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Online casino games maker NetEnt sees room for further expansion

(Corrects in para 3 to say roulette (not poker)

* NetEnt (LSE: 0QTK.Lnews) shares double after rapid expansion

* One of a cluster of emerging Swedish tech companies

* U.S (Other OTC: UBGXFnews) . market prospects depend on regulatory relaxation

By Mia Shanley

STOCKHOLM, March 4 (Reuters) – Sweden’s NetEnt,
which makes online slot machines and roulette games, wants to
double its share of the global market to 30 percent despite
doubts about whether it can sustain its rapid growth and an
uncertain U.S. regulatory landscape.

NetEnt is one of a cluster of tech firms in Stockholm which
are punching above their weight globally, the best known being
music streaming site Spotify. It (Other OTC: ITGLnews) was founded 20 years ago by
Pontus Lindwall whose father built Sweden’s largest restaurant
casino operator and whose mother was a croupier.

The Swedish firm has recently signed contracts with casino
operators in the United States, Britain and Spain and is
producing online games ranging from blackjack to roulette.
Earnings rose more than 50 percent last year and the share price
doubled to give a market value of around $2 billion.

“We still have big growth potential in Europe. We have
approximately a 30 percent market share and that means 70
percent to take,” CEO Per Eriksson told Reuters.

“Then, we have the U.S. waiting for us and that is something
we are looking forward to,” Eriksson added.

NetEnt employs 750 people in Sweden and Malta and is
expanding to Krakow and Kiev to find programmers. Its biggest
competitors are London-listed Playtech (LSE: PTEC.Lnews) , founded by
Israeli billionaire Teddy Sagi, and privately owned Microgaming
Software Systems.

SLICE OF AMERICAN PIE

Eriksson believes increased mobile phone gaming, state
lotteries and even revenues from digital games placed inside
actual casinos will all help drive growth.

With (Other OTC: WWTHnews) the global industry expanding about 10 percent
annually, some analysts ask whether NetEnt can keep up its rapid
rate of growth after revenues jumped by a third last year.

It is one of a number of gambling companies that have bet on
a loosening of the rules in the U.S. market.

New Jersey was among the first states to allow online
gambling and NetEnt has signed on most major operators there.
Pennsylvania may be next, creating what Eriksson hopes will be a
domino effect across the east coast.

H2 Gambling Capital, which provides forecasts for the
industry, said any U.S. nationwide initiative on the industry
would create a market worth $6-$8 billion in gross wins
overnight, about one-fifth of today’s global online winnings.

“The U.S. is at the bottom of the shift to real money in
iGaming and there is huge potential for it to grow if it is ever
widely regulated,” said H2 Founder Simon Holliday.

His baseline assumption is, however, that regulation will
happen slowly on a state-by-state basis.

VOCAL CRITICS

After graduating from the Royal Institute of Technology in
Stockholm, founder Lindwall saw potential in taking games
online.

“I did the pay tables behind the slot machines, calculating
how it works under the hood,” Lindwall said. “My father said if
you want to have good games you have to make sure the player
wins a lot. I knew how to do the math to make that happen.”

Fast forward two decades and one of NetEnt’s fastest-growing
products is Live Casino, in which players watch real dealers in
real time and can place bets on games. That will be launched on
mobile phones this June.

Playtech and local Swedish rival Evolution Gaming (Stockholm: EVO.STnews) ,
started by former NetEnt employees, were first movers in the
Live Casino market.

CEO Eriksson concedes that investments in new offices and
products might temper margin growth this year.

There are other clouds on the horizon in the form of higher
taxes and concerns that the ease with which players can now
gamble onine risks fuelling addiction.

France slapped taxes on operators totalling more than 30
percent and NetEnt saw revenues there dry up overnight in 2009
as customers left. Gambling companies in Britain have also been
hit by new taxes targeting their growing online business.

Eriksson is bemused by the opposition to online gambling.

“I feel it’s a little bit like rock-n-roll in the 50s, when
people said it will destroy everything,” he said. “But it’s here
to stay.”

(Reporting by Mia Shanley; Alistair Scrutton)

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