Italian gambling licensees have been seeking clarification on the Dignity Decree, which was signed in July, for the last few weeks. As we have reported over the last few months, the decree bans the use of sponsorship and advertising through all media for real money gaming from 1 January 2019. This week the Customs and Monopolies Agency was asked to formally clarify which legislation takes precedence with regards to the ban on advertising, previous license conditions to communicate to players and the duties of responsible gambling. Operators have asked that the CMA details operating case instructions so that there is no doubt which legislation is current.
The main area of conflict relates to licensing conditions, where concessionaires are legally obliged to comply with an annual communication and information campaign that aims to educate players on responsible gambling on behalf of the regulator. The new law prevents gambling marketing communication in any form and across all media and therefore is at odds with the licensing conditions.
The Advertising regulator AGCOM has been appointed to monitor compliance with the new decree and is currently in discussion with the CMA to work through the issues. The regulator had previously issued a campaign plan for 2018, which obligates operators to create and disseminate information and promote prevention actions on the internet, social media and through broadcast radio and TV on the risks of using illegal gambling. What happens in 2019 is therefore unclear, but there is a risk of operators falling foul of one regulatory requirement in observing another.
Meanwhile, August has continued Italy’s strong growth run for sports betting, with land-based revenue up 34% to €83m and online up 28% to €50m; online bet365 and SKS365 continue to lead, with Snai (Playtech), Eurobet (GVC) and Sisal (CVC) maintaining mid-tier status. In online casino, no operator has over 10%, with Stars (poker dominance), Lottomatica (IGT) and Sisal all at 8-10%. While the advertising ban has not yet taken anywhere near full effect, this mix and roster is significant, in our view. With the possible exception of bet365, none of Italy’s main operators have achieved their success through ‘Western European’ style marketing campaigns, and it is bet365’s very strong in-play product, rather than its advertising spend, which has given it online leadership, in our view. In other words, advertising has not built strong brands in Italy – a local presence and/or strong product has, and so we are not convinced the ban will do much more than stop a lot of entrants’ money being wasted.
However, a complete ban on advertising and communications is both suboptimal and arguably counter-productive (partly levelling the playing field with the black market, for example). The irony is that this political backlash was brought about because of the aggressive over-spending of largely non-Italian operators, trying and failing to break into the market without considering (or possibly caring enough) about local impact. This disconnect between local market strategies and understanding local political impact has also been seen in Australia – where William Hill did much to wreck changes of positive reform and then left; and UK, eg, where EPL shirt sponsorships have little or nothing to do with attracting English fans (not an issue in itself, but certainly raising the domestic political temperature). It is possible that similar issues will be raised in Spain, where local online success stories are thin on the ground and advertising is also under review.
Geographical diversification is key to larger gambling companies and (usually) a logical strategy to deliver. However, when a critical mass of operators enter a market without sufficient local understanding or potentially even interest in local outcomes, then the sort of messy political backlash seen in Italy is likely to increase, in our view, alongside relatively miserable commercial returns (if any). Italy can be added to Australia and (in certain respects) UK as object lessons in how not to attempt to ‘open’ markets in a sustainable manner – it remains unclear how many of these lessons will need to unfold to the detriment of the industry before they are learned by operators more rapidly than they are by regulators and politicians…
UK: In Parliament – Parliament’s brief encounter exposes festering wounds
Parliament’s return from recess may have been only brief, but it afforded the chance for concerned MPs and peers to take further pot-shots at the Government’s increasingly stretched defence of gambling policy. This week, the familiar subjects of FOBTs, advertising, and the protection of children were debated once again within the boundaries of Westminster.
On Wednesday, Carolyn Harris (Lab, Swansea East) chaired the latest session of her All Party Parliamentary Group’s inquiry into Fixed Odds Betting Terminals. This time it was the turn of the machine manufacturers, SG Gaming (represented by CEO, Phil Horne) and Inspired Entertainment (chief product officer, Steve Collett), to enter Harris’s den of lions.
Horne and Collett deserve credit for going where the bookies had feared to tread; but it was an uncomfortable experience. Harris and her colleagues probed repeatedly on the question of why it would take between nine and 12 months to convert machines in betting shops to a £2 maximum stake (and whether manufacturer self-interest might skew the estimate of time required).
SG Gaming and Inspired are certainly correct to point out the complexity of adjusting contracts and adapting game formats to become compliant with £2 staking, which creates a lead time that can be measured in up to a year from full legislative certainty.
Doves within the government (reportedly mostly from HM Treasury) might be inclined to provide this time in order to ensure a business-like a transition, but such an approach risks a parliamentary backlash. Hawks may point to the fact that B3 content already exists in abundance, that server-based product is theoretically very easy to switch off, that the industry has already had a very long lead time to consider and prepare for this and that commercial contracts not covering regulatory change in a regulated industry are perhaps themselves commercially questionable. In the current political climate, it is more likely that a hawkish position is taken, in our view, exacerbating disruption impact for both operators and the supply chain.
There is of course another question. If the Government had known all along that any transition would take so long (which surely must have emerged during the review), why has it not moved more quickly to draft and debate the statutory instrument (we are now four months on from the ministerial statement on the issue)? The inability of the Government to offer any kind of certainty has been one of the most damaging features of the entire episode.
Wednesday also saw yet another debate in the Lords on the subject of TV advertising for gambling and potential attendant harm to children (as well as the perceived need for a statutory levy to fund harm prevention and treatment services). The bookie-bashing Bishop of St Albans (a veteran of the FOBT campaign) led the debate and was joined by peers from the Conservatives, Labour, Liberal Democrats and Plaid Cymru. Among the contributors, Tory peer, Baroness Bloomfield of Hinton Waldrist asked why Britain should not follow the example set in Italy of an outright ban; while Labour’s Lord Morgan complained that excessive advertising had marred his enjoyment of the summer’s Test cricket.
Two former party leaders (and Welshmen) added fire to the debate. Lord Kinnock suggested that the ban on tobacco advertising offered a salient precedent for similar action on gambling; while Plaid Cymru’s former chief, Lord Wigley, asked what success the Government was having with reducing the exposure of children to advertising influences. Presumably dissatisfied with Viscount Younger of Leckie’s response for the Government, Lord Wigley then fired in yet another written question on the subject to DCMS.
The debate over advertising shares many similarities with the hugely damaging FOBT saga. The industry is split on the issue with a number of shots being fired from within the gambling camp; while public and parliamentary concerns have been mounting for some time, the response from operators has been slow and unconvincing (notwithstanding the diligence of the Remote Gambling Association); and the Government seems content to let the controversy spin on (with attendant damage to the reputation of gambling) rather than doing anything that might vaguely resemble a decision.
As with FOBTs, the case for the defence has largely focused on negative outcomes (rather than consumer benefits) and has not been sufficiently nuanced. As a consequence, the industry risks getting sucked into a situation with binary outcomes (ban or don’t ban). This, as we have seen before, is a high-risk strategy.
At the Labour Party Conference later this month, the Labour Campaign for Gambling Reform is holding a fringe event on lessons to be learned from the FOBT debate. We must hope that the Government and gambling industry also find the time to reflect in order to avoid a repetition of past mis-steps.
Elsewhere, the Conservative peer and hand-wringer-in-chief on gambling, Lord Chadlington wrote to the Government to ask what assessment it had made of the number of children living with parents who have gambling problems. It seems highly unlikely that DCMS has a clue (not unreasonably) but yet another marker has been put down on an incipient debate on gambling-related harm that is creeping into the parliamentary consciousness and – left unaddressed – may in time overwhelm the industry.
Greece: online regulation – abZorba the tax?
Greece’s plans to permanently regulate online gambling have taken a big step forward, but possibly only in the context of Zorba’s dance, given the number of false starts and the content of the latest plan. Tellingly, as well as the current 35% GGR tax, a 15-20% player winnings tax will be introduced, fees for offering sportsbetting will be €4m, while live/P2P gaming will be €1m and RNG games will be effectively banned.
There are lots of things for operators not to like here. First, a winnings tax is a very significant additional cost which makes the black market far more attractive, especially to heavy users (still the core of the Greek market ex OPAP). Second, RNG games are likely to represent c. 40% of total current spend, with most of that moving/staying offshore rather than converting into regulated product (especially given the winnings tax), in our view. Finally, the relatively high costs of entry will keep many smaller operators out (and possibly even one or two big ones given the first two issues), ensuring a vibrant black market (due to the lack of strong enough domestic supply).
While it is unpopular to flag, relatively high rates of licence cost are not necessarily a bad thing if they do not impinge too much on customer choice (and might even improve local licensee behaviours – see lead). Equally, high rates of GGR tax are not necessarily all that distorting so long as a critical mass of operators can afford to offer a high-quality product. However, these two things together are likely to stress market functionality to the tipping point, with winning tax and RNG ban tipping it over, in our view. Greece has historically been a very strong .com market, with bet365 and local Stoiximan continuing to perform very well in the ‘temporary’ regime (with c. 40% share each). However, given bet365’s willingness to walk away from markets that don’t work for them (eg, France, Portugal, Poland, Belgium), Greece’s attempts to prioritise tax might see the jurisdiction staring down the wrong end of the Laffer curve on implementation…
China: social gambling – does the end of a product mark the beginning of an era?
China’s growing crackdown on direct online gambling took another casualty as Tencent pulled its social poker product on Monday. Historically, China’s enforcement efforts have tended to focus on illegal landbased gambling, including the agent networks of online providers. However, because of the disparate nature of this supply, little lasting damage to key networks was ever done (despite lots of arrests and lots of funds seized). Tencent’s move is further evidence that China’s enforcement is evolving with customer shifts to direct online B2C and that gambling remains largely unwelcome from a policy perspective. Given the importance of China to a number of global operators, and to the global football and basketball markets (especially), further enforcement actions could start to have a meaningful impact on the shape of global gambling, in our view.
Belgium: video games regulation – EA takes on Gaming Commission
It has been reported that EA Sports is under criminal investigation in Belgium due to the presence of loot boxes in its FIFA 19 game. EA is digging its heels in, claiming that the player packs in question do not constitute gambling. Despite these packs being available to acquire with real money, EA has defiantly (and quite compellingly, in our view) pointed out that they are different from loot boxes because players know how many objects they will receive (even if they don’t know precisely which objects they will be), and that there is no ability to cash out or sell items for real money. One might assume that EA is fairly confident of its position, as it has declined to alter the game for the Belgian market, after it did back down and remove paid-for loot boxes from Star Wars: Battlefront II when that title came under attack.
If, as seems likely, EA continues to stand its ground, then this could prove to be an interesting and helpful test case (notwithstanding the potential for a politically-motivated outcome limited to Belgium), in our view. As previously reported (Winning Post, 17 August 2018), the issue of loot boxes is being considered in other jurisdictions, and there is not yet a clear and consistent global approach to their regulation. It may be that cases such as this help move closer to achieving that and provide a degree of welcome certainty for games developers.
Global: M&A Watch – Gamenet / GoldBet; LeoVegas / Pixel.bet; MGM Resorts / The Alliance; CVC / Premiership Rugby
Gruppo Gamenet SPA has announced that it has issued a non-convertible senior secured bond (€225m, maturity date 2023), the proceeds of which will be used to part-finance the acquisition of GoldBet (€265m), which is awaiting competition clearance.
LeoVegas, through its investment subsidiary LeoVenture, has acquired 51% of Pixel Holding Group Ltd, which runs eSports betting operator Pixel.bet, for €1.5m.
The Alliance of American Football (the new professional football league set to launch in February 2019) has announced MGM Resorts International as its “first official corporate investor”. MGM has also signed a three-year deal to be the competition’s official sports betting sponsor.
Premiership Rugby has rejected CVC’s £275m offer for 51% of the business, preferring to explore investment opportunities such as selling a minority (rather than majority, as offered by CVC) stake.
Germany: law and payments – landed in it
On Monday we put out an article flagging the potential risks of a 2018 German legal judgement recently published that decided online gaming debts were unenforceable because the underlying activity was deemed illegal under German law; we described the judgement as case law. We should have clarified that Case Law does not explicitly exist in Germany as a legal principle and the decisions of courts are not binding on other courts, though they can and do often influence subsequent judicial decisions. While this is an important detail of jurisprudence, we do not believe it will provide much comfort to the risk assessment of financial institutions when servicing German online gambling payments. Our view remains that this is a potentially significant development that could make the German market increasingly difficult to service ‘cleanly’ while the mess of the Inter-State Treaty remains.