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.
Poland: betting market – poles apart?
Betting turnover attributed to domestically licensed operators is reported to have grown 55% to PLZ5.1bn (€1.17bn) in 2018, taking the officially estimated market share to 48% (from 10% in 2015). It is perhaps unsurprising therefore that the market is (slowly) starting to attract the interest of non-domestic operators – with Bet-at-home (once a major .com operator in the country), Cherry, Fortuna, Superbet and Typiko (not Tipico) all getting licenses and Gauselmann (X-Tip) entering via JV (though none early enough to materially impact the 2018 results).
Both the interest and the level of channelling is somewhat contradictory to conventional wisdom (though many operators remain on the side-lines) given the 12% turnover tax imposed and the lack of gaming cross-sell. However, as we have written before, both channelling and leakage can happen simultaneously at different ends of the market. There is no doubt that price, product and/or offer sensitive heavy users (who also demand a lot of operator choice) will be largely leaking to offshore books which have significant competitive advantages (including gaming), the existence of payment restrictions and a 5.400 domain strong blacklist notwithstanding. However, the growing mass market (and likely a number of ‘whales’) are far less price and offer sensitive, more trust-driven and much stickier. These customers tend to form the backbone of retail gambling and are a growing cohort in mass market mobile betting – in Poland and elsewhere. Similar to France, ‘unworkable’ regulation is actually quite well suited to c. 90% of the market by volume of users (betting only, in this case) – it is just hopelessly unsuited to the c. 10% of heavy users where much of the historical online revenue is generated. It is worth considering however that the offshore (illegal) online gaming market in Poland is likely to be similar in size to the offshore betting market – doubling the scale of the underlying problem from a governance, fiscal and harm prevention perspective.
A big question for regulators and lawmakers everywhere is balancing channelling and deciding whether it is for the many (restrictive, high tax), the few (liberal, low tax- capturing the many also, but in a higher-octane, more visibly disruptive environment) or an attempted compromise between the two. What we believe is dangerous to believe (or lobby) however, is that there is necessarily a ‘right’ answer along this spectrum regardless of culture, history, politics and desired policy outcomes.
UK: In Parliament – MPs and Peers signal a Harmful New Year?
British politics may be in crisis but it is comforting to know that even in these troubled times, Parliamentarians can still spare a thought or two for matters of gambling policy.
The first week of the New Year in Parliament started off where 2018 closed, with a flurry of Parliamentary Questions on the (negative) social impacts of betting and gaming from both MPs and peers. Familiar themes in terms of concern about children, industry marketing tactics and adequacy of treatment provision were revisited – suggesting that whatever might happen this year from a macro-political perspective – gambling is going to have a year at least as interesting (in the sense of the Chinese proverb) as the last one.
In a week, when the Health Secretary (and former Culture Secretary), Matt Hancock (Cons, West Suffolk) announced plans for expanded NHS treatment services for problem gambling, the Deputy Leader of the Labour Party, Tom Watson (Lab, West Bromwich East) asked how many centres would be open by 2023 and where they would be located. Her Majesty’s Opposition has been consistently ahead (at least in terms of activity visible to the public) of the Government in exploring the relationship between mental health and excessive gambling and may claim with some justification that it has got to the punchline faster on key matters of policy.
Labour plans a potentially radical overhaul of gambling legislation if voted into office; and there were further hints in the PQs about what the party’s reforms might look like. The Shadow Sports (and gambling) Minister, Dr Rosena Allin-Khan (Lab, Tooting) pressed on Government plans to restrict the exposure of children to gambling ads; joined by party colleagues Thelma Walker (Lab, Colne Valley) and Dr David Drew (Lab, Stroud) who also submitted questions on the subject.
Stephen Timms (Lab, East Ham), a veteran of the FOBT campaign asked about rates of problem gambling in relation to online betting and gaming (receiving a measured response from the DCMS). Timms is a member of the All Party Parliamentary Group on FOBTs, which is widely expected to migrate to a broader-based gambling concern parliamentary group; and his interest in the remote sector is likely to be indicative of the group’s shifting focus.
In the House of Lords, there were further questions on potential harm to children from loot boxes in video games – this time from Labour’s Lord Hunt of King’s Heath. It is somewhat ironic that Parliament’s upper chamber should have picked up on loot boxes and the much broader concerns about gambling harm to children much earlier than the Commons – but the Lords has proved to be a reasonably accurate weather bell for emerging battles. With this in mind, there ought to be considerable interest in the two Burgundy bench debates scheduled for next week on “the prevalence of gambling amongst children and young people” (Bishop of St Albans, 15th January) and a “ban on gambling advertising to counter negative effects on younger and vulnerable people” (Lord Kirkhope of Harrogate, 16th January).
If any further evidence of the growing intolerance towards gambling in Parliament, it came in the form of a complaint from Carolyn Harris (Lab, Swansea East) to the chief executive of British Airways, Alex Cruz (as well as to the Advertising Standards Authority). Harris and other “astonished” MPs (including the Rt Hon Iain Duncan Smith) expressed “deep concern” about a TV commercial for the airline, depicting a young (adult) couple playing in a (presumably legal) casino while on holiday. BA responded by withdrawing the ad. We must hope and pray that Harris, IDS and chums do not discover the James Bond canon of movies any time soon…
UK: regulation – Carry on Counsellor
It’s typical – you wait ages for a problem gambling treatment clinic and then a whole slew of them come along at once. This week’s announcement that the NHS would include the expansion of treatment services for gambling problems is perhaps that rare thing – a gambling policy that surely everyone can agree on…at least that is until we get to the detail.
For years, the existence of Dr Henrietta Bowden-Jones’s London clinic has been the exception that proved the rule that however much the government of the day professed concern about gambling harms, that concern barely permeated the Department of Health. Indeed, although Dr Bowden-Jones’s National Clinic was badged as an NHS centre, it has (in common with GamCare’s counselling services and the Gordon Moody Association’s residential centres) been reliant on funding from Britain’s licensed gambling companies (via GambleAware).
The announcement appears to have been welcomed by all sides; but of course, the devil tends to set up home in the detail. As yet we don’t know too much about the size and nature of the centres, how they will be financed or where they will be located (we do know that a new clinic is due to open this year in Leeds, paid for in part by the industry).
Last year, the Responsible Gambling Strategy Board indicated the need over time to increase substantially (as much as ten-fold) current expenditure on problem gambling treatment; and the expectation seemed to be that the industry would largely foot the bill. However, it is not clear just how the RGSB’s proposals fit with the NHS strategy (if indeed they do at all).
It also seems rather odd that the Gambling Commission should include in their public consultation on a new national strategy for harm prevention a proposal to expand nationwide coverage of treatment centres only for the Department of Health to issue a fait accomplit. No-one should underestimate the complexities of government – but we can’t escape the feeling that one of these days the right hand of policy should become somewhat better acquainted with the left.
UK: Safer Gambling – Banks on Blocking
Four more retail banks have announced that customers will be able to ban or limit gambling transactions on their accounts.
Santander, Halifax, Lloyds and Bank of Scotland have followed where challenger banks, Monzo and Starling (and subsequently Barclays) led last year in allowing account holders to restrict transactions with gambling merchant codes.
Bank account blocking complements a growing array of services and tools developed by gambling operators, the traditional supply chain and specialist safer gambling companies and offered to consumers to manage or prevent gambling activity.
Of course, developing these tools is one thing; persuading people to use them is quite another; and normative framing seems like a more promising route than the public health lobby’s scare tactics. The next task is surely to work out how all these tools and controls interlink.
Denmark: regulation – Danes not Turning Back the Regulatory Tide
This week it was the turn of Denmark to demonstrate just how far the tide of gambling regulation has turned in recent years.
The Danish tax ministry announced proposals that, if adopted would require (amongst other things) players to set deposit limits, limit bonuses and for operators to introduce session-duration clocks. The measures are aimed at all operators, from lotteries to online casinos.
The announcement serves as a further illustration of the regulatory tightening taking place in many jurisdictions in Europe and beyond. The legalisation of remote gambling (which has both challenged existing regulations and raised expectations in terms of oversight and intervention) is one of the causes; while others include growing awareness of harms related to excessive gambling and the burgeoning influence of the public health lobby.
Some will no doubt complain about the paternalistic nature of some of the proposals; but it is unlikely that matters will rest here. As the Danish government moves into regulatory (Bachman Turner) overdrive, operators should reflect on the likelihood that they ain’t seen nothing yet.
US: online regulation – West Virginia, open country road?
Five West Virginia congressmen (Democrats) have put forward a bill to legalise online casino and poker, following early-mover legalisation for sportsbetting. The proposed legislation is relatively liberal, with an obligatory in-state landbased casino licensing connection (regulated by the lottery commission), moderate licence fees (US$50k), a 14% GGR tax rate and a broad product range, including table games, slots and poker (with acceptance other POC state customers, therefore liquidity sharing implied). We estimate that on relative maturity (3-5 years in), the state could generate gaming GGR of c. US$140m – a material market for operators and suggesting c. US$20m in direct taxes (before the negative impact of redistribution from other forms of gambling and consumer spending). The market would therefore join NJ and neighbouring PA in terms of material revenue opportunities, while on a net basis likely proving more profitable for tail licensees than PA (a third as profitable overall) due to the tax differences despite WV only having 14% of PA’s population.
However, while the move has inevitably caused a degree of hope and enthusiasm, we would be cautious as to chances (though far from impossible). WV has been here several times before (with the Speaker opposed) and online gaming remains more controversial than betting among many stakeholders (for a number of reasons of varying validity); up to c. US$20m in potential taxes is also firmly in the realms of special interest vs. big picture politics. We would also note that if the DoJ does revise its Wire Act opinion (rumoured before Christmas), poker would become a near irrelevance in such a small state.
Europe: Crypto-assets – EBA reports.
The European Banking Authority (EBA) published this week the results of its assessment of the applicability and suitability of EU law to crypto-assets. The EBA examines in the report:
the application of current EU banking, payments, e-money and anti-money laundering laws to crypto-assets;
crypto-asset custodian wallet providers and crypto-asset trading platforms, building on the EBA’s July 2014 opinion on bc’s.
credit institutions, investment firms, payment institutions and electronic money institutions’ activities involving crypto-assets and regulatory and supervisory issues.
The report concludes that;
Based on the current assessments of the competent authorities, crypto-asset-related activity in the EU is regarded as relatively limited, confirming that, at this time, such activities do not appear to give rise to implications for, or risks to, financial stability. However, because some crypto-assets/activities do not appear to fall within the scope of current EU financial services law and are highly risky, as identified in this report, risks arise with regard to consumer protection, operational resilience, and market integrity. Crypto-assets also give rise to other issues which are beyond the scope of competence of the EBA (e.g. regarding accounting and tax treatment).
The EBA advises the European Commission to carry out a cost/benefit analysis to assess, on a holistic basis, whether EU-level action is appropriate and feasible at this stage to address the issues identified. The EBA also advises action at the EU level, and calls on the Commission to take steps where possible to promote consistency in the accounting treatment of crypto-assets. The EBA will keep under review the need for any further actions within the scope of its statutory competence and stands ready to support the European Commission in relation to any further analysis of issues arising in relation to crypto-assets.
In 2019 action will be taken by the EBA for the development of a common monitoring template which competent authorities can issue to institutions, payment institutions and electronic money institutions to monitor the level and type of crypto-asset activity underway and an assessment of business practices of institutions, payment institutions and electronic money institutions regarding crypto-asset advertisings, pre-contractual information about the risks related to crypto-asset transactions for consumers, and the disclosure of the rights and safeguards applicable to consumers in the context of any crypto-asset services provided by those institutions to assess what actions are needed to ensure high standards of consumer protection. Furthermore they intend to carry out continuous monitoring of innovation and of the regulatory perimeter, including with regard to crypto-asset activities also keep under review and report to the European Commission with regard to the prudential treatment of banks’ holdings of and exposures to crypto-assets.
The growing scrutiny of crypto assets is likely to be double edged from a gambling perspective. If handled with care by regulators, providers and users, valuable, credible alternative payments solutions might emerge which help to solve many of the payments issues which continue to plague even domestically regulated online gambling. However, the Wild West nature of (much of) the sector, combined with the lukewarm view (at best) of mainstream banking means high volatility and knee-jerk regulation remains a serious risk – especially since gambling is still likely to be seen by many regulators as part of the crypto problem rather than crypto as an acceptable part of a solution.
International: tennis integrity – grand slammer for fixing gang?
The Spanish Civil Police (Guardia Civil) has reportedly made fifteen arrests following an investigation into allegations of match fixing, fraud and money laundering by an Armenian gang. The criminal group allegedly had access to up to 28 players, including one grand slam player, with match fixing allegedly occurring within the ITF Challenger and Futures series. The arrests come only weeks after the publication of the Independent Review Panel’s final report into tennis integrity and provides further stark evidence that there are serious issues to address across the sport.
UK: greyhounds – grey days looking brighter?
The funding of the UK greyhound industry has received a welcome boost, following the commitment by four further bookmakers (Betfred, William Hill, Sky Betting and Gaming and Paddy Power Betfair) to contribute £3m to the Greyhound Trust, with funds planned to assist training and studies into injuries, track safety, improved welfare travelling to meetings and rehoming of retired dogs. The deal was agreed as part of the ‘greyhound commitment’ by DCMS and Sports (and Gambling) Minister Mims Davies.
Greyhound racing has been chronically underfunded in the UK for some time, despite the sport providing a regular and consistent betting product in both retail (c. 13-15% betting revenue) and online channels (c. 2%). The lack of any statutory requirement for bookmakers to fund the industry, despite it’s existence almost solely for betting purposes, has left the industry struggling, despite voluntary contributions of around £7m annually from Ladbrokes-Coral, bet365, Jennings and others. While this further contribution will no doubt go some way to improving standards, it continues a hand to mouth existence and does not address the need to develop the sport for the future – particularly as it has relied heavily on its retail appeal. Channel shift is likely to put increasing pressure on the product therefore regardless of this deal, unless its digital relevance can be materially enhanced – particularly given that retail focus tends to limit innovation while urban settings tend to attract development (with Manchester’s Belle Vue the latest track to face the threat of housing development).If dogs racing does lose critical mass, then betting will have lost a product capable of sustainable broad appeal and political support – two things the UK industry badly needs at the moment…
Global: M&A – summary
Ribacka Group has been acquired by Better Collective in a deal worth a potential €30m.
Lottoland has made a US$87.6m bid for Zeal Network’s core German business Tipp24.com.
William Hill has now been granted permission from the competition authorities in all necessary jurisdictions for the acquisition of Mr Green.
Evolution Gaming has completed its acquisition of Ezugi.