Few will survive in Portugal's online betting market

Portugal’s market size and taxation framework makes its online betting market small and limited and an unlikely scenario for creating a viable and sustainable business.

I believe it will be a difficult and specialised market with several hurdles, and can only be a successful business for very few operators. Perhaps no more than two. Such companies will only be able to compete as they already have a well-defined online gaming and betting operation, boast a strong brand and large database from dot.com.

The Portuguese sports betting market, with an 8% tax on turnover which goes up to 16% for turnover above ?30m, becomes one of the most difficult regulated online betting markets. At the lower tax range of 8%, operators would effectively have to hand over 30% of their GGR in gaming taxes. That could rise up to 90% with the 16% turnover tax above ?30m.

This is all under the assumption that bookmakers increase their gross win margin to cope with the tax by making their odds less generous and handing out fewer free bets. This can be a very efficient marketing investment strategy.

Devil is in the detail

If licensed bookmakers in Portugal do like they previously did when they approached the highly taxed French, with gross win margins in the region of 17.5 %, their effective tax rate under a 16% tax on turnover still represents an estimate GGR tax of 91%.

This has to be analysed within the context of a very small size market such as Portugal, where only one or two operators can survive if they achieve sufficient scale, and providing the regulator puts in place strong and strict actions to stop the offshore online gaming and betting offer. Otherwise most of the volume will remain in the offshore offer and the locally licensed operators will not be able to compete.

Under this tax model, Portugal’s online gaming and betting market won’t be competitive with the offshore offer and will be unable to absorb most of the demand within the regulated environment.

Online casino games and horse race bets, meanwhile, will have a more manageable tax burden, with a 15 to 30% progressive tax based on GGR; but that might be enough achieve profit levels in order to balance the sports betting negative scenario. And again, this is still only for a reduced number of operators.

Retail competition

Local land-based casino companies are now also entering the market. The major one will be ready to launch soon under a JV with a B2C gaming operator and a second group is starting to configure their online gaming and betting development.

These land-based companies often have a reasonable local brand recognition, and can capitalise on their land-based assets in order to make a different marketing approach which can relieve them from a bigger investment. This is very different to the online-only operators.

Time to market is of essence in this circumstances, as well as having brand recognition and a databased acquired from their offshore operation prior to the regulation. And this is only at reach of those companies which gained momentum prior to regulation and applied to obtain a local licence.

Having said that, the critical factors described above will remain in place and won’t change anytime soon, so we have to wish luck to the brave ones who are willing to take on the challenge.

In regulated markets there is always an option to do something different to beat the odds, and this is the case of the Portuguese online egaming and betting market. Despite the classic business model of the pure ‘onliners’, there could be an option for local casino groups to adopt a different strategy, capitalising their brand and land-based assets in order to configure a different offer with which to compete and try to overcome the market difficulties.