Zarnett’s “Reality Check”: US iGaming Worth Only $2bn by 2020, Says Deutsche Bank Analyst

The revenue potential of regulated online gambling in the United States will be dampened by a rollout that will be slow, complex and fragmented.

That’s the view of Deutsche Bank’s Andrew Zarnett, who believes that those and other forces will constrain the American regulated online gambling market to a size of $2.2bn by 2020.

Zarnett offered that forecast as part of a presentation at the Forum on US Online Gaming recently held at the Borgata in Atlantic City.

View the complete presentation, titled Internet Gaming: Reality Check -$2 Billion by 2020, here.

Comparing Zarnett to other iGaming forecasts

Banging Zarnett’s forecast up against a handful of others shows that he’s definitely on the low end at $2bn by 2020:

• H2 Gambling Capital sees the US regulated market growing to $7.7bn by 2017.
• Eilers Research comes in right alongside Zarnett with a base-case projection of just under $2bn by 2020.
• Morgan Stanley is aiming at $3.5bn by 2017 and $8bn by 2020. That’s actually a downward revision recently issued to their earlier forecast of a $9.3bn market by 2020.

Why such a broad range?

There are a litany of reasons why one forecast might differ from another. But a handful of core factors explain much of the gap.

Pace of regulation

The primary factor controlling market size across various projections is the number of states offering regulated online gambling.

For example, the H2 study is based on a model that assumes 17 states will have some level of activity by 2017.

But Zarnett takes a far more conservative view on that issue, as illustrated by the slide from his presentation below:

Fear of friction

Issues such as geolocation failures, surrendering personal information at signup and difficulty depositing are just a few of the friction points that many believe are artificially depressing consumer participation at regulated online gambling sites.

Low levels of consumer awareness and continued competition from illegal sites likewise drag on the performance of regulated sites.

Your view of how curable those ills are (and how much they matter in the first place) will have a material impact on your predictions for how quickly a new market can expand and mature, and therefore your projections regarding the potential of those markets at a given point in time.

Terra incognita

Uncertainty doesn’t just lurk in one or two corners of the U.S. regulated online gambling landscape. Uncertainty pervades that landscape, infusing each and every aspect of the industry.

Which states will legalize which products, and on what timeframe? Who will be allowed to participate in those markets, and at what cost?

With such fundamental questions still seeking a qualified answer, it’s no surprise that when it comes to the matter of the size of the American market for regulated online gambling five or so years out, opinions tend to differ.