Israel taps into e-gaming boom

By Natalie Ostroff, September 27, 2011
Israeli companies have a 15 per cent share of the global online gaming market

Israeli companies have a 15 per cent share of the global online gaming market

Online gaming is one of the world's largest growth markets. According to some sources it has been growing faster than Facebook and is expected to rise at double the rate of land-based gambling over the next two years.

Israel, a global leader in the industry, is hoping to cash in on the boom.

Although online gambling is illegal in Israel (it has been since 2007), the nation is a major supplier of software to the sector, which was valued at close to $30 billion (around £19 billion) at the end of last year, a 12.5 per cent rise on 2009.

According to trade organisation UK Israel Business, Israeli companies have around a 15 per cent share of the global e-gaming market. The nation is home to some of the sector's most dominant players including William Hill Online, 888 and Playtech, the world's largest online gaming software supplier.

Why Israel? Yoni Sidi, head of marketing at William Hill Online in Israel, says: "The thriving technological advances in Israel keep it at the forefront of the gaming industry.

Yoni Sidi, William Hill Online

Yoni Sidi, William Hill Online

"Technology-wise, it stays ahead with its leading software developers and marketing-wise, it is in an influential position. What it lacks in tax breaks, it definitely makes up for in other areas.

"People here are very innovative. Israel has more start-up companies than anywhere else in the world, bar the US."

Joel Keeble of consultancy firm H2 Gambling Capital says the Israeli gaming industry came about in the late 1990s because of the "large number of high quality programmers."

Industry revenues have been rising rapidly over the past few years.

Playtech was founded in Israel by Teddy Sagi in 1999. Last year revenue was €142.3m (around £124 million), up 24 per cent on 2009. Profits rose four per cent to €93.2 million (£81.3 million). The company has more than 1,000 full-time employees working in five countries - the second biggest office being in Israel with 171 people.

Keen to stay ahead of the game, in 2008 it formed a strategic partnership with William Hill to create William Hill Online. A research analyst at UK Israel Business says: "There is a natural synergy between information and communication technologies (ICT) in Israel and the UK. Whilst Israel is very good at providing technology, the UK is very good at doing the operational side of things and being more customer-facing."

The partnership has proved lucrative. William Hill Online reported a 24 per cent increase in revenues to £251.5 million in 2010.

It is the online side of the business that has seen the strongest growth over the past two years says Mr Sidi. "More people are becoming computer literate. Online gaming is easier for the user and it is more cost efficient for the company."

Israel is embracing opportunities for growth including new systems of delivery through mobile phones and social networks. "There has been a particular increase in mobile phone betting. Many developers are creating gaming apps for smart phones giving people greater access to them."

Also benefiting is 888, the second biggest global casino and online gaming company. Founded by two sets of Israeli brothers in 1997, Avi and Aaron Shaked and Shay and Ron Ben-Yitzhak, the company's revenue was up six per cent to $262 million (£167 million) in 2010. 888 employs 880 full-time staff. More than half are based at its Tel Aviv headquarters.

Former chief executive Gigi Levy attributes the company's success to "the entrepreneurial nature of Israelis. Like many other technological frontiers, Israeli entrepreneurs were quick to grasp the vast potential of the business and founded many companies in the field during the late 1990s. Being early in the game, with extensive technological talent and a very assertive approach, plus the typical Israeli agility, meant that some of these companies turned out to be amongst the leaders in the field."

And then there is PokerStars, founded by former IBM programmer Isai Scheinberg in 2000. It is the biggest online poker site in the world.

Although PokerStars would not disclose their financials, Forbes estimates annual revenues of $1.4 billion (£890 million) for this year, and around $500 million (£316 million) in profits. In April, PokerStars was one of several poker websites to be indicted by US authorities in New York. They alleged that companies were violating bank fraud and money-laundering laws. Although PokerStars have denied these allegations, the site remains closed to US players. They are operating as normal elsewhere.

Although the gaming sector seems to be flourishing, some analysts question whether Israeli businesses will remain ahead.

Despite pioneering the industry in the 1990s, the start-up era for online gambling has passed and the market has become more mature. Other jurisdictions offer better incentives for operators and it could mean less gaming companies emerging from Israel. The UK's e-gaming market for instance is now worth $2.4 billion (£1.5 billion) and growing. It is the largest market for online gambling in Europe.

Whatever new rules lie ahead, one thing is for sure, when it comes to the future of online gambling, Israel will continue to be an integral player in the game. You can bet on it.

Last updated: 11:22am, September 27 2011