The Highly Profitable Gaming Business

Date Created: Apr 05
Written by Gennaro Donnarumma

In the past few years, the online gaming industry has seen a sharp upsurge in the amount of entrants launching new online gaming services, especially with regards to online casino brands. In a world reputed to be brutally competitive, with operators all competing for very small margins; it has meant that the industry on the whole has had to be incredibly innovative, very flexible and technology savvy. Therefore, from a logical perspective, one would have to argue that if new entrants are able to compete in this type of environment, it is testimony of how proficient the gaming industry is at conducting its business. This has been borne out by the recent successes of various online gambling operators and brands. One only has to look at GVC Holdings, an entity based in the Isle of Man, that owns established brands like bwin, Sportingbet, partypoker and Foxy Bingo. GVC Holdings has licenses in 14 countries, offices in 16 countries all over the world, has more than 2,500 employees and processes in excess of €4 billion of sports wagers per year.

GVC Holdings has announced pro forma net gaming revenue growth of 9% in their 2016 full year results; which is relatively a huge leap from €822.2 million in 2015 to €894.6 million in 2016. There was a 4% increase in total sports betting wagers to €4.55 billion, and more importantly, this rise was accompanied with an impressive sports betting margin of 9.6% up 1.1% from 2015. Another example of the successes in the gaming industry is seen with Amaya Inc. which is yet another online gaming entity that has achieved record results for 2016. Amaya Inc. was established in 2004; and since acquiring the Rational Group in August 2014, the company has evolved into one of the world’s largest publicly traded online gaming companies with brands like PokerStars, FullTilt, BetStars and StarsDraft.

The Canadian entity accomplished a complete turn around from the previous year; as net income from continuing operations being roughly $45 million compared to a loss of just over $15 million in 2015. The company’s revenue also rose to $310.4 million, which is close to a 6% rise in the quarter ending 31 December 2016. This rise in profit margin, has led to Rafi Ashkenazi, Amaya Chief Executive to revise the company’s expectations for 2017; with expected revenues to be just under $1.3 billion and an adjusted EBITDA of between $560 to $580 million. 888 Holdings has informed the markets that the company will be issuing a special dividend for the fifth consecutive year. This is as a result of a dramatic 2016 pre-tax profit increase of 82%, which has been attributed to superb online casino and sports betting performance. 888 Holdings has been one of the leading gaming development companies in the gambling industry ever since their conception in 1997. Their main offices and operations are located Gibraltar, and possess licenses in at least 10 countries. The brand is one of the trusted and recognised in the world with 888casino, 888poker, 888sport, 888ladies and Wink Bingo.

888 Holdings divulged that casino revenues showed a 21% increase, and sports units revenues showed a massive 49% increase; which contributed to an entire overall group revenue of $520.8 million which is an increase of 13%. The company also declared excellent figures which saw a rise in pre-tax profits to $59.2 million. The company’s confidence in their continued ability to exceed on all levels, is reflected in their decision to aggressively increase their scope in countries like the United Kingdom, Spain and Italy. Furthermore, since the start of 2017, current trading has been lively with an average daily revenue of in excess of 11% above 2016 numbers.

This type of prosperity seen with online gaming companies, has also been reflected in earnings of individuals associated with online gambling. There are a number of high profile examples like Sheldon Adelson, who is the Las Vegas Sands CEO and the most wealthiest individual in the world associated with the gaming industry; and is ranked 20th richest person in the world with a net worth of $30.4 billion, according to Forbes Magazine. In fact, to the prove how powerful this gambling force can be, his net worth actually increased to $32.7 billion when this article was posted!

Other successful individuals in the online gambling space are Galaxy Entertainment Chairman Lui Che Woo who is worth $12.1 billion; Johann Graf, the founder of world renowned Novomatic, who has a net worth of $7.2 billion; and Teddy Sagi who is the guy behind Playtech.

Furthermore, there are some persons and families that have become millionaires and, indeed, billionaires from online gambling; and continue to do so. For instance, the Genting Group is a $4 billion operation, that is controlled and managed by the Lin family. Members of the Stanley Ho family is one of the first families that took up online gaming in its infancy and perfected the business model that created untold wealth. Lawrence Ho is the youngest billionaire in the gaming space, at the tender age of 40.

The bottom line is the online gaming industry has evolved in to a near perfect animal that delivers revenues and margins, no matter the economic and social environments, which also has the ability to transcend borders and cultures. There are very few retail environments that embrace, assess, utilise and monetise technology as quickly as gambling companies. Gambling companies definitely have some unique and inexplicable knack of using everything at their disposal to improve every aspect of their operations. There is also a noticeable characteristic of this industry, which is that it is not scared of change and is, in fact, constantly evolving.

So online gaming is the perfect place to be for businesses and individuals who want to make their fortunes. Make no mistake, it is a very disciplined and difficult life; but done right, it has the real potential to be highly pleasurable, exciting and of course, financially rewarding.