Are online casinos worth the gamble?

Point, play, pay. That`s pretty much how Internet users will experience online gambling. Why? Because the odds on winning are stacked in favour of online casinos, as is the case with land-based casinos.

In fact, according to Lew Koor, financial director for Piggs Peak Casino, most e-gamblers will lose money over an extended period of play. The same applies to those gambling at land-based casinos.

He knows what he`s talking about. Piggs Peak Casino, a brick-and-mortar operation, has been in business in Swaziland for 13 years. The company launched its e-gambling arm -- www.piggspeak.com -- about three years ago.

Although the chance of winning when playing the games offered at both land-based and online casinos is low over extended periods, this doesn`t seem to be a deterrent when it comes to the increasing number of people logging on to the Net in pursuit of that one great payout.

There are about 1 000 online casinos already in operation and their numbers are growing.

Lew Koor, financial director, Piggs Peak Casino

In a survey entitled "e-Gambling" that was released in January this year, international research house Merrill Lynch estimates that about 7.2 million Internet users gambled through online casinos last year, driving revenues in this industry to about R37.9 billion per annum. It predicts that the number of e-gamblers will increase to 80.9 million in 2005 and 217.5 million in 2010. The resultant increases in revenues are staggering - projected as they are at around R648.5 billion and R1.004 trillion respectively.

The survey indicates that only a small proportion of this revenue is generated by players on the African continent. Merrill Lynch believes that 1% of all online consumer spending worldwide goes to online casinos. When Africa`s contribution to this is estimated, it is so small a percentage as to be almost immeasurable.

Koor echoes these findings: "The foreign market is huge in comparison to the local markets." However, he`s reluctant to be more specific with regards to how many e-gamblers, foreign or otherwise, use Piggspeak.com as their cyber casino of choice.

"There`s a lot of competition out there, so there`s a fair amount of sensitivity around the numbers involved. There are about 1 000 online casinos already in operation and their numbers are growing," he says.

He does concede that Piggspeak.com is the company`s main revenue driver. Setting up the online venture was an obvious move for the company, which stood to lose considerable land-based business as a result of other brick-and-mortar operations opening in SA when the government opted to grant licences to land-based casinos. Prior to this, serious gamblers hopped over the Swaziland/SA border and checked into the 106-room Protea Hotel adjacent to the land-based Piggs Peak Casino to enjoy the slot machines and table games allowed in terms of the casino licence it was granted by the Swaziland government.

Although the law does not prevent South Africans from gambling online, no e-gambling licences have yet been issued locally. And while the SA government has indicated it may consider granting licences, it will be a while before it sorts out exactly how it wants to approach regulating the e-gambling industry, and what terms and conditions it wishes to apply to licences.

So, while Piggspeak.com`s advertising is carried by local traditional and new media groups, the company`s servers are hosted in Swaziland and the taxation payable in terms of its e-gambling licence goes into that country`s government coffers.

SA can definitely hold its own as far as technology is concerned.

Stephen Lumb, CEO, iGaming

Not that Piggs Peak is the only player in the SA market. Others include Forwardslash, a call centre operator; various online casinos; Aqua Online, an administrator; and iGaming and Microgaming, both e-gambling software suppliers.

Stephen Lumb, CEO of iGaming, says the company develops, markets and licenses Internet gaming software. It has about 38 different online games, the majority of which feature virtual slot machines. It also provides call centre and payment processing solutions to Net casino operators. Launched in 1999, it developed its software from scratch. The majority of its revenue comes from the sale of this software to e-gambling operators and the resultant royalties.

Lumb notes that while "SA can definitely hold its own as far as technology is concerned", the number of players on the African continent is "very small". He believes about one million US-based e-gamblers play online almost every day.

"A significant number of Internet gamblers come from North American and Europe, although Asia is coming online quickly. This growth is being restricted to a certain extent as many issuing banks block approval on credit card transactions," states Lumb.

Koor believes that even the recent announcement that Nevada lawmakers have opted to allow casinos to offer Internet gambling doesn`t mean the current stranglehold governments worldwide have imposed on e-gambling has been broken.

"The US government is still strongly opposed to online casinos. In fact, its anti-gambling stance has slowed the growth of the industry by at least half. Even if the Nevada ruling stands, it`s going to be quite a while before anything actually happens," he states.

This anti-online gambling view is what both Lumb and Koor believe will severely limit the growth of cyber casinos. They`re both also convinced that this aversion to e-gambling has more to do with how difficult it is to regulate, and therefore tax operators, than any alleged underhand activities by casino operators.

"There are very few underhand operators out there," says Koor. Lumb agrees, adding that in a connected world, unethical operators are soon detected and identified. "The only effective way to attract regular players is to offer a reputable service. Anything less just doesn`t bring them back and erodes profits quickly," claims Lumb.

He adds that he will, nevertheless, "welcome the day when more big players come into play and put the fly-by-nights out of business".

The only effective way to attract regular players is to offer a reputable service.

Stephen Lumb, CEO, iGaming

While industry players would be expected to state that there`s no major concern for alarm, just how safe is it out there on the Net for online gamblers? Not very, if the number of watchdog Web sites that have been set up is anything to go by. Issuing more licences would require tougher regulation and, states Koor, wouldn`t necessarily mean unmanageable expenses for operators.

Piggspeak.com is one of the few land-based, licensed cyber casinos in operation. Apart from having to pay taxes on revenues earned to the Swaziland government, as well as annual licensing fees, Koor claims he also spends a "huge chunk" on software fees, advertising and loyalty programmes. But he says his company still manages to make enough money to want to stay in the game.

"Although paying taxes and levies does tighten the margins, it definitely doesn`t make online casinos unprofitable," he claims.

Among other legal players in this space is Microgaming, one of the oldest and largest suppliers of online casino systems in the world. An international company, it utilises various software development companies around the world, including one in SA.

It is credited with the launch in 1998 of the first online progressive jackpot slot and further endears itself to its users through its PlayCheck and CashCheck facilities. These allow players to track their gaming and transaction histories online in real-time.

This is where Piggspeak.com sourced its game software and Koor says its solutions are "top rated".

Although paying taxes and levies does tighten the margins, it definitely doesn`t make online casinos unprofitable.

Lew Koor, financial director, Piggs Peak Casino

It`s largely due to software developers and suppliers like Microgaming and iGaming that e-gambling is so easy. Their solutions allow players to simply register, point and play. Obviously it`s not quite as simple to keep these online casinos up and running on a 24/7 basis, but here again operators are cautious about revealing too many details.

According to Koor, Piggs Peak`s call centre and back-office operations are run in-house, with the entire support staff complement numbering no more than 15 employees. He`ll confirm that staff costs associated with a cyber casino are lower than those of brick-and-mortar operations, but did not want to reveal more specifics regarding his operation`s IT infrastructure.

Pressed on his future growth plans, he says Piggs Peak is considering offering a complete IT solution to new e-gambling operators, and that this may be a major future revenue stream for the company.

This is potentially good news for the e-gambling industry, in that it will promote the growth of yet more above-board operators in the industry.

And in a virtual industry where end-users are set up to lose and only the occasional player will actually hit the jackpot, anything that ensures ethical practices is a win-win situation.