The online gambling sector is undergoing a transformation that is driving it to pursue two strategies concurrently – consolidation, whereby, instead of a multitude of online gambling operators competing against each other, they opt for various forms of mergers and acquisitions, and identification of new modes and methods for generating revenues.

These two courses of action are having a significant impact on the online gambling sector: firstly, because this is still a relatively young market that lacks the volume and depth that the traditional gambling industry has (with market values of top operators in the online gambling market set at a few billion dollars, compared to values reaching tens of billions of dollars in the land-based gambling market); secondly, because, unlike the land-based gambling sector, online gambling operators are only now feeling the repercussions of contending with the various licensing and regulatory regimes throughout the world.

One of the most significant factors affecting the online gambling market is the influx of many other entities into the market, which, up until now, had refrained from entering this market because of what they had perceived as an unclear legal status of online gambling in certain countries. The entry of these entities into the market has caused a surge in competition. Many times, the new entrants have significantly higher financial capabilities and deeper pockets than those of the existing operators in the market.

Furthermore, the intensifying competition is triggering a significant rise in prices and rates relating to marketing. These price hikes are occurring because there are more competitors vying for the same gamblers, and because mainstream media channels are opening up for the marketing and advertising of online gambling (such as via television), which were not allowed up until now. These advertising means, for the most part, are more expensive, which results in higher customer acquisition and retention costs.

The burgeoning competition in the online gambling industry is prompting players in the industry to brainstorm in order to come up with new ways to generate additional revenues in this sector.

Some of the online gambling operators have begun offering binary options and forex trading as a way to expand their product baskets. The most notable example is the foray of the Playtech Group into the online financial trading industry, even though this has recently encountered obstacles in the form of the unsuccessful closing of the proposed acquisition of Plus 500 and AVA Trade (two financial trading companies with Israeli roots).

Another alternative for new products is social games. The idea behind social games is to target broader populations with a product that enables customers to take part in games without bearing any costs – unless they want to. Additionally, players that so desire, can pay relatively low sums for additional and/or new components of these games.

These games are often tantamount to gambling (such as poker, slots, etc.), with the only difference between them being the absence of payment for participation at the basic game level and the absence of prizes. The potential that this sector offers is evidenced by the spate of acquisitions of Israeli social gaming companies by gambling companies, such as the acquisition of Playtika by Caesars, and the acquisition of InfiApps by Stride Gaming. The success of the Israeli company, Plarium, is an example of another segment of social gaming (MMOG – massive multiplayer online games) that has gained tremendous popularity in recent years.

Another channel for increasing revenues is fantasy sports, a segment that has grasped a significant market share in the United States (mainly as a result of the federal ban on sports betting that applies nearly nationwide), which enables customers to win prizes, based on their success in predicting scores and assembling virtual teams of actual players in various sports, and based on the success of these players in the real world.

The problem with social gaming and fantasy sports derives actually from their success, because this has led legislators and regulators around the world to begin examining whether and to what extent these sectors should be regulated. The deliberations focus, inter alia, on the question of whether social games and fantasy sports should be deemed gambling for all intents and purposes, or whether they should be deemed different forms of games that should be regulated in some other way. Just recently, the attorney-general of New York notified daily fantasy sports companies that their daily fantasy sports games constitute gambling and therefore are illegal in New York; a similar decision re the classification of daily fantasy sports, was reached by the Nevada Gaming Control Board.

I believe that over time, we will see the new games, or at least some of them, being subjected to some framework of online gambling licensing, both due to the need to protect customers, and because the characteristics of some of the games are essentially tantamount to gambling. In the not too distant future, it does not seem feasible that it will be possible to operate these kinds of games without any licensing regime in place.