By Simon Collins, Director, Cashcade Ltd.
Less than two months ago, the Financial Times, no less, suggested that the gambling industry was well positioned to avoid the worst of any economic downturn.
Roger Blitz, the FT’s Leisure Industries Editor, wrote that gambling stocks could be considered ‘defensive’, and therefore more capable than others of withstanding the worst excesses of recession. Clearly, a highly desirable perception during times of financial turmoil, when investors are struggling to find safe homes for their cash.
The rationale for this view were healthy trading statements from some of the big industry players, including William Hill and SportingBet. Additionally, there was a suggestion that betting – for the majority of customers – is a low-ticket form of entertainment. When combined with the experiences of the early 1990s recession, when betting shop turnover did fall but only by about 2 per cent, this could put gaming stock in the same bracket as alcohol and tobacco companies – providers of small luxuries that people prioritise during hard times.
Furthermore, the FT noted a counter-cyclical quality to the burgeoning online sector of the industry, re-established in Europe following the US clampdown on online gambling, via the introduction of the Unlawful Internet Gambling Enforcement Act (UIEGA).
Along with many other sectors, particularly retail, the role of online in the profitability of gambling and gaming companies is going to come under close scrutiny as the economy contracts. William Hill’s results, for instance, showed interactive business up 21 per cent cushioning steep falls elsewhere. Also, the company’s deal with Playtech, the online gaming software company was well received. Maybe as a way of balancing the falling worth of the company’s massive property portfolio of 2,250 shops?
However, despite the FT’s positive view, more recent news has made the outlook look less secure. Last week, the AIM-listed Top Ten Holdings plc, the third largest UK bingo operator reported losses, directly citing, “turmoil resulting from the effects of the ‘Credit Crunch’”.
Indeed, BettingMarket, questioned the FT’s analysis of the marketplace, calling the future of bookmaker’s increasing reliance on revenues from fixed odds betting terminals during a recession to be, “one of life’s unknown unknowns”. It also noted that William Hill’s Playtech deal may start delivering too late to mitigate the worst of the recession.
Additionally, online may suffer its own slowdown as the effects of credit card companies tightening their controls on their customers’ spending habits begins to bite.
Only time will tell whether gambling and gaming stock can really justify a ‘defensive’ tag. However, one thing is for sure. Perfect Storms such as the one being created by economic and technological changes in our industry, provide massive challenges – but also opportunities. For example, as the FT’s Blitz noted, the foot-and-mouth crisis of 2001 lead to the rise of virtual horseracing.
Last week, the BBC’s Robert Peston noted on his blog that: “The professional investors are the most dazed and confused of all those on this year’s Christmas party circuit. ‘Where oh where do we put our money?’ said one.”
Can the gaming and gambling sector really offer some cover for Mr Peston’s cocktail associates during hard times? Or, as an industry, would we rather be viewed as high-growth and exciting?
What do you think?
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I think the gambling industry is continuing to grow. Even though the economy is at its current state, people will still be engaging in these activities, bot h as a past time and a means to get money by chance.