THERE S NOTHING VIRTUAL ABOUT THE OPPORTUNITY GAMBLING

Transcription

1 THERE S NOTHING VIRTUAL ABOUT THE OPPORTUNITY IN REAL-MONEY GAMBLING Opportunities for Game Developers in Regulated Real-Money Online Gambling

2 TABLE OF CONTENTS 1. Executive Summary Introduction Global Gambling Market Size Product Size U.S Market Size Affiliates Social and Real-Money Convergence HTML5 vs. Native Apps The Odobo Developer Program Glossary About Odobo and H Disclaimer 26

3 01 EXECUTIVE SUMMARY In this 2013 report, H2 Gambling Capital, commissioned by Odobo, look at the state of the online gambling market and future forecasts for market growth over the next 4 years. The report further considers some of the key developments, which are taking place and how the revolutionary games developer program from Odobo can reduce the barriers of entry for the wider development community to participate in this growing and valuable industry, for the benefit of operators, developers and players alike. The report has identified 5 distinct revelations: 1. SIGNIFICANT MARKET GROWTH IN GLOBAL ONLINE GAMBLING TO 2015 AND BEYOND The global online gambling market in 2003 had started to make a significant impact and was valued at around 6.6bn. By 2009 this had grown to 18.2bn with further growth by 2012 to reach a market value of 21.7bn. Within the next 3 year period, it is predicted that the market will grow by almost 30%, to a value of 28.24bn. In 2012 online gambling still only accounted for a fraction of the global gaming revenue (8%) yet it is predicted that as consumer habits change and as more players look to mobile 24/7 consumption, online gambling as a proportion of the overall gambling market will significantly increase. 2. CASINO AND POKER PROVIDE THE LARGEST SECTORS OF GROWTH Historically sports-betting has held the lion s share of the online gambling market and this still held true in 2012, where sportsbetting was worth 11.5bn, casino 5.5bn, poker 3.1bn, and finally bingo which accounted for 1.6bn of the global online market. Looking ahead to the state of play in 2015, it is forecast that poker and casino will show the greatest market growth with poker showing a CAGR of 14.4% to 4.6bn, and casino showing a CAGR of 10.9% to a forecast value of 7.5bn in THE U.S WILL BE A SIGNIFICANT MARKET AS STATES START TO REGULATE The United States has had a bumpy ride with online gambling over the past 5 years. Federal laws have restricted operators from providing the large majority of online gambling services that are increasingly available in Europe. It is understandable that today the U.S only accounts for around 11% of global online gambling (casino, bingo, poker) gross win whereas Europe accounts for just over 54%. However as the U.S finally starts to open its doors to regulated online gaming (as evidenced by recent movements in state regulation that have seen 3 states so far enact legislation) H2 expect the U.S to quickly increase its share of the revenue earned in the sector globally, starting modestly in 2013 and based largely on when the forerunner states (Delaware, Nevada and New Jersey) go live and reaching an expected 5.5bn by the end of 2017.

4 02 EXECUTIVE SUMMARY CONTINUED 4. AFFILIATE CONVERSION THROUGH CASINO GAMES PROVIDES A GREATER OPPORTUNITY FOR GAME DEVELOPERS In 2012 the online gambling affiliate industry generated over 2.1bn of gross win across sports-betting, casino, poker and bingo. The current royalty rates paid for games being produced today for the online regulated real-money industry tend to be between 8 and 15% of NGR. Through the Odobo Marketplace, developers not only earn their selected royalty rate but they also have the ability to undertake affiliate services referring traffic to their profile page, and their games on the operators casinos. For an Odobo developer, revenue streams from the game royalty at, for example, 10% of NGR, plus an affiliate revenue stream at 30% of NGR, can lead to a very achievable 37% total NGR (after Odobo commission) for the developer. The ARPU available to the developer from a combined game royalty and affiliate channel (at example rates of 10% and 30% respectively) is conservatively estimated as a year. 5. SOCIAL VS. REGULATED REAL-MONEY GAMBLING CONVERGENCE It has been widely reported that there is a very real opportunity of convergence between the social gaming industry (in particular social casino games) and the regulated real-money gaming industry. H2 Gambling Capital estimate that the social casino gaming industry generated gross win of 1.25bn in 2012 and they anticipate this growth to continue to 2.12bn in H2 take a reasonably cautious position when evaluating the growth of social gambling. However as the industries continue to converge it is highly likely that segments of social gamers will convert in to higher spending real-money gambling and that there will be more and more effective routes to conversion. A further consideration is that a developer can also benefit from affiliate revenue from referred traffic that that goes on to use other games or products on the casino environment, not just the developer s own game. The ARPU increases with the inclusion of the lifetime affiliate traffic revenue from to a year. If we increase the game royalty rate to 15% of NRG, for example, the ARPU from the game royalty, the game affiliate revenue and the further lifetime revenue combined reaches over 293 annually. The affiliate revenue channel is of particular importance to developers particularly those who have been successful in the social gaming industry and can convert some of those players to real-money gaming.

5 03 INTRODUCTION A DECADE OF ITERATION From no regulation to point-ofconsumption regulatory models As the online gambling industry first started to take off in the late 90s - enabled through the growth of Internet usage generally and a natural demand for gambling products - most governments were left playing catch-up. Some jurisdictions took a hands-off approach and did not enact legislation regulating the industry, some attempted to actively prohibit online gambling, and some passed a variety of forms of basic regulation pending a more detailed strategy for this dynamic and fast-growing new industry. From this emerged a few licensing jurisdictions that allowed operators to be licensed online gambling providers and target a global audience. More recently the online gambling industry has been regulated increasingly on a point of consumption basis, country-by-country and even state-by-state in the U.S, with independent requirements and restrictions applying by each regulating territory. Online gambling operators have had to spend more and more of their time and resources acquiring and maintaining licenses to be eligible to operate in multiple territories and the days of holding one license to serve players around the world are now truly over. THE PRESSURE ON OPERATORS TO DELIVER MORE QUALITY GAMES CONTENT For both existing and prospective businesses, land-based and online gambling, content has and always will be king; players are increasingly seeking more variety and quantity of good quality games and operators are having to work harder to meet the evolving customer expectation. To continue to both retain players and add new ones, it is recognized that quality and differentiation of content is an important factor. However the game development process and challenge is quite different from that which exists in the casual or social gaming sectors, and development studios not familiar with the online real-money gaming sector and the technological and regulatory requirements that go with it have found themselves unable to easily participate. The few game developers who have been able to break into the real-money regulated sector have also had to cover areas that they may not be strong on in terms of business development and sales as they have to complete the process to contract with operators to take their games. The real-money regulated sector has therefore suffered from a lack of innovation and competition in game development compared to the social and casual gaming sector where barriers to entry are lower and there exist developer programs to participate (e.g. the Apple ios developers program and the Facebook developers program). A further challenge that exists for operators and developers now, is the rapid shift to mobile devices tablets and smartphones - while so much of the existing content (built in Adobe Flash) will not be usable. So beyond the general need for more content with more variety and innovation, is the additional need to restock the shelves with content that will work for the increasing number of players who want to access it through their mobile devices. THE SOLUTION...

6 04 INTRODUCTION ENTER ODOBO Odobo is the new HTML5 games developer program for game developers to produce, distribute and monetize their games content for the online regulated gaming industry. The new Odobo platform enables games developers to produce fully compliant high quality games that are device interoperable in HTML5. Using Odobo s cutting-edge Game Development Kit (GDK), game studios can focus on their strengths making great games while Odobo takes care of the common technologies, compliance and standardization where that is needed to create the necessary efficiencies to allow participation by a greater number and variety of game developers. This enables operators to offer a wider selection of great games from multiple developers with the confidence that multi-million dollar technology, designed for purpose by industry experts, underpins every game. By bringing this purpose-designed and innovative approach to the online gambling industry, Odobo is able to provide the solution to players requirements for exciting new games, thus offering unrivalled revenue opportunities for both operators and developers. THE BENEFIT FOR DEVELOPERS Odobo s games are a combination of the games concepts and client-side development provided by the developers and the serverside components provided by Odobo to support those games. Odobo allows games developers to distribute content through a network of licensed established operators around the globe in regulated markets. Qualifying developers can produce games for real-money play without needing to become the licensed operator or having to develop much of the technology required, by relying on Odobo s multi-million dollar platform and GDK. Game developers get to focus on what they are good at making great games while Odobo provides the server-side technology to support those games with a unique package of core commodity technologies at the platform level, which are not specific to any game concept, yet are required in the provision of every game, including: certified RNG and game engines; localisation; currency conversion; authentication; persistent state handling; player account communications; and a host of other features beneficial to operators, developers and players alike.

7 05 INTRODUCTION ENTER ODOBO CONTINUED COMMERCIALISATION WITH ODOBO The developer earns a license royalty on each of their games that generates positive NGR once adopted by an operator, which is collected by Odobo. The developer can administer all their royalty payments and game usage through a contemporary web analyticsstyle game management system built into the Odobo Platform. Once the game development has been completed, and the game logic certified by an accredited industry testing facility to meet regulatory standards, the title is deployed into the Odobo B2B Marketplace, where operators can access the game s profile page and seamlessly synchronize them into their own controlled environment. This means developers games can reach the market faster and more cost effectively than ever before. All this and more, allows the developer to focus on building creative and innovative games, the operator to provide device agnostic premium regulated games, and the player greater value and enjoyment from their gaming.

8 06 INTRODUCTION THE TRENDS AHEAD Odobo commissioned H2 Gambling Capital in 2013 to analyse the international online gambling sector and provide a detailed report into the state of the market and its forecasts for the coming 2-4 years. When assessing the online gambling market, H2 has included sports-betting, casino, poker and bingo but excluded gross win from state lottery, skill-based games and other gaming activity. The following sections contain data on existing online gambling markets, revenues across product sectors, player values, affiliate markets and social gambling revenues. Within their analysis H2 have also provided insight into the trends and forecasts for market growth, the opportunities available to burgeoning U.S market, and the convergence of social gambling and the online real-money gambling market.

9 07 GLOBAL GAMBLING MARKET SIZE The online gambling market is one of the fastest growing industries in the world today. This is being driven by a number of key factors including: A shift in consumer behaviour from land-based casinos to online casinos accelerated by a further shift towards mobile gaming commerce where users can place bets and engage in gambling on demand regardless of location; Innovations in technology that have allowed realtime gambling to greatly improve with the experience advancing ever closer to the retail equivalent without cannibalising land-based retail activity in majority of cases. The latter is due to the ability of operators to cross promote and use online channels to gain a larger share of a player s wallet whilst driving players back to the retail estate; The resilience of the industry during times of economic difficulty there are a few luxuries that people allow themselves in time of hardship. Gambling with the ability to tailor ones spend falls into this category for a significant number of people. The more convenient and lower stakes gambling is the less it has been impacted by the downturn. Furthermore, in times of tight budgets governments turn to the expansion of gambling as a unique way of generating income whilst stimulating growth. Regulation of online gambling jurisdictions both in Europe, where this has been the case for a number of years, and in the United States where law has been passed in a small number of states. A domino effect is now likely to be embarked on across the U.S, that could extend to all states that permit some form of land-based gambling over the coming decade. H2 Gambling Capital value the online gambling market in terms of gross win which is stakes less prizes but including bonuses. Turnover can be misleading due to the large / varying percentage that is returned to players in the form of prizes. Especially where there is a high return, stakes are generated as a result of recycling as players continue playing with all or part of their winnings. Gross win provides the best indication of the net value of player losses / spend or the top line of the sector s operators. H2 valued the online global gambling market at 21.73bn in The value is expected to grow at a CAGR of 9.13% to 2015, where the market is expected to generate 28.24bn of gross win. From this 21.7bn it is worth noting that the UK alone is worth over 3.1bn a year and is expected to surpass 3.7bn as early as A decade ago the global online gambling market generated gross win of 6.62bn, when the online gambling sector emerged as a lucrative proposition. The CAGR for the period from 2003 to 2012 was 14.12%. Online gambling accounted for just over 8% of the total global gambling market (by gross win) in Predicted 30% market growth by 2015 to a value of 28.24bn

10 08 GLOBAL GAMBLING MARKET SIZE Global Online Gambling Gross Win E ( bn) E 2014E 2015E Source: H2 Gambling Capital

11 09 PRODUCT SIZE Category Breakdown of Total Online Gambling Gross Win in 2012 Sports-betting 53.0% Bingo 7.4% Casino 25.4% Poker 14.2% Bingo - 7.4% Casino % Poker % Sports-betting % The largest online gambling product is sports-betting, accounting for 53% ( 11.5bn) of online gambling gross win in 2012, this was followed by casino at 25.4% ( 5.5bn), poker at 14.2% ( 3.1bn), and bingo at 7.4% ( 1.6bn). Category breakdown predictions for 2015 Bingo - 7.3% Casino % Poker % Sports-betting % Source: H2 Gambling Capital

12 10 PRODUCT SIZE Global Online Gambling Gross Win by product E ( bn) E 2014E 2015E Bingo Casino Poker Betting In 2015 sports-betting is forecast to grow to 14bn gross win, casino and poker are projected to grow to gross win values of 7.5bn and 4.6bn respectively, and finally bingo is forecast to grow to 2.1bn. Overall poker and casino are anticipated to show the greatest growth of 14.4% and 10.9% CAGR respectively, with bingo (8.3% CAGR) and sports-betting (6.9% CAGR) just following behind. Collectively gaming (casino, poker, bingo) accounted for 10.22bn of the market in 2012, or 47%, and is predicted to grow at a CAGR of 9.7% to 14.2bn in Source: H2 Gambling Capital

13 11 U.S MARKET SIZE On 13 October 2006, President George Bush signed the Unlawful Internet Gambling Enforcement Act (UIGEA) in to law in the U.S. UIGEA outlawed online gambling companies accepting payments related to any activity that was illegal under federal or state law. Under the Department of Justice (DoJ) interpretation of another law, (the Federal Wire Act of 1961), UIGEA prohibited online sports-betting, casino, poker and bingo but online horserace wagering was not effected. The bill arrived as a last minute attachment to the SAFE Ports Act and came as a surprise to the industry. Overnight up to 80% of the value was wiped of the share price of some of the largest online gambling companies. In December 2011, following questions from the New York and Illinois lottery regarding the introduction of online lottery games, the DoJ issued a memorandum stating that the Federal Wire Act only applied to sports-betting, leaving the door open to federal or state regulation related to online casino, poker and bingo. Following failed attempts at federal regulation, a number of states have introduced and passed legislation allowing for various online gambling products including poker, casino and lottery games. Delaware, Nevada and New Jersey have all passed legislation and are in the process of working towards launch. Furthermore there are a number of states in earlier stages of the process along with signs of further activity at federal level.

14 12 U.S MARKET SIZE U.S Online Gross Win 2013E 2017E ( bn) U.S online forecasts only E 2014E 2015E 2016E 2017E U.S online gross win ( bn) Total international gross win ( bn) Note: Based on activity modelled in 17 U.S states Note: H2 global gross win forecasts not available for 2016/2017 at time of printing Source: H2 Gambling Capital

15 13 U.S MARKET SIZE H2 Gambling Capital have modelled detailed forecasts covering the value and volume of the future online gambling market in the U.S. This scenario shows some form of activity from the following states by the end of 2017: California; Colorado; Connecticut; Delaware; Washington D.C; Florida; Illinois; Iowa; Maryland; Massachusetts; Michigan; Nevada; New Jersey; New York; North Carolina; Ohio; and Pennsylvania. Today the U.S market accounts for almost 11% of global online gaming (casino, bingo, poker) gross win whereas Europe accounts for just over 54%. H2 expect the U.S scenario detailed above to generate 23m of gross win in 2013 growing at a CAGR of 297% to 5.6bn by the end of 2017, at which point the U.S share of global gaming activity would be closer to 30%. Please note much of the activity will take place towards the latter years as the states will take time to pass laws and regulation. Furthermore H2 have not included any sportsbetting activity to take place during this period, outside of Nevada, nor do we expect any material sports-betting activity outside this state.

16 14 AFFILIATES The affiliate industry is significant for driving players to online gambling sites with up to 50% of traffic for major gambling sites being generated in this way. Given that affiliate revenue rates are paid at around 30% of player life time value and that affiliates can drive up to 50% of traffic it would be reasonable to assume the NGR paid in affiliate payments is somewhere in the region of 15% of total NGR, though the actual rate varies by online casino. Affiliates have been and will continue to be very important to online casino operators for delivering new players to realmoney gambling. The online gambling affiliate industry generated over 2.1bn of gross win in 2012 across sportsbetting, casino, poker and bingo. This is a significant amount of NGR available to the party that drives the player traffic, yet traditionally this has not always ben treated as a viable revenue channel for the developers who are creating the games. Odobo s B2C portal (Odobo Play) is designed to enable all developers and/or their marketers to leverage their developer studio and games profile pages on Odobo Play to generate traffic to operators for the real money games. So while affiliate marketing is a tried and tested customer acquisition concept, Odobo is looking to make this available to developers in a way that matches customer experiences in the social and casual gaming sector and to help developers monetize any audiences they may have from social and casual gaming as well as any other marketing efforts. The net result of earning affiliate commission on top of their gaming royalty (if, for example, ranging between 8.5%-15% of NGR) means that developers, for the first time, have a genuine opportunity for a large proportion of the revenues in online gaming. This in turn would allow them to invest in marketing activity to drive player numbers (benefiting themselves and the operators who receive the players) and to compete at a huge advantage back in the social and casual gaming sector, due to the huge subsidy from real-money gaming.

17 15 AFFILIATES CONTINUED All game developers that produce content for Odobo sit into a scale between two main revenue profiles: i/ Developers who undertake no affiliate activities and purely obtain the revenue from the game royalties; and, ii/ Developers who undertaken affiliate activities and earn revenue from the games and the affiliate commission; both profiles are modelled in the charts below. The next revenue profile for developers (shown below) is where the developer is not only earning the royalty revenue but also earning affiliate revenue (example at 30%). The game royalty plus the new affiliate revenue leads to a growth from 6.5% to 36.5% total NGR for the developer. Odobo Developer Revenue Profile (%NGR): Game Royalties and Game Affiliate Commission In the game royalty only profile (shown below), the available affiliate revenue is included in the operator split, as it is either the operator or one of their third party affiliates who are providing the player. Odobo Developer Revenue Profile (%NGR): Game Royalties only Operator Net 50% Developer Net 36.5% Odobo Net 13.5% Operator Net 90% Developer Net 6.5% Odobo Net 3.5% The net result for the developer (after factoring in Odobo s royalty share) is 6.5% of the NGR available. Although in this chart the developer share looks small considering the distribution to the operator, the resultant ARPU for a developer just focusing on gaming revenue is still 1.54 / month, or annually. NOTE: The above charts are based on one game, one operator, example royalty rate of 10% NGR, and no Odobo platform fee charges to the operator

18 16 AFFILIATES CONTINUED The developer revenue profile which contains both game royalties and affiliate commission means that the ARPU available to the developer increases from 1.54 to 8.67 a month or a year. Odobo Developer Monthly Projected ARPU at Game Royalty Rate 10%-15% ( ) the ARPU from the game royalty, the game affiliate revenue and the further lifetime revenue combined reaches annually. H2 Gambling Capital also provides industry-wide values for prospective ARPUs from combined affiliate traffic and developer royalties across all online gaming products. Where affiliate share is based on 30% NGR and the developer royalty rate is the highest available under the Odobo market place, being 15%, H2 estimate that the ARPU can reach 404 by Game Only Game + Player ARPU Game + Player Lifetime Value 10% Game Royalty Rate 15% Game Royalty Rate A further consideration when combining game royalties and affiliate commission is that a developer can also benefit from affiliate revenue from referred traffic that goes on to use other games or products offered by that casino, not just the developer s own game. If the game royalty, player affiliate and lifetime player commission are combined (still based on an example 10% game royalty rate and 30% affiliate commission) we can see the ARPU increase from 8.67 to a month, or an increase from to a year. If we increase the game royalty rate to 15%

19 17 SOCIAL AND REAL-MONEY CONVERGENCE Another factor to consider in the potential size of the online gambling market is the convergence between real-money gambling and social gaming. This is particularly relevant to game developers and game content is often attractive to both social players and realmoney players, with only minimal additional developer overhead. The major cost with applying social game content to real-money gambling is the cost associated with licensing, compliance, driving traffic and branding. Removing these costs gives social games developers the opportunity to access revenue share deals which generate many times the ARPU as a social game in a market (realmoney gambling) that is around 17 times larger in terms of gross win (compared to social casino). In 2012 H2 Gambling Capital estimate the social casino gaming industry generated gross win of 1.25bn. This is forecast to grow at a CAGR of 19.1% to 2.12bn in H2 take a reasonably cautious position when evaluating the growth of social gambling. In our most aggressive, bull case scenario, the amount generated has the potential to double these forecasts. Combined social casino gaming and real-money gambling generated 22.98bn in 2012 and is forecast to generate 30.36bn during The upside in terms of ARPU is less than would be expected with the same level of growth in real-money gambling, as the ARPU per social gamer is significantly lower. However as the industries continue to converge it is likely some social gamers will convert in to higher spending real-money gambling. For the majority of cases this is expected to be at the lower end of player segmentation but nevertheless the upside potential would be positive.

20 18 SOCIAL AND REAL-MONEY CONVERGENCE Social Casino and Real-money Gambling Convergence E ( bn) E 2014E 2015E Real-money gambling Social gaming Source: H2 Gambling Capital

21 19 HTML5 vs. NATIVE APPS access the necessary player liquidity to drive revenue. This has provided some developers great success particularly through a clever choice of player acquisition methods, significant investments in advertising and smart use of viral marketing. But as these AppMarkets grow, there is concern that over-crowding is becoming a real issue as developers desperately try and find new ways gain exposure and reach their particular fragment of the huge player/consumerbase. For the regulated real-money sector AppMarkets also provide further complications around compliance, responsible gambling and monetization, and developers are starting game projects with a very clear choice presented to them Native App or HTML5. BUILD ONCE DEPLOY MANY As browser availability across a fragmented device industry grows, the AppMarkets are forced into being bound to a particular device or manufacturer. HTML5 clients can be published across multiple devices, operating systems and browsers. With a single game client you can reach players on desktop, tablets, mobiles and even terminals, regardless of whether they are using ios, Android or Windows platforms; and with support from many of the biggest and most influential players in the computer industry, the future of the technology is extremely encouraging. HTML5 The future of regulated real-money gaming? For many developers, the choice of technical architecture when starting a new game development is one of the first hurdles to overcome. Over the past 5 years, a significant portion of the casual and social gaming developers have staked their flag in the existing native application (Native App) marketplaces (AppMarkets) available for mobile devices as the best route to monetize their games and INCREASED VALUE FROM YOUR PLATFORM FEE With Native Apps you are at the mercy of the AppMarkets to allow gambling content distribution in each market or territory. HTML5 games are delivered via the browser and therefore not exposed to the revenue share demands of the AppMarkets. If you are sharing royalties with a platform (game acquisition cost, revenue share royalties or other) then at least you need be content that the % share you are paying is providing you significant value in return.

22 20 HTML5 vs. NATIVE APPS CONTINUED SIMPLIFIED CONVERSION PATH Native App developers will also know that each AppMarket has its own restrictions on the treatment of gambling activities and the inclusions of third party APIs. AppMarkets have not been designed as platforms for real-money gambling and as such the AppMarket is not presently effective at managing the complexity of the real-money lifecycle. HTML5 however isn t limited by such restrictions and as such, developers don t need to worry about integration points with third party software, and operators don t need their players to hold multiple authentication accounts for each device. This allows a much simpler conversion path as games available from Odobo can equally be offered through 3rd party websites (in demo or virtual currency mode) as part of a marketing strategy whereby players can try the game before registering with an Odobo operator. Once registered, players can only be a single click away from gameplay. AFFILIATE MARKETING AS A CORE COMPONENT AppMarket limitations can undermine your affiliate traffic services and thus your bottom line. With Native Apps it would be difficult to leverage affiliate marketing to promote the availability of your Native App within country-specific AppMarkets. Problems arise when trying to track affiliate tagging of referring affiliates to a Native App page. Some AppMarkets also do not support retaining a referral ID for further credit of a new player referred to the gaming operator to which the player plays the game. With an Odobo HTML5 game you can deploy an affiliate marketing program and retain tracking codes from the affiliate advertising through to the game profile page, and on to the selected gaming operator. GREATER CONTROL OF DISTRIBUTION HTML5 (when optimised with the Odobo Marketplace) allows developers full control over the territories in which their games may be offered for real-money play. This is important for any developer as they can obtain intellectual property licences from brands and be confident any regional restrictions are being enforced. This is also particularly important for certification requirements, as many AppMarkets currently do not offer content restrictions via state, only country. This will provide both developers and operators problems when deploying content for the flourishing online gambling market in the U.S. NATIVE IS STILL AN OPTION Building in HTML5 doesn t necessarily prohibit you from moving over to the AppMarkets as HTML5 games can still be placed in Native App wrappers or frames. Even when not going through extra process, HTML5 games built using the Odobo GDK can still be presented on mobile devices as Native App icons with a direct link through to the operator specific game. Not only that, when updates are issued to the HTML5 game code, a player doesn t need to go through an AppMarket update process as the update is seamlessly applied. There are arguments for and against both HTML5 and Native Apps as enablers for game development. These are further weighted depending on the particular gaming market the developer is operating within and the underlying objectives of their studio or their game. However for the regulated real-money industry Odobo is committed to HTML5 as the foundation of its technology platform, Odobo firmly believes that it is the best option for its developers, its operators and their players, and most importantly, Odobo has proven that it works.

23 21 THE ODOBO DEVELOPER PROGRAM The opportunities in the regulated realmoney industry are clearly huge and yet for the wider development community the barriers to entry are very real and can make it hard for studios to gain a foothold in this sector. The Odobo Developer Program has been designed to help break down these barriers and provide game developers from all sectors, whether they be newly established or proven studios, greater value from their content. The below steps outline the ways in which a developer can join the Odobo Developer Program and start to take advantage of the increasing market potential: STEP 1: DEVELOPERS SIGN-UP TO THE ODOBO PLATFORM All Odobo developers sign just one agreement which means that they don t have to worry about having many different agreements with platforms, operators and affiliate providers. They have 1 single agreement that provides them access to all the Odobo services and grants them access to the Odobo Marketplace. This means that there is greater transparency across the platform, with all developers on the same terms so operators and developers alike know exactly what they re getting from their Odobo enabled game. It also means that a developer isn t required to manage their terms or execute changes when new operators and distribution partners are introduced. STEP 2: DEVELOPERS FROM ALL GAMING SECTORS CAN DEVELOP ON ODOBO Developers who are not necessarily from the regulated realmoney industry can now bring their games to the Odobo Platform and start developing or promoting their games migrated from the casual and social gambling industries. Developers don t have to be experts on compliance and certification as the Odobo GDK provides all the necessary certified technology out of the box ready for use within their game.

24 22 THE ODOBO DEVELOPER PROGRAM STEP 3: DEVELOPERS GET THEIR OWN PERSONAL ACCOUNT REPRESENTATIVE Odobo s developers have their own physical account representative who deals with all of their development support and technology enquiries. This level of service is not commonplace with other gaming platforms or AppMarkets, and means game developments aren t protracted whilst the developer waits for answers to their questions. Persistent State Handling technology - providing a fully enriched state-handling layer allowing micro transactions to be recorded so that the game provides no loss to the player if they are disconnected at any stage in gameplay. This means that when players leave the game, for example on their computer at home, and pick it up again later on a handheld device, it will always return the player to the point they were last playing with no loss to the game or the game status; STEP 4: QUICKER TIME TO MARKET USING THE ODOBO GAMES DEVELOPMENT KIT GDK A game built for Odobo can be split into two aspects: the game client development and the server-side technology. Once a developer is ready to develop their game, they utilise the Odobo GDK and build the HTML5 client. Within the GDK they have everything they need to develop a fully robust, workable game including HTML5 Code, technical samples and user guides. All the server side technology works in conjunction with the developer s client development to extend the functionality of their game providing: Localisation and Currency Conversion - which includes readying the game for any market in which Odobo s operators serve their players; and Compliance features outside of the certified game engine, there are a number of other game features that are required by different regulatory jurisdictions around the world. Odobo knows all of the legislation that your game must meet before it enters the Odobo Marketplace, and these are pre-built into the Odobo GDK. Game test instances allowing the developer to test the game in a pseudo-production environment as the game is still being built; Certified game engine (based on specifications provided by the developer pre-development) all server-side architecture and functionality that drives the game mechanics and allows the game to make calculations that are compliant with regulations; Communication and Authorisation - removing the need for developers to spend time managing multiple packet and data stacks in their games, or alternatively a host of middle wear components for each separate operator;

25 23 THE ODOBO DEVELOPER PROGRAM STEP 5: ENTERING THE MARKET There are two faces to the Odobo Marketplace: Business to Business and Business to Consumer. B2B: The game will be hosted on the Odobo Marketplace - this will be accessible only by Odobo s operators including the largest licensed online gaming providers in the industry. Here they will be able to access all information about the game and the development studio that built it. Operators can demo the games in a play for fun mode as well as access videos, screenshots, game rules and marketing materials. The Odobo Marketplace is a firstof-its-kind in the regulated real-money sector and most importantly our operators know that all Odobo games available in the Odobo Marketplace are based on the same proven server-side technology. B2C: The consumer facing side of the Odobo Marketplace is Odobo Play. Players will be able to access all the necessary information about games available on the Odobo Marketplace as well as play for fun versions of the game. Players will also be able to easily find all the operators who are serving the game in the player s location and be easily transferred to the operator environment to start playing the game they enjoy in a real-money environment. For those developers who have a significant established player base, or undertake even basic marketing and social networking activities, Odobo Play is the gateway in which they can channel their players to their games and earn affiliate revenue of that player s lifetime spend on that operator s casino, in addition to the game royalty revenue they can earn for play of their games. When placing their games into the B2B Odobo Marketplace developers have a choice of 4 royalty tiers to apply to their game (currently from 8.5% to 15% of NGR). This allows developers greater involvement in the distribution channel, and allows them to decide the value of their game within competitive market forces.

26 24 GLOSSARY APPMARKET means one of the established digital web stores providing downloadable applications and games to consumers, typically embedded into a particular operating system or consumer device. ARPU means the average return per user/average return per player. CAGR means the compound annual growth rate. DoJ means the U.S. Department of Justice. GLOBAL ONLINE GAMBLING MARKET means the online gambing marketing including sports-betting, casino, poker and bingo but excludes state lottery, skill based games and other gaming activity. GROSS WIN means stakes/wagers placed less prizes/ payouts but including bonuses. HTML5 means the mark-up development language for structuring and presenting rich media content for the World Wide Web and a core technology of the Internet. MOBILE GAMING means gaming undertaken on a portable internet enabled device such as a tablet or mobile phone. ODOBO GDK means the Odobo Game Development Kit. ODOBO MARKETPLACE means the online game/app marketplace whereby Odobo games are made available to operators. ODOBO PLATFORM means the game distribution solution accessed by developers, operators and players. ODOBO PLAY means the specific B2C face of the Odobo Marketplace which is focused on players and the key enabler for game developers to drive affiliate traffic to Odobo games. SOCIAL CASINO means those social games which are built based on casino style games i.e. virtual currency slot machines. SOCIAL GAMING means any type of gaming undertaken on social networks or un-regulated social enabled gaming platforms. UIGEA means the U.S. Unlawful Internet Gambling Enforcement Act NATIVE APP means an application or game that has been specifically designed and developed in the technology and language determined by a closed system AppMarket. NGR means net gaming revenue which is gross gaming revenue less agreed adjustments by the gaming operator for non-legitimate cash transactions (so less charge-backs, frauds and other categories agreed with the operators).

27 25 ABOUT ODOBO AND H2 ABOUT ODOBO ABOUT H2 GAMBLING CAPITAL Odobo launched in late 2012 as the new HTML5 game development platform and marketplace for the regulated gambling industry. H2 is universally regarded as the leading source of data and market intelligence regarding the value and volume of the activity across the global gambling industry. Just as the Apple, Android and Facebook developer program models were instrumental in bringing creativity and innovation from new developers - and ultimately driving engagement and sales for the host and device manufacturers - Odobo aims to do the same in the regulated gambling industry. H2 offers the most comprehensive egaming/land based data service as well as detailed market reports and bespoke consultancy. The new subscriber area of H2 s website now includes almost 2 million data points with circa 400 new / updated datasets / national regulatory updates published each year. By enabling a wider group of top-tier game developers to more easily bring their game concepts to market in the highly lucrative online real-money gaming industry, Odobo aims to fuel innovation and creativity in game production that will delight both existing and new players attracted by the content to the market. In the process, games developers who have previously faced high barriers to entry can enjoy significantly higher revenues than in other forms of gaming (social, casual, or traditional gaming). Recently H2 has moved to publishing its Global egaming Summary Dataset Monthly and launched a national egaming Regulatory Update Service for subscribers. H2 also covers Internet poker in detail and now produces detailed market reports and one off reports on issues such as Mobile Gambling and egaming in the United States. In addition, to being egr s official data partner H2 is a Gerson Lehrman partner firm and partnered with TrustPartners (Italy) and Gaming Edge Associates (UK). Its is one of the new breed of tech start ups in Gibraltar, the industry-leading regulated online gambling jurisdiction and home to top-tier operators such as Bwin.Party, William Hill Online, 888.com, and service providers, Spielo, IGT, SHFL and Bally.

28 26 DISCLAIMER Whilst great care has been taken in the preparation of this publication H2 Gambling Capital take no responsibility whatsoever for the accuracy or completeness of the data and information provided within this Report. Although we have sought to ensure that all of the data and information contained herein have been obtained from/based on reliable sources its accuracy cannot be guaranteed and no warranty is given as to the correctness of the information in this publication. This document may also contain forward-looking statements and opinions that involve uncertainties and assumptions. All estimates, opinions and forward-looking statements contained within this Report merely constitute a judgment as at the date of the document. As such, should any of these uncertainties materialize or any of these assumptions prove incorrect, betting and gaming in the jurisdictions covered by this Report could differ materially from H2 Gambling Capital s expectations outline within this document. In such an event H2 Gambling Capital accept no liability whatsoever for the accuracy of these and does not intend to update these forwardlooking statements. It should be noted that as an updated version of the original Report all of the summary statistics contained within this report have been updated in order to take account of H2 Gambling Capital s revised forecasts for the industry. Although every effort has been taken in order to ensure that all figures outlined within the report have been updated H2 Gambling Capital take no responsibility for any that might have been missed during the re-editing process. References made to royalty rates or affiliate pricing on the Odobo Marketplace are correct at the time of publication, however Odobo reserves to the right to modify their pricing model from time to time. COPYRIGHT No part of this Report may be reproduced for any purpose whatsoever without prior permission from H2 Gambling Capital. H2 Gambling Capital owns (or is an authorised licensee of) the online gambling industry model and all bespoke models that have been developed in relation to the production of this report that generate the industry values and forecasts. Odobo is a trademark of Odobo Limited. All other trademarks, company names or products referenced within are the property of their respective owners.

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