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Regulation to Drive Social Gambling Consolidation

Morgan Stanley has published an analysis of the social gambling market, forecasting revenues of $2.5 billion by 2015, up 47% from $1.7 billion today.

“The 170 million social gambling player base is over triple that of online gambling and is opening up gambling to a new pool of customers,” the financial services firm said in a statement.

Social gambling games, such as Zynga Poker, are most popular in markets where real-money play is restricted. However, regulation is likely to spur consolidation between real-money and social gambling, as it puts pressure on profit margins by squeezing customer numbers and raising compliance costs.

Conversion to online gambling would certainly drive growth, but the different profiles of social and real-money gamblers means it’s far from guaranteed. “Our optimistic scenario models market growth to $7 billion by 2015; our bearish scenario is a market of $1.8 billion with our central case at $2.5 billion,” Morgan Stanley wrote in its report.

Research indicates that the online and social spheres enjoy “complementary advantages.”

Online gambling companies are experienced with handling compliance and collecting real-money player data, for example, while social gaming concerns have broader player pools and are more adept at utilizing social media to attract and retain new customers. 

The real challenge, however, is how to transition social gamers to real-money gamblers. 888, one of the few operators to record growth in poker operations in the last year, has been unable to effectively convert players from its social gaming division Mytopia.

Most social gamblers will not transition to real-money play. Barely 2% spend money on real-money games, according New York-based research outfit SuperData. However, even if only 10% make the switch, it could add 20-to-30% to online gambling revenues, Morgan Stanley estimated. 

The gambling industry has seen deals popping up between firms looking to establish a foothold in the social gambling market, where a 10% share could be worth up to $600 million. Examples: Zygna and bwin-party’s recent partnership, and IGT’s $500 million purchase of Double Down Casino in January.

“Zynga,, 888 and International Game Technology all have exposure to growth in social gambling and are well positioned for ongoing convergence, we think. Other potential winners include Betfair, Paddy Power and WMS Industries,” Morgan Stanley said.

Click here to read the Morgan Stanley report.

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