Industry predictions for 2021: growth in the Americas and diminishing returns in esports

Susan Biddle, commercial technology consultant, Kemp Little
Susan Biddle, Kemp Little
Stricter regulation in the more mature markets
In the UK, following its consultations on online games design and (currently ongoing) remote customer interaction, the Gambling Commission will amend its Licence Conditions and Codes of Practice, perhaps in April.  We will see a white paper for review of the Gambling Act 2005 later in the year but progress is likely to be slowed by the need to deal with issues arising from both the coronavirus pandemic and Brexit.  The enthusiasm of some to prohibit or substantially restrict sponsorship and other advertising by gambling operators in relation to sports is likely to be tempered by sports’ need for funding to counter the effects of the restrictions imposed to limit spread of coronavirus. Operators will be encouraged to use all available technologies to meet their regulatory obligations, and there will be good opportunities for tech companies to help the operators comply with the new conditions and codes of practice.  The Gambling Commission will stop short of endorsing any particular tech solutions. This picture will be repeated across the mature markets, and the new European markets such as the Netherlands will be subject to similar restrictions from the start.
Increased focus on and growth in the Americas
The increased cost of compliance in many European markets will encourage operators to focus on opportunities in the US and Latin America, with a number of mergers between established US land-based and entertainment companies and European gambling operators. Caesar’s acquisition of William Hill will be the start of a trend to be played out over the next 12-24 months. Joe Biden has not yet focused much on the online gambling industry but the comments he has made suggest a more favourable environment than under President Trump, perhaps with federal rules on sports betting which would be easier for operators to deal with than a myriad of differing states’ rules, and no expansion of the Wire Act’s ambit.
Entertainment and the new players
Operators will work hard to retain the new customers acquired during the pandemic restrictions. Many of these new customers come from a background of playing (video) games, and their preferences will accelerate the trend towards a greater focus on entertainment and social media. As pandemic-related restrictions ease and real-world social interaction becomes easier, the focus will shift from rapid release of new games to the quality of those games, but social networking features will continue to be popular and good user experience will be critical. As well as building-in player protections, narrative will be increasingly important in game design. I hope this will mean new opportunities for entrepreneurial games studios.  Greater cross-over between games and gaming is likely to result in moves towards further regulation of the (video) games market.
Enforcement
The Gambling Commission will continue to take action on breaches, to deliver on its stated objectives and also to rebut any suggestion that it lacks teeth and to support its request for an increase in fees to help fund its regulation of an increasingly complex industry. Loot boxes may finally be regulated, as recommended by the 2019 Parliamentary (DCMS) Committee and as pledged in the Conservative party manifesto, but probably not without further debate about which is the most appropriate regulator.
Mark Chakravarti, head of investment at SportingWin
Mark Chakravarti, SportingWin
Industry growth driven by new demographics
We have become accustomed to see double-digit growth for a number of years now, but 2021 will fall well below the 10% benchmark. Highest growth rates will come from newer geo-segments and demographics such as Africa, newly regulated areas in Europe such as Ukraine, or with updated legislation as in the case of Bulgaria. The latter being the jurisdiction SportingWin is currently raising capital to go into, as our research shows potential annual growth rate of 20% for the next few years.
Top operators’ growth driven by M&A rather than marketing
We saw quite a few B2C acquisitions around Europe in the €50-150m range (Bet.pt in Portugal and Coolbet in Scandinavia in the last couple of months alone). I believe that acquiring mid-sized brands will remain the way forward for the bigger operators, as the synergies drive much higher profit than marketing expansion in certain jurisdictions on their own. I am talking only about M&A in the B2C vertical here, B2B acquisitions are not that lucrative compared to few years ago.

Diminishing returns in esports

Esports became an even trendier word in 2020, especially when it kept revenues from falling catastrophically for sports operators during the first lockdown in April and May. Since then, a lot of operators have kept reallocating resources in the direction of esports expansion. I’d expect quite soon this product will reach oversupply levels, with revenue continuing to grow but with diminishing returns.