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IN-DEPTH 25 February 2019
No industry is an island
Gambling consultant Steve Donoughue assesses the future of low-tax gaming jurisdictions in Europe in light of Brexit and point-of-consumption regulation
By Gambling Insider

It is one of the truths of the gambling world that nobody can be as lucky as the Netherlands’ top gambling lawyer, Justin Franssen of Kalff Katz & Franssen. Blessed with looks, charm and intellect, he has also been gifted the lifetime privilege of speaking at conferences worldwide about when the Netherlands will finally legalise online gambling. He has been doing this expertly for what seems to be an eternity and will undoubtedly be waxing lyrical about it well into his dotage. For the rest of us on the conference circuit, Britain’s biggest national act of self-harm, Brexit, provided us with a conference speech topic that lasted for just a few months before we were forced to move on to topics more exciting, as its impact on the online gambling industry was forecast to be minimal.

Let us be certain; Brexit, unfortunately, is still happening. There is an ever-growing chance the UK will crash out of the EU with no deal at 11pm on 29 March 2019 and the excreta will truly hit the fan. Planes will stop flying, insulin will run out and fruit will rot on the trees. However, what will not happen is a fall in online gambling. At the very least, British staff wishing to work in Malta will have to queue for longer at Malta International Airport; at worst they will need visas and permission to work. But given how accommodating the Maltese government has been to its British visitors over the last two centuries, and especially those working in the industry, there’s little chance this will be overly onerous.

Brexit will have a variety of impacts on the differing offshore online gambling jurisdictions. In some ways, this forecast hasn’t changed much since we were making speeches about it a couple of years ago. Malta, the largest gaming island, will carry on and grow as a licensing jurisdiction. Gibraltar, on the other hand, will suffer the risk of an unfettered Spain making the activity of crossing the border harder and harder. This, in turn, will make it more difficult for the majority of expats who live in Spain to actually get to work.

The likelihood of this goes up with the increase of internal issues regarding Catalonian independence, as Gibraltar has historically been used by Spain as a distraction from internal strife. Some operators have already stated they are scouting out offices in Malta ready for a move should the Spaniards become even more intolerable. Unfortunately, the British navy doesn’t have enough ships to park one in the bay and all the sailors will be on riot duty at Dover.

Then we consider the islands of Alderney, Jersey and the Isle of Man. Bizarrely, if you apply for a British gambling license, when you go through the list of countries where your key equipment is supposedly located (obviously it’s in the Cloud), you have to put United Kingdom if it’s theoretically located on one of these islands. There is no option for the Isle of Man, Jersey or Alderney, even though they’re staunchly not part of the United Kingdom. They’re Crown Dependencies, running their own governments for hundreds of years, and in the case of Alderney, the first European jurisdiction to offer online gambling long before Great Britain.

You would’ve thought they’d be on the list when you consider Bouvet Island is. Bouvet Island is an uninhabited sub-Antarctic island and dependency of Norway located in the South Atlantic Ocean and not a known online gambling jurisdiction. Such is the sophistication of the Gambling Commission. The key thing is they have never been in the European Union so Brexit means little to them.

The Isle of Man has the most to look forward to of these islands, as it is home to a significant cluster of operators and supporting businesses. This is unlikely to change; its strategy to grow as a luxury destination may be more difficult, though, due to the climate and timezone (the 1950s). Alderney and its bigger brother Guernsey have suffered more due to the imposition of the Point of Consumption (POC) tax than most.

The point-of-supply system was the tiny island’s raison d’etre and now that’s gone. At least Gibraltar and Malta have the weather, so Alderney is no longer the go-to destination if you want a license; which is a shame, as they are a very accommodating bunch.

But now it seems they are the disaster recovery destination of choice and that’s not all that bad, is it? You can’t put a data centre in a Wicca Man. Poor Jersey, however: it took them a decade to break through their Methodist hate of gambling to change their laws and try and ape their neighbour Alderney. Just when they finally pass the law, the then White List is closed and Point of Consumption comes in. If you want a low-tax jurisdiction that is more fun than Alderney but doesn’t have all that nasty sunshine of Malta or Gibraltar, Jersey is the place for you. They should market it to gingers and goths.

In reality, these islands have taken their hit because of POC and Brexit is theoretically of little account. But I fear this may not turn out to be the case, because these Channel Islands are actually what the more rabid form of Brexiteer wants a future Britain to be; a small tax-free island on the edge of a bigger landmass offering financial incentives with no restrictive laws protecting workers.

If the UK becomes the offshore island of the European mainland, what will these islands do then? How do they differentiate themselves? It's far too cold to grow marijuana.

I also don’t think Malta and Gibraltar will have it all their own way. One thing we can be certain of is a post-Brexit UK will have a regulatory environment much the same as it is now. We can also be certain it will also be in step with other European mainland jurisdictions and that they will all have an increasingly anti-gambling political narrative.

Europe is beset with populist politics and part of that includes a reaction to an increasingly popular and public online gambling industry. There will be ever-increasing calls for restrictions on advertising, registration and massive increases in money and controls for problem gambling. The regulatory pendulum is swinging the other way.

What this means is we have two diverging approaches to regulation and government approval of gambling. Firstly, the operators on the islands are loved ever more for their growing contribution to the domestic economies. Yet, on the mainland, their activities are being ever more restricted and taxed as governments and regulators pour more and more un-evidenced scorn upon them, dancing to the tune of a populist press.

Then what? Who knows?

Brexit may well have a severe impact on the UK economy. The Organisation for Economic Co-Operation and Development estimates a hit of 4% of GDP; and that all forms of revenue will become welcome and HM Treasury will order the reining in of the Gambling Commission’s dogs and a return to a regulator which actually supports the industry it regulates (as it's statutorily supposed to). Equally, the economic shock of Brexit to the rest of the EU may be significant enough to make mainland jurisdictions feel a financial pinch, so they loosen things up to stimulate gambling-derived tax revenue.

But, more than likely, we will suffer a further shift to the populism financial shocks cause, as they did post-2008; with that comes a further dislike of the perceived immorality and capitalist rapaciousness of gambling. This will mean Britain and the EU further tightening the screw on our industry and, with that, lobbying Malta and Gibraltar to follow suit.

So, the future is bleak my friends – and we are all doomed. God bless Brexit and can you please help me dig this bunker?

Steve Donoughue has been a consultant to numerous international gaming companies, advising them on a wide range of issues from penetrating new markets to political strategy. Steve has ensured projects not only comply with legislative requirements, often in a changing political landscape, but are commercially successful.
IN-DEPTH 4 September 2019
Virtual reality: Creating next-gen experiences for players

Singular CEO George Shamugia discusses a new revenue stream for casino operators

The competition in online gaming is intensifying, with players becoming more and more demanding. In some markets, single-customer acquisition costs can reach up to €400 ($440) alongside growing churn rates. Furthermore, the online gaming sector struggles to attract one of the most lucrative groups of players – millennials. The experience provided by casinos no longer appeals to the younger generation.

On  the other hand, the video gaming industry perfectly understands the needs of millennials and by introducing elements of luck in their games offers the best of both worlds. With the launch of loot box systems and Grand Theft Auto’s in-game casino, we have seen their first successful steps in targeting the online gaming sector. GTA V online, with 33 million active players, recently opened an in-game casino, where players gamble real money on games such as poker, roulette, slots, etc. As a result, churn users returned and GTA Online reached the highest number of active players since its launch in 2013.

The online gaming industry has almost fully utilised the potential of the mobile medium. The time has come to look for new, innovative ways of delivering a next-gen experience to customers.

The potential of VR

Could the next big thing for online gaming be a fully fledged virtual reality (VR) casino delivering an immersive experience and limitless new opportunities?

Although not widely adopted yet, VR has a sizable number of customers. Analysts predict it’s poised for explosive growth to become mainstream in about five years. According to market intelligence firms, the VR market will be worth $117bn by 2022, and according to Juniper Research bets made through VR will reach $520 billion by 2021. Upcoming 5G mobile network technology will propel VR’s mass adoption by allowing the development of fully portable untethered and affordable VR headsets.

Different level of social interaction

The captivating nature of gambling comes from its social aspect. Unfortunately, personal interaction is widely missing from online gambling sites. VR technology creates multiple opportunities to bring back and even enhance that social moment. The ability to connect with other players is one of the main reasons behind Fortnite’s popularity. This form of co-experience is the next generation of entertainment. Research conducted by Facebook has found participants spend more time on VR compared to any other medium. This directly translates into increased profits for casinos.

Pokerstars has made efforts in this direction by implementing Voice UI. Instead of using hand controllers to make a call, pass, or raise, players give voice commands.

Another opportunity for bringing in the social element are the players’ avatars. They enable players to build their identity reflected in the avatars’ appearance, but also the avatar's social, competitive and community status. For instance, players are willing to pay real money for virtual drinks at the bar. Operators can offer these social touchpoints for free to VIP customers as an act of appreciation.

VR also brings a new dimension to customer support. Customer support can also be represented with avatars to assist the player in person. The social moment increases the LTV of players and contributes towards lower churn rates.

Rethinking game design

VR is a way more capable medium than a 2D mobile or desktop screen. Instead of copying the existing online experience, games must be redesigned from the ground up for a competitive advantage with VR. For example, a VR slot game can become fully immersive by teleporting the user into the slots’ world of Ancient Egypt. Next, enrich the experience with high-fidelity graphics, realistic spatial sounds and animations. When betting on virtual race cars, the user can be teleported inside the car he/she made a bet on and experience the race firsthand.

New revenue streams

VR casino lobbies create new revenue stream opportunities: ad placement of brands on the venue walls, company logos decorating the bar etc. This kind of branding is not intrusive in the VR space and feels natural from the user's perspective. VR also gives users the ability to change venues from a Las Vegas casino today, to Macau or even Mars casino, the very next day. The dynamic and diverse experience increases retention rates.

The majority of profits for online gaming operators come from their high-roller players. Although they represent a small subset of active players, an operator can launch a separate VR casino brand for them. Providing exclusive VR gaming experiences to high rollers/VIPs, the operator can minimise churn and maximise VR efforts for these player demographics.

The catch with VR is to focus on quality, rather than scale. The target audience might be limited yet, once these players experience it, they will become ambassadors for your offering.

Surely, the opportunities and possibilities offered by the VR medium truly exceed anything offered by mobile and desktop. VR is a new frontier not just for gaming but for every industry, and it’s exciting to see where it takes the industry and what kind of innovation it brings upon us.