they are easily regulated and mostly automated." According to the report, lotteries will grow by 52% compound annual growth by 2003, versus a 32% growth for casinos and sportsbooks.
Bear Stearns' observation that "nearly 70% of Americans played some type of public lottery in 1999" will undoubtedly buoy the lottery industry's hopes, while casinos continue to face the challenge of increasing promotional expenses and a comparatively limited player base.
Sportsbooks also have a rosy future ahead, and the report predicts they will "overtake online casino gaming in 2001 and beyond." It goes on to say that "operators in the U.K. and Australia will have a major competitive advantage" in this market, since they've proved themselves "trustworthy and reliable through years of customer service and commitment to high levels of entertainment."
In terms of growth in other gaming sectors, Bear Stearns has bullish predictions for "bingo, keno and other person-to-person (P2P) games," and expects them to be second only to lotteries. It estimates they will grow to $302 million by 2003 (for a 48% compound annual growth).
Bear Stearns concludes its report by observing that the major impediment to successful Internet gaming legislation "is a lack of basic standards from which those drafting legislation can work." The report's authors are hopeful that countries can come together to implement standards, and the suggestion that legislators need to "work closely with industry experts in order to draft and establish such laws" seems to reflect the thoughts of many in the online gaming industry.
Read Part 1 of our analysis of the Bear Stearns report, titled e-Gaming Still Thriving.
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