Global Gaming Revenues Set To Reach US$182.8 Billion By 2015

The gaming industry positions itself for the future amidst global economic uncertainty.
The industry that has long been accustomed to stable growth, continued revitalisation and expansion, sets its sights on a future that must command consumer trial and loyalty.

The release of PwC’s new annual report “Global Gaming Outlook: The casino and online gaming market to 2015" explores the changes and challenges in mature markets, the upcoming opportunities in new and developing jurisdictions, as well as the legislation, regulation, and potential impacts brewing in the online gaming arena.

Casino gaming through to 2015

According to PwC projections the global casino gaming revenue across the United States, EMEA (Europe, Middle East and Africa), Asia Pacific, Latin America and Canada will grow at 9.2 per cent compound annual rate during the next five years, rising from US$117.6 billion in 2010 to US$182.8 billion in 2015.

Spending in the US will rise by 5.0 per cent from US$57.5 billion in 2010 to US$73.3 billion in 2015. However, there should be dramatic growth in Asia Pacific with a projected 18.3 per cent increase compounded annually to US$79.3 billion in 2015, overtaking the US in 2013 to become the largest region for casino gaming in the world.

Revenues in EMEA will reach US$18.3 billion in 2015 up from US$16.3 billion in 2010, an average annual increase of 2.4 per cent compounded annually. The weak economic conditions and the impact of adverse regulatory developments in some countries will curtail growth. The much smaller Latin American market will see growth of 8.1 per cent compounded annually from US$3.8 billion in 2010 rising to US$5.6 billion in 2015. Canada will grow from US$5.7 billion in 2010 to US$6.2 billion in 2015, a 1.8 per cent compound annual rate.

Nikki Forster, PwC South African Hospitality & Gaming sector leader said:

“We talk about the global economy, but this has never been more evident than in casino gaming. The turbulent global financial markets have curtailed consumer spending in some of the major markets for casino gaming. But we've seen huge growth in Asia as the affluent middle classes seek new forms of entertainment, and gaming's intense balance of risk and reward has a special appeal for many people. "

South Africa

South Africa’s casino gaming market in 2010 generated revenues of $1.8 billion, growing at a very respectable 3.5 percent in that year. Forster said “Going forward, casino upgrades and a new casino licence will enhance the South African casino market, but compared with the prior decade—when a number of new casinos opened—there will be relatively little growth from new casinos during the forecast period. For 2011 to 2014, SA gaming revenues are expected to grow at a low rate to $1.9 billion in 2015, a compound annual growth rate during the forecast period of only 1.9%.”

In South Africa, the National Gambling Act permits 40 licenced casinos, with 37 casinos currently operating. “This leaves little room for further expansion” said Forster. “Nevertheless, we do expect new investment in the casino market.”

Recent developments included the award of a casino licence to the Peermont Global Group; the upgrade of Peermont’s Umfolozi Hotel and Convention Resort; Sun International plans to upgrade the Boardwalk Casino in Port Elizabeth; and Tsogo Sun Gaming plans to upgrade the Hemingways Casino in East London, having been awarded a new 15-year licence. “These upgrades combined with an expanding economy will provide a lift to the casino market.”

Forster notes that the proposed new 15 percent tax on South African winnings of R25,000 or higher, provisionally scheduled to come into effect in 2012, is expected to have an adverse impact on the market. “However, there is currently no detail available on how the proposed tax is to be calculated or collected.”

Asia Pacific – the growth engine

PwC forecasts Asia Pacific to see aggressive growth during our forecast period with Macau being the jewel in the gaming crown. This growth will be driven by three main factors: continuing economic growth which will increase disposable income and the emergence of a prosperous middle-class; a deep attachment to casino gaming and other forms of gambling in many of the societies in the region; and the growing opportunities for consumers to take part in casino gaming as new centres are established and new facilities open up in existing markets.

Singapore’s dramatic emergence as a casino gaming centre is a prime example of new territories entering the market. Revenues have surged from zero in 2009, to US$4.4 billion in 2011 and a predicted US$7.2 billion by 2015. The improvement in transport links to key casino gaming markets and the easing of regulations is also contributing to the increase in revenues. The Philippines already has a stable casino gaming market and new casinos in that country will propel growth. If regulatory approval is given in Japan, it’s likely that integrated casino resorts will be built in three locations.

As the Asia Pacific region continues to flourish and offer a more local gaming experience for Asian gamers, some high roller customers that would otherwise travel to the US will be diverted by these overseas attractions. The impact will be on US gaming centres, like Nevada, which have a higher reliance on foreign tourists to drive revenues.

Online gaming

Online gaming is happening across the world, made up of fragmented pockets of legal and illegal spending, where the size of the market is difficult to measure accurately. The regulatory complexities, which are often unclear and open to different interpretations, still vary widely between countries and even between various forms of online and mobile gaming.

Most of the legal online gaming in the world occurs in EMEA, which includes the world’s largest legal online gaming market, the UK, which legalized it in 2005. A growing number of countries within the European Union (EU) are setting up regulatory regimes for online gaming, particularly poker and betting on horse racing and/or other sports. But they are finding that this is more complex and taking longer than they expected as any national regimes in the EU need to be consistent with EU law. The UK too is looking at changing regulation to capture tax revenues which are currently being lost to offshore jurisdictions such as Gibraltar and Malta.

Forster notes that South Africa is presently in an interesting phase of the development of its online gaming sector. “The National Gambling Amendment Act of 2008 provides for the legalisation and regulation of online casino gaming. As recently as 2009, South Africa had planned on issuing ten online casino gaming licences. Then in 2010, a Northern Gauteng High Court ruled that even if an online site operates through a server located in another country, access occurs through Internet connections located in South Africa. Consequently, the online gaming activity is deemed to occur in South Africa, so the laws that currently prohibit online gaming taking place in South Africa apply. The appeal on this case was rejected and consequently Piggs Peak Casino in Swaziland, which was offering online gaming to South Africa, is now complying with the law.”

While it is currently not permissible in SA to visit an online casino, the Minister of Trade and Industry commenced hearings into the recommendations of the Gambling Review Report during November 2011, further hearings are expected before the report is finalised and presented to Parliament. The report favours regulating online gaming, but much debate is anticipated. In the meanwhile, operators have been warned that online gambling is illegal. Currently permitted in South Africa is the online placing of sports bets through licenced operators and the online sale of lottery tickets.licence.

The future of online gaming

Forster highlights four key change drivers which will shape the online gaming industry over the coming years:

Harnessing cross-border liquidity: national or state-based regulation of online gaming will continue to evolve. In every operating jurisdiction, there remains the question as to the number of available players and whether this number is sufficient to sustain a viable and growing market. The best long-term solution to support growth in revenues and tax receipts is to allow cross-border gaming so that liquidity flows between different territories with the right regulatory framework in place to allow this.
Setting realistic taxation levels: though the thought of additional online gaming tax revenues is attractive, the setting of levels of taxation by Governments for both operators and customers, needs balancing. If the right level of taxation is not established, growth could be stunted in some of the higher-tax territories and the risk of losing out on revenues is greater.
Varying approaches to different online gaming disciplines: the different approaches being adopted for the different forms of gaming will shape both the regulation and growth of various forms of online gaming in different markets. We believe when legalized in the US, online poker players will be allowed to operate on an inter-state basis, and that this will happen in the next few years. Online betting on horse racing will also grow and US lotteries will continue to spread across state borders. This regulatory change will represent a watershed for legalized cross-border online gaming in the US, marking the start of a new era. One segment where different territories are likely to diverge most strongly is sports betting. There’s already a strong market in Europe but concerns in the US mean that little headway is likely to be made in the online environment.
Combining online gaming and social networking: social networking will be a key driver of activity and growth in the online gaming world, as it represents a natural extension to users of digital and mobile technology. Social networking’s role in driving online gaming is especially significant because of its high levels and ease of remote access.

2015 and beyond

By 2015 the financial balance of power in the global casino gaming industry will have undergone a fundamental shift to the east with Asia Pacific having overtaken the US in 2013 as the biggest regional market in terms of revenues. This change will be accompanied by a dramatic evolution in several aspects of the industry as online gaming becomes an increasingly regulated mainstream activity with revenues and usage taking off in many markets.

With online gaming being complementary to bricks and mortar revenues, there will be more than enough room in the market for both online and physical gaming services, provided each offers a compelling experience for the consumer. The building of casinos in new and emerging jurisdictions, however, will challenge established casinos in mature markets such as Atlantic City, as customers seek gaming opportunities closer to home.
Forster says: “Whether you look at the physical casino market or online gaming opportunities, the overriding challenge is the same. In this ever increasing digital world where consumers can access vast quantities of information and experiences from wherever they are (without the need to travel to another location), the gaming industry will face tough competition for their fair share of consumer discretionary spending.”