Voted Best Answer
Mar 01, 2021 - 11:28 AM
Image credit: Alp Duran, UnsplashHow much Capital is Required
The Entrepreneur Handbook has come up with a concise list of expenses you have to plan for and these include:
• Getting the relevant licences so that you're on the right side of the law as well as drawing in quality software providers and players who will be more attracted to a legal online casino.
Different nations will have different costs for licences and something that most casinos do is use licenses from offshore nations like Gibraltar and Curacao at about $15,000 to $20,000 per year who have better prices as well as lower taxation.
The UK also offers licences that are a bit costlier at about $40,000 per year initially if you would like a higher end licence. You may also need to show that you have between $100,000 and $300,000 to cover the players who choose to cash out their winnings.
• Building a high quality website and mobile app will set you back at least $50,000.
• Gaming software which comprises the platform, payment methods, and slot machines. All of these things are customisable according to your needs and you can expect to pay from about $5,000 a month for a package.
• Hiring a marketing expert or firm who will help you get word about your casino out there while staying within the confines of the law because most popular platforms out there don't allow gambling ads. This will cost you upwards of $1,500 a month. Top affiliate websites are another attractive option as you only pay for performance, but first you need to spend your own money optimizing the offer and proving it will perform before the good affiliates consider promoting it. Optimizing the offer will likely cost at least $50,000 to $100,000.
• Hire a technical support team to respond to queries, give advice and offer support to clients with each worker getting about $400 a month (for offshore labor).
Experts in each field will earn more so plan accordingly for the kind of team you want. Alternatively, outsource if you're not ready for the commitment of hiring a team which may cost you upwards of $250,000 per year.
The summation of the total costs come to roughly $1,045,000 on the lower side so this is the minimum startup capital you will need to start an online casino.
Image credit: Sahand Hoseini, UnsplashWhat is the Acquisition Cost per Customer and the Lifetime Value of Each
In order to acquire a new customer, FanDuel spends about $68 while 32Red spends about $245.7 so you can see that the rates vary by a lot. Different niches have different costs and a rate that may be fair for one game type may be outrageous for another.
Some factors that affect this cost include the ad spend, marketing efforts of each individual casino, geolocation, target market, optimization, data, campaign, average by game and average by game type among others. There is no single rate because the industry is extremely large and varied.
As for customer lifetime value, the same rules as those for acquisition cost apply i.e. it varies widely. Some players only wager a few dollars on a single game while others spend a fortune on a variety of the games in the same period so these results are highly subjective and depend on averages.
The typical gross profit margin for an online casino is about 60% as at 2020 according to csimarket.com, largely due to lower operating costs compared to brick and mortar ones.
Net margins are in the single digit percentages because of the high cost of customer acquisition and competition from major players with massive funding.
How does Competition Affect Profits
Competition with online casinos has seen new companies introducing incentives to get new users such as having no sign up fees in order to register on their sites.
This has seen veteran online casinos lower or do away with sign up fees and even introduce bonuses which has in turn made it more attractive for new users to get online and start playing.
Regular users also enjoy the new perks and as such news spreads about the latest company offering higher incentives making more people register and start playing.
This brings in more money to the industry in the long term because of the new players who may otherwise not have registered and profits improve.
Image credit: Kaysha, UnsplashIs There Still Profit to be Made with Online Casinos
It may sound like the market is already saturated at this point, but the changing landscape and expectations of the market make it so that there's always a niche that a new player can enter.
Growing internet access and improved web network infrastructure in the developing world, continue to make it cheaper and easier for more people to get online. This means more people getting introduced to online gaming.
Image Credit: SportPesa
An example is SportPesa, a Kenyan online betting platform, which had revenue of more than $1 billion USD in its last full year. SportPesa spent heavily on advertising and lots of unemployed youths spend their days betting, hoping to make a fortune. They were so profitable that they sponsored an English Premier league soccer team and a Formula 1 racing team.
The fact that some people have won jackpots and had their lives changed by such platforms makes them more attractive and trusted by people who had up until a certain point not heard of them or were just uninterested.
How are the Major Players Differentiating
The COVID-19 pandemic of 2020 introduced a fundamental shift in consumer behaviour and created a market with different needs than what we were used to.
The online casino market has not been spared and as such there are a few things that must be done in a different way in order to ensure success. A few of these are:
• Introduction of digital currencies including Bitcoin, Ethereum, and Dogecoin. These are attractive due to their anonymous nature so users can keep their activities private. Also, the future is online and for money this is especially true so any business worth its salt should be ready to set up modern payment gateways- FanDuel already accepts bitcoin payments for their fantasy sports and this sets them apart from others.
• The use of virtual reality to help people get the casino or game room experience from the comfort of their hotel rooms or from the safety of their homes. With this, people will only need to don the relevant gear and get on the platform to get the feel of being in a casino.
• Creating mobile-first gambling websites for the large market that exists on mobile devices, especially in developing countries. This will grant easy access to a large section of the population and online casinos with great usability on mobile phones will have a noticeable advantage.
• Introducing live online betting in order to give the full experience to their users online. When people can take part in immersive and interactive betting on a platform they are bound to appreciate and patronise it.
• HD and pixel-perfect games for mobile devices earn trust and engagement, leading to more money spent.
Image credit: The Thought CatalogFinal Word
In the end, the businesses that will survive are those that evolve and adapt. Online casinos developing more immersive environments online will reap big results and will be part of the digital future.
Gambling is one of the oldest pastime activities and it's not going anywhere yet, it will just change its face to stay relevant in the times and cater to the needs of its users.
It's not cheap to start and may take up to two years just to break even but can be lucrative in the long run.