Under Pressure

By Carl Friedmann
Harry Barnick, senior analyst at research provider Third Bridge, discusses how the UK gambling industry is coping under the strain of increased regulation and what we can expect as deadlines loom

The UK gambling industry is facing tougher regulation. This follows historical clampdowns on fixed-odds betting terminals (FOBTs) in retail and, more recently, credit card deposits online. The Government wants to reduce problem gambling, an intensely political debate that is closely followed by the mass media. The key suggestions are to limit how much gamblers can stake, to review treatment of high-value customers, to improve affordability checks and to reduce sports sponsorship. A consultation on these questions is currently live, with the Gambling Commission's role also being examined.

The gambling industry, which some claim was wrong-footed by FOBT changes, argues that tighter regulation will push people towards the black market and cause problem gambler rates to soar. They also warn that regulation is a blunt instrument affecting millions, when problem gambler rates are actually quite modest: according to our experts, it only makes up 0.5% of the gambling population. The gambling industry has commissioned a report highlighting how the number of UK residents already using black market sites is on the rise. Meanwhile, gambling addiction groups say this is reminiscent of how PayDay lenders responded to potential legislation.

On 2 February this year, the Gambling Commission announced a clampdown on online slots games. This includes a ban on features that speed up play or give the illusion of control over the outcome. The Gambling Commission says there is clear evidence these features increase the risk of harm to customers, so a ban will come into force on 31 October. This restriction is just the beginning as the regulator is minded to increase online gambling controls, after an increase in gambling activity during the lockdowns caused by the Covid pandemic.

The media, pressure groups and parliamentarians are all coalescing around this topic. Following a manifesto pledge, the Government is expected to publish its proposals for the 2005 Gambling Act in December this year with legislation soon after. Experts in the industry are unsure of the exact timeline, but early estimates suggest a timeline of between nine and 18 months. Below I run through what regulation is likely and how that could affect the industry. The views shared are direct from industry experts that I engage with on a regular basis on this topic.

 

Speed limits

The Gambling Commission has been clear with speed limits. The most recent agreement between the Gambling Commission and the Betting & Gaming Council introduces a minimum speed of play for random number generator games, like online slots and online roulette. The 2.5-second minimum spin time is to be enforced, with operators given until 31 October to make the necessary changes. The risk now is that this could swell to something in the 3-5-second range. In looking at speed controls, the review will have to take into account game design and user experience.

 

VIP customer contact

It’s highly likely that operators will have to meet new duty of care standards and this will impact any VIP programmes where high spenders are incentivised to play. While operators have moved away from regular VIP communication, many companies at present still contact VIP customers to offer special bets, bundles and bonuses. This group, which makes up just 1% of total gamblers, drives close to 20% of total revenues. Consequently, any restrictions on deposit limits and promotions could have a significant impact on industry revenues. Regulation is also likely to include guidance around affordability checks, with operators being required to ask for proof of source of wealth. In total, our experts indicate this could have a £500m ($693.6m) impact on revenues. 

 

Introducing maximum deposits

As noted above, maximum deposit limits look likely and could take the form of a weekly amount or a monthly maximum, after which affordability checks would kick in. A number that has been passed around frequently is a £100 per month threshold. Our experts take a more favourable view, suggesting a £250 threshold given discretionary income levels in the UK.

 

Stake limits

After the introduction of £2 stake limits on FOBTs, the message is clear: we are heading towards a £2 stake limit online. It’ll be difficult for operators to argue that in an online environment, which can be accessed by anyone with internet connection, customers should be able to bet more than in the retail environment. The impact on revenues will be substantial. While the value of customers playing slots at more than £2 per spin is only 10% of the session, it represents 50% of revenues. How much of this will be lost remains to be seen but history teaches us that this may reduce revenues above that threshold to 20% post-regulation. Despite this impact, there is some relief: the regulation will only affect online random number generator games. Bingo and casino are likely to be unaffected.

 

Less advertising

In terms of sponsorship restrictions, the industry has already agreed to a whistle-to-whistle ban on advertising. This is now likely to become more stringent. While this might appear negative at first, it could actually have a positive impact on profits for major operators. Indeed, smaller brands would struggle to build brand awareness, consolidating revenues across the major players in the UK.

One final point is on the tax rate outlook. Covid has led to an unprecedented fiscal package from the Government to support businesses and their employees. With the treasury looking to recoup this spend, gambling is an obvious target for increased tax rates. Online tax currently sits at 21% of gross gaming revenue, but there is a risk this could quickly increase to more than 25%.

The next few months are going to be critical to the future of the UK gambling industry. Looking elsewhere, Italy already limits when gambling can be advertised on television; Spain is banning gambling sites from advertising on La Liga shirts; and in Germany there’s a stake limit before rigorous affordability checks come into play. With the Daily Mail and Daily Telegraph taking clear editorial positions on this, the debate is likely to become fractious and emotionally charged.

At its heart, there is the question of how far the state should intervene in order to protect a vulnerable minority, if those steps also impede a mainstream majority. Faced with such a dilemma you might hope that data, logic, and common sense alone will prevail, but history points to the contrary.

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