Industry strategic consultancy Regulus Partners kicks off the new year with a look at the use of VIPs by UK licence holders.
UK: gambling regulation – online VIP reliance exposed?
The Guardian newspaper has received information on the VIP concentration of some apparently leading GB licensees following a Freedom of Information request to the Gambling Commission.
The expose has been quickly picked up and widely reported, largely with a view to demonstrating an industry reliance on VIPs and the vulnerability of VIPs to gambling related harm. Unsurprisingly, this is being used by some stakeholders (who typically already have a position) to call for tighter regulation of VIPs, call out the GB licensed sector as ‘bad business’ and drive the agenda for tougher regulation more generally.
We have written regularly in the past that there are areas where we see tighter regulation as desirable and there can be no doubt that large elements of the sector have been nothing short of exploitative in certain instances (and sometimes endemically), especially before the tougher scrutiny and tougher rules of recent times. However, this backdrop should not trigger an open season on the sector and the findings of the ‘expose’ need to be set into context. We have three issues with the mainstream reporting of the data expose and how it is being position from a policy perspective – and one recommendation for the sector.
First, while there are important discrepancies between the Guardian’s graph and the text commentary that open questions of data integrity, the average VIP concentration of the data provided (9 material operators, albeit one with a very small VIP cohort: likely a fairly representative concentration sample despite big differences in VIP definition) appears to be the top 3% of customers provide 34% of the deposits, with the top 5% generating 60-80% in two instances (the 2% – 83% ratio reported looks a little suspect to us, especially if it is a very big operator, and this split is not reflected in the graph). Even if we factored in the suspect outlier, this would move the unweighted average to 2% of customers generating 34% of deposits.
At face value this is a very high deposit (reasonable proxy for revenue) concentration. But is it really, and can we really say that it shows a reliance on VIPs? In the UK, the top 3% of earners represent 12.5% of total earned income (ONS), so a 34% concentration looks higher than that. However, with higher earnings comes exponentially higher disposable income – which the UK’s progressive Income Tax policy is designed to mirror. While figures for the top 3% are not available, the top 1% of Income Tax payers provide 28% of receipts while the top 5% generate 49%. The VIP data is therefore pretty much exactly in line with UK Income Tax distribution.
Indeed, if it were not, a case could (and no doubt would) be made that the industry was exploiting the poor… It is also worth considering the number of customers who will have only one or two bets per year (e.g. the Grand National or England in an International football match, or tempted by just one offer) skewing the total number of actives vs. the regular players that make up every operator’s core (and not just in gambling – this is fairly normal for business generally). This issue is not therefore the bald percentages of revenue concentration, however shocking they may look to anyone not familiar with basic concepts of wealth inequality or user concentrations, but whether VIPs can afford their expenditure (i.e. they are from sustainably wealthier cohorts and are not foregoing basic needs): this is an important need for protection but not one that the data is in a position to illustrate at all.
Equally, banning VIP schemes would not necessarily reduce this expenditure if it is sustainable, but it may encourage players who like to be treated like VIPs to seek illegal (unrestricted) supply. Undoubtedly, there is a strong logic for regulating affordability and ensuring that loyalty/expenditure is rewarded rather than exploited – betting than the GB regulatory framework does now (the Guardian’s point that seven in ten regulatory penalties have VIP status as a factor is a fair and apposite one) – but this is very different to ‘ban’.
There is no data on affordability provided (though it is, rightly, becoming an increasing area of focus for the regulator and industry), but the proxy for harm is the Problem Gambling score. Here, it is reported that of the VIPs which have taken the test (a small sample), 8% are problem gamblers ‘”11 times the rate among the wider public”. Since VIPs are gamblers (by default), comparisons with the ‘wider public’ are pretty meaningless when considering the additional harm that being a VIP might entail vs. being an ordinary remote gambler. Here, overall scores are 3.7% for sports (with a very long tail of occasional use due to the skew of big sporting events) and 8.5% for casino (with more concentrated play). Given that VIPs are (very) likely to fit into the regular player category, the casino benchmark would be the most sensible proxy regardless of product and here VIPs are bang in line with overall averages. Is this figure too high? Almost certainly; but does VIP status suggest an increased risk of harm? – not on the evidence provided when properly analysed (again, this is also dangerous – some VIP schemes almost certainly have been or are inappropriate in the nature of their inducements, but these issues get shown up and dealt with through granular analysis, not sweeping statistics – policy should be the same, in our view).
Finally, this data is not collected through Annual Assurance Statements and while the Gambling Commission, as a public body, is bound by FOI requirements, many operators are likely to be wondering how the Guardian knew to ask for this ‘secret report’ after providing sensitive data. Equally, a one-newspaper expose is bound to have the mixture of sensationalism, selective disclosure (deliberately or just editorially) and data discrepancies we can see here. Such exposes are a great way to shape popular opinion and the opinions of lawmakers or other stakeholders who prefer to grandstand on perceived issues rather than to understand and seek to solve real ones. Whatever the source and motives of the directed fire, the result was very predictably ill considered sensationalism and much bandwagon jumping – not conducive to the kind of debate Britain needs to shape its review of current gambling legislation, but very helpful to those with a pre-conceived view.
Our recommendation to the industry is simple. The gambling industry has historically been very poor at understanding and explaining its own data other than within the narrow operational context of product, marketing and retention. Every board member who has not previously asked about revenue concentrations, affordability and the suitability of VIP schemes should probably feel a little embarrassed. Every executive who cannot explain the revenue concentrations or specific business practices they shed light on in a measured and convincing way, knowing that harm is being mitigated as much as possible, should be more than a little embarrassed. These figures only have the power to shock if they make the industry look guilty and historically the industry has tended to look as guilty as a Christmas puppy sitting next to a mess on the carpet at practically every disclosure. Until the industry can own its data and harm-mitigation reality – which means really understanding and facing up to the issues which offering gambling products can cause (not sitting in an operational bunker and/or relying on PR), sensationalist press exposes will land policy blows – however, half-baked they may be.