After the GiocoNews's Seminar 'The Italy Briefing' hosted by Ice Totally Gaming show, we publish a summary of the speech by Emmanuele Cangianelli, Partner, Mag Business Advisory.
The Italian regulated retail channels GGR has been, in 2016, over 17 billion euro (about 22 if we include the black market extimation). The amount is equivalent to more than 94% of the total revenues of the regulated Italian market.
The retail gambling is divided, commercially, into three major sub-channels:
the AWP network (the largest)
the lotteries network (with high overlap with the AWP network)
the dedicated channel of gaming halls, where is mainly concentrated the turnover of betting and the total bingo bingo turnover as well as gaming machines business, including VLT.
All three channels have generated in 2016 gross gaming revenues substantially equivalent, of around 5.6 - 5.7 billions each..
The betting corners channel is large (including also PoS regulated out of concessions in recent years), but generates very little revenues, justifying itself only as a side business on the lotteries channel and partly in the AWP channel, as well as a promotional channel for online betting and gaming.
The black market, with an high rotation of PoS, is estimated in about 6,000 points, where are commercialized betting and casino games via electronic channels not regulated by ADM.
In terms of products, gaming machines generate almost 60% of the revenues, lotteries 33%, while the betting contribution (5%) are much more reduced because in italian betting more than 30% of the revenues is generated by the remote gaming. Bingo halls worth 3% of the retail gross revenues. Dedicated points (the gaming halls) generate a third of the revenues and non-dedicated (AWP network, lotteries and betting corners) two-thirds.
In last ten years retail revenues grew discontinuously but steady, growing by almost 30%. Discontinuity was produced both by internal factors (black market surfacing, introduction of VLTs, modification of the AWP economics in 2016) and by external ones (lower margins and new black market due to the economic crisis for some products).
Today, retail customers are over 22 million: a large proportion of them in lotteries (with a small expenditure per capita). An expenditure of less than 400 € per year player is also for betting and bingo customers, while it is for sure much higher the average expenditure for gaming machines player.
The Italian government has set, in the last two years, a path of further evolution of the retail gambling network, which aims at the so-called "concentration" of the network (and also underlies the goal of greater concentration of revenues).
This project, still under discussion at this time, intend to qualify the offer by exploiting the potential of the control of access to dedicated PoS and thus exceeding the positioning and commercial hours limitations introduced by regional and municipal councils (which, generally, do not have tax revenue from gambling and, therefore, are only interested in political consensus).
Consequence of this policy is the important reduction in the number of AWP and the technological evolution of the AWPs and of VLTs too, with additional security solutions in games and transactions.
In the background, the government's plan imagines a further tax system change in gaming machines and bingo (with the reasonable prediction of taxing the gross revenues and not the gaming turnover) and even studies for the introduction of new regional casinos.
But there is a risk that the a bad planned evolution may lead to unbalanced effects on the market. If in the future the dedicated channel (the gaming halls) in addition to increase in number may increase its revenues by 50%, compared to 2016, only the lotteries channel (which will remain the most extended retail gambling network) could have positive effects for growth, while - of course - the AWP channel would be reduced to a quarter of the current dimension and also the betting corner channel (although directly subject of concessions) could still reduce (by half) in volume of revenues.
In this scenario, the illegal market will recruit widely between points not dedicated, with no more attractive offers by regulated operators, being then able to expand by at least 30% compared to its current size.
In this scenario, the strategic analysis of the Italia retail gambling shows:
the strength of an important customer base, with no significant GAP disease, an attitude of the black market to respond positively to the incentives and an extended technological capacity throughout dozens of thousands of PoS;
the weaknesses of the tax greed of government and regulatory confusion between "concentration" of the regulated offer (positive, if gradual) and "reduction" (which is senseless in front of a market demand not sensitive to the classification of "legal" itself) ;
the opportunities of possible improvements on working on personal information of the players at least in the process of access to retail venues and technologies (but not in gaming sessions), the convenience of dedicated venues also in terms of control and in products cost optimization. To protect the legal offer size is also necessary to work:
on a new concept of AWP in non-dedicated PoS (a gaming product that has to go back to the "entertainment" concept, with even smaller bets and winnings but equal playing time);
and the incentive to the legal network to manage the growing demand for betting;
the risks of this scenario are those well known: a very high media sensitivity, transferred to the political opinion; potentially excessive burdens on operators generated by strictly law and licence rules on development of product and control technologies; always the black market, of course, naturally more dynamic than the regulated market, which can easily attack the non-dedicated network.
2017 could be the year of the definitive redesign of the Italian retail gambling; we believe it is necessary to maintain a balanced offer between points dedicated and non-dedicated, exploiting - gradually - technologies for monitoring the access to games as a compromise between the social attention to the gambling phenomenon and the need to protect the perimeter of the regulated market.