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.
Global: Tennis integrity – changing the game?
The tennis integrity Independent Review Panel has published its long-awaited interim report, which includes a raft of recommendations aimed at improving the sport’s efforts to protect its integrity. There is particular focus on the lower levels of the sport, where the problem is deemed to be “very significant”. However, after more than two years, this is only the end of the beginning as far as this process is concerned. A two-month consultation process has now begun, ahead of publication of a final report. Implementation of recommendations will follow, and that will require a great deal of time and resource given the scale of structural change required. Anyone in the betting sector who thinks this is an esoteric sports governance issue should probably read on…
Most of the Panel’s recommendations are focussed on the structure of the sport and its Tennis Integrity Unit (“TIU”), as well as on the rules, and the integrity strategy and operational tactics deployed by the TIU. While noting that this Interim Report is specific to tennis and its structure and challenges, other sports would do well to consider these in the context of their own structures and risks and assess which of these recommendations (or variations of) they should be adopting.
“Recommendation Number 1” will have done most to focus the minds of the betting industry, and looks likely to be among the most challenging topics during the consultation phase: the Panel proposes reducing opportunities for breaches of integrity by discontinuing the sale of official live scoring data, at least for ITF Futures men’s events and women’s $15k and $25k Pro Circuit events. The Panel identified a strong causal connection between the sale of official live scoring data to the lowest levels and the growth in betting on matches at those levels, citing the impact of the data deals done between the ITF and Sportradar in 2011 and 2015.
Sportradar has already publicly expressed concern with this recommendation, labelling it unrealistic and potentially unlawful. In short, it claims that prohibition won’t work. Clearly the proposal raises some (very) big questions.
Based on 2017 figures, the events being considered for removal from official data supply account for fully 68.9% of tennis matches on which betting markets are currently available (total of 85,120 matches; 33,210 matches on ITF men’s circuit; 25,434 matches on women’s $15k and $25k). While this is the majority of matches, the difference in quality (and therefore customer interest) means the revenue split is likely to be materially different. Nevertheless, the impact would be significant, with substitution upside mitigation balanced with potential black market downside risk. Revenue (and supply chain) disruption due to the loss of official data of this scale could be material given the importance of tennis to the online sports betting market ($920m of $27.6bn total online revenue globally, with tennis betting currently skewed towards European online markets, RP estimates).
The Panel has made the case that the situation demands such bold and decisive action, as well as acknowledge that it is not possible to predict with certainty what the consequences of such a move would be. The Panel points out that the only way to find that out is to test it. There appears to be an awareness that it will be extremely difficult / impossible to wipe out completely unofficial data collection and betting on lower level events, so the Panel has identified additional ways in which the tennis bodies can make it much more difficult, through targeted monitoring, restrictions and disruption, and contractual obligations.
Other parties will argue (as Sportradar already has publicly stated) that a move to discontinue official data supply at certain levels would simply allow unofficial data collection to thrive and further encourage opaque black-market activity.
Already, the battle lines appear to have been drawn. This could prove to be a critical issue for the industry, the impact of which could extend (far) beyond tennis integrity. Not only should operators and suppliers be watching closely (and participating in) the consultation process which is now underway, they might also be considering what more they can do to create a balanced working relationship between betting and sport.
Propus Partners contributed to this analysis.
Regulus Partners acted as an expert consultant to the Panel, assisting in the Panel’s appreciation of global betting markets, online betting on tennis, the various ways in which betting can present integrity issues for the sport, the nature of unusual and suspicious betting patterns, and the various indicia of match-fixing. Regulus Partners did not assist the Panel in relation to the recommendation discussed above.
UK: In Parliament – two pound Tories talk tough
What will we do for amusement once (if?) the public policy wrangle over FOBTs is resolved? This week opened with renewed hope for the betting shop sector as The Times reported a Treasury veto on reducing maximum stakes on machines in betting shops to as low as £2 a spin. Twenty-four hours of spluttering outrage later, the same paper revealed that the Chancellor of the Exchequer, Philip Hammond, had decided that his bacon rather than the bookies was in greater need of salvation and had given DCMS the green light to do their worst (or best, depending upon one’s outlook).
We have been here before with stories of face-offs between the two halves of Number 1 Horseguards and it seems plausible that the suggestions of Treasury lobbying are deliberately planted in order to elicit the shrill whistle of parliamentary indignation.
If that indeed was the intent, it seems to have worked. The Conservative MPs, Sarah Wollaston (Cons, Totnes), Tom Tugenhadt (Cons, Tonbridge and Malling) and Nick Boles (Cons, Grantham & Stamford) took to Twitter to voice their opposition to anything other than a £2 stake. Wollaston, who chairs the Parliamentary Select Committee on health and social care tweeted: “I will not be supporting any moves that allow high stakes #FOBT to continue to destroy lives. The Treasury needs to look at the long term financial & personal cost of the catastrophic harms to individuals, families & society.”
The trio of concerned Conservatives were joined, perhaps significantly, by David Evennett (Cons, Bexleyheath and Crayford) – who had a brush with gambling policy during his stint of maternity cover for Tracey Crouch in 2016. Evennett tweeted: “Strongly support a maximum stake of £2 for FOBTs and hope the Government acts soon”. Within 24 hours Crouch had replied to her colleague’s PQ by promising resolution “in due course”.
Conservative MPs have shown conspicuously less anxiety about gambling policy than their Opposition peers – just two (Sir Peter Bottomley of Worthing West and Fiona Bruce of Congleton) have signed EDM 174 on FOBTs compared with 24 from Labour and 13 from the SNP. However, in recent weeks a number of Tory backbenchers have raised concerns about the potential for a ‘soft’ Government response on FOBTs.
The Campaign for Fairer Gambling now claims the support of 23 MPs from the blue corner. That “support” could ultimately take the form of vote abstention rather than rebellion (in the event that DCMS opts for a £20 or £30 maximum stake) but the parliamentary mathematics are such that the Government will weigh such displays of concern carefully in the balance.
In what generally appeared to be a bad week in politics for the betting sector, The Times also featured a cross-party love-in between the recently elected Deputy Leader of Welsh Labour, Carolyn Harris (Lab, Swansea East) and former Tory Leader, Ian Duncan Smith (Cons, Chingford and Woodford Green) on the need for a £2 stake maximum; and a follow-up from the bookie bashing bishop of St Albans, the Right Reverend Alan Smith.
We also observed the close (for the second time, following deadline extension) of the Labour Party’s consultation on gambling and mental health. Early indications of what HM Opposition may have learned so far were provided by a flurry of Parliamentary Questions from the party’s Deputy Leader, Tom Watson (Lab, West Bromwich East) who probed on adequacy of treatment provision for gambling addiction, funding for research and education and levels of thefts related to problem gambling.
Gambling operators are understandably focused on policy outcomes from the current review – but Labour’s joint Culture, Media and Sport and Health probe may give a good idea of where future battle lines will be drawn (and not simply if Labour wins the next election). In a world of uncertainty, one point about which we can be pretty confident is that the conclusion of the DCMS review of machine gambling advertising and social responsibility is unlikely to draw a line under industry controversy.
Australia: The Tamperer – what’s Crown going to look like with a chimney on it?
Crown Entertainment is set to be fined this week in relation to the noble Australian art of tampering, according to reports from Down Under. The company has been accused of removing betting options from a small number of the 2,600 gaming machines at its Melbourne resort casino and is rumoured to be facing a fine of around A$300,000. While the penalty is relatively slight given Crown’s scale, the effect on the company’s prestige is likely to be more damaging.
Over the course of the last two years, Crown has had employees arrested and imprisoned in China over VIP marketing, faced slurs of graft in relation to the development of its Bangeroo resort casino in Sydney, and been taken to federal court with Aristocrat to face allegations of encouraging gambling addiction (both companies were cleared but a smear takes time to fade). In an example of how problems can snowball, the company is also being sued by investors for failing to disclose the level of regulatory risk it faced in relation to VIP marketing in China.
Business scale and complexity present risks to the licensing objectives. As seen in Great Britain, even the best of companies can struggle to keep on top of all risks all of the time, but some operators appear to get into trouble more often than others. How much of this is simply random and how much down to cultural failings is hard to say – but the presence of whistle-blowers is usually a sign of the latter.
The decision to grass up a current or former employer may be motivated by a range of factors, including personal grievance. Often though, the whistle-blowing arises from a mismatch in what is considered ethically acceptable between those closest to the area of risk (and personal liability) and those closest to the profits.
As one of the largest and most high-profile gaming businesses in the world, public scrutiny is part of life’s rich tapestry for Crown. The company’s opponents in Australia’s Parliament, its press and the nation’s politically active gambling academe seem perpetually alert to opportunities to attack Crown; with each PR failing amplifying the noise.
Crown needs to move on and prove to the world that if there were systemic issues at the root of its various licensing and PR problems then these have now been addressed. Trust – the very bedrock of any gambling business (more so than in general retail) – is hard won and easily lost… just ask Steve Smith and David Warner.
UK: Landbased gaming – cashless or bust?
Norway is the world’s first cashless economy, according to the deputy governor of its central bank. The number of cash transactions are now so low (having dropped below 10% of the total), that Jon Nicolaisen claimed, “I would argue we are cashless”. Nicolaisen went on to suggest the demand for cashless payments had been driven solely by consumer demand rather than the policy or preferences of the bank. Sweden is not far behind – fewer than 20% of all transactions are now made in cash (less than 1% by value). It is now common to see signs in Sweden alerting customers that cash is no longer accepted in many bars and cafes, and 900 of the 1,600 bank branches have stopped accepting cash deposits. In the UK too, the use of cashless payments is accelerating – currently only 3.9% of the value of all payments (as opposed to number of transactions) are made in cash.
In 2015 David Korski, a Number 10 aide, suggested to David Cameron that Britain should move towards becoming a cashless society by 2020 (although the policy was never adopted). Korski presented the many benefits of cashless in reducing crime, raising taxes, and offering traceability that is not readily present in cash transactions.
The UK coin operating sector – which currently relies on a ready supply of coins to function – long ago recognised the need to adapt to changing consumer preferences. These requests met with short shrift within the current DCMS review as operators were unable to give sufficient comfort on harm mitigation (justifiable concerns regarding dissociation from cash).
Norway’s landbased slot sector did not have to face the consumer-driven transition to cashless. A Government initiative to reduce problem gambling first banned the use of bank notes, then completely withdrew machines from the market in 2006. These machines were replaced in 2009 with cashless VLTs featuring a number of measures designed to reduce player harm, including mandatory player tracking, estate-wide player limits, and mandatory breaks from play every hour. The effect of these changes was to reduce machine-related calls to a problem gambling helpline by 99%. However, the number of players and revenues were significantly impacted; only recovering to a third of their pre-ban levels by 2016. The new player limits, together with lack of supply when online gaming was starting to become more prevalent, were the main drivers of this reduction.
With improvements in player safeguarding at the forefront of policy and legislative developments, the potential is there to make a breakthrough on cashless payments in land-based gaming. A sector that is prepared for shifting consumer trends should by definition be in a better place to offer protections. The alternative of remaining marooned in the shrinking cash economy is clearly not in the long-term interests of the industry or the consumer – and in time it may also be bad news for the regulatory establishment.
Norway: online regulation – getting darker?
Norway is an important market at c. 50% the size of Sweden (including monopoly positions) or c. €475m in 2017 (RP estimates). Because the market is typically lumped in with ‘Nordics’ it doesn’t get much discrete attention. Also, a combination of high connectivity, high spend per head and a strong remote banking sector (see cashless article above), means that the market is likely to have very high drop-through to contribution for exposed operators, in our view.
Norway has been sabre-rattling about .com activities for some time, to little obvious effect (and has had inadequate payment blocking measures in place since 2010). It is telling therefore that the week the Norwegian Gaming Authority is consulting on new payment blocking legislation, Mr Green also announced it was pivoting away from the market, given the emerging risks. Further, we believe there is a risk that Norway could lean on a newly empowered Swedish regulator to help with enforcement – a course of action that could also be followed by (similarly important) Finland.
The Nordics have typically been seen as a liberal, reasonably homogeneous growth driver with neutral to positive regulatory positions (Denmark is regularly championed as a model). However, with growth slowing, focus on tax and regulation in Sweden and growing focus on monopoly enforcement in Norway, the Nordics could be swinging from an attractive mixed market to an increasingly polarised and difficult set of jurisdictions. Given the importance of the Nordics to a number of pan-European operators and suppliers as a base, this shift is likely to have profound sector consequences if driven to its logical conclusions, in our view.
Belgium: eSports – no loot
After a period of consideration, the Belgium Gaming Commission has ruled that loot boxes constitute a game of chance, and therefore these elements within games such as CS:GO, FIFA and Overwatch are considered gambling under its legislative provisions. This decision is contradictory to the position in the US and GB regarding chance elements within games. While in both of those nations it was recognised there is potential for children to encounter gambling type elements within games, Belgium’s Justice Minister went further and stressed the potential for harm (particularly of children) from the “close relationship between gaming and gambling”, which was the principal reason for the decision.
By design, computer games contain chance elements, as part of gameplay and to upgrade in-game items such as loot boxes and chests. Where there is any form of stake element there is the potential for the game to fall under gambling legislation. This decision of the Belgium Gaming Commission has potentially far-reaching consequences for eSports (where there may be a requirement for a gambling licence to run tournaments) and video games in other jurisdictions. The increasing regulatory scrutiny may necessitate a complete re-think of the development of games, to limit or exclude RNG as well as enforcing a strict 18+ policy