A buzzword on the conference circuit and perhaps a dirty word for compliance professionals after hearing it enough times during the working day, regulation has always been a central theme within the gaming sector. Every time new regulations are introduced to a market, gaming companies are forced to incur greater costs and create new administrative measures, often publicly or privately lamenting the new rules imposed upon them. But regulation in the first instance is designed to stop a Wild West scenario, where gaming companies essentially do whatever they want, regardless of legality or consumer protection. Shockingly, not one but two major news stories in 2021 have demonstrated a complete disregard for regulatory procedures – causes for great concern in this day and age.
Our first major story concerns a land-based casino chain – and it’s a saga you would have struggled to miss if you’ve been keeping abreast of industry news. In Australia, Crown Resorts has been forced to undergo seismic changes at board and operational level, following a series of failings so glaring the operator was initially caught out by CCTV footage of hundreds of thousands of Australian dollars appearing to be laundered. In late 2019, the leaked footage emerged, alongside whistleblower claims that Crown Casino in Melbourne was used to freely launder millions. The evidence was too tangible to ignore and an inquiry into Crown was launched, the results of which have been damning for the operator in recent months.
The Bergin Inquiry
Earlier this year, former Supreme Court Judge Patricia Bergin concluded in her final report, otherwise known as the result of the Bergin Inquiry, that Crown is unfit to hold a licence for its new AU$2.2bn (US$1.68bn) casino on Sydney Harbour. In an extremely damaging process for the organisation, the Bergin Inquiry found money had “clearly” been laundered at Crown Melbourne; it found that Crown worked closely with junkets possessing ties to organised crime (Crown has since said it will no longer work with junkets); it found the operator had pursued aggressive tactics in China despite staff living in “constant fear” of arrest; and it found that 36% shareholder James Packer exercised “real power” at Crown which had “disastrous consequences for the company,” while also uncovering a culture of turning a blind eye to failings.
Following the Inquiry’s results, very little – if anything – could possibly stay the same at Crown. CEO and MD Ken Barton resigned, with Helen Coonan becoming temporary executive chairman while the board seeks a replacement. Other directors to resign included Andrew Demetriou, Guy Jalland and Michael Johnston. Demetriou was one of three directors specifically identified by Bergin for failing to implement adequate anti-money-laundering controls, along with Johnston and Barton. But these personnel changes are far from the end of the outcome here for Crown.
A Victoria royal commission into the operator has now also commenced, with former judge Ray Finkelstein insisting this investigation will go even further than the Bergin Inquiry. Finkelstein stated that delays in producing documents will not be tolerated, adding: "I'm concerned that unless the seriousness of the conduct is recognised, any steps taken to remedy the position might only be half-hearted of them.”
A way out?
What is perhaps interesting, and most certainly presents Crown Resorts with some good fortune, is that the operator may now have a viable way out of its current situation. Recently, the Australian organisation received a $6bn acquisition proposal from Blackstone Group, with Packer said to understandably be open to a sale. A reformatting of the operator’s board is the first step towards its new future – more on that later.
Regarding the bid itself, the Blackstone Group had offered an unsolicited, non-binding, indicative proposal to acquire all of Crown’s shares for AU$8bn ($6.18bn). According to Crown’s confirmation to the Australian Securities Exchange, Blackstone offered an indicative price of AU$11.85 per share, which “represents a premium of 19% to the volume-weighted average price of Crown shares since the release of its H1 FY21 results.” Blackstone currently holds approximately 10% of shares in Crown Resorts that were acquired in 2020 from Melco Resorts and Entertainment. The group already owns stakes in Las Vegas properties such as the MGM Grand and the Bellagio.
At the time of the offer, analysts at Fitch Ratings project that the deal with Blackstone would help Crown solve some of the issues presented by the Bergin Inquiry. They said: “Even though Crown has already terminated agreements with CPH, and its representatives on Crown’s board have already resigned, we believe removal of CPH as a shareholder will be viewed favourably by regulators as it will provide a permanent break in the relationship.”
In what was its first clear step towards allowing for a potential takeover, Crown Resorts confirmed that Nigel Morrison will join the operator as a non-executive director. The former Sky City Entertainment Group exec became the company’s first high-profile appointment since the Bergin Inquiry, adding much-needed casino-operating experience to Crown’s board. Morrison previously held roles as CEO of the Sky City Entertainment Group, CFO of Galaxy Entertainment Group and COO of Crown Melbourne Limited.
Both the Bergin Inquiry and an investigation by the NSW Independent Liquor and Gaming Authority (ILGA) considered the addition of gaming experience to Crown’s board as crucial to its continued operations. ILGA chair Philip Crawford said in an interview: “I would hope to see people with some degree of experience in casinos, plus numerate people with board experience, a good understanding of the Corporations Act and their obligations as directors. I think they need well rounded people with specific experience around the concerns that we have and in running businesses that are casinos.”
But such was the grand scale of Crown’s regulatory failings, it was announced the royal commission into Crown Perth in Western Australia will not only investigate the company itself but the role of the regulator. Chair of the commission Justice Neville Owen expressed his intention to work with the other ongoing investigations into Crown, as well as a regulatory review into the Victorian Commission for Gambling and Liquor Regulation, whenever possible.
However Crown comes out of this saga, though, the damage to its reputation will be ever-lasting. This is the most high-profile and blatant failure in basic regulatory matters the global gaming sector has seen for some time. And, to this day, there seems to be little remorse or little internal comprehension of just how badly things have gone for Crown. The financial implications are also clear: should Blackstone purchase the Australian operator, its value will be a significantly less than it was when any previous deals were floated. In April 2019, reports circulated that Wynn Resorts was in talks to acquire Crown for AU$10bn – such a scenario is now but a distant dream.
Over 9,000 miles away and some 11 hours in time difference between Sydney and London, a case transpired in the UK some have labelled as the biggest gambling disaster to face punters in the history of the market. When Football Index burst onto the scene a few years ago, it was a fresh-faced alternative to traditional sports betting. The operator’s mantra (licensed with the Gambling Commission under parent company Bet Index) was that traditional bookmakers have taken too much off players – and it was time for players to really make money betting. ‘Betting,’ though, was instead referred to as ‘trading, (later a point of contention, which we will get to) and players were allowed to invest in shares in professional footballers; the ‘football stock market.’
As Football Index grew, so did coverage of the platform’s activity. Huge B2C marketing deals were signed as the operator advertised on paid UK sports channels and advertising hoardings at stadiums across the UK.
Sponsorships were also agreed with English Championship football clubs Queens Park Rangers and Nottingham Forest. All was supposedly rosy as the company reported over £500m ($689.2m) in trades, with the sky the limit as the Football Index name grew and grew. Gambling Insider even devoted online articles exploring the benefits of betting this way versus the classic sports wager, as well as a speculative suggestion of DraftKings taking over the site and implementing the model across different US sports.
This was all taking place around 2019/20 but a fast forward to March 2021 could not have seen the narrative flip in any more dramatic fashion. Football Index has now gone into administration, its licence stripped by the Gambling Commission (although this was somewhat of a futile gesture after the event) and customers have been left short of funds ranging from two-figure ‘investments’ to five figures or potentially even more. Estimates put player loss at a total of £90m, money these players may well never get back, and an ironic fact given Football Index was designed to stop bookmakers taking huge sums off their player base. While Football Index initially blamed the Covid-19 pandemic, many are now using terms such as ‘pyramid scheme’ and ‘ponzi scheme’ to describe the failed platform, Indeed, a number of critics who initially suggested flaws in the model – ignored at the time – have ultimately been vindicated even if they were not listened to initially.
Changing the goalposts
Personal responsibility is a topic we have covered in-depth in previous issues of Gambling Insider magazine. For those on social media telling Football Index “this was supposed to be my kid’s future” – a genuine quote from Twitter, personal responsibility must always be considered. There is always a risk of losing money if someone decides to deposit thousands of pounds; and if Football Index was used as a platform for genuine fundraising, or as a source of income, players must of course be able to apportion the appropriate amount of blame to themselves.
In this case, however, many have complained that Football Index changed the goalposts for them; and that the money lost was all down to either gross failings on the company’s part, or as some have inevitably lamented, a deliberate continuation in the knowledge the business model could not be sustained. Proceedings really took a nosedive in early March, when a market update informed traders/players that dividends would be reduced by 80%. This was met by a furious backlash from the player base, which resulted in Football Index closing all replies on its social media accounts due to personal threats aimed at staff. Gambling Insider itself received a backlash from angry traders simply for reporting the story.
The role of the Gambling Commission
Football Index’s market update was sent out on Friday 5 March. By Thursday 11 March, the company had gone into administration. But bettor ire was not only directed at Football I1ndex at this point, it was aimed at the market regulator, the Gambling Commission. On Friday 12 March, the Commission suspended Football Index’s licence. Many have asked why it waited until the day after the operator effectively went bust to do so. The regulator has since claimed it was investigating Football Index’s licence for a year and that it was right not to act sooner.
Yet, in a year when the role of the Gambling Commission is being assessed amid the UK Gambling Act Review, it is difficult to find a more negligible approach than that which was applied by the body in this very case.
The Commission has stood accused of not necessarily understanding how the Football Index model worked and simply choosing to license it anyway. In any case, whether this could have been avoided or not (and critics who contacted the Gambling Commission to warn the regulator insist it certainly could have), players have ultimately been allowed to lose funds thanks to a regulator that has failed to protect them. On 15 March, Gambling Commission CEO Neil McArthur stepped down from his role following 15 years with the regulator. With the UK Gambling Act Review upcoming, this is perhaps a move many may have anticipated anyway. The timing, however, is inauspicious given the Football Index debacle that preceded the decision. In both this ill-fated case and that of Crown Resorts, we can see global gaming still has a way to go, even at the very top. With so many resignations, ruined reputations – but mostly importantly, wronged consumers – there are plenty of lessons to learn for the gambling industry. No one is infallible.