It was delightfully appropriate that, while I was researching online for a piece on the gambling industry, I was constantly having to fight my way through a stream of “pop-ups” for 888.com, the internet casino that offers roulette, blackjack and poker among others at the click of a mouse. I imagine that most internet users are familiar with these pop-ups – they have something of the manic urgency of the “Find the Lady” street-hustler, constantly in your face in an attempt to get in your wallet.
I admit to finding this business rather sleazy and I wonder if that makes me one of the snobs that culture secretary Tessa Jowell last year blamed for the resistance to the Government’s plans for provincial super-casinos in the UK. I think she’s probably right. I am a snob, in that I do think there are better ways of life than pushing coins into machines in the rather forlorn and pathetic hope of riches and glamour. In that context, I’m also snobbish about dingy clip joints, in which young, economically challenged women strip for travelling businessmen.
The connection between the two, it seems to me, is that trading directly in the markets for greed and lust is highly exploitative of a variety of vulnerable people – and that’s as true of a Las Vegas-style super-casino as it is of the Spearmint Rhino “gentlemen’s clubs”. But perhaps that’s “a whiff of snobbery”, as Jowell would have it.
What I don’t deny is that there is a great deal of money to be made in gambling (just as there’s even more to be made in the sex industry). The online gambling industry demonstrates just what an appetite there is for this market in the UK and could easily be deployed as a vindication of the Government’s position on casinos. Betfair is the latest operation to indicate that it may seek a stock market listing, worth some &£200m, this year. Last year, Betfair made pre-tax profits of a little over &£13m on gross revenues of &£67m.
Betfair is an online betting exchange, matching punters who bet against each other. Rather more straightforward online casinos are also booming. Partygaming and Cassava, which owns 888.com with those irritating pop-ups, are also looking to float. The benchmark stock in this industry is Sportingbet, the AIM-quoted online gambling service, shares of which rose by more than 300 per cent last year, driven partly by the acquisition of Paradise Poker (there’s an oxymoron).
Sportingbet’s shares, which opened this week at about 270p, are still reckoned to be undervalued. It’s forecast to deliver earnings growth of some 40 per cent per year, against the enormously profitable online auction operation Ebay’s forecast of “just” 30 per cent – yet Ebay is valued at a multiple of about 48 times this years’ earnings, compared with Sportingbet’s multiple of exactly half that at 24 times. Meanwhile, the relatively boring traditional gaming stocks such as Rank, William Hill and Hilton Group lag behind on multiples of about 14, which shows there must be an opportunity for flash US operations in bricks-and-mortar casinos.
What may be responsible for the slightly deflationary valuation of Sportingbet, compared with the likes of Ebay, are some regulatory uncertainties in the US, where it remains illegal to accept a bet over the telephone, so Sportingbet’s operations are based offshore. Now there is some speculation that the banks and various clearing mechanisms for Sportingbet’s business may be brought within the US regulator’s purview. But that barely dents investors’ enthusiasm for its shares – it’s interesting only in so far as the US appears to occupy more of the moral high ground in this industry than we do.
It’s the sheer wealth that this online gaming market generates that is the key to the wider issue of why the Government should have been so keen to deregulate the offline casino industry. The initiative had nothing whatever to do with improving the quality of ordinary punters’ lives, so that they could lose money as easily as the toffs at the racecourses (who can afford to do so). It had everything to do with inward investment from this hugely lucrative industry.
I’m sure the Government only had the interests of the UK economy at heart, rather than an injection to Labour Party coffers from grateful US casino operators, but Jowell will eventually need to distance herself from venal Blairism if she is to extend her political career. As it happens, Jowell is my constituency MP and I like her – she has done great things for Dulwich, where I live.
But the Government she serves is a different matter – the money being made this year in the gaming markets entirely makes sense of its enthusiasm for the deregulation of them last year. But there I go being a snob again.v
George Pitcher is a partner at communications management consultancy Luther Pendragon