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IN-DEPTH 10 July 2019
Who will be first to cry "nanny state?"
Industry veteran Kevin Dale argues for a strategic plan for the industry to find middle ground in regulation and change the narrative
By Gambling Insider

Barely a day goes by without some article announcing the advent of new regulations, operator fines, advertising bans and restrictions - and the headlines make for some uncomfortable reading. With little by way of industry response, it often feels like a battering.

How is it in 20 short years, we have gone from a dynamic, internet-ready entertainment sector to social pariahs? More to the point, what can we do about it?

Many of our younger customers won’t remember the days when the choice for gamblers in some countries was a smoggy casino or a seedy betting shop with darkened windows and no advertising.

The experience of entering a betting shop had that clandestine feel of looking over your shoulder before entering the velvet-curtained sex shop next door. Fast forward through the boom times and the sector is now a victim of its own success – or its own failings.

There’s no doubt the easing of advertising restrictions, combined with the brave new world of internet access, has led to some serious social issues. With a broader market appeal, there are now more of us betting than before and, since a percentage of all players are vulnerable, there are more problem gamblers out there than there used to be.

The same can be said for other pastimes too, such as drinking. Quite simply, there are some of us who have less tolerance, less self-control or a propensity to abuse the freedoms afforded to us.

Some of the new products we designed didn’t help either – fixed-odds betting terminals in particular have come in for some justifiable criticism. The more socially acceptable punt on a football match is a far cry from pouring your wages into a machine designed to maximise engagement.

Profits were reinvested into marketing and we are now one of the biggest advertisers across all media and the largest sponsors in sport. In our efforts to make gambling a broad and socially acceptable pursuit, we have achieved the opposite; at least if the headlines are anything to go by.

Some argue the high-profile campaigns of gambling companies amount to a deluge. So, the pendulum swings back, with regulation coming thick and fast. Given some of our excesses, this is not necessarily a bad thing per se, but where does it all end up? Back to the dark ages of velvet curtains and outright bans? Rebranded as the vice of the great unwashed and frowned upon in social circles?

While we all have a view on this, we don’t seem to have found a voice. Maybe it’s time to set out our own vision, speak as one, seek support and change the narrative.

Our vision

Governments, gambling regulators, political parties, charities and anti-gambling pressure groups – they all have a vision for the future of gambling. Not only that, they also publish strategic plans designed to achieve their goals.

Meanwhile, we the insiders, prolific producers of corporate plans, have precious little to present collectively. In the absence of a vision, it’s no wonder we are bent over on the receiving end. If we don’t collaborate, individual business plans will be projecting revenue decline due to ‘unfavourable market conditions.’

I think most of us now accept two things: a) we overstepped our commercial freedoms and b) we really do have a duty of care. But how does this translate into policies across all aspects of marketing, operations and customer journeys? What is our view of the right level of affordability checks, of minimum bet guarantees, of sports sponsorship, of customer bonusing etc.?

On the continuum from Wild West practices to an outright ban on gambling, where do we envisage our commercial freedoms should end up? With the flick of a pen, a regulator can have a massive impact on company KPIs. Player protection, for example, can be achieved in many ways; not all of which have the same impact on costs and revenue.

The devil is often in the detail - a definition or interpretation here or there. National (or even international) self-exclusion lists, for example, are not only more effective in protecting players, but simpler and cheaper for the industry.

Proactively, we might add to our current time and loss limits some functionality forcing self-selection of deposit and stake defaults. Affordability checks (like KYCs) should not to be used as barriers to the withdrawal process and our real-time chaser identification tools can be improved too.

All these initiatives take time and money to implement; but they also reduce player burnout and this aligns with our interests. If we have a vision to espouse, then the sensible route to realising our duty of care will be more likely. A responsible industry will also find it easier to justify its marketing and sponsorship spend.

One voice

Some of the voices ranged against us in this debate have very extreme views – “indoctrination,” “epidemic” and the “modern plague” to quote a few. To grab the headlines, they’re not afraid to misinterpret the research either, even with an unproven claim that “gambling causes two suicides per day.”

You would like to think most of our lawmakers are generally a bit more moderate. After all, many of those who regulate the drinks and gambling industries like a punt and a tipple too. But, faced with one-sided arguments and a supine industry, it’s difficult for a legislator to arrive at the centre ground of sensible regulation; one which balances protection from players' excesses against preserving individual freedoms.

It’s difficult to present our vision if we don’t speak with one voice. On social responsibility, the CEOs of the largest gambling companies are very guarded in their responses to the press, politicians or regulators – and for good reason. One strident line in defence of the sector could make them a target. One slip up could turn them into the embodiment of the evils of gambling. Reputations and share prices are at stake and the political parapet is a scary place for a lone leader.

Instead, they embrace new regulations or even compete in their desire to show willingness to change, announcing new policies such as pre-watershed advertising restrictions, for example. Cynics say some of these are simply introduced ahead of impending regulation, but it does show there is a desire to at least define our duty of care.

But this isn’t how industry representation should work; it’s not the job of individual CEOs to champion an industry. Since our trade associations are largely mute, directors are being asked to comment by default. We have a number of organisations across the various offline and online gambling products and historically they’ve not been that well aligned, not least because they reflect (at times) competing interests. Not that long ago, we had the incongruous alliance between Christian groups and land-based Las Vegas casinos who successfully lobbied against internet gambling in the US – my enemy’s enemy is my friend and all that. Given the multi-product, omni-channel and international nature of our sector, it is time to put differences aside, pool our views and get behind a body that speaks for the majority. If the vision they present is a bit too 'responsible' for some of the bad actors out there, that’s fine, because this will lend the voice more credibility.

Meanwhile, when a regulatory proposal is inconsistent, unworkable, not justified by independent research or whose current implementation is grossly disproportionate to its impact on the sector, we would have a designated spokesperson who is willing to stand tall and say so. I agree with Steve Donoughue, my fellow Gambling Insider columnist, that perfect self-regulation is a pipe dream; what industry ever managed this? But a vision, backed up by a mature and robust dialogue with regulators, is within our reach.

We need allies

In our quest to arrive at this centre ground of sensible regulation, we also need allies. A voice of our own would be great, but external support is even better.

The economics of sports and betting, for example, go hand in hand. More than 60% of shirt sponsors in the top two English football leagues last season and nine of the top 10 sponsors of UK horse races were betting companies. Having edged out drinks sponsors over the years, betting and sports are a natural fit. For the vast majority, having a punt is a fun leisure activity which also increases engagement in the event.

Despite this, sports associations, clubs and players are keeping a low profile in the debate on TV ads and gambling sponsorship – even though their revenue is at risk. Horseracing gets an exemption from UK TV advertising restrictions, because it can’t survive without the money, and other sports bodies don’t question the moral logic.

Given the current one-sided narrative on the issue, it’s understandable – they don’t wish to be tarred with that wicked gambling brush. What a sad indictment this is on how far perceptions of our sector have moved in the last few years. A gambling industry with a vision and a voice would nurture their support.

What of our customers? There is good reason to expect their backing. They enjoy products far better than they were. The land-based experience abounds with technology, hospitality and vibrancy. Online, there’s a great variety of games, in-play betting and cash-out functionality. Customer value is far better too. Increased competition and online comparison tools mean achieved sports margins, for example, are in the single digits compared to 15% to 30% many years ago, meaning better returns to players.

Crucially, our customers also have a sense of their own personal freedoms to engage in entertainment activity, which irrational regulation can put at risk. While drinkers won’t mourn the absence of advertising, they will object to the pub closing at 10.30pm or being told they can’t be served after three pints. Similarly, gamblers are happy enough to set their own betting limits, but don't try telling them what their limits are.

Branches of the wider gaming sector have converged and there are allies here too. Sportsbooks offer bets on lotteries, while lotteries promote their online scratchcards and keno games. These blurred lines do not justify the televised draws and positive coverage of jackpot rollovers on the one hand, while betting companies are slated by the same states which run these lotteries.

More inconsistency and double standards? Either we team up with fellow lottery providers or, if that proves unlikely, we break down the perception barriers between the two products. Despite a fondness for lottery and bingo halls, my grandma never did approve of me working in ‘that gambling.’

A little further afield, social casino and social games (e.g. Candy Crush and Fortnite) are not considered gambling, but they still charge for features/progress and are designed to maximise engagement.

They share similarities, in terms of player excesses and thus the need for player protection. This is all relevant context for our efforts to reposition the sector and its profile. Wider still, gambling is one of many leisure activities which, for most, is enjoyed responsibly. In this sense, it has close parallels to the drinks industry. Binge drinking and problem gambling are not good, but reasonable consumption is okay.

Don’t target children, but let adults be responsible for their own decisions. Make us aware of the dangers and provide support to those who can’t help themselves. While drinks companies are unlikely allies, there are clearly lessons to be learned, in terms of applying duty of care and steering regulation towards the centre ground.

Finally, we need to look to our media profile. Most of the narrative these days is decidedly negative. At least in the debates on binge drinking, sugar tax, meat tax, fast food or compulsory cycle helmets, there are voices challenging the moral crusaders for reasons of excessive interference. But in gaming, these opinions are yet to be heard.

Maybe the time is not yet right, maybe most initiatives today are justifiable (due to our past excesses and lack of self-regulation) but a tipping point will come. With the right cause célèbre, the media cries of nanny state could be our strongest ally of all.

The advent of the internet was a great opportunity for gambling and you can’t put that particular genie back in the bottle. We were also the benefactors of gaming liberalisation - but things have come full circle. In the absence of a vision, a voice and some allies, we now risk being regulated or taxed into decline. A long-term sustainable sector is what’s needed, one in which players are allowed to indulge but are protected from their excesses - and it’s one we should all be proud to work in.

Kevin Dale has been in digital businesses since 1999 with CMO roles at Eurobet, Sportingbet and Betfair and CEO of Gameaccount (GAN plc). He consults across the industry.
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ANALYSIS
MUST READ
IN-DEPTH 11 October 2019
Landing on a monopoly

Matthew Enderby asks who benefits from a monopoly-driven gambling market and if there is any point in maintaining one.

It can appear anti-capitalist, like the government wants total control. Players are ushered to a single, often state-run operator, and only one supplier is contracted to provide the platform, making the gambling market seemingly easier to manage. But does that hold true? When monopolistic gambling markets are enforced, who is the winner? Do the players benefit from what is meant to be a safer environment? Will the public perception of gambling be more positive than in an open market?

To answer these results-based questions, the motivations behind a monopoly-driven market need to be looked at first. The initial question is always: Why? A few quick answers spring to mind. It might be testing out gambling and observing how its country responds once the option to have a bet is made legal and available. With only one operator in place, player protection seems like a reasonable motivator.

It would be easier to keep track of addiction and factors leading to problem gambling as all the data, theoretically, could be accessed in one location. The main motivator however, is revenue. With the market dominated by a single legal operator, all of the country’s gambling revenue will flow through it and to the government. But for this to be effective, there cannot be any offshore operators present.

The Swedish gambling market was opened up at the start of the year, and private companies were free to apply for a license. The reasoning for this, according to state-run operator Svenska Spel, was to achieve fair market conditions and bring order. Life before the update in legislation was not entirely different to what it is today. Despite being closed to private companies, Patrik Hofbauer, CEO of Svenksa Spel, says the previous market was only a monopoly on paper.

He tells Gambling Insider: “Around 90% to 95% of the companies now operating with licenses in the Swedish market have been here for more than 10 years, so we are already used to competition.”

Offshore operators were present in Sweden for more than 10 years. They did not pay tax and found ways to navigate around the law. Up until the start of the year, there were three legal operators. Svenksa Spel handled betting, ATG specified in horseracing, and Postkodlotteriet managed the lotteries.

A MediaVision study from October showed 60% of Swedes aged between 18 and 74 had a registered account at the end of June 2018; a 12% rise year-on-year. Roughly 58% of these accounts were with one of the three state-run operators.

On the surface, this seems like a success story for the monopolistic market, but where are the rest of them registered? Nearly half of Sweden’s gamblers, 42%, were registered with international operators. These companies held no Swedish license or authority to offer a service in the country.

What’s worse, where the monopoly is concerned, is 60% of all new accounts registered within the 12 months leading up to 30 June were with these businesses. With so many players setting up with unregistered companies, the idea of a monopoly making gambling safer, with upheld regulation, is incorrect.

Now the market has gone through its changes and levelled out, Hofbauer finds order is in place and player protection has improved. He says: “We now have a level playing field for gambling operators, increased revenues for the state, and clear rules to protect customers against excessive gambling thanks to stronger and better consumer protection. It has ultimately benefitted the Swedish customers, which is the biggest win.”

The move away from a monopolistic approach has not exactly produced a goldmine for other operators, and certainly not for Svenksa Spel. A look at its first quarter results shows a 6% year-on-year decline in revenue to SEK 2.05bn ($197.4m). Its land-based operations, Casino Cosmopol & Vegas, fell 17% to SEK416m, while lottery dropped 6% to SEK 1.1bn. It reported SEK 544m in revenue from sport and casino, a 4% increase. Operating profit for the quarter decreased 55% to SEK 519m. Svenska Spel paid SEK 401m in gaming taxes for the quarter.

While it won’t be impressed with revenue for Q1, the operator stressed one of the biggest challenges in the transition was launching three new products. Hofbauer says: “Business wise, it is positive that we now can offer our customers products like online casino and horseracing, and also offer more competitive pricing."

Improved pricing is another reason Swedish customers will be happy with the change in legislation. So who exactly has been benefitting in the monopolistic structure besides state operators making easy tax revenue? Suppliers might have the most to gain from a monopolistic market. Being selected by the government to provide technology solutions for its online or land-based operations signifies trust. Suppliers will have to earn that trust by proving their platforms can generate the most revenue for the government’s operator.

The appeal behind branding in this case is also undeniable and the opportunity for a supplier to be the leading face is not one to be missed. Building brand recognition in a country where you are the only brand is obviously much easier. The competition exists, but only through unlicensed companies that will not want to attract further attention to their operations in that specific location.

In April, Kambi extended its contract with Bulgaria’s National Lottery JSC, parent company of the Moldovan National Lottery, to supply online and retail sportsbook. The operator is expected to enter Moldova in the summer, where a monopoly is in place.

Kambi CCO Max Meltzer spoke exclusively to Gambling Insider after the deal and said: “From a technological standpoint and user experience, it will be like going into an ATG shop in Sweden right now. We are really excited to say this is not a monopolistic situation where players will get a bad experience from a bad solution."

The sports betting supplier was keen to emphasise that players in this monopoly would not be neglected as a result of the structure set out by the government and it would supply the same level of technology as it would to any market across the world. Only time will tell if Moldova’s bettors do receive this standard of solutions. But what we do know is, with a lack of legal competition for market share, the Moldovan National Lottery will not be pushing its supplier as much as it would have in an open market, to develop niche solutions.

The evidence is stacked against monopolies and it is clear governments still using them are doing so in a misguided attempt to stay in total control and generate state revenue. The irony is the complete opposite is true. More state tax is made in the open market and players are being protected better when operators are acting under approved licenses. Drop the monopoly, it’s good for nobody.

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