The breakdown: How big is real-money gaming?

This blog originally appeared on the Betable monetization blog

One of the major takeaways from last week’s Inside Social Apps conference in San Francisco, was the interest developers have in hearing about real-money games. Despite the real-money panel being last on Friday, a significant number of delegates stuck around to hear what panelists—including Betable’s very own Head of Product, Ya-Bing Chu—had to say.

There is one major reason for that—monetization is a problem for everyone and online real-money games make a lot more money than social games. While the social games industry is young, it will never reach the scale of the still-growing gambling industry, despite the latter existing under much stricter controls.

At one point the speakers did their best to outdo each other in demonstrating how big the real-money market actually is. Betable’s Chu started the bidding with $30bn, the estimated size of the global online gambling market. Viki Zabala, VP Marketing for Fiksu, then pointed out that the global casino industry—combined land-based and online—is worth around $400bn. And for those that still were not impressed, Brock Pierce, Executive Chairman of Playsino, added his own estimate that, when taking the unregulated black market into account, the number at least doubles to $800bn.

To the listening game developer, the market opportunity just exploded from $40bn to $800bn. Now, if you are anything like me, you treat huge numbers with a healthy dose of skepticism. So what is actually known about the size of the real-money online gaming market?

Unless an industry is made up solely of publicly listed companies, an accurate market size figure is hard to come by. As a result, most global figures can best be described as educated guesstimates.

One good number, the same that Betable’s own head of product quoted, is that the online real-money gaming market was worth $30bn in 2012. That figure, which comes from research firm H2 Gambling Capital, is an estimate for global gambling revenue (sometimes referred to as gross profit), which means money staked by players after winnings are paid out. That is important distinction from turnover, which in the real-money sector means the total amount of bets placed and fails to show actual return to the operator.

But while the global picture is interesting, it is notoriously hard for market estimates to take into account unregulated gambling or companies which do not publicly publish financial results. As a result, this blog thinks it is most informative to look at existing regulated markets, where companies such as Betable’s developer partners are doing business now.

Sometimes it is forgotten, in talking about slow regulatory progress in the U.S., that the vast majority of Western Europe already regulates online real-money gaming. Looking at these markets can provide some hard numbers on the value of real-money gaming.

In U.K., where Betable is licensed and headquartered, the Gambling Commission said it taxed £680m ($1.06bn) of revenue in 2011, but due to a large number of licensees paying tax overseas, the actual market size is much bigger. According to two separate research papers from Deloitte and Gambling Data online gambling revenue in the U.K was around £1.7bn ($2.65bn) in 2011. In 2012, the Gambling Commission quoted H2 Gambling Capital estimates that the market had grown to £2bn ($3.13bn).

Italy, the second most mature E.U. online gambling market, is the largest market in Europe in terms of turnover, according to H2 Gambling Capital. The regulator, AAMSreported 2012 online gross gambling revenue of €749m ($997m), a number that is expected to increase on the back of the launch of online slots in December 2012.

In France, online licensees generated revenue of €696m ($924m) in 2012 according to the gambling regulator ARJEL.

Denmark, a country with a population smaller than New Jersey, recently reported online gambling revenue of DKK2bn ($356m) in 2012. It was the first full year of operation as a regulated market.

The Spanish online real-money market, which has just been regulated, is expected to generate first-year annual revenue of around €250m ($332m). With the market launch hampered by heavy recession and a limited range of products, it is expected to grow rapidly over the next few years as new game types are allowed and consumer spending rebounds.

In Sweden, the state gambling company, Svenska Spel, estimates that foreign internet companies made revenue of around SEK2.7bn ($417m) in 2012. The state-owned operator says that these companies have a 49% share of the online market, placing the total online real money market value at around SEK5.51bn ($841m).

Meanwhile, in Germany, where online gambling is currently unregulated, the market is estimated to be worth anywhere from €760m and €1bn ($1.01bn – $1.33bn) in annual online gambling revenue.

This post is only looking online real-money markets. Revenue from land-based casinos and the lottery industry dwarf the online market. And as more and more customers turn to internet and mobile devices, crossover between the two consumer bases is expected to increase.

H2 Gambling Capital projects that the online real-money market will grow to $40bn by 2015.

By comparison the global social games industry was expected to generate $8.2bn in revenue by 2012, according to Thinkequity—a figure includes advertising revenue— and could grow to around $14.2bn by 2015. SuperData Research projected that the social casino market would be was worth $1.7bn in revenue in 2012.

And it is important to note that while gambling has been around forever, the online real-money market is still emerging. In its 2012 look at trends in the gambling industry, banking group KPMG said that H2’s estimate “may be just a drop in the ocean, considering that some of the biggest potential markets—such as the U.S., China, Japan, and South Korea—still prohibit many forms of gambling over the Internet.”

With growing numbers of countries regulating their gambling markets and allowing wider types of games, that overall size of the pie can only increase. Betable is helping social games developers turn on real-money now, because we believe now is the time to start sizing up your slice. From what we heard at Inside Social Apps, an increasing number of social game developers share this view.