Analysis: The Netherlands that time forgot

The Netherlands market may now be on the horizon, but it has been a long time coming. Playtech struck a supply deal with Holland Casino back in December 2013 in advance of what now looks like an absurdly optimistic hope of a 2015 launch. “Playtech is very excited to secure its position in one of the most promising jurisdictions in Europe,” CEO Mor Weizer said at the time. But times have changed.

Since the Netherlands first came into view as the next big thing in online gambling, we’ve had the launch of regulated markets in Bulgaria, Romania, Portugal and the Czech Republic as well as the announcement of the upcoming Swedish regulated market and, of course, the promise of riches from the repeal of PASPA in the USA. In short this is an industry now spoiled for choice as to where it seeks to work for the benefit of local tax authorities.

But on the face of it there is still a lot to be excited about. The Netherlands at some 17m people is roughly the size of Sweden and Denmark combined, has a GDP per capita higher than Germany and is one of Europe’s most cashless societies with a huge mobile penetration and substantial iOS usage. It’s also a market that has both an historic and current propensity to gamble online.

A country of big potential

The Netherlands is currently a key territory for Kindred and one where Betsson has previously invested heavily in acquiring two online casino brands only to battle with the authorities over its right to operate there prior to the new regulated market. Other operators have also faced fines over their Netherlands-facing operations but it remains a very active market for operators and affiliates alike.

Generally it’s only the constant threat of fines and legal action that keeps most of the major players out at the moment, but will this change post regulation? The main issue is an aggressively high tax rate of 29% of GGR and a greater than average regulatory burden. A final decision this month on the land-based question should permit more operators to play a role, but it’s difficult to imagine ongoing regulation to be light-touch in its approach.

A tax rate of 29%, assuming a high marketing spend and other start-up costs, will make it tough for anyone to turn much of a profit in the short-term. But is it really a market you want to leave to Holland Casino and Kindred to dominate? Certainly it’s not hard to estimate the Netherlands as a market of some scale within Europe in relatively short order.

Ignore it at your peril?

If we give the Netherlands a similar per capita spend as Denmark had in its first post-regulation year, then €600m in annual revenues is a quite reasonable expectation. It’s also worth noting that the Danish market has doubled since that time and it could feasibly be larger than Italy using comparable metrics, although this will be dependent on a number of factors, not least how much of the large current grey market remains post-regulation.

It seems then as if the Netherlands will be a market nobody can afford to ignore, even with the high tax rates and what will likely be a big push from the existing local industry, not least Holland Casino. But it may be one some firms choose to take a pass on for now not least with the gold rush of the US in their sights. As really, in Europe there is nothing but the illusion of choice at the current time. While there is ostensibly a plethora of regulated options, in reality there are few easy wins left and a number of very difficult ones.

Spain is too small to be profitable for any more than a small number of operators, Italy is hugely competitive with some powerful local operators, Sweden will make Italy look like a walk in the park in its early days and the emerging Eastern European markets are either sub-scale or pricing themselves out of contention for the most part.

The big question

Outside of the regulated markets Germany is the big growth market for many but that comes with a host of regulatory issues just waiting in the wings. And then we have the US sports betting sector where the promise of profits further down the line awaits those willing to put in the time, effort and considerable to cost to reach it. There are then only so many worlds to conquer and only so much people and capital resource to throw at them.

The question really is will the tax rate and operating conditions make the Netherlands economically unviable? If not then expect a flood of operators active from day one. If so then it could end up like the substantial French market where most will be content to leave alone while Kindred and GVC will run at a loss or break-even in the hope that one day market conditions will change.

The long wait for the Netherlands to open may have cooled some enthusiasm for its potential but it’s hard to see many other markets that offer as much to the major UK and Nordic-facing operator giants. One thing is for certain is the analysts and forecasters will have done their sums and nobody is going to be caught on the hop by the Dutch market with over five years of build-up. And we won’t have long to wait to see which way the operators leap.