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.
South Africa: National Gambling Amendment Bill – if at first you don’t succeed…
The National Gambling Amendment Bill 2018 (first tabled in September 2016 but much changed since then) looks like it is going to have to undergo further major surgery to get it through the legislative process. Following the anticipated robust industry response to consultation, the Committee is preparing a redraft for presentation to the National Assembly which will exclude some of the most contentious provisions. Operators will look to push home their advantage in the public hearings which are taking place over the next ten days. Further delay might be inevitable, but South Africa represents an increasingly rare jurisdiction – one that is listening to its commercial gambling industry stakeholders.
As we have written previously (Winning Post, 27 July 2018), the Bill contained some significant (possibly existential) threats to operators, including: repositioning the National Gambling Board as the National Gambling Regulator and increasing its inspectorate powers; imposing additional restrictions on gambling advertising; strengthening casino / machine / bingo regulation; and prohibiting betting on dog racing. Other than dogs, the product set most at risk seemed to be ‘secondary lotteries’, a core staple of many provincial betting operators, if highly controversial as seen as a direct competitor to the lottery (with a similar debate raging in other jurisdictions). A significant disruption or banning of that product could prove terminal for many businesses as currently constituted.
However, in the latest twist in this long-running saga, most of these reforms appear to have been watered down or completely jettisoned. In an implicit admission of defeat (or simply that the issues are just too difficult), the Committee has used the parliamentary programme as a reason to narrow the focus of the Bill down to the reconfiguration of the National Gambling Board to the National Gambling Regulator and the National Gambling Policy Council’s governance challenges. All submissions received on other points in the Bill are being referred to the (no doubt delighted) DTI.
South Africa’s domestic operators will not be relaxing (and certainly not celebrating) yet; this feels like a battle has been won while the war continues. The remaining proposals are contentious enough, and there will be resistance to them in the hearing stage. On top of that, the shelved matters will undoubtedly resurface at some stage. Chief among those is likely to be the secondary lotteries issue, with LottoStar currently in the High Court and at least two overseas competitors with similar models going through provincial licensing processes. Given the history of this Bill, these issues are likely to run for a while yet, in which case there will be opportunities for some to take advantage of the on-going uncertainty.
Nevertheless, South Africa does not appear to have given up its intention to improve and modernise its legislative framework (last revisited in 2004), which could yet be an opportunity as well as a threat. Many offshore operators have pulled out of the market due to the stringent interpretation of the 2004 Act (including warning customers that their winnings will be seized and that they may face criminal charges if they gamble with offshore operators). A modernising rethink which listens to commercial stakeholders must be a positive, however long and winding the road…
UK: In Parliament – the writing’s on the wall
Still on the theme of long-running processes, it seems hard to believe that the original starting point for the latest (and effectively still current) triennial review of gambling regulation was October 2015, when the Government had been scheduled to announce a start date for the following January. At that time, Sam Smith was riding high in the UK charts with his theme song from the Bond movie Spectre, ‘The Writing’s on the Wall’. This week, the writing on the wall for FOBTs became a little more legible as the Government provided new formal and informal guidance on the timing for stake reduction on machines in betting shops.
The official statement was issued in response to Parliamentary Questions in both the Commons and the Lords. We were told that the Statutory Instrument was notified to the European Commission last month and would proceed to Parliament as an affirmative resolution “for the usual process of approval, in the Autumn term”.
At the same time that ministers were informing Parliament, Government officials appear to have been whispering in the ear of the Financial Times, which revealed that stake reduction would now take effect next year rather than in 2020 – and possibly as early as April.
These revelations will have been received warmly by most – but not all – members of the anti-FOBT parliamentary lobby. Jim Shannon, the DUP Member for Strangford and long-term critic of Government policy on gambling was told this week by the minister Tracey Crouch (Cns, Chatham & Aylesford) that the Statutory Instrument would not cover FOBTs in Northern Ireland. It would be a strange irony if Northern Ireland became the last bastion of £100 LBO roulette, given that critics (including Mr Shannon) have long questioned the very legality of the machines in the country.
Keeping the pressure on Government, 32 Parliamentarians (15 from the House of Lords and 17 MPs) signed an article in the parliamentary magazine ‘The House’, calling on the Government to implement the £2 FOBT stake by 1 April next year. The article cited the interests of “the families of those who died and whose lives have been blighted by these machines”. Signatories included the Deputy Leader of the Labour Party, Tom Watson (Lab, West Bromwich East); the Leader of the Liberal Democrats, Vince Cable (LibDem, Twickenham); Chair of the Health Select Committee, Sarah Wollaston (Cons, Totnes); TV’s Lord Sugar (crossbench); and the Liberal Democrat Baroness Bonham-Carter (the great-grand-daughter of the Liberal Prime Minister Herbert Asquith and cousin of the actress, Helena Bonham-Carter).
In theory of course, we ought to be expecting the DCMS to announce the timetable for the next triennial review – to begin in January 2019. It would no doubt be unseemly to embark on a new review when the current one has yet to complete (and when so many issues have been devolved to the Gambling Commission for further consideration). We will not be holding our breath.
Elsewhere, it was another week of harm in Parliament. On Monday, Mike Hill (Lab, Hartlepool) led an impassioned debate in the Commons on the subject of racehorse protection – the result of an e-petition that gained more than 100,000 ‘signatures’. Mr Hill cited campaigner claims that “nearly 200 horses are killed on racecourses each year” while others are injured and subsequently die away from the course. He went on to lament that “horses are whipped as normal practice” with more than 500 offences on this count annually. He criticised the BHA, stating that it had “failed to take pragmatic steps when horses have been killed”. However, the Government reaffirmed its support for the BHA as the independent regulator for equine welfare, rejecting calls for a new independent body to take on the role. The heated nature of the discussion however demonstrates the extent to which racing needs to be sure footed with its engagement with the ‘anti’ lobby; as with other ‘anti’ lobbies, much will be misinformed and/or prejudiced, but some elements will have a kernel of truth and all issues will need to be addressed effectively and responsibly. Racing has a recent object lesson in what happens when an industry treats ‘antis’ with contempt and will itself face the financial consequences – hopefully it has learned some valuable lessons from the ‘what not to do’ playbook (bookmakers do not have a monopoly on myopia or conceit).
Harm to bipeds was also much in discussion – and is likely to become the dominant theme of political-regulatory discourse in the industry over the coming months and years. The Gambling Commission and Responsible Gambling Strategy Board are starting to put together a system for reporting and analysing incidents of gambling-related harm in Great Britain; something that has clearly attracted the interest of the House of Lords. This week, Lord Chadlington (Cons) received a response to his question on the number of hospital admissions over the last five years “linked to gambling addiction”. The Department of Health & Social Care duly responded that in 2017/18, there were 107 finished admissions episodes “with a primary or secondary diagnosis of pathological/compulsive gambling” – up from 65 in 2013/14. The Conservative peer enjoyed less satisfaction in relation to his question on gambling-related divorces, where the Government does not hold any useful data (although we note that the divorce service, DivorceOnline claimed in 2016 that 20% of all the cases it handled cited gambling as a factor).
Suicide is the sharpest end of the gambling harm debate. This week the Bishop of St Albans asked the Department of Health how many suicides “were linked to gambling addiction or problem gambling from 2010 to 2018”. Given that Lord Chadlington has repeatedly asked (without joy) variations on the same question, it is unlikely that the noble prelate will receive much in the way of enlightenment. With preliminary research on gambling-related suicides currently in field (having been commissioned by GambleAware) and the Gambling with Lives concern group proving itself effective at gaining the attention of press and politicians, it seems likely that the Government will need to come up with a better answer sooner or later.
Two Labour MPs picked up on the question of whether the financial services industry had any responsibilities in relation to gambling harm. Sir Mark Hendrick (Lab, Preston) enquired whether the Government would require payday lenders to make individual risk assessments when lending to people with gambling problems or mental health issues. His party colleague, David Drew (Lab, Stroud), asked a similar question (for all lenders rather than just payday companies), only to be told that existing regulations (regarding affordability) were sufficient. Given that bankruptcies and debt relief orders along with the use of debt services are included in the draft gambling harm reporting framework, Treasury ministers may also need to come up with more specific answers.
Having set out its stall on gambling reform at its party conference last month, Labour is keen not simply to press the Government on the myriad issues facing the industry, but also to embarrass ministers where the opportunities arise.
This week, Chi Onwurah (Lab, Newcastle-upon-Tyne Central) picked up on reports that Vasilijs Melniks, the owner of the Park Lane Club in London was under investigation in the Ukraine for money laundering, fraud, embezzlement and corruption. Onwurah asked whether the Gambling Commission “undertook due diligence” on Mr Melniks prior to granting his operator’s licence in 2014. It is of course a fair question and one that highlights the fact that if public trust in gambling has declined over the last decade, this is down to the actions of legislators and regulators as well as operators. Licensees may well reflect on the Melniks episode with more than a hint of schadenfreude.
Portugal: gambling tax – back to square one?
A reported amendment to Portugal’s punitive betting taxes (8-16% turnover) to make all online gambling taxes 25% GGR within the draft budget appears to have fallen foul of political wrangling. The move would have made the Portuguese market function much more effectively and would have almost certainly welcomed more licensees (currently very thin on the ground) and generated more taxes for the Portuguese government in pretty short order. While there might be much still to play for, the ‘non-news’ does demonstrate the extent to which in the current global climate it is much easier to damage gambling interests politically than to enhance them…
Italy: gambling taxes – out of love with the machine sector
Italy was once the pin-up for state-sponsored gambling. Gambling boomed in times of difficulty, so the anecdote went, because the Italian government would turn to gambling to raise revenues. The series of gambling reforms legislated as a direct result of the L’Aquila earthquake seemed to demonstrate that this assumption was alive and well as little as little as nine years ago with the Abruzzo Decree. Not anymore. The Italian government’s latest response to the slow dismantling of the machines sector (a particular target of the Five Star movement both locally and nationally) is to increase taxes: by 1ppt (16%) on VLTs and 2ppts (10%) on AWPs.
Given the supply constrictions coming in and the likely inability of many smaller operators and distributors to bear the tax increases, this is likely to shrink the €10.5bn GGR Italian machine sector further, in our view – reducing supply more than it raises revenue (the sector is already down 7% from the figure above in the first 9 months of 2018). However, in the current political climate, this may be precisely the point…
Global: M&A Watch – Golden Nugget / Caesars Entertainment; DAZN Group; Penn National Gaming / Pinnacle Entertainment; Premiership Rugby / CVC.
- It has been reported that the owner of the Golden Nugget casinos has approached Caesars Entertainment about a possible merger.
- It has been reported that the majority shareholder in the DAZN Group is planning to sell the Perform Content division of the business in order to focus investment in DAZN.
- Penn National Gaming has completed its acquisition of Pinnacle Entertainment Inc.
- Premiership Rugby has said that it is likely to sell a minority stake in its business as it considers a second bid from CVC, among several other proposals.