This week marks ICE London, the gambling industry’s annual gathering to showcase products, make deals and reflect upon the state of the industry. Some may also be looking at opportunities with the crypto gambling sector – a sector that is currently criminally undervalued.
If you had any doubts about the size of the global gambling industry, spend a few hours with the 30,000 gambling industry professionals over at east London’s ExCeL centre this week.
To those who haven’t been to the ExCeL before, the place is giant. It hosts major international trade shows all year long – from wedding shows to defence to classic cars – but an organiser told me last year that ICE is the only event that gets close to filling the thing.
The arena is full of thousands of business-to-business companies selling the products and technology that power the world’s regulated gambling industry – an industry estimated to be worth $468 billion in revenues in 2019.
That number is worth dwelling on for a moment.
The gambling industry is making roughly $62 per year for every man, woman and child in the world. It generates revenues in a similar ball park to the tobacco industry, and is gradually catching up with the $1.3 trillion alcohol industry.
Indeed, this $468 billion figures accounts only for legitimate, regulated gambling revenues. By some estimates, gambling’s black market could be anything up to 10 times the size of its regulated market.
Put simply, gambling is a big deal.
Another interesting point of reference: as I write this, projected global gambling revenues for 2019 are roughly four times the total market cap of the 2,104 cryptocurrencies listed on CoinMarketCap.
When people talk about the undeniable potential of cryptocurrency, they are dreaming of a time when crypto achieves the sort of revenue generation the gambling industry is putting up right now.
“It is always the same with new technology. The first people trying to make money from it are selling gambling or porn”
A match made in heaven?
A couple of years ago, the CEO of a small gambling company gave me a sneak preview of a new online casino he was in the process of developing.
It was, he proudly declared, the world’s first virtual reality casino. It was a pretty cool product – you could walk around a virtual casino, interact with other users and pick which slots you wanted to play.
But it was also a pretty basic product. The graphics weren’t great and the functionality was limited. The CEO was under no illusions.
“This isn’t going to make us any money now, but in ten years it will be huge,” he said. “We are starting early so we are ahead of the pack when that time comes.
“It is always the same with new technology. The first people trying to make money from it are selling gambling or porn.”
Thinking about this, it made a lot of sense. Some of the first viable, profit-making internet businesses were gambling websites. Bet365 was turning a profit before Amazon was, despite being founded six years later.
The gambling industry has always been the first to embrace new technology; just look at the history of telegraph wire services in the US.
The Bitcoin boom – driven by gambling?
Cryptocurrencies, and particularly Bitcoin, are no exception in terms of the gambling industry’s unquenchable thirst for using new technology to allow people to bet.
This makes sense, because unlike a large percentage of speculative blockchain and cryptocurrency businesses, this technology actually brings something unique and much-needed to gambling.
In fact, I would go as far as to say that gambling is currently the number one use-case for blockchain technology and cryptocurrencies, and it will remain so for the foreseeable future.
Here’s why, and it isn’t something you hear discussed a great deal. Remember that unregulated market that by some estimates is 10 times the size of the $468 billion regulated gambling market? Well, cryptocurrencies, particularly Bitcoin, make it a lot easier to access.
Most of Asia prohibits gambling – as do many other countries around the world. They prohibit gambling through various means, but the most common is to tell banks to simply not process transactions involving gambling companies.
The blockchain and digital currencies simply provides people who want to gamble in these territories a way to do so.
But there are upsides within regulated markets, too.
For one, a lot of people don’t like to put gambling transactions through their primary bank account.
Secondly, faster transaction times mean customers can deposit and withdraw their gambling funds in a more seamless fashion than is currently offered via fiat banking options.
And thirdly, blockchain technology can be used to show that games are provably fair.
These all point towards a future for cryptocurrency gambling within the regulated space, although the initial revenues will likely be generated from grey markets.
"I would go as far as to say that gambling is currently the number one use-case for blockchain technology and cryptocurrencies"
This is not to say that crypto gambling cannot become legitimate. As with the traditional online gambling sector, it will likely transition gradually into a regulated industry. Indeed, the Malta Gambling Authority is already building a regulatory framework with this in mind.
I’d expect to see the best crypto gambling projects follow in the footsteps of the most successful online gambling companies, such as bet365, which operates in both grey markets such as China and fully-regulated markets like the UK. Indeed, the owners of bet365, the Coates family, have paid more tax in the UK last year than Amazon have in the last 20 years.
Bet365 remains a privately-owned company, but many of the largest and most successful gambling companies – both those consumer-facing operations and the business-to-business technology suppliers exhibiting at ICE this week, are publicly listed companies.
By my reckoning, there are currently two gambling companies in the FTSE 100, the list of the most valuable publicly traded companies on the London stock exchange: GVC Holdings and Paddy Power Betfair. There are a further six gambling companies on the FTSE 250, including Ladbrokes Coral, 888 Holdings and William Hill.
There are several billion-dollar-plus gambling businesses listed in Stockholm, including NetEnt and Kindred Group.
And then there are a host of other giant gambling firms listed in New York, including IGT and 500.com.
Where are the crypto gambling unicorns?
So, everything so far has been a roundabout way of saying: gambling is a big business, it has become a legitimate, regulated business, and accordingly some of the biggest companies in the world are gambling companies.
We have also established that gambling is the most convincing use-case for cryptocurrencies thus far, and that people love to gamble with Bitcoin and other cryptocurrencies.
That leaves us with one question: where are the hugely successful crypto gambling companies?
A quick look at the CoinMarketCap list of most valuable cryptocurrencies shows a coin pledging to disrupt just about every sector imaginable.
But at time of writing, the first gambling-focused entry – FunFair – clocks in at number 124, with a market cap of just $21.5 million.
Only two others, Edgeless and Wagerr, are present in the top 200.
This seems strange to me, particularly when you look at the rather shaky and speculative business plans of many of those projects ahead in the list.
But there are a few potential explanations.
Firstly, the vast majority of cryptocurrency gambling is done with Bitcoin, not with dedicated altcoins. One Bitcoin sportsbook, Sportsbet.io, reported turnover of 20,000 BTC during last year’s World Cup.
Secondly, projects like FunFair, Edgeless and Wagerr are still in their very early stages; adoption takes time, and until these operations have larger numbers of active players, we won’t see prices increase.
And thirdly, we are yet to see the wider gambling industry truly buying into crypto. This will change as better regulation is introduced and crypto betting gradually enters the mainstream.
The future of crypto gambling
Despite this, I remain convinced that gambling altcoins are currently significantly undervalued.
This doesn’t mean every project will be a success, but a handful will certainly emerge to become major players.
Given the innate advantages blockchain technology confers to gambling operations, I would expect six or seven of the top 100 most valuable coins to be directly focused on the sector; this would more closely reflect the scale of gambling within the wider business landscape.
Conversations I’ve had within the industry suggest we may not be that far off; there are high-level negotiations ongoing between some leading figures within cryptocurrency and many of the biggest gambling companies in the world.
The result of these conversations could just change the face of both the gambling and cryptocurrency sectors.