Spain on the rise

After several years as the runt of the European gambling litter, Spain has begun to show signs it is starting to turn something a bit more powerful. The market was one of the strongest performers in Europe in 2017 with revenue growth of 29.8% to reach a total market size of €558m. It still lags some way behind its regulated European peers in per capita spend, but the underlying trends are very positive and there is a sense that with the reopening of the licensing window and increasing regulatory pressures elsewhere in Europe, 2018 could be the year Spain finally begins to punch its weight.

Because make no mistake it’s been a fairly weak effort from the market to-date. The regulated Italian market has been posting per capita revenues nearly double that of its Southern European cousin for the past three years, and even the severely limited French market is generating more revenue on a per capita basis. In real terms, despite its 46m population, Spain posted online gambling revenues smaller than 6m Denmark in 2015 and only slightly higher than it in 2016.  But in 2017 things took a step forward. At around €12 per capita in 2017, Spain is now close to the level the Italian market reached in 2015 (€13.5) and more importantly many of the trends are very positive.

Eilers & Krejick Gaming noted in its end of year report on the European online gambling sector that Spain had “both the capacity and the drivers in place for continued strong growth” and projected it could reach €1bn in annual revenue by the end of 2022. “Our forecast for CY18 is+22% y/y bringing the market to €681m and is based on continuing strong performance from the sports betting vertical as well as from continued growth in the still relatively nascent casino vertical,” the report noted. So just what has changed to lead the new optimism about Spain?

A changing market

Spain, it should be noted, is still a very new market. “It feels like it’s been a long-time but the Spanish market is very young, only five years old, so it is still a growing and developing market,” Mikel Lopez de Torre, Sportium digital director and president of Jdigital, told EGR. And as such the gradual growth curve we’ve seen since 2012 is not that unusual and the acceleration in revenue growth in the past 24 months is one we’ve seen in other markets and will see in more in future. After a period of adjustment, consumers become accustomed to the availability and utility of the online product and word of mouth builds on the industry marketing spend. This is a market still finding its feet in terms of broad appeal and should continue to grow as more and more people find out about this thing called online gambling.

It’s also helpful to look beyond just the online market to get a sense of the cultural shifts in Spain. The general gambling market did not resemble the UK or even Italy and Denmark prior to online regulation, not least in terms of a land-based betting. The autonomous regions only permitted to offer retail betting from 2007 and some regions only began offering land-based betting as recently as last year. In general, sports betting as a legal mainstream offering is, culturally at least some way behind northern Europe although there is a large machine gaming sector.

“It’s at a point where it’s getting enough advertising leverage to become normalised and be part of the standard Spanish person’s life,” Lopez de Torre says of the online gambling sector. “[But] we don’t have the tradition in betting that the UK has and that’s been changing over the last few years when gambling has become another entertainment activity. This will help to continue to normalise our industry.” And an important factor in this increasing normalisation will be the increasing number of local and foreign brands investing into both the retail and online betting sectors, and particularly into the online casino market.

Betting or gaming?

Casino was the fastest growing vertical in Spain in 2017, with revenues rising 44% to reach €168.7m. Growth was driven by slots and live casino, which were both up 60% year-on-year with slots having only launched in June 2015 and live casino in January 2015. The casino market very immature and Spain is one of the few regulated markets where sports betting is the dominant product, accounting for 57% of the market at €317m in 2017, with casino at 30%, poker at 11% and bingo at 2%.

“Over time we would expect the two verticals to come closer to parity in market share terms, which suggests considerable headroom for casino growth in the market,” the E&K Gaming report noted.

As revenues rise so too does the number of gaming operators which are beginning to invest more into the market, perhaps noting the success 888 has had so far. 888 said Spain was 12% of group revenues in its 2017 annual report, at $63m for the year, and although they are far from the only operator of note in the market, Spain presents a much less congested opportunity for firms looking for regulated international growth. There are currently less than 40 active licensed operators in Spain and a few notable omissions from the ranks of egaming power players.

Casino growth, however, may depend to an extent on a continued expansion of the product from the regulator with live casino currently limited solely to roulette and a smaller range of content suppliers than in the black market. But as the market gains in scale so too will supplier interest and Spain has proved to be willing to listen to the industry and to modify its regulatory outlook in the past. It’s a regulator that appears to understand product is a key way of limiting the appeal of the black market and with the talk of a reduction in the tax rate it’s clear it’s not a regulator that is willing to happily sit and defend the status quo.

And that’s not to say casino is the be all and end all, and there is still plenty of room for the sports betting sector to continue to grow. Revenues were up 29% in 2017 and with the World Cup this summer and a rising number of operators focusing on the market, not least the likes of Codere and Cirsa, as well as an improving product there is every reason to expect double digit growth to continue in 2018. Sports betting as a pastime is still some way off the likes of the UK as a mainstream leisure activity and as the market matures so online operators should feel the benefit.

Digging into the data

Digging a little deeper into the data from the regulator it’s clear the market is demonstrating signs of maturity with yields increasing and market growth coming in spite of a reduction in advertising. In the absence of a major summer football tournament marketing spend fell 3% during 2017 to €219m, although there was a huge variation in the various channels used in the DGOJ annual report.

Advertising spend fell by 10% to €102m with bonuses also down 6% to €85m, but affiliate spend jumped 15% year-on-year to €23m and sponsorship spend rose 163% to reach a modest €9m.

In contrast the number of active players rose by 11% to 7.6m with steady growth across the year, and the amount of money deposited rose by 41% in the same period. Interestingly there was a corresponding 42% fall in the total number of deposits and taken altogether this presents a picture of a steadily growing and higher spending user base. And there is every reason to think with a constantly improving product, a ramp up of marketing spend and rising comfort with mobile commerce generally these yields can go much higher still.

Spain is not a small gambling market in the broader sense. This is a market with one of the highest land-based lottery spends in Europe and a €3bn land-based machines sector and there is the capacity for a huge uptick in online revenues if even a small chunk of this can be brought online. There are naturally some major hurdles for the industry to overcome in terms of persuading consumers to move online, not least the use of cash, so expectations need to be modest but omni-channel play could be a future trend to note.

One interesting aspect of the potential omni-channel growth in the Spanish market is the relatively limited impact so far of land-based operators. In the Italian market the likes of Lottomatica, Sisal, SNAI and SKS365 are among the biggest online revenue generators and the potential is arguably there for the emerging land-based betting operators to take a larger slice of the online pie in future. It’s notable that most of the big names now have a competitive product online, including the big casino groups and some of the high-street gaming operators, and they will be ones to watch over the next few years.

The bigger picture

There are also some other market trends that should act in Spain’s favour in the near term. The economy is slowly recovering although macro-economic indicators aren’t spectacular, but the rise of mobile commerce generally should help the growth of online gambling in the country. And regulatory changes are positive and look designed to help grow the sector, with both the offering of new licences and talk of reducing the tax rates from the currently nosebleed levels of 25% on GGR to a more sustainable 20%.

The licensing window reopening gives operators who’ve chosen to shy away from this small, relatively highly taxed market to take advantage of the early work done by their competitors in raising consumer awareness. But it’s really the talk of tax reductions that will have many operators taking a fresh look at the Spanish sector. It’s long been considered the biggest hurdle to overcome. “Back in 2013 when the market was only six months old we commissioned a report by Deloitte on tax pressure on gambling and it’s certainly always part of our main claims and requests for the regulator,” Lopez de Torre says.

He is, however, bearish on the near-term likelihood of any reduction in tax levels. “No one is celebrating yet is because we have a really tough parliament negotiation around the Spanish budget as the government doesn’t have a majority. It’s probably going to be a very lengthy process and there is no guarantee this will be enforced,” he adds. But the fact it is even a topic of discussion is hugely positive and adds to the long-term view that Spain is becoming a market worthy of consideration by any serious operator in the regulated European market. As doors continue to slam shut elsewhere, an industry-friendly, growing market with plenty of headroom is not one to be easily passed over.