Winning Post: Pre-COVID fragility doesn’t bode well for UK gambling

Regulus Partners begins the week by looking at the gambling industry’s perceived fragility pre-COVID and the Swedish ministerial ‘climb down’ on deposit and bonus limits.

UK: Regulation – Daily Mail relieves Gambling Commission of duty

It seems that one of the effects of Covid-19 has been an abacus shortage in officialdom, so little do matters add up anymore. This week, the Gambling Commission took the highly unusual step for a regulator to announce that it had been unable to levy a £3.5m sanction on one of its licensees (Playtech) because of those pernickety things called erm…regulations.

It was thus left to the Daily Mail to force the issue, gently persuading Playtech to pay the sum voluntarily; and raising the question of whether responsibility for regulating Britain’s gambling industry has now been transferred from Victoria Square House to Fleet Street.

The latest sad chapter of Britain’s gambling review centred on the death by suicide in 2017 of Chris Bruney, a young man from Sheffield, who had been a ‘VIP customer’ with the Playtech subsidiary, Winner (with whom he spent a net £35,000). Almost two years later, the Gambling Commission opened an investigation into the matter. It found a number of social responsibility and source of funds failings in relation to the treatment of Mr Bruney and VIPs more generally.

Following the conclusion of the investigation (in October 2019), Playtech paid £620,000 towards the National Strategy to Reduce Gambling Harms and also committed £5m over five years for mental health and gambling-related charities. At this point, Playtech surrendered a licence seemingly kept open only in order to facilitate the probe. It is far from clear that the company exploited any loopholes to evade punishment – or even that such loopholes exist.

There is no suggestion that Playtech failed to cooperate with the investigation; indeed, it accepted the findings without demur. The Commission’s press release grumbled that the company had not made notification of the suicide but given that the Daily Mail had carried the tragic news as early as June 2018 this seems a weak excuse for what the activist, Matt Zarb-Cousin (of Clean Up Gambling) described as the regulator’s “failure to act quickly”.

What is not clear from the Commission’s ruling is whether the fine it felt unable to levy reflected the nature of Playtech’s social responsibility failings (not contested by the company) or the perceived consequences. Cases of death by suicide are both highly emotive and deeply complex, which is why the Samaritans repeatedly warn (and are repeatedly ignored by the press, MPs and others) against over-simplification or sensationalist reporting.

When the TV presenter Caroline Flack (who had been hounded by the press) died earlier this year, the media were quick to point out the multi-factorial nature of suicide; but such nuances tend to evaporate from reporting where self-interest is not involved.

The Daily Mail cited a coroner’s ruling that Mr Bruney’s death was “caused in part by the ‘shame of gambling’” which would indicate that other factors may also have been involved (and made no mention of Playtech or any of the other licensees that Mr Bruney transacted with). If it was the Commission’s intention this week to imply licensee culpability for the tragic death of a young man then it probably succeeded; but in so doing it opened up the question of wider responsibility, including its own. Further, there have been attempts in the recent past, in the UK and elsewhere, to establish state responsibility in similar cases – it is difficult to know where the cost of blame might end up.

This week’s events have inflicted further damage on the standing of Britain’s licensed gambling industry as it sails towards a major review of gambling legislation; but it has also exposed the Gambling Commission once again to questions of transparency and competence. With a (presumably damning) Public Accounts Committee report expected soon, significant change at the Commission is looking increasingly likely. In the interests of governance and human tolerance, we must hope that the installation of the Daily Mail in its caretaker role as Britain’s gambling regulator is only a temporary measure.

UK: Casinos – Latest Report Reveals pre-Covid Sector Fragility

The publication of the land based casino drop in win figures for the period to March 2020, highlights the fragility of the sector as it entered the Coronavirus emergency. For the first time in eight years, revenue from table games was recorded below £750m – a long way from the 2014 peak of more than £1bn – although these figures exclude around £225m of machine revenue.

The high-end has been particularly hard hit as a result of a weakening international market and progressively more intrusive regulatory requirements. Revenue for the year fell to £109m – more than 60% lower than in 2015 when six London clubs generated nearly £300m in table gaming income and substantially less than the £137m reported by one club (Les Ambassadeurs) in 2014.

The data hardly bodes well for a sector that has been shuttered since 20th March and – along with most operators in the hospitality industry – faces severe challenges upon reopening. High-end clubs face the additional issue that the international high-roller market is likely to remain in abeyance while travel restrictions and quarantine measures remain in place. Even after customers are permitted to travel with relative freedom, it is not clear how many of them will choose to do so.

The sector has long lamented the preservation of legacy approaches to regulation and taxation (with effective rates of duty in excess of 45% for some) that pre-date the advent of online gambling and so reflect a more restrictive approach to licensing. Revival of this historic and culturally rich sector of Britain’s gambling industry may require a somewhat more enlightened approach from regulators and legislators than in recent years.

Sweden: revenue statistics and regulatory change – little Chance and no Free Parking

The Swedish Gambling Authority has reported Q120 GGR figures that demonstrate overall online resilience. Headline GGR for Q120 is SEK3,657 (€350m), flat QoQ and up 7.2% YoY – roughly in line with other mature markets and demonstrating limited net effect (positive or negative) from COVID-19 disruption. The state lottery (including VLTs) was 34% down QoQ to €110m but against a very strong Q4, the YoY decline was 21%; land based casinos were also down 20% against their run-rate average to €20m, reflecting thinning attendance (social distancing measures + consumer behaviour) followed by closure (from 29 March: right at the end of the period). Land Based bingo (not for profit) was down 10% to €5m, again reflecting social distancing measures (they remain open), while restaurant casino was down 23% also to €5m (social distancing, many closed).

Given that Sweden reports GGR including bonuses and that the number of online licensees has remained broadly flat (71 in Q120), Sweden’s NGR position is likely to have improved materially as sign-on bonuses are washed through the system. We would estimate that Q119 bonusing was c. 40% of GGR (as everyone was trying to capture customers and all could offer everyone a bonus), a figure which is now likely to be c. 20% (less than the typical figure due to the regulatory distortion, but with plenty of licensees to go round for all but the most avid bonus hunters). On an NGR basis, YoY growth is therefore likely to be a much more impressive 40% as bonus distortions were through.

Sweden is therefore rather bizarrely doing two things at once: it has significantly improved the monetisation of its regular player base and therefore revenue channelling (albeit from over-generosity rather than a black market), while also increasingly encouraging a black market as customers run out of sign-on bonuses within the domestically regulated market and seek unlicensed alternatives (something they and the operators are legally entitled to do so long as the operators do not ‘target’ Swedish customers: see WPs passim).

The problem for the Swedish domestically regulated market is that the first driver has now likely largely washed through while the second driver is only just getting going (as reported previously while the black market assessments may be broadly accurate, the fact that they are GGR-based exaggerates the impact due to bonus distortion). Further, judging from Q1 operator results, the vast majority of the net revenue growth gains are accruing to the former monopolies (which also report GGR) rather than former .com licensees.

Sweden is therefore growing net revenue to the benefit of former monopolies while also likely to have an increasing problem from a black market: former .com licensees are caught in the middle of this. They have a major problem, albeit not the one that is typically presented (an existing rampant black market).

It is within this context that the ministerial ‘climb down’ on deposit and bonus limits should be seen. By hitting only gaming (and only from likely from July), these measures will do little to impact the former monopolies (which are much stronger at betting than gaming, have nearly all of their actives already and the limits are likely to be high enough for most of their customers to be unaffected), but they will give further incentives for VIPs especially to find offshore casino supply – and make it harder for smaller casino-led operators to attract customers. The Swedish licensed former .com sector, gaming and VIP-led as much of it is, is therefore likely to be hit even harder. It’s as if the former monopolies were writing the rules all along…

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