Ernst & Young report - Is betting and gaming really recession proof? - Ernst & Young - United Kingdom

London 12 February 2009: It has long been argued that the betting and gaming industry is recession-hardy. But as the economic outlook darkens and discretionary income drops, will the industry be one of the winners in 2009?

Cameron Cartmell, head of hospitality and leisure at Ernst & Young comments: “During the major recessions of the early 1980s and 1990s, gambling spend fell only modestly, by 10% at most. Since then, the industry has changed enormously. Stakes have doubled with the advent of new ways to gamble, such as the National Lottery and online gaming that are yet untested by deep recession in the UK and only time will tell the impact. The gambling industry now appeals to a wider audience and this may leave it more susceptible to cuts in consumer discretionary spend.”

Mixed outlook for traditional players

Bricks and mortar operators have had a difficult time of late with the introduction of the smoking ban; a decrease in the number of machines following the 2005 Gambling Act and increases in taxation. This has impacted different parts of the industry to varying degrees.

The traditional betting shops have shown their resilience during past downturns. Fixed odd betting terminals, the gaming machines that have been a major success in betting shops in the past few years, are currently showing no signs of falling demand.

Yet the casino and bingo industries have arguably been hit harder in the past couple of years. The casino market is risking over-supply throughout the UK and operators remain cautious about the returns they could get on the 16 new casinos. Meanwhile, bingo companies have suffered the impacts of double-taxation and the smoking ban which has reduced gaming during the intervals between main-stage games.

Online tipped as a winner

With the growth of the internet, the online gaming industry has grown exponentially in the last 15 years but is yet to experience a severe recession.

Cartmell comments: “The online gaming industry is likely to do better than other gaming subsectors as it is not solely reliant on the state of the UK economy, it is still going through a growth phase and with consumers saving money by staying at home I believe it will be a winner.”

Operators are continuing to invest in this area and recent results indicate that the sector has been robust to the credit crisis.

The prize for those that succeed

Those operators that have proactively aligned their businesses to cope with the recessionary economy will stand themselves in much better stead. Many have done this in reaction to the regulatory changes of the past two years and will be well placed to emerge stronger as the upturn comes.

There will also be opportunities for consolidation within the industry. Larger operators could well seek to benefit from economies of scale by buying challenged or distressed businesses, while disposing of less profitable operations.

With an overall trend towards deregulation of betting and gaming markets worldwide, the prize for those that see this recession through and emerge fitter than before are potentially unparalleled.