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The dangers of online gambling

Len Ainsworth, the founder and chairman of poker machine manufacturer Ainsworth Game Technology (ASX: AGI), has stated that he is completely opposed to the concept of online gambling, labeling the emerging industry as “dangerous” and a “train wreck waiting to happen”.

Whilst Ainsworth has solely focused on pokies machines, other companies have ventured online to take advantage of users wanting to play with virtual currency. Often, users play for free but have the option to pay real money for extra credits or gameplay – a trend that Aristocrat Leisure (ASX: ALL) has taken advantage of after purchasing Facebook game platform Product Madness last year.

Although real-money online gambling is currently illegal in Australia and the US, it is allowed in other parts of the world. US social game company Zynga (NASDAQ: ZNGA), for instance, offers real-money gambling on its social media games in Britain.

As a number of companies in the industry position themselves to benefit from the growing trend, Macquarie analysts believe total revenue for online gambling could climb from its 2012 level of US$1.7 billion to US$3 billion by 2016.

Furthermore, Jumbo Interactive (ASX: JIN) has also successfully pioneered into the online gaming industry, offering a wide array of games in a bid to transition those who like to have a punt to a more instantaneous gaming experience, played in a safe and secure environment.

The problem however, as Mr. Ainsworth suggested, is that people are given 24-hour access to gambling online, which increases the odds becoming addicted or problem gamblers. “Online gaming is a train wreck waiting to happen and I think to have a situation where people can sit at home and gamble, I think it’s a very dangerous situation”.

Foolish takeaway

There is enormous growth potential in the online gaming industry, as a number of companies have already begun to capitalise on. However, due to the addictive nature of the sector, these companies are also at risk of government regulation – a risk that investors should remain mindful of. Meanwhile, Ainsworth last week raised its profit guidance and now expects $65 million in profit before tax – a healthy 41% above the previous year’s result.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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