How COVID-19 will affect the Spanish iGaming industry

Originally published in Gaming in Spain Blog (May 5, 2020)

The world economy is currently under one of the biggest threats in the modern history. The impact of COVID-19 is still hard to measure, and the gaming industry is, for sure, an affected one. For the concrete case of Spain, after some weeks of confinement, it seems that COVID-19 figures are slowly improving and starting the decreasing side of the curve. This means that the government is preparing a series of actions to “go back to normal” or, at least, to end the confinement, even if, for the moment, there is no reliable calendar.

Under this changing and uncertain scenario, the short and medium-term evolution of the market is unclear and will be totally conditioned to the following factors:

• The evolution of the current COVID-19 outbreak: That started at late February/early March and whose end is yet to be seen. Countries like Spain could be “back to normal” somewhere between July-August but the problem now is what will be considered “normal” for the next future.
• The appearance of future outbreaks and its severity: There is a big uncertainty of potential future outbreaks of the virus, especially for the next winter. We can’t discard a scenario where a new outbreak will force governments to define confinement measures for even longer periods during winter 2020/2021.
• The Measures defined by governments: Based on the previous two aspects, there will be measures that will be active for longer periods. In fact, in some scenarios for Spain, the government is considering that sports and high attendance events will not be recovered until late 2020. This will also affect at a bigger or lower level, to bars and, more especially, retail gaming venues.
• The Social changes: Apart from the direct current impact of COVID-19 and the measures that governments can define, it is early to predict the impact that the virus outbreak will have in the population habits. What it is clear is that some time will be needed for a big part of the population to consider again going to public venues, stadiums, concerts and other similar events.
• The acceleration of regulatory changes and restrictions: Regulators are speeding up their limitations towards gambling under the COVID-19 crisis related to gaming advertising. In the concrete case of Spain, the government has introduced during the state of alarm a temporary ban of gaming advertising with some minor exceptions.

It’s too soon to estimate the impact of the virus for the Spanish gambling market due to the uncertainty of the outbreak. For sure the it will have a heavy impact on land based operators due to the closing of all gambling venues. For online operators the trend will be affected, apart from the COVID-19, also by the advertising restrictions imposed by the Spanish Government during the emergency period.

The trend is an inevitable decrease of sport betting due to the temporary paralysis of sports events while casino and poker are expected to grow but not to compensate betting decrease for 2020.

Apart from the short-term impact of the COVID-19 and the confinement, we have identified some general trends for the rest of 2020 and, probably, the medium-term evolution of the gaming market in general and the Spanish territory in particular:

A severe harm in retail gaming:

The tight mobility restrictions and the closure of all non-essential venues has paralyzed the activity for retail gaming operations that still need to face an important fixed-costs structure with no revenues. This can have an impact especially in small/medium operators that may not be able to reopen again their business. Big operators and companies somehow prepared for the crisis will survive with a big impact in their yearly accounts and an uncertain scenario for the coming years, when a new outbreak may happen again.

The short-term uncertainty for betting:

As betting is obviously conditioned to the quantity and quality of sport events, the current lack of relevant events is having a huge impact in the betting industry. There is a big uncertainty on the short-term reactivation of sports events that were cancelled due to the virus outbreak and, even after they are reactivated, it is still to see if public attendance will be allowed or not. In this sense, in certain territories the authorities are managing scenarios with severe attendance restrictions to big events with an unpredictable impact.

The acceleration of online gaming:

As a matter of fact, online gaming is the highest-growing market in the gaming industry and COVID-19 will most likely accelerate this trend. Since now it is already possible to figure out the major expected trends:

• The prevalence of mobile: Even under the current scenario with people confined at home, mobile is still the preferred medium to access the online offer and, in general, consume any kind of content and entertainment. For certain operators, mobile already means even more than 80% of the total turnover and this is only expected to grow in the coming years.
• The (possible) surge of esports betting: esports has been one of the promises for the industry since several years ago but the reality is that betting figures are still very low compared to any standard sport. In this sense, the current situation of lack of relevant sports events is an opportunity for operators to push esports events, a category that is growing double digit every year and that has one of the widest and most attractive audiences currently.
• The increase of virtual betting: Traditionally a minoritarian product, virtual betting is now an established vertical, very attractive for certain customers under the current status. During the previous weeks there has been a vivid interest from operators in launching or improving its virtual betting offer.
• The (temporary) resurge of poker: With most of the population at home, poker is one of the most benefited products and, in fact, some poker operators are seeing record figures in active players during these weeks. It represents, especially in the case of tournaments, a good way for players to reduce the entertainment cost prolonging the customer experience. It is still soon to see if this will only be a temporary trend for a product that was facing a global decrease or if it will mean a new rebirth for poker.
• The continuous increasing of casino: Casino products continue to grow especially thanks to the good performance of live products. In this sense, for the concrete case of Spain, we expect that the Regulator would allow also live black jack in the short term, a product that certain customers are eager to enjoy.

Even under the uncertain landscape, we are optimistic on the online gaming industry and we think it will be one of the benefited actors of the COVID-19 outbreak, even if there are important short-term threats that will have a permanent effect in the industry.

Given the predicted trends, the assumed return to “normal” requires a rethinking of the business models to face the emergency.

For land-based operators, redefining of the layout of the shops to be “COVID-19-proof” and identifying technological solutions to automate the sales processes and optimize management costs, are the main drivers for future investments. In general, sustainable gaming, favored by a digitalization of the physical offer, will become the new paradigm for businesses that will guarantee the traditional channels to survive and succeed with an omnichannel and safe experience.

For retail operators that already have an effective online presence, a specific effort is required to redirect relevant part of resources for the online channel growth, something that, in most of the cases was already in progress but now needs to be strengthen in the short term but with a medium-long term vision.

For online operators, the need will arise to respond to regulatory restrictions, adapting their strategies and business models. It will be required for some companies to evaluate hypotheses of internationalization in order to obtain the economies of scale for the recovery of investments.

The increase of regulatory costs and the regulatory constraints on advertising are creating the basis for a concentration of the market in the hands of a few medium-large operators and the exit of medium-small ones with unclear positioning. The increase in M&A operations it’s expected during the next 2–3 years. In this sense, for the concrete case of Spain with more than 80 authorized companies (of which more than 30 received their license during 2019 in the last tender), we expect a very active 2020 and 2021 on M&A terms.

There is room for the Spanish gaming industry to surf the Covid-19 emergency, but concrete support of the Spanish government is urgently required or, at least, not take the chance to implement unnecessary measures that harm the industry and only benefit illegal operators. This means that effective and reasonable advertising measures should be implemented allowing customers to identify the legal offer and, at the same time, stimulate operators to promote responsible gaming behaviors under a controlled environment. This is the only way to allow the re-start of the market, avoid the collapse and, in the medium term, ensure that a sustainable gaming industry is built in Spain.

Mauro is founder of MDF Partners, consulting firm specialized in the gambling advisory in international markets with specific focus on Europe and Latam.

In the last 15 years, Mauro has supported leading international online and land-based gambling companies on: start-up, positioning strategy, business modeling and business planning, marketing, IT, innovation, M&A. Mauro has advised gambling authorities as AAMS/ADM (Italy), DGOJ (Spain), ARJEL (France), COLJUEGOS (Colombia), helping the design of the regulatory framework for gambling.

Contact us:

• Mauro De Fabritiis (Founder): mauro@mdfpartners.com
• Mario Chamorro (Manager): mario@mdfpartners.com