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Stable Economic Conditions Should Lead to Growth in the European Gaming Sector

Moody's on Gambling in Europe
  • Moody's Investors Service believes growth will occur in 2016 for European gaming companies.

Over the past couple of years, online gaming operators have been struggling to grow in Europe due to many countries introducing online gaming regulation and the introduction of value-added tax (VAT) on all electronic gaming services at the beginning of this year. Similarly, gaming in land-based casinos in Europe has also experienced struggles recently which was blamed on a declining amount of disposable income.

Industry analysts, however, believe this will change in 2016, with the European gaming industry being presented with a more positive outlook.

Moody's Investors Service, a company well-known for its international financial research, recently published that the gaming industry in Europe is predicted to incur "modest growth" next year. Despite this, the company declined to increase its ratings on companies with a large exposure to European gaming by stating that the "outlook on the industry is stable."

Donatella Maso, a Moody's Vice President Senior Analyst, commented that, "Companies with greater online gaming exposure are likely to experience higher growth next year, though most rated companies remain highly exposed to mature segments of the gaming industry, which we expect to remain broadly flat."

Furthermore, Maso discusses that while economic conditions throughout most of Europe should be stable, recovery in Italy is slower than other countries which should negatively impact the country's gaming industry performance next year.

She does point out that many of the bigger countries, specifically the United Kingdom, Germany, and Spain, should all benefit from stable conditions.

The United Kingdom Gambling Commission (UKGC) recently released figures that show its country's gaming sector has already been growing in leaps and bounds during recent times. The country's Gross Gambling Yield (GGY) for the non-remote commercial gambling industry, which does not including lotteries, showed that there was a two-percent increase for the period of April 2014 to March 2015 to £5.444 billion from the £5.331 billion reported a year ago.

Maso added that stability in regulatory regimes, except in Italy, should allow gaming companies to forge ahead with a more stable strategy in the coming year.

"We note that regulation and taxation will continue to pressure revenues, profits, and profit margins in 2016, but the impact will be less pronounced than in 2015," concluded Maso. "We do not expect any new major regulatory changes next year, except in Italy where provisions of the draft 2016 Stability Law propose taxation increases that would affect revenues and profits."

Furthermore, companies could be able to experience cost optimization through merger and acquisitions, some of which we have already witnessed in 2015 with GVC Holdings acquiring for $1.71 billion.

Additionally, cost reductions may be achieved for online gaming operators through a landmark agreement inked last month where gaming regulators from 20 of the 28 member countries in the European Economic Zone (EEA) banded together for the purposes of collaboration regarding online gaming regulation and to combat unlicensed activity.

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