Regulus Partners, the strategic consultancy focused on international gambling and related industries, takes a look at some key developments for the gambling industry in its ‘Winning Post’ column.
US: Florida greyhounds – dog days are over
Greyhound racing was introduced in the US after WWI, proliferating in the 1920s and 30s (much like the UK); the product was was popular for betting until the 1980s (ranking in the post WWII blue-collar boom as the sixth most popular sporting activity in the US). However, many states banned the sport pre-2010 (Arizona most recently in 2016), leaving just 17 tracks currently operating across 6 states where dog racing is legal (or from 2020 6 tracks across 5 states: Florida is 65% of current supply, making the ban of national consequence to the US greyhound industry). Wagers on the sport have been in significant decline over the last twenty-five years (from c. US$3.5bn in 1991, to just c. US$200m in 2018), leading critics to suggest dog tracks were simply running races as ‘loss leaders’ for the card room and slots allowed at pari-mutuel dog, horses and jai alai venues (with the dog tracks in Florida estimated to lose c. US$34m pa).
The Florida state amendment is unique as it is the only state where constitutional matters can be referred to public ballot in this way. Nevertheless, the result is therefore potentially a worrying barometer on US public perceptions on gambling, as despite hard lobbying from animal rights groups, the result is so overwhelmingly in favour of the ban that it can be fairly assumed that a critical mass of voters were anti dog racing for reasons beyond welfare. There was also the suggestion that some voters may have been under the assumption that by removing dog racing venues, the additional cards and slots would also go. However, the 23 OTB venues in the state (including 11 dog tracks and 5 racecourses) are likely to survive on inter-state betting product, allowing continued slot and card room activity – though this may now be precarious.
More globally relevant is the fact that the public appear to be taking a greater interest in the use of animals in sport, particularly where gambling is involved than was the case only c. 10 years ago. While animal cruelty groups continue to increase pressure, there is the danger that legislation will follow. South Africa is facing considerable opposition to considering regulating dogs racing, and it got close to being banned in New South Wales in 2016 (ACT has since enacted a ban on racing but not training). Also in New South Wales, jumps horseracing was banned in 1997 under the Prevention of Cruelty to Animals Act 1979, and while jumps continue in South Australia and Victoria the jumps scene in Australia is no longer a significant betting driver or crowd puller.
Equally, unease and pressure groups mount in the UK every March and April as British jumps racing attracts mass market attention. Similarly, the use of whips has also taken a beating in recent years, instigating changes to rules and composition of whips to prevent cruelty in a number of countries (these European changes have not been mirrored in the US, where the rules remain more relaxed – as was witnessed with the ride of Christophe Soumillon in Thunder Snow in the Breeder’s Cup encountering widespread criticism and raising issues around hopes of harmonious ‘globalisation’ of the sport).
Public perceptions and tastes are changing, and while sports organisers are aware of this, to date the approach has been more defensive tweaking than active change to keep sport relevant to the public – especially younger generations. The near complete demise of US greyhounds is an object lesson on how tastes and perceptions can change in just a generation – with catastrophic results for those which don’t adapt. While few in modern bookmaking mourn the demise of greyhounds, since sports betting has taken up all the slack and more, it should be noted that greyhounds and betting had the benefit of being a ‘symbiotic’ industry, and blame for decay in greyhounds can to some extent be levelled at betting companies.
This is very relevant history on two levels, in our view. First, while betting can afford significant disruption to greyhounds, a number of key businesses would not easily survive similar disruption to jumps racing. Second, while the dogs industry could do little about years of under-investment from betting, and horseracing balances symbioses with (grudging) care, other sports do not see betting companies as equal stakeholders but as sources of corruption or money or both. How this relatively new working relationship pans out from a commercial and integrity perspective remains to be seen, but carries a lot more risks and variables than the false certainties of a generation ago. Betting may not mourn for greyhounds, but they may yet mourn for sports product stakeholders that were so malleable…
UK: in Parliament – Mims Steps In
It is unclear what Mims Davies did wrong in a former life – but it must have been fairly egregious. This week the Conservative Member of Parliament for Eastleigh in Hampshire was handed the poison chalice of ministerial oversight for Britain’s gambling industry.Mims (short for Miriam) has shown little interest in gambling during her relatively short (2015 intake) political career, although her stint as parliamentary private secretary to Matt Hancock (Cons, West Suffolk) will at least have given her an understanding of some of the issues.
Given comments in the press from her predecessor Tracey Crouch (Cons, Chatham and Aylesford) about the influence of pro-gambling MPs, her lack of any apparent connections may have been a key requirement in securing the role. Ms Davies does not appear to have enjoyed industry largesse at race meetings and the relatively modest Leo’s Bingo Club in Eastleigh represents the most visible symbol of gambling in her constituency – and to our knowledge she is no relation to bookmaker-friendly MP for Shipley, despite sharing a surname.
All parties will need to start again on building relationships with gambling’s sponsor department at the political level (although the gambling concern lobby may be better positioned for now). Given what happened to the last (very good) minister, operators would be advised to handle Mims with care.
The Chancellor of the Exchequer, Philip Hammond, is another MP who may also be ruing the day that gambling crossed his desk. Hammond faced a grilling this week from the Treasury Select Committee, where he was accused of “putting jobs before lives” in allegedly allowing the retail bookmaking industry an additional period of grace before the £2 stake maximum is introduced on gaming machines.
Like any career politician, Hammond has thick skin and will get over it. However, it is unlikely that he will forget. Hammond, along with other politicians who prize their position or their ambition, may develop an allergy towards gambling industry entreaties in the future.
UK: Regulation – McArthur Raises the Standard of Debate
These are dark days indeed for Britain’s gambling industry, but its regulator-in-chief, Neil McArthur from the Gambling Commission appeared to offer hope for a better future during this week’s raising Standards conference in Birmingham.McArthur’s key-note speech contained familiar exhortations to expend more energy and effort in pursuit of the licensing objectives (and harm reduction in particular) but these were leavened by recognition that progress was being made in certain areas and an acceptance that further progress was reliant on collaboration and support between all stakeholders (and not just on operator endeavour).
Understandably, McArthur’s address focused on the incidence of harm in relation to gambling (a response to the tendency of some to play down the problems) but there was also an appreciation that gambling is a source of fun to many consumers. The voice of the recreational (non-problem) gambler has struggled to be heard in the clamorous policy debate of recent years. Industry critics have tended to marginalise enjoyment (as if the very act of enjoying gambling was in itself a sign of degeneracy) while operators have fallen back on jobs and taxes as the twin redoubts of its defence.
The recreational gambler found his voice in the debate via McArthur, who shared his own experiences of gambling – in venues prior to joining the Commission and these days online (a distinction that in itself raises some interesting questions). Industry executives who attended the event spoke afterwards of their encouragement that the relationship between regulator and regulated (which has become fraught in recent times) may be put on a more constructive footing as we move forward – something that can only benefit the consumer.
Inevitably, the focus for the Commission will always rest disproportionately on the negative externalities of the industry it regulates; but in striking a better balance between encouragement and admonition, our regulator has provided hope of a better future for all.
Europe: Regulation – Europe heads for ad break
Familiarity is said to breed contempt and so it seems with the gambling and marketing. Across Europe this week, sabres were rattled and in some cases plunged to the hilt into the industry’s freedom to advertise – only months after Italy’s ad ban legislation was passed.In Belgium, legislation was passed that will limit the promotion of online casinos to their own sites (analogous to the treatment of land-based casinos in Britain prior to 2007), banning sports betting ads during sports broadcasts and enforcing an 8pm watershed in other programming.
In Great Britain, the chief executive of the Gambling Commission exhorted licensees to make changes to their approach to their marketing practices, saying: “Do you really need to wait for government intervention on advertising, when we all know this is a growing issue? What opportunities are there to work collaboratively to take decisive action that meets the public’s concerns? Today is a chance to consider how to re-build trust with the public by changing your advertising strategies.”
McArthur makes an important and astute point here. We should resist the temptation to frame the debate in binary terms (to permit or proscribe) but instead attempt to identify the specific issues related to advertising (harm, impacts on children, public fatigue) and develop targeted solutions to address them.
Industry and advertisers are scrambling to nix the issue following predictable failure of the Government’s proposed solution (a public health ad campaign to raise awareness of the risks of gambling) to assuage public and political concerns. Sky TV announced plans to restrict gambling to one ad spot per break during live sports broadcasts from the start of the 2019/20 Premiership season. This is a meaningful move but it is nine months away from taking effect and may prove to be too little far too late.
Speaking at his company’s Nobody Harmed conference, William Hill CEO, Philip Bowcock reiterated his personal concerns about the weight of TV advertising and the need for change (a matter on which he has been consistent for some time), emphasising just how seriously British licensees are taking the issue (and reinforcing the CEO of GVC’s exhortations for a reduction in advertising in the UK).
There was a slightly different picture at the Gaming in Spain conference in Madrid, where remote gambling executives and trade association representatives seemed to suggest that concerns were overblown and that advertising restrictions would not have any effect on problem gambling. This view seems to ignore both the research (which does indicate modest effects on harm) and the fact that the advertising issue is more a matter of societal expectations than science. Spain is another jurisdiction where the threat to advertising is both clear (a long delayed Royal decree) and present (the stance of the left-wing Podemos party).
It is a view that also ignores the fact that the current permissiveness in relation to gambling ads is a relatively modern phenomenon (and one that is wearing thin). For example, in Great Britain TV advertising for gambling has been permitted in just 11 of the 57 years since the enactment of the 1960 Betting & Gaming Act created a mass market industry.
The origins of current freedoms in Britain lie in the Budd Report of 2001. At this time, online gambling was a fairly insignificant part of the industry (with GGY of £100m according to best – and not very reliable – estimates). It was five years before the launch of the iphone and in-play betting was just a neat idea. Reading Budd, it is clear that in recommending advertising liberalisation, the report’s authors were thinking of betting shops, bingo clubs and casinos rather than mobile phones and laptops. The development of heavy and heavily transactional (“bet now”) advertising for online gambling firms was not what Budd envisaged.
The point that gambling executives in Britain have come to understand (even if this is not evident everywhere), is that advertising is a privilege and not a right. The question is whether gambling companies both in the UK and a growing number of other jurisdictions still have sufficient time to earn the right to maintain this privilege.
France: horseracing – the end of an empire?
However, as well as proposing to cut the general tax burden on horsemen (heavily supported by the French betting public already), the report also recommends sweeping governance reforms (mostly to reduce bureaucracy and duplication), the full privatisation of PMU’s horseracing gambling, the co-mingling of land-based and online pools (something of an obvious but likely highly beneficial reform), along with the PMU’s withdrawal from sports and poker. It is hoped in this way the PMU, and racing more broadly, would become a more responsive and customer / stakeholder-centric organisation.
French horseracing has suffered from something of an embarrassment of riches for some time, with high (largely PMU-driven) funding leading to a vibrant breeding and training environment as well as strong prize money (nearly double the size of GB’s). However, this has not been translated into on-course or betting customer engagement, leading to declines in revenue to racing which are proving structurally challenging even if from a high base.
The reports intentions to generate a more responsive and customer-centric environment must be the right direction, but a central flaw with any monopoly system is that lack of competition diminishes innovation. PMU now has competition from sports betting, but has seemed unable to adequately respond either with horseracing or with sports betting product.
France is an exemplar of a bigger structural problem with horseracing, in our view. The levels of customer engagement of a generation or two ago are simply no longer there with the same frequency, if at all. Consequently, revenue has been leveraged from an increasingly narrow base of regular customers and an increasingly fickle base of occasionals. When racing gets it right (competitive, high quality racing with maximum spectacle; volume racing that gives the betting customer real choice), it can still pull in big crowds and big betting turnover.
- William Hill has announced the recommended acquisition of MRG for SEK2,819m, or c. £226m net of cash and liabilities, due to complete early Q119; the headline price is 7.9x run-rate EBITDA.
- Scientific Games is considering an IPO of its social gaming business (run rate revenue US$420m, EBITDA US$108m), with proceeds used to help pay down its US$8.7bn of debt.
- MGM Resorts International and Caesars Entertainment Corp are rumoured to be considering a merger, with a deal estimated to be worth $20bn.