Opinion: Slots no silver bullet for Spanish egaming market

The Spanish online gaming market was already crowded before the regulator took the decision to re-open the licensing window and to expand the market to allow for slots and exchange betting. With the regulations set to pass into law on 27 May and new licensees to be approved by next month, there will be more operators than ever competing for a slice of the pie.

Eurobet, Betclic, Sks365, Betcris, Novomatic Group, Gauselmann Group, Recreativos Franco, NetEnt, are Bally Interactive are thought to be among the 12 firms set to be awarded a licence. However, at least one of them, EUROBET, seems to have decided to remain on standby in view of the difficulty they will face in carving out a meaningful share of what will be an overcrowded market.

Considering that 90% of the market is under the domain of no more than half a dozen of operators – with three in the poker vertical – it is not going to be an easy task to grab a significant portion of the market. I would add that in poker, PokerStars and 888 hold around 85% of the market between them.

Sports betting is not much different with bet365 commanding a 50% share – and if you add William Hill and Bwin, you will be again talking about around 90% of the market already claimed.

And in the casino vertical, which will soon include slots, the share is spread among half a dozen operators lead by 888, with Bwin, bet365 and William Hill. Again, you have around 90% of the market under the control of just six operators.

With this in mind, and considering the tax burden of 20% to 25% of GGR depending on the vertical, it is difficult for any operator to be in the black if they don’t have a substantial portion of the pie.

In reality, the new operators would need to claim around 20% share of the market, depending on the vertical and how they substantiate their operational costs, marketing and commercial investment, in order to be profitable business in the medium term. At the moment only a few of the operators with a large share of the market are looking towards making a profit.

Spend big for success

If I was to make a guess, any new entrant will have to grow through taking share away from existing operators, and attracting new players. They will have to invest heavily since they will have to compete with some of the biggest spenders in the industry. Even if one or two of the new operators are able to claim a good share of the pie, profitability is not guaranteed in the short to medium term at least.

Let’s start with exchange betting as it is generally seen as being less relevant than slots given that Spain is a ring-fenced market. Betfair will likely claim the largest share of the market, but will need to claim a substantial share of the sports betting market as well in order to make it viable. As such, I would not be worried if I was any of the existing conventional sports betting operators, since exchange betting will probably have its niche market, and will not be big enough to be worrisome.

On the other hand, everyone has big expectations for the introduction of slots games. I just hope the way the law has been established and the specs and limitations that have been placed on operators will not reduce the expected impact it may have.

I hope it will be able to replicate Italy’s success when slots were introduced to the market, which saw the casino segment almost double its total GGR. In any case, it will certainly make the offer more competitive and attractive, and the regulator is hoping that it will help to absorb some of the non-regulated market wagering, and consequently improve both operators and taxation revenues.

If we take as reference the experience in other regulated markets, overall casino games verticals will increase by anywhere between 60-80% on top of the overall GGR, and will probably become the second largest vertical in turnover and GGR after sports betting, easily surpassing the struggling and stagnating poker vertical.

A step in the right direction

All in all, it is a good sign for the Spanish online market to see 12 new entrants, despite the challenges they will face in turning a profit. It is also positive to see how more incumbents are ready to bet hard to make themselves stand out in this crowded environment, and embracing slots and to a lesser extent exchange betting to improve their product offering.

I think the market could generate €300m a year by 2016, with a little help from other necessary improvements in the regulation, opening poker liquidity with other regulated markets, and adjustments to taxation. But these changes will not come easily or quickly.

We will have to see how the market settles by the end of 2015 to be able to make better predictions, and for now I would play with caution on the growth of the market. I think we will see growth in wagering and GGR following the launch of slots games in Spain. But real growth will come from more operators adopting mobile which will be critical to the long-term health of the market.