Now in its second recession in just three years, Spain is still struggling to emerge from the financial crisis caused by the abrupt end to the building boom that followed on the heels of the world financial crisis of 2008. With a debt of over €882 billion, there is now a record 5.64 million people out of work, and more than half of those under 25 years old are now unemployed. Despite a number of deeply unpopular austerity measures designed to cut the deficit by €27 billion, Spain’s economic crisis only deepened with the economy shrinking by 1.4 percent in 2012. Anger at unemployment, spending cuts and the government’s perceived mismanagement of the economy has led to massive protests nationwide, which have, in some cases, been marred by scenes of violence. Even worse, there seems to be no end to the crisis, with fears that the recession has created a lost generation of young adults whose outlook for the future remains consistently grim.
However, despite Spain’s economic woes, there have been significant developments in both Spain’s land-based and online gaming sectors. With the online sector faring particularly well, the government has looked at ways of generating additional tax income. Now with more than a million customers, the 44 licensed online gaming companies now operating in Spain had record revenues. Unfortunately, the same cannot be said for the land-based sector, where revenues have been declining for some years. But there could be significant changes on the way with a “Euro Las Vegas” set to open in 2017 in Madrid. Developments in both sectors will have a profound effect on Spain’s economy, significantly boosting tax revenue, and in the case of the new Euro Las Vegas, seeing a building boom that will provide a major and much-needed boost to the local economy in the long term.
In May 2011, Spain passed a new law regulating the online gaming industry, and in June 2012 started granting its first licences to offshore operators. The new law paved the way for a wide number of games, including sports betting, poker and other casino games with a few exceptions, such as exchange betting and online slots, which could be permitted possibly this year by the newly established eGaming regulatory body, the DGOJ (Dirección General de Ordenación del Juego).
Since the passing of the new act, some of the largest operators in the world have applied for and have been granted licenses with poker and sports betting, proving to be particularly popular among locals. Although the tax rate is high, operators had record profits in the region, with the number of registered players increasing fivefold within the first six months. According to statistics released by the DGOJ, in November 2012 alone, Spaniards bet around €461 million online.
This means that the government has been able to generate significant tax revenues from the newly regulated online gaming industry, especially as the tax rate stands at a steep 25 percent of gross gaming revenue (GGR). According to Spanish trade association Jdigital’s latest report on the market, tax generated by online gaming stood at more than €100 million by the end of 2012. And this does not include revenue generated by the state via lotteries, which are also permitted to run online games. Nor does it include online games that operate in the Basque country and in Madrid, which both grant licences separately.
Within the first six months, a total of €952 million was bet on poker, €861 million on sports betting, €371 million on casinos and €24 million on online bingo. In terms of GGR, sports betting came in first with GGR standing at €43 million, poker came in second with €30 million and casinos third with €10 million, while GGR for online bingo stood at €4 million. According to estimates, by the end of 2013, Spaniards will have gambled a total of €5 billion online. During the same period, the government will collect between €150 million and €160 million in taxes, while total GGR for the online industry will reach €250 million.
The newly regulated market has also meant increased advertising locally and a much larger presence of online companies in the media and sports. Before the new act was passed, a number of well-known operators had been actively targeting the market and advertising themselves in local media and sporting events. The most famous was bwin.party’s sponsorship of soccer club Real Madrid, which continues to sponsor the club now that it is officially licensed to operate in Spain. Now that the market is liberalized, advertising expenditure and sports sponsorship has increased from about €90 million before 2011 to over €125 million in 2012.
Although operators have been critical of the tax rate, the online gaming industry in Spain has shown significant growth since May 2012, illustrating quite clearly that a well-regulated and liberalized market can bring in significant tax revenues. This is especially true in Spain, as the government was also able to recuperate back taxes that were set at the newly established rate of 25 percent GGR in many cases.
Privately run casinos were first permitted in Spain in 1977 when the government legalized casinos, bingo and slot machines under Royal Decree-Law 16/1977. The act coincided with the restoration of democracy after 40 years of General Franco rule, during which time all types of gaming apart from lotteries were illegal. After the new act, the casino industry saw steady and sustained growth. Attracting a mostly middle and upper class clientele within eight years, there were 19 casinos in Spain that attracted about 3.2 million visitors a year.
Today there are 39 casinos nationwide, and the market is well-developed with only a few new openings over recent years. But the industry has been hit hard by the present crisis.
According to the latest statistics, casino revenue has fallen by as much as 40 percent since 2006. In 2011, the casinos operating in Spain registered a turnover of €324 million, dropping by 16.4 percent compared to 2010. In 2011, net gaming income for the casinos stood at €5.1 million, as opposed to €5.8 million in 2010 and €6.3 million in 2009. Casino revenue has also been affected by the growth of the online sector and the smoking ban that was imposed in 2011. Despite these setbacks, it does seem there could be light at the end of the tunnel, and operators are hoping that the new Euro Las Vegas, now scheduled on Spanish soil, could bring changes that would benefit the sector as a whole.
Set to begin construction later in 2013, the new resort will cost an estimated €22 billion and could bring with it important changes to gaming law in Spain. The brainchild of Sheldon Adelson, Euro Las Vegas will take 18 years to build, create 260,000 jobs and consist of 12 hotels and six casinos, as well as other amenities such as golf courses and a convention center. The project is so big that it will have a profound effect, not just in the province of Madrid where it will be built, but on the entire Spanish economy. Over the next 10 years, the new complex could attract an additional 11 million tourists to Spain who would spend an estimated €15 billion over the first 10 to 15 years.
One of the most controversial aspects of the project has been taxation. As is the case for online gaming in Spain, taxation on casinos is generally very high and stands at about 55 percent of GGR. Under new rules, casinos in Madrid will pay 10 percent on their revenues from gambling once the casinos are up and running. It could also lead to the smoking ban being partially lifted so that smoking would be permitted in designated areas inside the casinos. Both of these changes could lead to similar developments in the 16 other Spanish regions.
Although taxation varies per region, it is believed that casino owners will now be better placed to push for a significant reduction in taxation when it comes to gaming. The new Euro Las Vegas has already spurred more growth in the sector. Not to be outdone, the regional government of Barcelona and traditional cultural rival to Madrid has also announced Barcelona World, a €4.6 billion theme park and casino project that will create 20,000 jobs.
While casino gaming looks likely to see a dramatic expansion over the coming years due to these two large-scale projects, gaming is also expanding outside of casinos via slot machines and sports betting terminals. Slot machines are also permitted in bars and restaurants in Spain, and there are now around a quarter of a million slot machines dotted across the nation. As opposed to the majority of slot machines that are located in casinos, they do not offer high payouts and return a minimum of 70 percent of the stake to the player.
Meanwhile, since 2008 when Madrid and the Basque Country first permitted sports betting shops, land-based bookmakers are becoming increasingly present in most regions, as are touchscreen sports betting terminals, which are also permitted in local businesses in some jurisdictions. And while there is still considerable room for growth, the land-based sports betting industry in Spain is currently worth an estimated €4.5 billion long term.
As a result of all these developments, the gaming landscape in Spain looks set to continue to develop in the near future providing jobs and significant investment in the area. Despite its current economic woes, Spain’s liberalization of the online gaming market, coupled with developments in the land-based sector, makes Spain one of the most dynamic markets in the region. Should the Spanish economy improve—and there are signs that the government’s austerity measures are already having a positive effect on the economy—operators established in the market will be well-placed to cater for the growing Spanish passion for betting and sports.