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Beispiel Case - 2 - Ausgangssituation: Bild



At the end of the 1990s, three major upheavals that would affect the gaming business were foreseeable or given:
- The emergence of internet business models due to technological change
- Liberalization in the gaming sector
- Worldwide boom in growth markets

Emergence of Internet business models due to the change in technology

The possibility of mapping new business models, through which providers and customers could be anonymously and quickly brought together via the Internet, has also appealed to the gaming industry. Betting shops and amusement arcades often had a bad reputation at the end of the 1990s. Playing poker, casino or skill games or sports betting anonymously on the Internet was a novelty.

Another advantage of the Internet business models was that one platform could reach a large number of customers around the world and not have to set up numerous branches with sometimes high investment costs, as in the classic retail business. The advantages of sales over the Internet were, in addition to the above-average degression of fixed costs, unlimited scalability and the possibility of an integrated value chain.

Liberalization in the gaming sector at the end of the 1990s

The betting business was originally heavily regulated and was subject to legal and socio-political evaluations. With regard to regulation or monopoly, the gaming market can be divided into three segments:

- In certain jurisdictions, for example in China, gambling was generally prohibited.
- In Europe betting transactions were either wholly or partially prohibited or required a license. In Germany, for example, there was a state monopoly on lotteries, betting, sports betting and casinos.
- In some countries, such as England, gambling could also be carried out by private providers under strict supervision.

With the advent of internet business models and the freedom to provide services, discussions about liberalization regarding the gaming industry also increased. At that time there was no uniform, Europe-wide legal regulation for betting transactions that were operated via the Internet (Note 1). On the one hand, the Internet medium only had a relatively short lifespan; on the other hand, there was no reliable knowledge of the application of national laws to content and services distributed on the Internet. Several lawsuits were pending at the European Court of Justice for violation of the guaranteed freedom to provide services due to the state monopolies in the gaming market. It was expected that the market in Europe would be liberalized and thus with open access to the market for private providers.

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Beispiel Case - 2 - Ausgangssituation: Bild
Beispiel Case - 2 - Ausgangssituation: Text


Worldwide boom on the growth markets

By going public not only on the American NASDAQ, but also in Europe on the Neuer Markt in Frankfurt, Zurich, or Vienna, young start-up companies, especially those based on an internet business model, were able to raise large sums of capital for their expansion at very attractive valuations.
On the Neuer Markt in Germany, for example, which only started trading at the beginning of 1997, the innovative industries boomed, above all tech-mechanical engineering, software, IT and entertainment as well as internet and biotechnology. High returns and numerous new issues attracted investors to the new business models.

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The evaluation of Internet companies was difficult to understand or problematic, especially when taking into account the often non-existent substance. Using market multiples as a basis for valuation was difficult due to the early life phase of Internet companies, which were still in the red, or due to the lack of comparative figures. The long-term growth expectations were thus reflected in the stock exchange prices. For the most part, a price potential was estimated by estimating future profits or sales growth and price / sales, or company values were extrapolated based on the number of customers.

Global Equity Partners as a VC company has analyzed business models for Central Europe in particular, which could be mapped on the Internet. In addition to gambling, financial services and drug sales (internet pharmacies) were also analyzed. Companies were founded in all three areas to share in the emerging success of these business models. In addition to bwin in the sports betting business, Handels- und Betriebs-AG (online pharmacy) and Montana Securities Financial Services AG were founded in the financial services sector in 2000. could not succeed, but the financial services company Montana Securities later developed satisfactorily with a different business focus and now operates under Ithuba Capital.

Opportunities for growth in 1999

The gaming market was the fastest growing market in the entertainment industry (Note 2). The gaming market can be divided into the two areas of regulated (land-based) and unregulated (online) market. The share of the online gaming market in the total gaming market was the fastest growing sector in the late 1990s, with double-digit growth rates per year. The market for Internet betting showed such strong growth as the market acceptance of the Internet was already given, especially in Europe, but the technological possibilities were not yet fully exploited. Figure 2 shows a market assessment by bwin from the year 2000 for the Austrian market.

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Beispiel Case - 2 - Ausgangssituation: Bild

According to a forecast by the Datamonitor agency at the time, the market for online sports betting should grow from EUR 30 million to EUR 2.3 billion by 2004. This corresponded to an annual growth of 138%.

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Beispiel Case - 2 - Ausgangssituation: Bild
Beispiel Case - 2 - Ausgangssituation: Text

Competitive situation
The market for online gaming was still highly fragmented at the end of the 1990s, as there were a large number of niche providers with different technological systems. The barriers to market entry, however, were low.

The big English bookmaker chains such as Ladbrokes, William Hill, and Coral also only started with an Internet presence. The two largest Austrian bookmakers, Admiral Sportwetten and Wettpunkt, had no internet business at the time. Due to the US's restrictive stance on internet betting, American gambling companies showed no internet ambitions.

Although bwin had a first mover advantage, it quickly developed a stand-alone advantage through technological innovations, such as live betting and strong, new marketing that differed from conventional betting marketing.


The range of offers in the online gaming market can be divided into betting, casino, poker, and games. First of all, the mechanics of results that are relevant for all areas will be discussed.

Relevant key figures and earnings dynamics

The gaming company earns its gross profit (or gross gaming revenue) - namely the difference between the stakes in the game (sales) minus the winnings paid out.

Other sources of income for online gaming companies include commissions, advertising revenue, and registration fees.

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If the game frequency is high, the turnover is not meaningful. Casino, poker, or machines have a high gaming frequency. This leads to a constant cycle of profit and loss, with a constant re-use of the money generating a high cumulative turnover / stake per player. Thus, gross profit is the only suitable key figure and not sales.

The gross profit margin reflects the ratio of gross gaming revenue and sales per stake. A high gaming frequency also enables a more precise calculation of the gross profit, as the fluctuation range of the gross profit margin is lower.

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In 1999, sports betting represented 55% of the total European online gambling market. Online casinos and lotteries required more sophisticated software that was not yet developed. However, within a few years the casino and lottery segments have developed into the market leaders.

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Depending on the segment, the business model works as follows:


The betting odds are the relative profit that can be achieved with a winning bet. The odds are set by the bookmaker who, based on his sporting experience, the general interest and the demand of the bettors, assesses the possible outcomes of the events. He uses it to estimate the probability of a betting event. If the rate is rather low, this result is very likely to occur. However, if the rate is high, the outcome is very unlikely to happen. A betting odds can be fixed or variable (note 3).

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Beispiel Case - 2 - Ausgangssituation: Bild

The gross profit margin in the sports betting segment is around 10% in online gaming and around 20% in land-based gaming. In the case of individual bets, there is a certain risk for the provider of the sports bet, as there can be times when bets are won more than average by customers (e.g. when a number of favorites are won). In order to make the offer more attractive for the customer and at the same time to reduce the risk, new betting offers have been developed over time: multi-bets, in which several single bets can be combined and the odds increase exponentially, or live bets, so that the customer - e.g. in football - does not have to wait until the end of 90 minutes, but can also bet on the next out-throw, for example, in between. The sports betting offer was rounded off with extensive information on the subject of sports and the respective events in particular, as well as live images.


Casino has a high frequency of games, which makes the gross profit more predictable. However, the gross profit margin is low (approx. 3%), which is also due to the fact that no bookmaker is required to operate the casino and that this is largely automated. The results of casino games are easier for the provider to plan. Overall, the “casino community” is larger than that of the sports bettors, which means that this area soon made the greater contribution to earnings at bwin.


Lottery products make a high contribution to gross profit due to their low payout rates. The probability of receiving a high distribution amount is low here. The gross profit margin is around 50%.

Poker / Games / Skill Games

This segment is diversified and includes machines, roulette, and card games such as poker, blackjack, etc. A distinction can be made between skill games with low stakes and online gaming with a monthly fee. The gross profit margin is between 5% -30% depending on the game, as very different concepts are implemented in this sector.

2.4 RISK

Internet business models were not yet tested at the time. Even if bettor profiles (note 4) were available, one could not be sure whether the Internet would establish itself as a sales channel. In particular, those potential online betting customers who had reservations about the established betting offices could not be assessed with certainty as active future online customers.

The liberalization tendencies in general were there, but the pace of liberalization could hardly be assessed. The uncertain legal framework (e.g. also advertising restrictions) was a great opportunity, but also represented the greatest risk of these new business models.

If online betting business models were to be implemented, a counter-movement on the part of the state providers was to be expected (increased competition). In addition, the low market entry barriers made the time factor a critical competitive factor.

Note 1
In Austria, Italy, Great Britain and Australia, bookmaking and offline advertising were possible with a license. Online betting was allowed in Italy as long as it was handled via a server abroad.
In Austria, a distinction was made between the term “gambling” and the term “bet”. Bets were not covered by the Gambling Act and, in terms of competence, fell under the state legal provisions on bookmakers. A license granted for the implementation and brokerage of sports betting does not constitute an authorization for the implementation of games of chance.
In the Netherlands, Ireland and Poland, licenses were only issued to residents. Bookmaking and advertising were generally prohibited in Germany, Switzerland, France, and China.
In the United States, gambling was governed by state law (it was banned in 27 states) and internet gambling was not specifically prohibited under federal law. There was therefore great legal uncertainty as the National Gambling Impact Study Commission had submitted a report to Congress banning online gambling (Kyle Bill). The gaming companies expected difficulties with the responsible licensing authorities and decided not to enter the online market. This ban opened up further potential growth for the European market in light of the expected liberalization of the European market.

Note 2
In retrospect, this is confirmed, for example, by the observation: Online games market increases from 3.4 billion USD in 2005 to 13 billion USD in 2011 (DFC Intelligence / Gartner 2011)

Note 3
The fixed rate remains the same as long as it is offered. The variable odds, on the other hand, change over the course of the game. Live betting is a good example of variable odds. Here the odds are adjusted to the course of the game again and again during the game.

Note 4
Regular bettors: plays at least once a month; <5% of the population; mainly men; from 25 years; lower social classes;
Casual bettors: play once every 6 months and see sports betting as entertainment; about 6% of the population; Mostly male; approx. 1/3 women; between 35-44 years.
Potential bettors: People interested in the game but beware of betting shops in general; approx. 13% of the population; equally distributed between men and women; between 25–34 years; all social classes; have never bet before.

Beispiel Case - 2 - Ausgangssituation: Text
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