Regulus Partners, the strategic consultancy focused on international gambling and related industries, gives an insight into some of the key developments in the gambling industry as part of its ‘Winning Post’ column.
UK: remote market – Supernormal margins, not supernormal growth…
2017 has been a year of mixed messages for UK remote gambling. A number of commentators have referred to an ex-growth environment, betting margins have been volatile and public company performance was both patchy and increasingly less relevant to the overall picture. However, we believe that there are enough data points to take a clear view on the UK remote market for 2017 – and the message is mixed…
The first thing to establish is a starting point. Our estimate for 2016 GB remote is £4,322.0m, with 41% generated by betting (including telephone). It is an estimate not only because official Gambling Commission industry stats do not fall on a calendar year but, more importantly, we believe that a significant number of licensees are still reporting revenue (especially gaming) including bonuses when they should be excluded (NB, licensees should check regulatory returns on this point as the issue seems to be endemic). In other words, we believe the official GC stats overstate GB remote revenue by c. 5% (and include telephone in online: as we do).
Prior to Q417, and especially December, GB sportsbetting revenue was tracking c. 12% growth and after a relatively lacklustre Q2 we even reduced our forecasts slightly. However, Q4 margins have been so positive for bookmakers that we now believe that GB remote betting growth will be 20% to £2,140m. This outperformance is totally margin and largely football driven: football is likely to have increased to nearly 50% of overall mix: c. 5ppts above normalised levels. Consequently, while horseracing mix will have declined to c. 27%, underlying growth remains robust and should point to a positive offshore Levy outcome. However, given the margin-driven nature of this outperformance, we are not changing our 2018 forecasts, which leads to only single digit growth in 2018 despite a World Cup (albeit Q2-3 comps are relatively easy: Q1 and Q4 are likely to be much less optically impressive).
Gaming was more lacklustre after three years of c. 20% growth. We forecast the outcome for 2017 to be below 13% growth to £2,856m and diminishing to single digit (albeit high) going forward: a significant reduction in momentum, though still enviable growth in absolute terms (ie, in 2018 the GB remote gaming market will grow by roughly the size of the Spanish online gaming market). Mix changes have also been significant. A slowdown in slots is likely to be in part due to strong betting growth (and therefore less money to cross-sell). Far more pronounced is the stall in table RNG, with substantially all GB ‘table’ growth now apparently being generated by live. These shifts in mix are likely to be at least as important for suppliers as operators.
Mobile mix has also advanced from a high base in betting, up 3ppt to 76% for the total market now, though with some clear leaders (especially Sky). While gaming is still catching up (and is unlikely to match betting structurally), an 11ppt advance to 62% has made a significant impact on both UX and operator market share. Platforms (and .com operating cultures) over a decade old are becoming increasingly difficult to keep agile, while more modern operators are making significant headway despite a misplaced (or poorly understood) commentary of ‘market saturation’.
After over three years of c. 20% growth, evidence of an underlying slowdown is mounting. This should not surprise given that remote now constitutes 45% of total commercial gambling in GB and is over 60% for betting: continued strong growth would start to ask consumers to substantially increase (as well as shift) their gambling spend. Indeed, in a market which focuses on growth by industry sector or product segment, a prosaic (and decidedly demand-led) long-term CAGR of 3.3% (broadly HDI growth) might surprise and should also alarm…
As well as a slowdown in underlying growth, the other key message for 2017 is market share winners and losers. According to our analysis, the winners within the top 10 are: Sky Betting and Gaming, bet365 and Gamesys; three UK-based, online-dedicated companies which have not participated in material M&A… The loser is Paddy Power Betfair, with others flat to down (despite some claims to the contrary). In terms of operators likely to be challenging the top 10, LeoVegas and possibly Betway could be contenders, with the former demonstrating a growth-driven rather than defensive rationale to M&A.
The often touted drivers of omnichannel, ‘strategic’ relationships with suppliers, .com scale and offshore business structures do not seem to be cutting it vs. those operators which have strong cultures, mobile-first capability and a clear customer proposition. As growth slows, mass-market customers become (relatively) more important, and consumer technology continues to drive change, the gap between successful operators and also-rans (whatever scale is acquired) is likely to grow, in our view.
UK: Paddy Wagons out after £1.3m goes missing in Bermuda Triangle
Further concerns about gambling-related thefts were raised this week as a man described as a “gambling addict” stood trial in Cardiff Crown Court for stealing £1.3m from the Bermuda Government. A portion of the stolen funds appear to have been spent on remote gambling, with Paddy Power revealing that the accountant Jeffrey Bevan had made 18,583 bets online between November 2008 and May 2014, depositing £2m and losing around £460,000.
While we have seen a number of high profile sanctions against online operators for anti-money laundering and social responsibility failures (with the Gambling Commission currently investigating 17 operators), these are dwarfed by the number of gambling-related thefts. There has been no suggestion of wrong-doing at Paddy Power but such cases further highlight the gauntlet of regulatory risk that licensees now run and the extent to which the greater audit trail of remote transactions comes with significant risks and responsibilities, as well as providing a logic for less stringent regulation.
Italy: landbased Gambling – the start of the end of legalised Gaming continues….
At a hearing at the Civil Court of Turin this week, representatives from the gaming supply chain affected by the newly introduced distance laws invoked in Piedmont, launched their appeal. Led by the lawyer Geronimo Cardia, the appeal centres on an assumption that the new law was intended to provide improved safety for vulnerable players, not eliminate gaming all together, which is effectively the consequence of the new distance test, leading to almost all venues having to switch off machines.
The supply chain businesses which include manufacturers, distributors, service companies, arcades and tobacconists face almost certain closure if the new law cannot be overturned or materially altered and therefore have nothing to lose in mounting an appeal.
Reports from neighbouring provinces, suggest savvy punters are taking their play elsewhere, with venues close to the border with Piedmont reporting brisk business with out of towners and a marked increase in players signing up for online gaming accounts. Demand from punters is currently strong and consequently these new controls do not prevent the most ardent consumer from finding a channel that will provide gambling that satisfies their requirements. However, if Piedmont’s punitive actions gain broader traction, then the impact on the Italian gambling market could be profound.
Europe: corruption and match-fixing – Anglo-French agreement announced
In a week of bridge-building (metaphorical for all but Boris) between the UK and French Governments, a Declaration of Intention on sports integrity has been signed by Matt Hancock and the French Sports Minister, Laura Flessel. This agreement includes a commitment to “share expertise and best practice to help tackle sports corruption and match-fixing through illegal and irregular sports betting”. Specifically, the lessons learned by the UK from hosting the 2012 Olympic and Paralympic Games and the 2015 Rugby World Cup will be shared with France ahead of its hosting of the 2023 Rugby World Cup, and the 2024 Olympic and Paralympic Games.
While there may be no more substance to it than that, at this stage, the step is logical and noteworthy. It may be a step too far, but we wonder whether this will lead to a recognition on the part of the French that regulation of sports betting integrity is far less challenging with a fairly liberal, principles-based gambling regulatory regime and the visibility that brings, as opposed to the opacity of a burgeoning black market, which France’s restrictive approach to gambling regulation has created.
USA: eSports – What goes on in Vegas….. is streamed worldwide.
The much anticipated Las Vegas joint venture between MGM resorts and eSports Arena will bear fruit in March, with the opening of the strip’s first dedicated eSports Arena. Set to open on 22 March, the 30,000 square foot facility will feature a 50 foot video wall, broadcast TV facilities (undoubtedly for streaming) and state of the art lighting and seating located in the former nightclub at the Luxor Casino.
The plan is to enable Las Vegas to be at the centre of eSports, by offering an unmatched audience experience together with legalised betting opportunities made possible by Nevada’s inclusion of skill games in 2016 and worldwide streaming to tap into other revenue opportunities. Whether the venture is truly the start of a new gaming revolution or just an alternative revenue source remains to be seen, but other Casinos will be closely monitoring its progress with keen interest ready to invest if waves of new players get on board.
This investment may help perhaps to answer the extent to which eSports players are ready to be cross-sold into gambling, whether on their own product or into other forms of gambling. The popularity of eSports is already well established and this underpins MGM’s investment; the relevance of eSports within the gambling ecosystem remains far less clear, however.
Australia: Gambling advertising – The Great UN-doing Project
The might of the Australian broadcast media appears to be pitted against the moral weight of the United Nations Childrens Fund (Unicef) in the row over gambling advertising Down Under.
While the broadcasters have reportedly been trying to water down the ‘siren-to-siren’ ban on gambling ads around televised sport in Australia, Unicef is pushing for even tighter restrictions. These would include a ban on gambling advertising during “known peak viewing times” for minors.
Of course, one of the defining features of Unicef is its international outlook. It will be interesting to see whether the charity takes a similar interest in the advertising debate here in Great Britain.
Global: football match-fixing – referee who conspired alone is banned for life
A Court of Arbitration for Sport (CAS) Panel has upheld the decision of a FIFA Appeal Committee to impose a lifetime ban on a Ghanaian referee, Joseph Lamptey, for committing a match-fixing offence, during a World Cup Qualifying match between South Africa and Senegal.
The Panel cited strong evidence in the form of reports from five monitoring companies, of suspicious odds movements in the “overs” market, in addition to the conclusion of a group of referee assessors that Lamptey, had made mistakes in awarding South Africa a penalty, and allowing a quick restart – both leading to goals scored by South Africa (who won the match 2-1). Further, there were suspicions of match manipulation in six other matches officiated by Lamptey, plus some statistical anomalies regarding his propensity to award penalties.
So, there was plenty of circumstantial evidence, but apparently no evidence linking Lamptey to the suspicious betting, and no charges brought against anyone else. Interestingly, the Panel found that Lamptey “conspired” alone, and that his poor performance could only be explained by the suspicious odds movements, and vice-versa. In some ways this is refreshing, and will embolden prosecutors, because in our view betting evidence alone can often tell you that a match has been manipulated. However, proving that to the necessary standard before a Panel which is tasked with attributing fault and applying a disciplinary sanction, is another matter.
If this is the direction of travel for match-fixing cases, then investigations will be quicker, easier, and more likely to lead to successful prosecutions of sporting participants. However, we consider it unlikely that Lamptey was acting alone, and we wonder whether there were other driving forces behind the corruption whom have been allowed to roam free and continue their dirty work with a vulnerable player or official elsewhere.