Winning Post – Spain’s draft budget proposes good news for betting operators

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.

UK: Gambling and gender – what crisis?
Gambling has been on the wrong side of practically every issue recently, especially in the UK. Entirely separately to gambling’s regular whipping, there has been a much broader spotlight turned upon the gender pay gap in UK companies, to the extent that the PM has called for action. Not unsurprisingly, gambling has been caught in this zeitgeist and from the acerbic and/or evangelistic comments of many commentators we would all be forgiven for thinking that gambling exists in some dark age of moral turpitude in this as in nearly every other issue. However, that’s not what the analysis shows and, unsurprisingly to us, UK gambling does not have a pronounced issue here.

Some companies in the gambling, racing and sports governance sectors seem to have a relatively pronounced gender pay gap: especially in female-led service sectors (bingo, for example). Others have an apparently positive mean average that disguises a structural skew (eg, male dominated racecourse groundsmen vs. less skewed clerical and managerial positions). All companies also have a gender pay gap. However, this needs to be considered relative to the national average. We have analysed 20 gambling and related institutions: 60% outperform the mean national average pay gap; 100% outperform the median and 90% outperform the skew toward management vs. wider employment.

UK-based gambling companies therefore outperform UK national averages across key measures (on average). This doesn’t mean that there isn’t an issue, but it does mean that gambling, if anything, is leaning towards the right side of a moral argument (for once). This is important not just because the opposite view seems to be increasingly regularly painted (take the ICE scandal) but also because it speaks to an underlying strength within the sector. Some people don’t like gambling; some don’t want to work for gambling companies – this Is a moral choice upon which each individual must take a view. However, for those people who do wish to get involved, gambling is one of the least class, race and gender-bound industries out there. Rather like 17th Century pirates (some of the most effective of whom where women, although we perhaps should not look to them for moral guidance), gambling has probably benefited from middle class social pariah status: everyone who gets over it finds a home, which in many cases becomes a home for life.

Gambling can and should be more inclusive; it can and should be more diverse. But gender is a relatively narrow prism through which to consider these issues, especially from a management perspective. Does it attract people from as broad a socio-economic background as it should? Does it represent as broad an ethnic reach as wider society and its customer base? These questions have not yet been adequately studied. However, one painfully obvious point seems to stand out to us: in the UK (and elsewhere) gambling and wider society seem to have lost touch with each other. This is a question of representation and empathy, not necessarily a narrower ‘inclusivity’ agenda. In our view, gambling does not have a gender problem as such (at least no more than the wider economy), it has an empathy problem – this is fixed by genuine understanding and engagement, not box ticking…

UK: In Parliament – MPs joust at Camelot
With Parliament in recess, the main event in the politics of gambling this week was the publication of a Public Accounts Committee report on the performance of the National Lottery. The report’s gravest concern centred on the finding that while Private Equity owned Camelot’s profits have grown over the course of the licence, contributions to good causes have declined (directly, the result of a shift in revenue from the main draw to scratchcards; indirectly likely the result of channel shift and management tinkering with prizes, in our view).

The exposure of this asymmetry is unlikely to be helpful to Camelot’s plans to retain the licence (considered too long in the report) and may also cause further embarrassment for the lottery arm of the Gambling Commission (which has already faced political censure for its stewardship of the lottery).

The report further commented unfavourably on Camelot’s attempts to ‘revive’ the main draw by increasing ticket prices to £2 (a failing exposed in David Forrest’s assessment last year and flagged in WPs passim) and its relatively low level (just £300,000 per annum) of support for GambleAware (for which the commercial sector has been pilloried, while TNL has so far seemed to dodge opprobrium).

UK: gambling research – Worry Across the Mersey as Forrest Trails Customer Loss Reports?
As this week’s Champions League fixture showed, Liverpool is a city of high drama. The publication of the latest gambling research from the University of Liverpool’s ‘Fab Two’, David Forrest and Ian McHale, may have been slightly less explosive than Jurgen Klopp’s demolition of Manchester City but could have profound consequences for remote gambling.

On the face of it, the study of remote gambling behaviour (based on a single month’s worth of datasets from 13 operators – so caveats abound) begged more questions than it provided answers. We learned that, just as with land-based gambling, some online players spent significant sums (in excess of £5,000 in a month at the extreme end). We also learned that players staked higher amounts on casino games online but lost more on slots (no surprises). Further, the data revealed that heavy losses are experienced through occasional play as well as highly frequent gambling (the authors speculate that some players may exhaust their funds early in the month and so be required to abstain until replenished). Overall, however, one is left with the impression that the authors got less than they had hoped for in terms of insightful data. Pressure is likely to grow for greater disclosure from remote operators for the purpose of study.

Perhaps the most significant (if unspurprising) finding was that online gaming revenue appears heavily skewed towards small cohorts of high spending customers. On slots games, 59.2% of revenue derived from the 1.7% of players who spent in excess of £1,000 in the month; 78% came from the 4% who spent more than £500 (although it is possible that this was skewed by looking at just one month of play data). This appears to confirm what has long been suspected – that online gaming expenditure (similar to certain forms of landbased gaming) is heavily concentrated within fairly small groups of customers. However, this is the area where a narrow data set is likely to generate the highest level of skew.

The recommendation that gambling operators (not just remote but landbased too) regularly provide the Gambling Commission with information on the distribution (by customer cohorts) of revenue may cause alarm. It also feeds into regulatory concern about VIP programmes and the perceived need for mandatory player tracking. However, given the extent to which gambling revenue is largely driven by and often dependent on higher spending cohorts, the logic is compelling and the extent to which this becomes a manageable regulatory issue vs. a potential political explosion is largely dependent upon the foresight and openness of the industry, in our view.

Spain: remote tax – Laffer curva?
Spain has proposed a reduction in key remote duties from 25% to 20% in its draft budget. The 5ppt reduction will undoubtedly be welcome to both current and potential operators, notwithstanding the fact that Spain’s tax rate does not apparently seem to have disrupted a high growth market (certainly not vs. neighbouring Portugal or France). However, Spain’s product mix seems suspiciously low on slots, while a moratorium on licences perforce creates a black market. The reduction in tax, combined with a reopening of the licensing window, could therefore bring about that fabled outcome: a cut in taxes leading to an increase in tax yields. If it does, Spain might provide a fiscal-regulatory learning curve applicable to many states not necessarily able to adopt a free market in gambling services in the first instance. The quid pro quo for this potentially critical benefit in terms of sustainable growth is that a critical mass of operators ensure that they fully adopt POC licensing and tax when it is at its most reasonable.

Italy: local machine regulation – mobile or mafia?
Pavia has announced that it will apply strict distance measures to gaming machines from 2022. The distance mechanism is designed to improve social responsibility by prohibiting gaming machines within a set distance of sensitive sites. In the case of Pavia, this has been set at 500m and this is likely to result in the almost complete ban of machines. Following on from similar application of the legislation in Piedmont it is estimated that over 96% of legal gaming machines have now been switched off or removed from the market following the implementation in November 2017.

Gaming trade bodies faced with decimation of the industry cite criminal activities filling the void left by the new draconian rules. Indeed, an arrest in Turin this week where 15 illegal machines were seized suggests they could have a point (albeit possibly only a small one). It is not clear whether the use of illegal machines is starting to increase as a direct result of the ban, but the demand from players does not diminish solely because the law has changed (in landbased or online regulation). As if to demonstrate this, official figures show that landbased slot revenues in Italy declined by 5% in 2017, whereas the online market grew by around 30% (netting to underlying decline). As with many markets, significant channel shift is already underway, but in Italy, recent changes to landbased regulation and tax (affecting payout percentage) are likely to accelerate the move to online without necessarily improving tax yields or providing customer protection.

Global: eSports – Sportradar act quickly in response to employee betting allegations
Sportradar’s highly-regarded Head of eSports, James Watson, has left his position with the company after reportedly placing eSports bets with Unikrn, in breach of company policy. Watson’s alleged betting activity had initially been flagged by Unikrn CEO, Rahul Sood, on twitter (not a typical or recommended integrity reporting platform of choice). A Sportradar internal investigation, supported by independent assessment from the eSports Integrity Coalition (ESIC), swiftly followed.

There are several interesting points to note here, in our view. Of course, it is imperative (for more than just integrity reasons) that operators know their customers and monitor what they are betting on. Unikrn has demonstrated it is doing just that. However, if the first time the organisation mentions findings such as this is on twitter, then it suggests there is still work to do to build the necessary trust between organisations such as the operators, ESIC, and Sportradar, to deal with such allegations in a proper and fair way (to say the least).  While this is no doubt embarrassing, it is clear that Sportradar is an organisation which has a clear employee policy in place, and it has acted swiftly and publicly to uphold it. To include ESIC in the process throws in a healthy dose of transparency and openness.

Some might say that the outcome is harsh for Watson given that the bets were reportedly “low level” and there was no question of any inside information or manipulation having been involved. However, any organisation which promotes and sells “integrity” has, in our view, no option other than to swiftly and decisively act on anything which might (even only be deemed to) run contrary to that brand positioning, and all organisations in the (e)sports betting ecosystem should continue to bear that in mind – regardless of how public initial reporting may be.

GB: Horseracing – can run, can’t hide
Thirteen flat trainers have lost the right to self-certify non-runners for failing to meet current thresholds (set at 14% for flat runners and 12% for jumps). The measures adopted in August last year as a result of consultation with the Horserace Bettors Forum and other stakeholders aims to reduce the current rate of non-runners – a source of frustration for both the sport’s participants and also betting customers. While most trainers withdraw runners for genuine reasons, there is evidence of abuse, particularly where runners are scratched following the allocation of an unfavourable draw, only to run very shortly afterwards when conditions are more favourable.

This tough stance by the BHA is excellent news for the sport’s fairness, integrity and is likely to improve the perception held by some members of the public that ‘all horseracing is fixed.’ The influence of the Horserace Bettors Forum on racing policy since its inception in 2014 has been positive in ensuring the sport caters for all participants, ensuring sustainable funding and longevity of product.

USA: Basketball – March madness
Nevada’s annual period of madness came to a close this week as pre-tournament favourites, Villanova Wildcats, wrapped up its third NCAA basketball championship title, and second in three years, with an eventually comfortable win over Michigan. March Madness is America’s largest sporting ‘event’ from a betting perspective with The American Gaming Association (AGA) estimating stakes of US$10bn over the 67-game tournament, roughly twice that of the Super Bowl. The AGA estimates only three percent of stakes to be placed legally through Nevada sportsbooks, with the rest placed either offshore or offline, including through pool-based tournament ‘brackets’.

From a bookmaking perspective, March Madness has a number of similarities with major European betting events such as football, rugby and cricket’s World Cups. Closely packed schedules (including many concurrent matches) is great for staking levels, with punters’ attention focused, winnings often recycled and a high multiple bet mix leading to strong expected margin. Liability management however can be complex, with P&L volatility high from day to day.

Despite Villanova’s victory, this year’s tournament appears to be profitable for sportsbooks, with traditionally punter-friendly selections not faring well. Level stake bets on the favourite to cover the spread (consensus line) in every game would have resulted in an 11% loss. For the favourite to win the match (average money line price), also an 11% loss. For anyone who backed over the points line, a 15% loss. The chances of anyone completing the ‘perfect bracket’ this year were rather slim, with the 67-fold returning odds of five quadrillion(ish) to one.