This article originally appeared in the November/December edition of Gambling Insider magazine: Modern regulation is certainly a complex topic. GVC director of regulatory affairs Martin Lycka shares his personal views with Gambling Insider on the key to getting regulatory framework correct and where emerging markets Sweden, Germany and the Netherlands currently stand.
Legal and regulatory certainty is the modern-day mantra of the online gambling industry. It unlocks investment opportunities and secures access to assets that are indispensable for its seamless operation, such as payments services or app stores. The European online gambling market, taken as a whole, is edging closer to completing the big shift from a sparsely regulated space to one where every country boasts regulation of its own. In most cases, the regulation allows private online gambling operators to enter their respective markets, subject to licensing and paying tax.
The countries that have regulated online gambling drew inspiration from one another. Yet, there’s a strong element of wheel-reinvention, usually designed to reflect the country’s political and cultural leanings and other idiosyncrasies. Brushing aside the laudable efforts of the European Commission to harmonise technical standards that apply to online gambling products, the existing European regulation (similarly to the nascent US one) is a patchwork of national laws and regulations gambling operators, as well as others in this space, are expected to navigate through.
Every new territory added to an operator’s list of licensed jurisdictions increases the overall complexity of the technological, product and regulatory compliance processes that underpin the business operations. For that reason, it’s critical to assess each new kid on the block from two key angles: evaluation of the commercial potential of the market in question-based on a data-driven cost/benefit analysis, and assessment of the impact implementation of the country-specific regulatory rules will have on the operator’s overall ecosystem.
Buying power combined with pre-regulation market shares plays a key role in relation to the first part of the analysis; rigidity and clarity of the applicable technological rules mandates the outcome of the second. A positive outcome of the assessment exercise is conducive to operators applying for local licences, which by implication reduces the size of the remaining unregulated market.
Bearing the above in mind, it comes as no surprise that European jurisdictions with high levels of GDP have attracted a lot of keen interest from within the online gambling industry. The first wave of regulation has extended to France, Belgium, Spain, Denmark and a little later also the UK. Conversely, despite having sketched out regulatory plans many years ago, Germany, Sweden and the Netherlands have taken longer to reach the safe harbour of regulated markets. In fact, the Dutch ship is only scheduled to land throughout next year, whereas the journey Germany embarked upon has been full of twists and turns. Out of the three, the Swedish authorities struck first.
The Swedish blues
The Swedish online gambling regulation entered into force on 1 January 2019. The regulation itself is modelled around the existing Danish online gambling regulation, which allows for all online product verticals, including sports betting, poker and casino, subject to taking out a local licence. The gambling tax rate stands at 18% of gross gaming revenue (GGR). These regulatory parameters were bound to have warranted a flurry of initial licence applications and the operators have indeed duly obliged, hoping to replicate the regulatory success they had previously experienced in Denmark.
However, it became clear nearly from the word go that the Swedish authorities intended to opt for a rather more stringent interpretation of some of the key applicable rules such as those related to betting offers or advertising. This approach has led to concerns about the ability of the regulation to efficiently capture the regulated market and drive away operators that are not licensed in Sweden. Studies into the newly regulated Swedish market put the current level of market channelisation below 80%.
“The recent developments in Germany are a major breakthrough in a rather long-winded regulatory saga. They cater for long sought-after legal and regulatory certainty in one of the biggest European gambling markets. Their actual impact on the German market is yet to be measured but the practical operation of the new rules will arguably give the industry an opportunity to lobby for their further improvement.”
The downward trend is unfortunately expected to be further compounded by additional regulatory restrictions introduced in July 2020. These restrictions, implemented by the government in response to the COVID-19 pandemic include among others a SEK 5,000 ($570) weekly deposit limit for casino play and a SEK 100 cap on sign-up bonus offers. The additional restrictions are due to expire at the end of 2020. The big question the Swedish authorities will have to grapple with is whether their regulatory approach is suitable to ensure adequate levels of consumer protection within the bounds of the regulated market.
The convoluted path of Germany
Owing to the fact that online gambling is a prerogative of the 16 German states, as opposed to one of the German federal government, Germany was always going to take a sonderweg approach to find a consensus on a definite regulatory status of internet sports betting and casino. Regulation allowing for the aforesaid product verticals is scheduled to enter into force on 1 July, 2021, after years of tough political negotiations. In the meantime, operators can rely on a combination of recently granted sports betting licences, and a poker and slots tolerance policy in order to continue servicing customers.
The sports betting licences set out rules that will govern the main features of the regulated German product. They include certain restrictions on the betting offer as well as a set of wagering limits, with a possible increase to up to €30,000 ($35,492) per customer account. Operators that have obtained their sports betting licences are now obliged to present the German regulator with an implementation plan for the individual licensing requirements for approval. The plan will govern the timelines going forward.
The poker and slots tolerance policy provides for a set of compliance criteria these products will have to meet to be allowed. The key criteria revolve around customer verification, deposit limits (€1000 a month per customer account) and poker and slots related advertising. The policy entered into effect on 15 October 2020, with additional restrictions on slots kicking in on 15 December 2020. The tolerance policy has been modelled around the post-July 2021 German regulation, so it will give an early insight into how the German authorities envisage handling all the above-mentioned matters in the future.
The recent developments in Germany are a major breakthrough in a rather long-winded regulatory saga. They cater for long sought-after legal and regulatory certainty in one of the biggest European gambling markets. Their actual impact on the German market is yet to be measured but the practical operation of the new rules will arguably give the industry an opportunity to lobby for their further improvement.
The Flying Dutchman is finally scheduled to land
Just like the German regulatory process, the Dutch version is nearing its happy conclusion. The authorities in the Netherlands have sought to introduce online gambling regulation for the best part of the last 10 years. Countless drafts and consultations later, a new Dutch Remote Gaming Act was adopted in February 2019 and is scheduled to enter into force on 1 March 2021. Just like its counterparts in Sweden and Germany, it will permit all the now standard online gambling verticals: sports betting, casino, (including slots) and poker. The products will be subject to a gambling duty of 29% of GGR plus several tax add-ons. First licences are currently expected to be granted towards summer 2021.
The Dutch authorities have beaten their German counterparts to the introduction of a tolerance policy, which allows offshore operators to continue servicing the Dutch market in the run-up to future licensing. The Dutch iteration of the tolerance policy foresees a number of criteria operators designed to ensure operators do not target Dutch customers, such as exclusion of the Dutch language, typically Dutch symbols or the use of .nl domains. Compliance with the tolerance policy has been subject to strict policing and regulatory enforcement.
It follows that the Dutch online gambling market will enter its regulated era over the course of next year. The rate of success of the market, as is the case of all the other regulated markets, will be determined on the basis of the rate of channelisation of the previously unregulated offer into the regulated fold. It’s certainly in the interest of operators, customers and the Dutch authorities that the rate is as high as possible.
And that’s the key lesson to emerging markets. Only a sufficiently high channelisation rate can ensure adequate levels of consumer protection in the regulated markets.