Industry strategic consultancy Regulus Partners reflects on another week of UK and European setbacks for gambling incumbents. Despite broader regulatory frameworks in-place, political relationships appear more complicated than ever before…
Sweden: online regulation – losing the war…
Most online gambling operators that comment on their regulatory strategy or policy tend to state that they favour growing domestically regulated markets (funnily enough) and many listed businesses use domestically regulated revenue mix as a KPI. Most online gambling businesses also stridently agree on the type of domestic regulation they like to see: unlimited licences, relatively low taxes, limited product and advertising restrictions, principles-based regulation and a channelling-centric player protection regime (where there is one). Sweden, with the arguable exception of bonus regulations, offered all of these components and so unsurprisingly has attracted 116 licences across over 70 operators and has been held up as a template for other regimes to follow. However, in a little over three months of operation, the regime has also attracted significant political backlash and it is now reported that ‘at least 16 enforcement cases’ are before the regulator: up to c. 20% of licensed operators (depending upon whether some licensees have multiple cases).
Such is the level of concern expressed around advertising volumes in Sweden (and these did not start low pre-domestic regulation: see WPs passim), that Svenska Spel has unilaterally decided to pull all remaining casino advertising for this year. In a similar vein, it is continuing to call for stricter casino product regulation (including risk classifications) and an industry-wide casino ad ban. In a sense it can afford to – it is the biggest operator, with the biggest name recognition and it has the landbased presence to support brand building (and slots revenue) without advertising.
However, even if some might see elements of commercial cynicism, Svenska Spel’s proposals also tap into increasing domestic concerns and at least demonstrate a willingness to seek responsible outcomes (that they might be a little self-serving is hardly a criticism the commercial sector can make without blushing). The danger for the rest of the Swedish licensed sector is that if the former monopoly’s plans seem to be the only ‘credible’ industry-driven solutions on the table (perhaps along with PAF’s proposals to publish and reduce high roller exposure…), then they may very well be adopted by exasperated regulators and politicians.
A big issue with the process of domestic licensing, we believe, is when licensees see a domestic licensing process as a simple shift of existing practices into a new fiscal-regulatory framework with some added paperwork and costs as the main point of transition. Sometimes, this is indeed the case, usually when the regulator takes a while to catch up. However, in real underlying terms, the move from POS to POC means new rules, a new master and therefore a potentially completely new way of doing things. In other words, existing business practices and products need to be completely reviewed, through the lens not only of compliance but also of political-regulatory reaction (and we are saying no to innovation or commercial spirit here, just an understanding of the landscape and risk parameters). So far a critical mass of (mostly) online gambling businesses have been dangerously poor at this transition, in our view.
Whatever the precise outcome of Sweden’s potential ‘re-regulation’ may be, one thing can be said with some certainty: the newly licenced commercial sector is covering itself with something, and it isn’t glory. The commercial gambling sector in many jurisdictions is often wont to wonder when its political saviour might come or when its more sensible voices will be heard (and there are indeed many).
The answer to this is painfully simple, in our view: when the sector collectively stops defecating on its own doorstep and not a moment before, however good the intentions or the PR of some participants may be…
UK: In Parliament – week of “disgrace” as MPs choke on their cold turkey
It was perhaps inevitable that – even after its demise – the Fixed Odds Betting Terminal should continue to be the subject of parliamentary ire; and this week, MPs once again showed their obsessive-compulsive relationship with the “crack cocaine of gambling”.
At Thursday’s oral questions for the Department for Culture, Media and Sport, the gambling concern firebrand, Carolyn Harris (Lab, Swansea East) asked – in response to last week’s short-lived Paddy Power and Betfred experiment with over-the-counter roulette- “What promises can the Secretary of State make that the industry will not be allowed to do that in pursuit of further exploitation?”
Electing vilification as the wisest mode of response, the Culture Secretary, Jeremy Wright (Cons, Kenilworth & Southam) replied: “The actions of those who tried to find a way around the procedures banning the things that we across this House have decided should be banned were disgraceful.”
John Hayes (Cons, South Holland and The Deepings) piled on the misery by referring to “the sinister attempts of corporatist, globalist gambling firms to bypass the new restrictions on fixed odds betting terminals.”
As we have written before, the OTC roulette episode is something of a storm in a styrofoam cup – a matter that reflects badly on most of those involved but possibly not something that should cause grave concern amongst policy-makers.
MP attacks on GVC for doing exactly what they had been asked to do by the Government (migrating machine content from B2 standards to B3 standards) seem completely unjustified but demonstrate that there is no benefit of the doubt (or presumption of innocence) where gambling companies are concerned these days. The Pavlovian gnashing of fangs does little to suggest that some of those leading the prosecution against the industry within Westminster have much interest in balance or factual accuracy.
By contrast, Tom Watson (who campaigned long and hard for FOBT stake reduction) has moved onto more pertinent matters of policy. His intervention during DCMS orals was to ask a timely question about debts incurred from gambling online with credit cards. While we ought to be careful where anecdotal evidence is concerned, the Member for West Bromwich East’s testimony – that a “young woman… racked up a crippling debt of over £100,000 using nine different credit cards in just two days while gambling online” (with the “disgraceful” LeoVegas and Casumo) is alarming.
We don’t know the facts of the matter but given the Gambling Commission has recently issued a call for evidence on gambling online on credit cards, the Labour Party Deputy Leader’s interest is significant.
On a more positive note, the Sports (and gambling) Minister, Mims Davies (Cons, Eastleigh) joined party colleague, John Holland in a misty-eyed call for duty reduction on Football Pools. There is some logic in migrating the pools to a lower tax bracket along with other ‘softer’ forms of gambling – bingo, low-stake machines (youth gambling concerns aside) and on-course betting. Given the current macro and micro-political environment, it is likely to be a long road ahead – but one that must start with a single step.
Elsewhere, the All Party Parliamentary Group on Gambling-related Harm (with the support of the Guardian) forced Mars into withdrawing an M&Ms slot machine-style sweet dispenser from sale at M&Ms World in London’s Leicester Square. The furore over “the crack cocaine of candy” seems overblown but the MPs probably have a point in terms of what is considered appropriate these days (the Kellogg’s cereal, Krave Choco Roulette is another example of brand marketing out of step with the times). There is however a sense that the outrage over gambling is spilling over into intolerance. How long before school texts of Jane Austen are redacted to remove all references to whist and faro or MGM is forced to reissue the 21st James Bond movie as a short-film called ‘Royale’?
Next week’s parliamentary break may offer slight temporary respite to the gambling industry; but gambling policy will be back with a bang later this month. The Conservative back-bencher, Richard Graham (Cons, Gloucester) has secured a Ten-minute Rule Motion for 24th April on the matter of instituting a responsible gambling levy – the day before the Gambling Commission is expected to make an announcement on treatment funding at the launch of its National Harm Reduction Strategy. The absence of any detailed plans for treatment expansion makes funding estimates highly subjective. What we do know (and leaving aside “problem gambling epidemic” hyperbole) is that current provision levels are likely to be insufficient. Operators should be budgeting for increased funding requirements in the years ahead.
Czech: online regulation – sin tax hike
The Czech government has announced its intentions to increase ‘sin’ taxes on gambling, tobacco and alcohol. Betting will face a 2ppt (9%) increase to 25%, while casinos will increase by 7ppts (30%) to 30%.
The tax rates do not therefore tip into ‘unworkable’ from a player or competitive standpoint (though the Czech regime has other issues there), but they do represent a significant increase from a domestic licensee bottom line perspective. Indeed, if the average operating margins of 20% were to be assumed, the Czech government would be taking c. 25% of domestic sector profits – or likely more than all the profits of smaller operators (pre-mitigation, such as cutting wasteful marketing spend).
The Czech Republic’s proposed move echoes a growing number of gambling tax grabs around Europe and should further highlight an important distinction (also increasingly relevant in new markets in the US and elsewhere): gambling might attract special taxes, but they are not fiscally incremental (as sin taxes are designed to be) unless they capture existing non-taxed supply (usually small in overall economic terms) and/or they are set at a rate materially higher than the prevailing VAT/GST (in Czech’s case 21%, or 17% on a cash basis), since mass market gambling spend is effectively displacing other forms of consumer expenditure.
While operators may generally and understandably want taxes to be set below or around equivalent VAT/GST rates (where gambling revenue is not captured by VAT/GST), these rates are likely to look increasingly vulnerable to a ‘sin tax’ hike, in our view – especially with the industry’s political reputation in such a poor state nearly everywhere.