Regulus Partners, the strategic consultancy focused on international gambling and related industries, takes a look at how the gambling industry fared this year in its ‘Winning Post’ column.
2017 in review: growing up?
Three key themes dominated the changing shape of the online gambling market in 2017: continuing channel shift, the continued march of Point of Consumption regimes, and increased political scrutiny. Each of these drivers is creating dislocation as well as opportunity, especially for more ‘traditional’ operators with land-based or desktop.com roots. 2017 has therefore shown that mobile-first businesses with strong POC positioning and/or high margin .com revenues to reinvest have dominated growth. 2017 has also shown that the industry globally is dangerously ill-equipped for significantly increased political scrutiny, which is increasing legislative-regulatory risk to unprecedented levels.
The key consumer theme that is continuing to develop is channel shift. Across Europe, overall land-based gambling has exhibited anaemic growth at best and decline has been more normal in betting. Conversely, remote gambling has continued to exhibit double digit growth, with substantially all growth concentrated into mobile (with desktop in decline in Northern Europe). Growth in domestically regulated markets has been broadly similar to the .com market, if anything outperforming. However, as smartphone penetration, mobile banking and reducing mobile data costs continue to evolve in emerging markets but stabilise in mature ones, this pattern may start to shift.
From a regulatory standpoint, POC regimes have continued to advance. In the EU, Czech Republic and Poland have become domestically licenced, taking the total number of POC Member States to fourteen. Elsewhere, Colombia became the first Latin American country to adopt a coherent POC regime (discounting Mexico’s licences), while Australia (SA) has introduced POC tax, Pennsylvania has passed state POC online gaming laws and Vietnam tentatively licensed (land-based) betting and even POS-centre Malta is progressing POC reform. Europe is now therefore largely POC, with Germany, Sweden and Netherlands the key remaining states to shift (discounting Finland and Norway, whose monopoly laws are simply ignored by many operators, though there is evidence of tightening in both). While the rest of the world is overwhelmingly POS, this is slowly starting to change (especially, eg Brazil). The extent to which this will provide compelling opportunities or increase costs and dislocation remains to be seen, but short-term risk in Europe appears to be on the downside.
Political scrutiny has also increased significantly in 2017. In the UK, the affiliate business has already been materially impacted, while reviews into T&Cs, advertising and – especially – FOBTs are likely to have a significant impact on the sector in 2018; lottery legislation is also under increased scrutiny. Moreover, this theme of greater political perlustration is progressively global: Australia has never had a quiet period in terms of anti-gambling and has tightened its anti-online gaming legislation; Italy has seen numerous local government attacks on land-based supply; Germany has seen its arcade sector dismembered; Greece has seen VLT rollout stymied; Japan is reviewing Social Responsibility and Turkey’s Directorate of Religious Affairs has proclaimed a fatwa on betting and lotteries… The EC has also turned its back on upholding free market commitments and only Integrated Resort casinos (Brazil, Japan) and US sports betting seem to be offering glimmers of political support. 2017 demonstrated very clearly that when gambling gets the limelight, it rarely does so positively; and is not ready with a positive dialogue to defend itself when it does. Given the onward march of mass market mobile penetration and POC regimes, this political vulnerability is likely to get worse before it gets better, in our view.
UK: In Parliament – Commons Debate is Just the Ticket for Society Lotteries
It was a time to rub one’s eyes in disbelief and knock the sawdust out of one’s ears this week as MPs queued up to call for a relaxation of regulatory restrictions on gambling. In a House of Commons debate secured by Sir Henry Bellingham (Cons, North West Norfolk), a succession of Conservative Members spoke up on behalf of society lotteries and their attempt to secure an increase in the maximum jackpot for society lotteries to £1m (as well as substantial increases in draw and annual turnover limits).
A total of 12 MPs (nine Conservative, two DUP and one SNP) spoke in favour of proposals to free up society lotteries. Jim Shannon (DUP, Strangford) managed to get in a pop at FOBTs and there was the odd suggestion that Camelot may have enjoyed its monopolistic position as operator of the National Lottery for too long; but generally speaking this was positive stuff, a debate replete with heart-warming tales of gambling and charitable good.
On this issue however, the minister and shadow minister appear to be in accord in taking a cautious view of reform proposals. In referring to her attendance at this month’s GambleAware conference, Dr Rosena Allin-Khan (Lab, Tooting) asked the minister whether changes to lottery prizes might “increase or promote bad gambling habits”. Both Allin-Khan and her opposite number, Tracey Crouch (Cons, Chatham & Aylesford) made it clear that society lotteries formed a product set distinct from the National Lottery – and that this distinction should be preserved (thus protecting the state monopoly).
Elsewhere, there were further signs of Labour’s New Year push on gambling-related issues. In a week that saw the publication of the Gambling Commission’s annual report on youth gambling, Dr Allin-Khan submitted a question to the Department of Health on rates of gambling addiction amongst 16 to 21-year-olds.
The chair of the FOBT APPG, Carolyn Harris (Lab, Swansea East) asked whether the DDCMS would institute annual research on the level of gambling-related harm in the UK. Of course, the Gambling Commission does run quarterly online surveys to measure problem gambling rates (supplementary to – but not directly comparable with – the three-yearly Health Survey series); but harm is distinct from problem gambling. As we have observed before the shift of focus from problem gambling prevalence to harm may pose challenges for the industry; and companies should seek early engagement on these issues.
Of course, it wouldn’t be Christmas without chestnuts roasting – and Danielle Rowley (Lab, Midlothian) became the latest MP this year to roll out the old one about FOBTs and gambling addiction in her constituency. We know the Government doesn’t know the answer, she knows the Government doesn’t know the answer; but it shows that while the scope of policy debate has broadened, the FOBT issue is unlikely to go anyway any time soon.
Indeed, before Parliament adjourns for Christmas, we have the prospect of oral question sessions for both the Department of Health and the Department of Digital, Culture, Media and Sport. It is odds-on that Labour and others will take the opportunity to get land a few more blows on Conservative gambling policy before a fraught parliamentary year for the industry finally draws to a close.
The Labour Party’s review of gambling and public health is likely to be a key event for the industry next year. Deputy Leader Tom Watson’s (Lab, West Bromwich East) team is planning a series of visits and evidence sessions in the first quarter and the deadline for submissions is 31st March. To participate in the review, interested parties should visit www.tom-watson.com/gambling or contact the review team at firstname.lastname@example.org.
Global: sports integrity – 2017 in review – from meat and potato pies to mince pies
Sports integrity has continued to feature prominently in global headlines in 2017 and, in our view, some themes have emerged which will merit close attention over the coming year. Much focus has understandably been directed at the Russian doping scandal and the governance of sport more generally (particularly in the UK). Those factors, along with betting-related issues, have, according to several public and athlete surveys, contributed to a general decline in trust in sport. The challenge for sports is to find ways to rebuild that trust, and that will be a key objective for 2018. We believe that the following important themes offer food for thought for the coming year:
- Novelty betting markets – the “piegate” case in UK football is a reminder that operators must think very carefully about their approaches to novelty markets, with unwanted regulatory attention a likely consequence of not doing so.
- Participants betting on their own sports – With such cases occurring in horseracing, NRL, snooker, and football (among others), this type of rule breach does not appear to be going away, and it raises other more worrying issues. With professional athletes being a category of person more at risk of engaging in problem gambling, the participant education in this area needs to be as much focussed on welfare as compliance with rules (and provides an opportunity for collaboration with operators, to show innovation and leadership). In our view, the rather blunt approach to enforcement is absolutely necessary, but calls for some sports to reassess sanctioning guidelines (and recognise at least the potential for welfare concerns) may be justified.
- Relationship between sport and gambling – One of those participant betting cases, involving the footballer Joey Barton, led to increased scrutiny on this increasingly political issue (notably in Australia and the UK). The FA terminated early its partnership deal with Ladbrokes, although the EFL renewed its deal with Sky Bet (which included a commitment to a responsible gambling campaign). There is a delicate balance to be struck here, but we believe there are opportunities to innovate and find the appropriate relationship (which will always exist, one way or another).
- Tackling fixing – “match-fixing” continues to rear its head globally in many different sports (and games), with recent examples in chess and UFC, alongside the more familiar football (including a World Cup qualifier which had to be replayed), cricket, tennis (with two criminal convictions in Australia), and others. Never has it been more important to have, at an international level, greater collaboration, information sharing and coordination between all partners across sport, gambling, law enforcement and government. With an eagerly anticipated review into the integrity of tennis due to be published, we expect there will be plenty of work for the tennis authorities to implement the recommendations quickly, but also for other sports which would be well advised to closely analyse the report and ensure they cherry-pick relevant points to enhance their own efforts to protect their sports from corruption.