Growing pains in France and Spain

Spain’s second quarter results showed a market in apparent rude health, with growth of 23% year-on-year and a total market size of €121m. In comparison the French market was up a more modest 12% to €226m. What a difference an online casino sector makes.

Spanish revenues were provided in bulk by sports betting, which contributed some 55% of the total at a growth rate of 11.5% year-on-year. In a market dominated by bet365 this should come as no huge surprise, but what was more interesting was the huge growth in the online casino sector. This is where Spain is really beginning to come to life.

The Spanish market has been something of a damp squib since its launch in 2012. Its total annual revenues last year were up 34% to €429m causing some renewed interest in the market, but its per capita spend remains the lowest of all the regulated markets at just under €10 in 2016. It is lower even than the much derided French online gambling market. But growth trends look very positive.

Online casino was up 53% year-on-year and now represents nearly a third of the total online gambling market, up from 15% in 2014. Neither slots nor live casino were available prior to 2015 and both of those products are proving the engine of growth in 2017. With growth rates so high and casino so heavily under indexing as a product vertical compared to markets such as the UK or Italy it’s no surprise to see renewed interest in the market.

French unfancied

Meanwhile second quarter results from France show yet again it’s a country that refuses to respect the narrative that it is a failing market. Despite the absence of a major football tournament, sports betting revenues rose 22% year-on-year to €111m. Added to the contribution from the horse racing sector the French market generated total betting revenue of €169m in the quarter, almost three times the size of the Spanish betting market.

Digging deeper into the numbers there was a big increase in betting on France’s Ligue 1 football and a large jump in tennis betting, particularly on the French Open. There was also no significant increase in the number of customers, with operators benefitting from a slight increase in margin in the period. What this points to is a mature and stable sports betting market where operators are able to increase revenues from an improved product and smarter marketing.

But due to its excessive tax rates and archaic payout ratios, France continues to be seen as the poor relation of the online gambling sector. There were just 12 active sports betting licences in 2016, down from 16 in 2011 and poker licences were down from 23 in 2011 to just 7 in 2016. Operators are understandably reluctant to invest in a market where healthy top line revenues are incredibly hard to translate into profit.

In 2016 from €349m in sports betting revenues the sector paid an eye-watering €208m in levies and VAT, and that’s not including the €430k annual licence fee. Those in the market seem to be playing something of a waiting game. For the likes of Unibet and Winamax there is a clear opportunity if and when the market ever comes into line with the rest of the major European regulated markets.

Untapped potential

How long can France’s regulators ignore the impact of its huge black market? During 2016 the regulator blocked 148 illegal gambling URLs from a total of 35 sites with a sizeable minority requiring a court order. Yet there are over 100 online casinos listed as accepting players from France on one affiliate site alone and estimates of the size of the market even on a conservative basis would place it at a similar level to the existing sports betting market.

A move to open up France to online casino would create a huge regulated market with significant tax revenues for the regulator. Even at the level of per capita spend seen in Spain it would be a €250m a year market. But there are no signs of this occurring in the near-term. France’s online gambling market is less than 10% of the total gambling sector in the country and from the outset has been designed to protect its existing monopoly operator Française des Jeux.

But it should act as a lesson to some of the newer regulated markets we see emerging in Europe. Sports betting and poker appear to be the lead products and France has proven they can create a sizeable and tax generative market in their own rights. But the lesson from Spain should be just how big an opportunity both regulators and consumers are missing when casino is left to the black market alone.

Spain’s attractiveness to both players and operators alike is markedly increased by the availability of a modern online casino product. It leads to increased investment, increased tax revenue and allows regulators to control the offering and the social responsibility measures around it. The alternative is a black market where ultimately only a handful of lightly regulated operators win out, and that’s not really a situation anyone should be striving towards in 2017.