Online casinos are booming – but are they yesterday’s news?
Gaming and gambling. Two areas of the leisure sector that are in rude heath and generating increasing revenue every year. Put them together, and you are presented with the online casino and sports betting industry, a phenomenon that leverages the popularity of both sectors, along with the ubiquity of smartphones and advances in online technology.
It sounds like any investor's dream, but according to one venture capitalist, it is already an industry that is too mature and established to set the pulses of angel investors racing.
A risky gamble or a sure fire bet?
The UK gambling industry generated a gross gambling yield of £13.7 billion in the year to March 2017, of which more than a third was from online gambling. These are numbers that have been rising steadily year on year, and online review sites and databases like casinoreviews.co.uk show new entrants joining the fray week after week. The market is clearly nowhere close to saturation point. So why the note of caution from the investment community?
Simon Murdoch is founder of Episode 1, a VC firm that has hit the headlines for, itself, being the recipient of significant backing from Draper Esprit. Murdoch is no stranger to the world of online gambling. A serial investor with 20 years' experience, he was one of the first to see the potential in the industry, and was an early investor in Betfair. Yet today, he feels the market is not one that interests the VC community.
Stability and maturity
In general, a stable, mature industry that is showing sustained growth is something that ticks all the boxes, but Murdoch is not so sure. He likens the industry to ecommerce, saying that while the size, growth and success are not in dispute, the fact that the industry has been around since the turn of the millennium makes it just too old and established to attract venture capitalists.
Where Episode 1 and other firms like it are concerned, however, there are potentially additional factors at play. The government's £400 million injection into the venture capital industry, aimed at softening the impact of the pause in funding by the European Investment Fund, does not come without certain strings attached.
One of these is that to invest in a gambling-based business would be potentially problematical, and would at the very least prove a challenge in order to secure the financial backing. As Murdoch put it, the government is "quite cautious" when it comes to any industry that could be seen as in any way contentious.
For the VCs, then, it is potentially more the case that online gambling businesses add an extra level of regulatory complexity which they can quite simply do without, particularly when there are other sectors, such as Fintech, that are equally buoyant and crying out for investment.
Here, interest is high, and the government is supportive. For Murdoch and his contemporaries, it is a no-brainer. "That's the kind of stuff that is ahead of the curve," he says.