eGambling Data Bulletin 2008 Q3/Q4

Today H2 Gambling Capital (www.h2gamblingcapital.com) publishes its first Quarterly eGambling Data Bulletin as an independent company. The main themes of the report and accompanying detailed sector dataset are as follows: 1.   H2’s preliminary 2008 total value (gross win – stakes less prizes but including bonuses) for the eGaming industry is US$19.6bn including state lotteries and US$$17.2bn without them. It is now expected that the industry will grow to U$30.0bn/US$26.3bn respectively by 2012 representing CAGRs of 11.3% including state lotteries and 11.1% without. All of these numbers have been reduced during the prior 6 months not just as a result of the gathering economic headwinds but also due to the strong appreciation of the US dollar. H2 will publish their final 2008 industry numbers during early April following the reconciliation of the their model with all of the public companies’ preliminary results. 2.   The Online Gaming Industry will not be Completely Immune to the Economic Downturn: H2 continue to be confident online gaming will fair significantly better than its land-based counterpart. However, we have downgraded our numbers, as we now do not see the sector being immune. It is now clear the recession will be far worse than was anticipated six months ago and that some of the emerging online gambling markets, particularly in Eastern Europe, will be hit severely. Even prior to the impact of mass redundancies the sector was impacted by the availability of credit cards being tightened. 3.   A Recession Should Strengthen eGambling’s Hand: During the past thirty years or so it has become apparent that governments are far more likely to legalise or deregulate gambling during times of economic hardship. Not only can the industry claim to need a shot in the arm; gambling also provides government with the rare opportunity to increase their tax take whilst stimulating economic activity. 4.   US Market to Open but Not Until 2013-15: H2 are now more bullish regarding the US eGaming market opening up than at any time since 29 September 2006. We believe the election of Barack Obama to the White House in November was the latest piece of a complex jigsaw. However, going forward it will be key for the domestic US industry to support a bill, with a broader consensus behind this bill. The American Gaming Association remains split on the issue though its board will consider the issue on a bill-by-bill basis during the 111th Congress. Across the 26 states that H2 believe it is likely some eGaming (Sportsbetting is not believed to be a possibility) our unique insight into the market suggested the first ten years of legalised activity could generate nearly US$130bn in gross win. 5.   US Forecasts Downgraded for 2009: Since our last bulletin, and nearly 18 months after the date originally set for implementation, the Bush Administration has recently announced that UIGEA will now be implemented by the beginning of December 2009. As a result H2 have reduced our US forecasts for 2009; however, we acknowledge at this stage it is impossible to know exactly how effective the implementation will be. Any action against those sites still accepting players from the US could lead to a collapse in player confidence, however, for the time being PokerStars, in particular appears to be stepping up their marketing effort. 6.   The ‘Liquidity Pull’ Continues: The draw of the US facing poker sites has continued into the busier winter months. It was originally thought there was a possibility that the liquidly advantage would not be as great as the non-US sites were busier. However, this appears not to be the case as the US facing sites have continued to increase the differential between themselves and the non-US operators. As at the end of December PokerStars and FullTilt controlled just 50% of the real money online poker market and have a position that will be hard to reverse under current conditions. 7.   Poker Ends 08 0n a High: December 2008 proved a record month with 30 of the highest player activity days on record. Only the first week of March 2008 (Easter) was anywhere near as busy. The last day of 2008 was, at the time the busiest on record with an average of just under 96,000 RM players active during the 24-hour period as oppose to 80,000 12 months ago. H2’s online poker real money volume index ended 2008 at 3,680 compared to the 3,060 a year ago (the index commenced at 100 on 1 January 2003). Going forward H2 do not expect the 4,000 mark to be breached by the end of 2009 given the current headwinds. 8.   The Ultimate Percentage of the Business that can Be Online: In this edition H2 explore where this might actually be and find that in the UK, the most mature legalised online gambling market, the current level was approximately 15% during 2008 but conclude that within a decade this will almost certainly increase by a further 10-15% as technology plays an increasingly important part in people’s lives. 9.   Broadened Market on the Cards: Although the majority of operators are focusing on their best customers and targeting key growth markets in order to reduce their marketing costs during the recession, in the longer-term H2 believe the market’s customer base will broaden. As has been the case with computer games, a more casual customer will become increasingly important due to the fact there are so many of them. The vast majority of the new startups we have seen recently focus on softer gaming such as fantasy sports, skill gaming, etc. 10.   Open Platforms and B2B: Content is increasingly becoming king and in order to provide the variety that the customer wants a basket of software developers is increasingly needed. During the past quarter we have seen the likes of 888 and PartyGaming announce they are to utilise games from Cryptologic and Wagerworks. Likewise in an increasingly competitive non-US market 888 and PartyGaming have announced they are to open up their platforms to B2B customers in an effort to increase their liquidity. About the Quarterly eGambling Data Bulletin The Quarterly eGambling Data Bulletin is the most detailed and authoritive assessment of the value and player volume of the interactive gambling industry with nearly 25,000 data points dating back to 1999 (with over 50 national product splits from 2003) and forecasts out to 2012. Quarterly data is included for all major product classes with monthly numbers for poker; includes a 20 page note highlighting key developments in the industry, any major changes made to the model/our assumptions and our most important takeaways from the quarter. H2 first developed its master eGaming model seven years ago. The model has evolved significantly during interim, with the current format developed during 2005. The master model now includes nearly 4 million data points. Formally just available to our bespoke clients quarterly sector data has been published since Q3 2006 but this is the first edition to be released under the new H2 Gambling Capital brand. The report includes the H2 Online Poker Volume Index, which dates back to the beginning of 2003. H2 are currently working on the most comprehensive real-time eGaming product to be released. The availability of this product will be strictly limited, please contact us for further details. Single editions of the Quarterly eGambling Data Bulletin and annual subscriptions are available via www.h2gamblingcapital.com, data@h2gc.com or from any of our team listed below.


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H2 Gambling Capital is the leading supplier of data and consultancy regarding the gambling industry. Our service is client focused/based on a thorough understanding of the industry developed over more than a dozen years. All of our products are electronic/interactive and as such are available immediately. Since 2000 the H2 team has supplied industry data/information to over 400 clients, many of which are either publicly listed companies or leading financial institutions. Our client base covers all regions of the world, as does the experience and background behind our team. We have the advantage of being part of H2 Leisure and so have a deeper understanding of the broader sector/consumer. Our products/services are cutting edge/continue to evolve. In our bespoke work we recognise the unique challenge of each project and thus are always offer a customised solution.

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