Industry strategic consultancy Regulus Partners looks at the launch of Gamvisory, Penn National Gaming’s 36% acquisition of Barstool Sports and the use of adtech in safer gambling initiatives.
US: sports betting – a seat at the table or a stool in the corner?
This week Penn National Gaming announced that it would take a 36% initial stake in Barstool Sports, valuing the company at US$450m. The commercial element of the deal is an exclusive 40-year branding and content relationship for sports betting and online casino across the 19 states that PNG operates in. PNG gets a young, dynamic sports content business and brand, with a clear voice and niche, currently, at 66m unique monthly visitors, many of whom are likely to be of a betting demographic.
Barstool gets a valuation that moves it from challenger (reportedly valued at only US$10-15m when acquired by Chernin in 2016) to credible content business as well as an anchor tenant for the longer term. Judging from PNG’s share price reaction (+18% over two days), the market, as well as most commentators, see the deal as a powerful and potentially transformative one.
Barstool has been around since 2003 when it started out as a print magazine (in the .com heyday carrying gambling ads) and went online in 2007 (with more sports content, including fantasy). Its big break came from ‘cheeky’ podcasts, and it announced a distribution deal with AOL in 2014. It now ranks higher than several big US brands in terms of podcast penetration and its ‘bloke in a bar banter’ style hones its demographic very clearly.
Within this context, 66m unique monthly visitors is essentially a very good proportion of US college – middle-aged men who are not (indeed are probably anti) woke. It is not unreasonable to suppose that this is a very strong betting demographic.
While no longer run by the founder, he is head of content and his exhortation to buy PNG stock seems to have resonated with fans. He has had his share of controversies though, and specifically in regard to Barstool’s editorial style and ‘target market’ (google it). And herein lies our first pause on a deal that appears to stack up well.
Barstool is so popular because it is thoroughly irreverent and ‘jock’ driven, – in a way that deliberately skirts what more liberal types might consider good taste. As an independent or PE backed brand, this is fair enough – the US is a free country including the freedom offend and to be offended (and sue). PNG has not created an arms-length agreement to benefit from the reach while managing the risk: it is going all-in on the brand (including retail sportsbooks in casinos) and in the capital structure.
If they water it down or try to insist on guidelines to protect their own more serious, regulated brand image (with regulators and politicians as well as broader customer groups such as women) then they risk killing the goose that appears to be laying golden betting eggs. If they don’t, they potentially put that brand at risk: with politicians, regulators and material cohorts of customers. That looks pretty double-edged to us, particularly given that sports betting expansion in the US is ‘pre-crisis’ and so most bold moves look like a good idea…
Our second pause is valuation. We recognise that is rather boring, and that ‘something’ needs to be done to counter the stranglehold of DFS conversion and the threat of Fox. But this is a big something with uncertain returns. The current brand won’t drive revenue in the medium term: the quality of product will create its own brand resonance (for better or worse). This deal looks to us therefore that it attempts to compete with first-mover advantage without being enough to take on DFS-led operators directly, while not being enough to secure second wave market share. Brand and customer segmentation are obviously important components, but this looks like overkill to us, especially given the risks.
As we explain in this week’s US sports betting blog, the US sports betting market currently looks like an overheated environment that is ripe for a number of economic, fiscal and regulatory corrections. The PNG’s Barstool deal looks more like a symptom of that than a solution to it, in our view.
UK: In Parliament – IDS issues Betway summons to Gambling Commission
“The Government has committed to a further review of the Gambling Act to ensure it remains fit for the digital age” – the refrain from DCMS ministers has been trotted out several more times this week. It is ironic that a catchphrase coined by the former Deputy Leader of the Labour Party, Tom Watson should now form the central strut of the Conservative Government’s barricade against questions on gambling policy. This is now the answer to answer all parliamentary questions on the subject – no matter how apt or inane they are – as it was for such a long time with FOBTs (during the last triennial review).
It seems likely that this is the response that Ranil Jayawardena (Cons, North East Hampshire) will receive to one of the more intelligent PQs from this week, when he asked what “recent discussions” the Chancellor of the Exchequer, Javid had taken place with the Health Secretary Care, Matt Hancock “(a) the cost to the NHS of treating (i) addiction to gambling and (ii) gambling-related harm and (b) the proportion of that cost that is accrued to the public purse through taxation on gambling”.
Britain’s licensed operators generate around £3bn in gambling duties annually as part of a broader tax footprint that encompasses VAT and corporation tax. The duty element is substantially higher than what would be paid if gambling consumers simply paid standard rate VAT.
The logic of requiring consumers to pay more in tax for betting and baccarat than they do for burgers and bowling is not clearly articulated. However, it seems reasonable that – as part of any review of treatment funding – consideration ought to be given to the question of whether the ‘super tax’ element of gambling duties ought to be directed specifically to harm prevention.
Meanwhile, Jo Churchill, the junior Health minister issued a reminder of her department’s plan to set up a new national cross-Government addiction strategy in 2020 which will include plans to reduce the level of gambling disorder. Whether the review of the Gambling Act and the addiction strategy will be coordinated is hard to say (but the track record on such tasks is not promising). Jim Shannon (DUP, Strangford) is likely to be interested; this week he asked the Health Secretary “what progress …has made on tackling gambling addiction”.
The strangest PQ of the week came from SNP firebrand, Ronnie Cowan who asked whether “operating legally in all jurisdictions is a condition of license for gambling companies to operate throughout the world”. For a member of a legislative assembly to ask whether legality is central to erm.. legality is odd indeed. We must suppose that the Member for Inverclyde had meant to ask whether an operator may hold a British licence if it is operating on an unlicensed basis elsewhere in the world. If so, then this is indeed a pertinent line of inquiry – and one that politicians and the Gambling Commission are likely to come back to.
Britain’s gambling regulator received a (presumably unwelcome) summons to Parliament this week from former Tory leader, Iain Duncan Smith in order to answer questions about the beneficial owners of the remote gambling firm, Betway. IDS asked the Leader of the House of Commons, Jacob Rees-Mogg to “recall the cross-party concern about the misbehaviour of many online betting companies and the growing drive towards addiction as a result of that misbehaviour” and to “encourage the Secretary of State for Digital, Culture, Media and Sport to call in the Gambling Commission, which now refuses to release the name of the individual who owns Betway”. He continued: “Nobody knows where its money comes from, and it seems absurd that in this circumstance we cannot now find out. It is time we got to the bottom of this”.
Mr Rees-Mogg seems an unlikely champion of such investigations (he reportedly described MPs who agitated over the ‘Paradise Papers’ as “hypocritical and not very bright”). However, as we know, gambling firms tend to be judged by a different set of standards. Mr Rees-Mogg responded that “I know that the issues he raises are of concern across the House. I have heard what he has said, and I will make sure that the relevant Department knows too”.
The era of austerity may be over but that did not stop the Government announcing this week a massive cut in funding to prevention and treatment services for gambling harm. On Tuesday, the gambling minister, Helen Whately stated (in response to a PQ on funding) that in 2018/19, gambling operators in Great Britain donated a whopping £9.6bn (or about two-thirds of industry GGY) to the grant-giving body, GambleAware.
Two days later, she was forced to admit that funding was in fact 0.1% of this level – or £9.6m (c50% of all industry funding to harm prevention and treatment charities). Clearly the first answer was a mistake (and to err is to be human). However, instances of people in positions of authority correcting their goofs is all too rare in the gambling debate. In general, responses to PQs on gambling from the DCMS tend to be level-headed and grounded in facts rather than opinions (others might take note).
Staying with the grown-ups, Lord Grade’s Select Committee on the Economic and Social Effects of Gambling reconvened this week in the House of Lords to quiz senior figures from horseracing and from lotteries. The committee’s approach of seeking to understand rather than vilify or humiliate is refreshing and points to a more civilised and scientific mode of inquiry than we are used to.
Testimony from racing and on-course bookmakers revealed once again the tendency within the gambling debate to defend one’s position by reference to malfeasance elsewhere (in this case, citing greater restrictions on in-running bets than may be found in other sports). This is both understandable and relevant – but hardly very uplifting.
Next week, the big guns of Britain’s remote gambling industry – bet365, GVC, Flutter, William Hill and Sky Betting and Gaming – will take their places in front of the committee (along with the Betting & Gaming Council). Unlike the previous one-hour sessions, next week’s hearing will run for two hours and there is a sense that this may be the climax (if not the end) of the inquiry.
With the world’s biggest gambling trade fair, ICE getting into swing down at London’s excel centre (likely a target for those in the press who exist on a hair-trigger of moral outrage) the timing is unfortunate but entirely accidental. If events run to form, we might expect a ‘creeping barrage’ of negative press stories to soften up defences before the hearing begins.
UK: safer gambling – Adtech kerfuffle highlights need for woke-blocking
It is said that some people are never happy; but why is it that so many of the people who claim to promote health and happiness seem so utterly joyless? Last weekend, in what is perhaps the nadir (so far) of woke absurdity in the gambling debate, Sky Betting & Gaming (‘SBG’) was criticised for its work on harnessing adtech to allow people to block gambling commercials.
SBG has been working on this project for some time (indeed, its former parent and then minority shareholder, Sky TV announced plans for gambling ad blocking as far back as 2018). On this occasion, the confected outrage seemed prompted by the revelation (and not a new one at that) that the Gambling Commission was involved in the project – as if somehow that was a matter for concern. So far as we know, none of those who criticised the Commission and SBG have lifted a finger on adtech or put together a more effective approach (outside of simply calling for everything to be banned).
There is a sense at the moment in many European markets that gambling operators simply cannot catch an even break (a subject that the president of the International Association of Gaming Advisors, John Hagan will address with gambling regulators from the Netherlands and Malta as well as the American Gaming Association on Monday at ICE). The apparent inability of some politicians and commentators to distinguish between good and bad practice is unlikely to aid harm prevention.
There appear to be two important lessons to be learned from the episode: 1) it is time to stop trying to appease those of an intolerant or bullying persuasion; and 2) the regulator and the regulated need to resist the temptation to issue press releases about (and seek credit for) things that they are planning to do – and focus instead on effective execution and raising standards.
UK: safer gambling – experts by experience assemble
This week saw the launch of Gamvisory, a new organisation that aims to create a more structured way for those with lived experience to contribute their insights to harm prevention. The new body is led by experts by experience, Nick Phillips, Alex Macey, Rebecca Jones and James Grimes. According to its website, the group – which is currently recruiting additional members – seeks to “meaningfully engage with audiences that may have conflicting views to [their] own”.
As we have observed ad nauseam, the policy debate on gambling in Great Britain is too often characterised by misinformation, dogma and intolerance (particularly from those who really ought to know better). Initiatives like Gamvisory offer the hope that we may be able to make better progress by engaging directly (as distinct from the tactics of dislocated disparagement on twitter).