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IN-DEPTH 20 June 2016
The Brexit effect: What a leave vote could mean for Gibraltar gaming companies
With the UK set to vote in the upcoming EU referendum, Julian Rogers assesses the potential impact of “Brexit”, especially on the i-gaming hub of Gibraltar
By Julian Rogers

Ever since Prime Minister David Cameron announced that the British public will get to decide whether their country remains in or leaves the EU, the referendum has hogged the media spotlight. Indeed, June 23, the date of the vote, has been firmly etched on Britons’ minds for months, helped in no small part by the “remain” and “leave” campaigners constantly laying out their arguments, including the economic impact on the UK. In terms of the UK gambling industry, attention has begun to focus on Gibraltar, the self-governed British Overseas Territory off the southern tip of Spain that has established itself as an i-gaming hub over the past 10-15 years.

Gibraltar, which has been in the EU since 1973 as part of the UK’s membership by virtue of Article 355 of TFEU (Treaty on the Functioning of the European Union), may only cover 8.6 kilometres – two thirds of which are taken up by the famous “Rock” – but it’s home to around 30 licensed B2B and B2C gambling companies. A vote to leave the EU could prove to be a hammer blow for the territory’s economy and its i-gaming sector, which accounts for an estimated 20-25% of GDP. “The government here has made it very clear that a Brexit has even more severe implications for Gibraltar than it does for the UK,” says Gibraltar’s gambling commissioner, Phill Brear.

“Gibraltar is a smaller, less flexible and robust economy than the UK’s, and is more dependent on EU law and arrangements than is the UK.” Although Brear suggests a vote to leave seems “extremely unlikely”, he acknowledges that it would be prudent and good business practice to plan for the unexpected. “It is inevitable and quite proper that for the next few months this possibility will be factored into various interested parties’ thinking when considering business decisions, but it is one of many, and has been under discussion for some nine to 12 months already.”

There are around 3,000 people directly employed by gambling operators in Gibraltar, while approximately 1,000 jobs indirectly rely upon the industry. And it’s a melting pot of nationalities. Many i-gaming employees reside in Spain and make the daily commute across the border. In fact, some 10,000 people travel from Spain to work in Gibraltar every day of the working week. Brexit raises the spectre of border restrictions, or the capricious powers that be in Madrid may decide to shut the border altogether. Indeed, Spain’s foreign minister sparked controversy in March when he said his country would demand control of Gibraltar “the very next day” if Britain voted out. Whether this was a legitimate threat or just sabre-rattling, it certainly raised the stakes.

One prominent online gambling firm that has made the territory its home is London-listed 32Red. CEO Ed Ware is unequivocal in his support of Gibraltar remaining part of the EU. “It is abundantly clear that remaining within the EU would be much the best thing for the continued prosperity of the jurisdiction, with factors involving Spain and relationships at the border front of mind,” he tells Gambling Insider. “We are a distinctly British business and the arguments for Brexit have resonance with us, but, overall, I would say we would be risk averse to a change in the relationship with Europe and believe the best scenario is to stick with the reformed EU option.”

It’s position shared by Peter Howitt, CEO of the Gibraltar Betting and Gaming Association (GBGA), which represents the interests of almost all operators based on the Rock. Howitt says his association would prefer the UK and Gibraltar to remain in the EU, especially because the freedom of movement of people is a “huge benefit” for its members. “The often difficult relationship with Spain means that loss of these rights would exacerbate border issues and controls and make life more difficult for border workers and our businesses. Having personally witnessed the misuse of border controls for political purposes, this is a concern. I think this issue also means Gibraltar has more at risk that than the UK from Brexit.”

He adds: “Clearly, the impact of a Brexit event on Gibraltar's economy, people and all our workers living in Spain could be significant. We will be encouraging our members and all workers in the sector to vote in the referendum.” Howitt’s says his desire for Britain and Gibraltar to remain in the EU is based on legal and practical concerns.

If the UK does leave the EU it won’t happen overnight. In fact, it’s likely to take two years to fully ratify, which gives operators time to implement contingency plans. Furthermore, new options and alternatives may emerge for Gibraltar. Some suggest Gibraltar will be able to negotiate access to the common market, though this does seem speculative.

And unless the UK broke away from the EU but remained within the European Economic Area, like Iceland, it’s bound to lead to prolonged legal wrangling. “There would be significant work required to untangle the legal rights the UK and EU currently benefit from and rely upon, so it would be a busy two years,” argues Howitt.

Meanwhile, in Europe’s other i-gaming hub, Malta, online gaming regulators are watching with keen interest and keeping fingers crossed that the UK votes to stay. It’s the uncertainty that would follow a vote to leave that concerns Malta Gaming Authority Executive Chairman Joseph Cuschieri. “I think that currently, and in the eventuality of a UK exit from the EU, the biggest concern is the uncertainty that will follow, as it is not yet clear or indeed known what will be the UK’s relationship with the EU.

The MGA regulates a number of companies which also hold a UK Gambling Commission licence and should the freedoms of movement be severely affected, then I would expect that these operators would have to restructure in a way that best suits their business model and commercial interests.”

If the polls are to be believed, the prospect of the UK leaving the EU has become more likely as the vote has drawn closer. Some even have it on a knife-edge. Yet leading betting exchanges – often cited as a barometer of public sentiment – have “in favour of staying in the EU” at odds of around 1.4 (an implied probability of 71%) as of April. It is perhaps why Clive Hawkswood, CEO of the Remote Gaming Association, says none of his members have raised Brexit as a concern, adding that it isn't “perceived as a major issue”.

He also says the issue has caused fewer ripples in online gambling when compared with other industries. “The main reason for this is that there is no internal market for gambling services and to that extent there is no headline economic or regulatory benefit that British operators might lose.

“The risk is also mitigated by the fact that most operators are now licensed in multiple jurisdictions. So at least part of the business would probably remain within the EU and, should there be any possible incentives for online gambling companies within the EU, such as pursuing challenges against regimes that may not be deemed to be EU-compliant, then they can still pursue them through those parts of the business.” Despite the eyes of the world being on the UK come 23 June, Global Betting & Gaming Consultants (GBGC) Director Warwick Bartlett expresses slight bewilderment at the conspicuous lack of evidence in the public domain to back up remaining in or leaving. “On a vote that affects everyone in Europe you would think there would be a great deal of information available, but there isn’t. I find that very odd, which leads you to believe that no one knows.” But what most Gibraltarians know for sure is that they don’t want the British to turn their backs on Europe.
DISCUSS THIS ARTICLE
IN-DEPTH 16 August 2019
Roundtable: David vs Goliath – Can startups really disrupt the industry?

(AL) Alexander Levchenko – CEO, Evoplay Entertainment

Alexander Levchenko is CEO of innovative game development studio Evoplay Entertainment. He has overseen the rapid expansion of the company since it was founded in early 2017 with the vision of revolutionising the player experience.

(RL) Ruben Loeches – CMO, R Franco

Rubén Loeches is CMO at R. Franco Group, Spain’s most established multinational gaming supplier and solutions provider. With over 10 years working in the gambling, betting and online gaming industries, he is skilled in operations management and marketing strategy.

(JB) Julian Buhagiar – Co-Founder, RB Capital:

Julian Buhagiar is an investor, CEO & board director to multiple ventures in gaming, fintech & media markets. He has lead investments, M & As and exits to date in excess of $370m.

(DM) Dominic Mansour – CEO, Bragg Gaming Group:

Dominic Mansour has an extensive background of nearly 20 years in the gaming and lottery industry. He has a deep understanding of the lottery secto,r having been CEO at the UK-based Health Lottery, as well as building bingos.com from scratch, which he sold to NetPlay TV plc.

What does it take for a startup to make waves in gaming?

DM: On the one hand, it’s a bit like brand marketing; you build an identity, a reputation and a strategy. When you know what you stand for, you then do your best to get heard. That doesn’t necessarily require a TV commercial but ensuring whatever you do stands out from the crowd. Then you have to get out there and talk to people about it. 

AL: Being better than the competition is no longer enough; if you’re small, new and want to make a difference – you have to turn the industry on its head. Those looking to make waves need to come up with a new concept or a ground-breaking solution. Take Elon Musk, he didn’t found Tesla to improve the existing electric cars on the market, he founded it to create the industry’s first mass-market electric sports car. It’s the same for online gaming; if you want to make waves as a startup, you have to bring something revolutionary to the table.

JB: Unique IP is key, particularly in emerging (non-EU) markets. As does the ability to release products on time, with minimal downtime and/or turnaround time when issues inevitably occur. A good salesforce capable of rapidly striking partnerships with the right players is vital, as is not getting bogged down too early on in legal, operational and admin red tape.

How easy it for startups to bring their ideas to life? How do they attract capital?

AL: It depends on the people and ideas behind the startup. Of course – the wave of ‘unicorns’ is not what it used to be. Some time ago the hype was a lot greater in terms of investing in startups, but that’s changed now. Investors now want more detail – and even more importantly, to evaluate whether the startup has the capacity (as well as the vision) to solve the problem it set out to address. That’s not to say investors are no longer interested in startups – they certainly are – but now more than ever, it’s important for startups to understand their audience as well as dreaming big.

JB: To get to market quickly, you need a great but small, team. If slots or sportsbook, the mathematical engine and UX/UI are crucial. Having a lean, agile dev team that can rapidly turn wire framing and mathematical logic into product is essential. Paying more for the right team is sometimes necessary, especially when good resources are scarce (here’s looking at you, Malta and Gibraltar).

Building capital is a different beast altogether. You won’t be able to secure any funding until you have a working proof of concept and, even then, capital is likely to be drip fed. Be prepared to get a family and friends round early on to deliver a ‘kick-ass’ demo, then start looking at early-stage VCs that specialise in growth-stage assets.

How do you react when you see startups coming in with their plan for disruption?

RL: We welcome the innovation and fresh thinking startups bring. This is particularly the case in Latin America, with a market still in its infancy. One area we’d especially like to see startups making waves is in the slot development sector. Latin America is a young market that needs local innovation suited to its unique conditions – especially in regard to mobile gaming.

Operators eyeing the market have Europe‐focused core products, which creates a struggle to work to the requirements of players and regulators. To succeed there, it has become more important than ever to work with those with a knowhow of the local area to adapt products and games to besuitable from the off; we welcome the chance for local talent to develop and grow.

Do you think it’s easier for established companies to innovate and establish new ideas? 

AL: From a financial perspective, yes. It is without a doubt easier for incumbent companies to establish a pipeline of innovation via their R & D departments, as well as having the tools to hand for data gathering and analysis.

But it stops there. Startups hold court in every other way. Not only are they flexible, they can easily switch from one idea to another, change strategy instantly as the market demands and easily move team members around. Established companies know this – and this is why we’re seeing an emerging trend for established companies to acquire small, innovative online gaming start-ups. They have the right resources and unique ideas, as well as the ability to bring a fresh approach to businesses’ thinking.

RL: For me, it’s always going to be established companies. Only with the resources, industry experience and know‐how can a company apply technology and services that truly make a difference. Of course there are exceptions. But when it comes to providing a platform that can be approved by regulators across multiple markets – as well as suiting an operators’ multiple jurisdictions – it is simply impossible for a couple of young bright minds with a few million behind them to get this done.

DM: I actually think it’s harder for established companies. It’s key to differentiate between having a good idea and executing one. That’s where the big corporates struggle most. They’re full of amazing people with all sorts of great ideas but getting them through systems and processes is nearly impossible.

Is it essential to patent-protect innovative products?

AL: It’s a very interesting subject. If we take IT for example – patents can actually become a block to the evolutionary process within the industry. Of course, getting a patent future proofs yourself from the competition copying your concept but, having said that, if you’re looking to protect yourself from someone more creative, smarter and agile, you’ve probably lost the battle already!

In our industry everything is moving faster and research takes less time than the development itself. No matter how good you are at copy pasting, you can’t copy Google or Netflix. The most important thing is not the tech itself but rather its ‘use-case’ – or in other words, does it solve what it’s meant to solve? Competition is healthy and the key to innovation. If you spend your whole time looking behind you, you’ll never be able move forwards.

JB: Tricky question, and one that depends on what and where you launch this IP. It can be difficult to patent mathematical engines and logic, mostly because they’re re-treading prior art. Branding, artwork and UX is more important and can easily be copied, but the territories you launch will determine how protectable your IP will be once patented. US/EU/Japan is easy but expensive to protect in. But China/South East Asia is a nightmare to cover adequately. Specialised patent lawyers with experience in software, and ideally gaming, can help you better.

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