The Numbers Game

Amid a busy season of fourth-quarter trading updates and full-yearly reports, the quantitative spirit reigns. Share prices rise and fall on fickle investor sentiment; fancy terms like "metrics" and the ubiquitous "EBITDA" (p. eb-it-da) abound; and -- of course -- the invariable deluge of cryptic brokerage analyses begins.

Ask yourself: Can I -- an executive, investor, board member, middle manager or lowly employee -- successfully chart quarter-on-quarter revenue growth for my company during FY 2007? Moreover, can I make frighteningly accurate comparisons between current full-year data and those of previous fiscal years?

If so, it's time to put the pen down and take a well-deserved holiday.

If not, congratulations! You're probably on holiday already and (a) forgot, (b) are in the middle of your fourth Mai Tai and can't spell your name, or (c) had the data on your blackberry -- or other, entirely too sophisticated mobile device -- but "accidentally" took it for a swim.

What better time than to take a step back from the strain of biz-centric financial myopia, put the pens, drinks and mobiles down, and enjoy a taste of the Big Picture.

Global Betting & Gaming Consultants reports that for Q4 2007, 2,463 online gambling sites exist and are operated by approximately 475 site owners and 175 software suppliers located across 48 jurisdictions.

Simon Holliday, a partner with GBGC, told IGN that current fourth-quarter figures are comparable to those tallied during Q4 2006 -- just fewer than 2,500 online gambling sites, 475 site owners with 150 software suppliers.

For the full year, GBGC said the industry was worth an estimated $15 billion globally, against $13.8 billion predicted a year ago.

"The key difference (between our original prediction and the actual number) is explained by our assumption 12 months ago that the United States would have fully implemented the UIGEA as intended in July 2007," Holliday said.

"This would have had some impact on the ability of the U.S.-facing sites to do business and indeed an assumption that some would have chosen to withdraw from the market."

With regard to the United States, Holliday said that the "status quo" is likely to persist throughout 2008, given "other priorities in the United States and the presidential election."

He said however that some subscription-based and "imaginative" poker offers are beginning to emerge and target U.S. players.

"We are yet to incorporate these into our models, so it is likely that we will be well ahead of $20 billion next year unless there is another big legislative shock," Holliday said.

Speaking of poker, GBGC said that approximately 600 online poker sites are currently in operation across 36 platforms or networks that -- between them -- generated rake of $2.9 billion during 2007.

Concerning volume, five platforms or networks -- PokerStars, PartyPoker, FullTilt Poker, iPoker Network and Ongame -- have pulled away from the competition and account for approximately 55 percent of the players and 60 percent of the revenue.

GBGC said that the five may very well account for between 60 percent and 65 percent of the market share in a year's time.

For the industry as a whole, though, what's in store for 2008?

All told, GBGC projects I-gaming will achieve revenues of $16.6 billion. In terms of growth percentage, bingo is expected to outshine other industry sectors with a compound annual growth rate (CAGR) of 15.7 percent

Holliday called 15.7 percent a "reasonable number," recalling that CashCade -- which bills itself as the United Kingdom's second-largest bingo operator -- recently projected a 60 percent increase in gross gaming revenue this year versus 2007.

Less rosily, GBGC said the industry -- with certainty -- will face a recession, which is likely to result in at least two quarters of negative economic growth during H1.

The consultancy believes that the United States and the United Kingdom, at least, are at "the front end" of a recession already following the increase in the United States' unemployment rate in December.

Historically, the gambling industry has demonstrated a fair amount of resiliency during times of economic downturn; but GBGC said that there has been a positive relationship demonstrated between the industry's revenues and global employment levels.

(Put the Mai Tai down, please.)

On a brighter note, the negative economic impacts are expected to be mitigated -- "to some extent," it said -- by the potential for development in new markets and growth in less mature products like bingo and skill gaming.

Moreover, the predicted recession does not appear to have a negative effect overall on predicted growth between 2008 and 2012. GBGC is calling for global gaming revenues of $18.4 billion in 2009, $20.8 billion in 2010, $22.3 billion in 2011 and $24.3 billion in 2012.

"With the increased cost of fuel and smoking bans continuing to advance across the Western World, staying home and playing on your PC is going to continue to become an increasingly attractive option for many people," GBGC said.