Opinion: Sizing up the Portuguese market

When estimating the value or size of a newly regulated market you need to take into account the content and product operators are permitted to offer as well as the tax burdens they face.

The same applies to Portugal, where a number of operators have withdrawn from the market ahead of licences being issued. These factors will determine how competitive the market will become, and whether operators will view entering the market as viable.

But just how big will the regulated market be in Portugal?

Local operator Santa Casa da Misericordia recently published a report in which it estimated the market size at €300m per annum in GGR. But this number has to be taken with a pinch of salt.

When compared with other regulated markets with a similar population and GDP, Portugal’s numbers simply don’t stack up. Others have estimated the Portuguese market to be worth around €120m each year but I believe even that figure is optimistic.

And here is why. Using markets like Spain, Denmark, Italy and France, we can reach a more accurate estimate for the Portuguese online gaming market once the regulator hands out licences. But other factors like GPD must also be taken into account.

While operators will be able to offer a full suite of games, the taxation rate on the betting products, both the percentage and the fact that it is based on turnover, will dent bottom line.

Tax on casino and bingo games is high, but since it is based on gross gaming revenue and is applied in a progressive scale, it makes these game verticals more competitive at least. But add high taxation to the robust regulatory framework and Portugal quickly becomes a limited market that will likely only attract a limited number of operators.

Another factor to consider is marketing and promotional expenses. Local operators will look to capitalise on their assets and brand recognition and will undoubtedly enjoy the largest share of the market.

Other operators and brands, however, will have to spend big to compete and even then won’t be guaranteed to achieve enough market share to run a sustainable and profitable business.

With that in mind, let’s try and come to a sensible estimate for the size of the Portuguese online gaming market. But first, let’s look at the numbers from a few other markets:

– Italy: Revenues (2014) – c.€770m with a population of 61 million

– France: Revenues (2014) – c.€800m with a population of 66 million

– Spain: Revenues (2014) – c.€254m with a population of 46 million (without slots during that period)

Portugal, in comparison, has a population of just 10.5 million. As such, I believe the market will have annual GGR of €75-€100m only and once the market has matured, but in the first year or two that number will be closer to €60m.

As yet there has been no firm date given for when the Portuguese regulator will issue its first batch of licences, but we predict the market will open sometime in early 2016, by issuing preliminary licences, and operators can become fully operational between the second half of 2016 and beginning of 2017, as they will have to go through the compliance with the technical and games certification process.