Take a bet on the rise of online gambling

The internet has revolutionised the gambling industry and created a wealth of opportunities for investors, says Tom Bulford. Here, he tips the best ways to profit.

To make extra money in my student days, I worked for Joe Coral’s, the bookmakers. I really enjoyed it. It was never very busy in the morning so I had plenty of time to study the form. In the afternoons, I would place a few bets following the outcome eagerly.

I remember being very impressed by the mathematical skills of the shop managers, who had to calculate all the winnings in their head. It was an early lesson on how thinking in probabilities and mathematics could make you money.

I don’t remember anything about the customers except for one. He came into the shop very rarely and he always placed a £10 bet on one horse. It nearly always won. He was an unmistakable figure, he could not have been even five foot tall. We figured he must be an ex-jockey with a few friends who kept him in the know. We always made a point of backing the same horse he did!

Such small insights can made a difference in gambling. I met a guy who made a living playing online poker. The secret, he told me, was to stay stone-cold sober on a Friday night and then play against competitors who had just returned from the pub.

But the best way to make money out of the gambling business is to be calling the odds, dealing the cards or running the house. This simple fact has not been lost on the thousands of enterprises that have set up online gambling sites.

The £2bn market is showing no signs of slowing

This is a huge growth industry. One estimate has put the growth of the rather shady global online gambling industry at over 20% per year for the last decade and a recent report said that the UK’s online gambling industry was worth over £2bn last year – 80% ahead of 2008. One factor above all is responsible for this explosive growth – readily available internet access.

It is hard to think of an industry that has benefited more from the instant availability of digital information, from the ability to communicate with people all around the world and to send money at the touch of a button. Gambling always used to require premises – the betting shop, the bingo hall, the casino. No more. Now the roulette table comes to your TV screen, your poker opponents are waiting online and sporting odds are flashed to your mobile device.

 

Make something possible and people will do it. That underlies many successful businesses, including share dealing. Not so long ago you could only buy shares by going to your bank or ringing your stockbroker, assuming you had one. Now share dealing is available instantly from any connected device and stock market traders have lost no time in availing themselves of the opportunity.

The same is being seen in gambling, of which there are a number of types. There is the sports sector which, with ‘in-play’ betting, is gradually becoming more sophisticated. There are online casinos, a straight transfer of a familiar game from the casino hall to the digital universe. Online poker is popular, as is bingo, while the industry also encompasses the new world of online games, many of which have some gambling element.

This attracts a wide clientele

The availability and the choice of games have attracted new users. The fastest growing category has been women who, according to one report “choose simpler games, such as lotteries and slot machines”. For them “gambling usually provides relaxation rather than thrills”.

For men, however the motivation is slightly different. Young men are particularly prone to gambling and go for “casino games and skills-demanding games that are traditionally associated with the male identity.”

Whatever the motivation, online gambling is growing fast and showing no signs of stopping. Arguably it is not, as Lord Turner said of the City, “socially useful”. But governments seem less concerned about its addictive qualities than the loss of tax revenue.

While companies such as William Hill and Ladbrokes, with their high-street presence, are clearly taxable UK businesses, the online operators choose tax-free domains like Gibraltar and Costa Rica, and although governments would like to find a way of taxing this activity, it is hard to see what they can do.

In the USA, three states, Nevada, New Jersey and Delaware have now legalised online gambling. So, with a growing audience of players and revenues beyond the clutches of the tax man, the operators are having a good time.

Two small UK players are Webis Holdings (WEB) and 32Red (TTR), but there is one company in particular that has really caught my eye…

As gambling is starting to shift from offline to online, this company is perfectly placed to experience the boom. You can find the full story in the latest issue of Red Hot Penny Shares. If you are not already a subscriber you can sign up for a no obligation 90-day trial here.

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