Author: George Mangion
Published on Malta Independent 5th April 2020
The number of those working in the gaming industry today accounts for a significant part of the gainfully employed and the sector, according to reliable sources, accounts for over 10% of GDP. Of late, there have been media reports hinting that the gigantic rise in rents ]was mainly caused by gaming employees who rent properties at the top end of the market. On the other hand, one cannot but mention that they also pay taxes and spend good money for living expenses, travel, and entertainment.
This nascent sector expanded exponentially since the first gaming legislation was promulgated in 2004. Those were easy days for online regulation and the first batch of small-time operators flew in from Dublin, London, and Alderney. More mainstream operators gradually discovered the island’s quality regulation matched with its steady bandwidth facilities: this attracted substantial investment.
The party was interrupted by the arrival of an aggressive tax regime styled BEPS which ushered in additional compliance and transparency burdens. Starting from two years ago, this turbulence has added more costs partly due to the tightening of anti-money laundering procedures by banks.
Add to this, the latest pandemic which has wreaked havoc in business circles. What started as an innocuous disease in Wuhan, China last December, spread like a raging fire to engulf the entire globe. As always, only those countries with better health services managed to support the thousands infected by using ventilators and oxygen masks in ITU’s and other specialised clinics. Suddenly, we now need to isolate ourselves to the detriment of work exigencies and other social interactions with family and friends. International air travel has almost become extinct.
Most Europeans are still in the first phase of denial, yet little do they reflect that some of the deadly pandemics in history were horrible. Starting with the Black Death, this killed up to 200 million people in the Middle Ages, and smallpox, which killed about 300 million in the 20th century. All along, most countries have realised that like the 2007/8 global recession, the damage cannot simply sail away by reciting Hail Marys but by digging deep in their treasury chest or borrow from the capital market. We need to forget the Scrooge attitude that debt is like a milestone around our necks. Money can buy us a better tomorrow and smooth the pangs of unemployment and reduce the coterie of bankrupt corporations. Observers may take an ostrich’s view and express their prediction that grey clouds will soon pass away − asserting (rather foolishly) that the situation is highly fluid and what continues to evolve is uncertain. Reality checkpoints towards significant downward revisions to economic forecasts issued just a few weeks ago which now point to the deleterious effect of significant uncertainty.
It is this uncertainty that is the killer virus for investors and captains of industry. Only, 12 years ago the global economy was in deep recession but the effective remedy then was massive bailouts (principally buying of toxic assets in banks) by the US treasury which slowly cured the patient. Today, it seems like another tsunami is visible on the horizon and many points towards major economies sliding into recession in the first half of this year. On the local scene, notice how Bank of Valletta announced that it is basing the issuance of dividends subject to a reassessment of the uncertainties caused by the coronavirus.
A major investment and asset management firm in Malta, in response to the drop in international markets, had decided to start working on a four-day week. As stated earlier, the impact on each country and region will depend in part on the extent and duration of the health crisis as echoed by the quality of health care systems, fiscal and monetary responses, and debt structure.
In some sectors, like sports betting, there are larger and longer-lasting effects as players who bet on sports results now fleetingly switch to other modes of gambling. The sword of Damocles has fallen as the coronavirus pandemic has dealt a blow to the sports-betting industry. It is evident that major sporting events in Europe, including others in the USA, like the NBA, NHL, and MLB seasons, are on hold or cancelled this year.
In anticipation of some form of betting liberalisation in the US, it is a paradox how sports-betting companies and associated media businesses that had been rushing to capitalise on this golden opportunity, are now cutting costs to keep their businesses afloat and finding creative ways how to switch to other platforms − much of the sports world is in limbo.
This is a similar occurrence in Malta where major sports betting companies had to close their platform and face a zero revenue stream overnight. As a measure to counterbalance the drop in business, the industry is promoting online poker games as an alternative solution. Online slots, cards or poker allows players to wager money in the comfort of their homes. For example, in England, the Premier League faces losing £762m from domestic broadcast deals with Sky Sports and BT Sport.
Furthermore, quoting an analysis by accounting firm KPMG, it suggests that the directive to cancel the rest of the season would cost the ‘Big Five’ leagues of England, Spain, Germany, Italy, and France a combined total of over €4bn. In France, several clubs, including Marseille and Lyon, have put their players on partial unemployment to save money. Back to bricks and mortar casinos, the situation is also dire as all have been forced to shut down. Many are paying employees in the short-term, but for bartenders, waitresses, dealers, doormen, and housemaids who rely on tips, that money is likely gone.
As a general rule, bricks and mortar casino companies rarely earn an income of any substance by temporarily switching to online gaming. It goes without saying that if the crisis of closed casinos is protracted for more than a year or even 18 months, the situation will be transformative − it could mean the death knell for the sector. Among those listed on stock exchanges, we meet gaming suppliers like Scientific Games, IGT, and Aristocrat which have more diversity in gaming products now than when they were just slot companies.
Sadly, if the recession persists and share prices of gaming companies tumble, then it is highly likely that companies may become takeover targets. Investors may buy controlling interests and take different paths armed with that power. They may choose to remain long-term owners or during turbulent times they cash-out by reverting to asset strip the companies took over, thus giving the industry a mortal blow.