IntroductionWith the increasing number of people who use the internet, email, online banking, and other computer-related technologies, it was just a matter of time until we would see internet gambling becoming popular. The first internet gambling sites started appearing as early as 1994. Some of the earlier operators included “The Gaming Club,” and “Intertops Online Casino and Sportsbook.” Few years later, new online casinos started popping up almost daily, around year 2005. There were more than 2500 sites that offered some form of online gambling. Today there are many brand name online casinos; some of them are one of the most profitable company’s worldwide. Names like Party Poker (www.partypoker.com), Poker Stars (www.pokerstars.com), and Casino on Net (www.888.com) are only a few of today’s hottest brands. Casino on Net, 888.com is in a sponsorship deal with Spanish Sevilla, premier football club, that should give you an idea of how powerful some of the operations are. Interesting thing is that there are only a few operations that actually have its own software and games. Microgaming is one of them, company sells licenses to use software they provide and to host an online casino. There are more then 100 casinos that use Microgaming software. Of course, Microgaming receives a percentage of every single casino that uses this software.
In a text to follow, I will review today’s online gambling business and describe what one needs to start a legitimate internet gambling operation. I will discuss the profitability of these businesses. Finally, I will analyze the impact of online gambling businesses on the economy and employment.
Online Gambling Business
According to “National Gambling Impact Study Commission Final Report”, research consultant Sebastian Sinclair of Christian Cummings Associates, Inc., estimates that internet gambling more than doubled from 1997 to 1998, from 6.9 million players generating $300 million in revenues to 14.5 million players generating $651 million.
Online casino business is the fastest growing business in the world at the moment. According to www.startcasino.com, profits in year 2006. Were over 8 billion USD, estimates are that the profits in year 2010 will be over 12 billion USD.
Currently there are around 2400 online casinos on the Internet, “www.casinocity.com”.
With the worldwide recession happening, you would think that no city or business on earth is immune from its effects on us all. Big Companies like AIG, popular restaurants, and even the Gambling entertainment hotspots like Atlantic City, Las Vegas and even Monaco have felt the sting of this massive economic downtown. No matter where your business is, you are struggling to make ends meet unless you have an online gambling business. When online gambling first came about in the late 1990s it exploded on the scene with revenue charts in which the arrows were almost vertical. Even with today’s world-wide economic crises, those arrows continue their upward climb.
Everybody was either gambling or opening up an online gambling site themselves. www.onlinecasinoextra.com made an article when the recession started to hit, many people in the online gambling industry were fearful that it would hit online casinos hard because of the fact that gambling isn't essential to living like food or homes were, but the projections coming in for 2008 has started to show a different story. What it has shown is that online gambling is much more resilient then people previously thought it was.
A new study of online gambling revenue and expansion proves this to be true. This Study, which was done by well known gambling adviser Marco Felice Baranzelli shows that while land based gambling operations are forecasting an expansion rate of 2.2% yearly from 2007 to 2012, online casinos are showing an expansion rate of over 10% with online poker leading the way as it is showing a 16% year over year expansion rate followed by the online casino industry showing a 15% year over year increase while sports betting is lagging behind with a modest but still strong 11% increase, source: “www.vivereacomo.com”.
As you can see from the day 1 online gambling was a boom business. Many country’s have regulated online gambling, many are in the process of regulating, yet again, many have forbid online gambling like USA, Turkey, China… Australia on the other hand allows online gambling, but marketing is strictly forbidden. Costa Rica allows hosting of online gambling servers, but only if customers were to be outside of Costa Rica, no extra license is required.
To better understand internet gambling business, I will now describe what one need’s to do to be part of this multi billion industry.
Gambler can bet from home on all kinds of different games over the Internet using computer. Internet casinos have all standard casino games like blackjack, roulette, video poker, slots, bingo, keno, craps, sports betting, scratch cards, live poker...
Player makes purchase of casino chips using credit card, gambles, and then asks for a payout that is usually sent to his bank account.
All you need is a room with a server that can accept thousands of players.
You don't have to worry about player winning big, software is programmed to pay back percentage of money that has been played, usually that is the same percentage as in the Las Vegas Casino's, around 97% of money played is paid back to players, and 3% is the Casino drop or take. Don't let the 3% fool you, as the nature of the players is to play until they spend it all.
Here are the basics of what is required to own internet gambling business:
First of all, offshore company is the simplest, cheapest and fastest way to get your gambling business online. With the lack of regulations, Costa Rica is the place where most of the operations are registered. Negative side of Costa Rica is that no license is required, and informed players are a bit skeptic about the honesty and integrity of the casino.
Gibraltar is one of the most respected places to register company, and also much more expensive.
You can hire people to program games for you, which could cost up to 1 million $ and will take you 2 years, or you could rent software from one of brand name company's such as Microgaming, Playtech, Boss Media. Renting software wont give you 100% of the profits, charges (royalties) for renting software is around 10%-20% of drop every month, plus there is usually a monthly charge of around $5000-$10000.
Server computer, where the games will be installed, Stable high speed Internet connection.
Mostly, server needs to be in a country that issues a license.
License is needed, for the trust of the players, and to make job legal, this is a brand new business. Licensing costs from $5000 to $150 000, depending on the country where you apply for a license, Costa Rica is currently granting license’s free of charge. One of the most popular places and most trusted for obtaining a license is Malta, being part of Europe Union.
Malta is granting licenses on a period of 5 years. Setup fee is $12,000, and monthly fee is $10,000. Casino software will need to go thru some tests to ensure legitimate play, Source: Lotteries and Gaming Authority Malta,”www.lga.org.mt”.
Kahnawake Gaming Commission is issuing licenses on a period of 2 years. Setup fee costs $15,000, and yearly fee is $10,000, source: http://www.kahnawake.com/gamingcommission/.
Phone number where people can call if they need any help on installing games, or making a payment.
As Internet Gambling has been present for about 15 years; naturally there are marketing company’s that specialize in marketing of Internet Gambling websites. Most popular marketing agreement between Casino and a marketing company is that they charge for marketing service on basis CPA “Cost per Acquisition”, which means that casino pays a fixed pre agreed fee for each player that sings up at the casino and makes a deposit. No risk for a casino if the marketing campaign will fail, as they pay only for players that do make a deposit. Price per acquired player is between $150 and $250. Casinos have been reporting that average player will spend on an online casino $400 before he moves to another one, or stops to play. Crystal Palace Online Casino did a study; average player spends $700 at that casino. That brings Casino to double the investment of advertising.
The Impact of online gambling, as far as the United States concern is, is not good. The States have forbid online gambling, when US legislation on online gambling came in to effect in year 2006. Bad thing is that it is almost impossible to stop US citizens to gamble online. This 10 billion dollar industry makes half of the sales from the United States, says www.businessweek.com in one article. Billions of dollars are being exported from United States to countries that have regulated and allowed licensing of internet gambling business. Adolescent gambling is also a big concern, as on the Internet, now one could really know who you are and how old are you. What they should have done is regulate this monster industry, and allow US citizens to gamble only at Internet Casinos that are registered in the States. Sending photocopies of ID should be a must, this way they could try to stop adolescent gambling. Internet Gambling Regulation and Tax Enforcement Act of 2009, if passed, should have regulated the industry, enforce and 2% tax on all deposits, and it would increase the protection against tax cheating. Organizations such as RCG Centre for Advancement in Best Practices, a division of the Responsible Gambling Council, plans to publish The Responsible Gambling Index, which will be sponsored by the government.
Overall, Internet Gambling industry dose not bring many new jobs, but as no one can stop players to gamble online, it is better to regulate it, and have some use from it through Tax’s.