Are Gambling Bosses Able to Protect the Industry?

Posted by Harry Kane on Friday, January 11, 2019

A quick glance at the latest figures is all you need to confirm that online gambling represents a growth market in the UK, with this sector accounting for a hefty 35% of the betting industry as a whole.

As this market has bloomed, however, it has come under increased scrutiny from regulators, with the UK Gambling Commission (UKGC) having made safeguarding vulnerable players and the industry’s reputation two of their core strategic objectives through 2021.

While the onus is on regulators to create a fair and transparent marketplace, however, they cannot achieve their objectives without the assistance of gambling bosses in the UK. But is this demographic really doing enough to aid the UKGC’s cause, or has the lucrative nature of the market created a genuine conflict of interest for brands?

Gambling’s Real High Rollers – a Look at the Market Leader and CEO

When we talk about online gambling as a growth industry, we often consider this in the context of the platforms and opportunities available to players. However, individual gambling brands are arguably the biggest beneficiaries of this exponential growth, with shareholders and CEOs also sharing in this incredible wealth.

This has been borne out by recent news reports, which have revealed that the co-founder of online gambling firm Bet365 (Denise Coates) has received a bumper pay rise to become the highest paid director in the industry.

According to the company’s third-quarter accounts, they generated gambling revenue of £2.72 billion in the year ending March, 2018, with this figure representing an increase of 26% from the previous 12 months.

Profits also increased by one-third to just over £682 million during the same period, as the operator continued to defy the economic and social challenges facing the industry.

The firms accounts also confirmed that its co-founder had benefited significantly from this growth, with Coates banking an estimated £265 million over the course of the year. This total includes her base salary, bonus and any accumulated share dividends, while her total remuneration was £48 million than the sum she received in 2017.

Of course, Coates is considered to be something of a trail-blazer in the industry, having identified the potential of online gambling when the market was in its infancy back in the year 2000. However, it seems incredible to think that her base salary alone has increased from £6 million in 2012 to this year’s sum of £220 million, while Coates’ earnings also dwarf the leading CEOs in other lucrative markets.

Incredibly, Sky’s CEO Jeremy Darroch banked a relatively paltry £16.3 million in 2017, while former WPP Director Martin Sorrell took home just £13.9 million.

Even the former Persimmon CEO Jeff Fairburn, who was one of the FTSE 100’s leading executives last year, was only paid £47.1 million for his services, and this highlights the disproportionate rate of remuneration that exists in the online gambling industry.

Is This Creating a Conflict of Interest in the Sector?

As you can imagine, this news story has created significant controversy, with the High Pay Centre one of the most vocal critics.

The organisation, which frequently campaigns against excessive executive remuneration, has questioned the profitability of operators and the dividends paid to shareholders, particularly with multi-channel operators continuing to draw a significant income stream from controversial fixed-odds betting terminals (FOBTS).

With problem gamblers also struggling thanks to a largely inadequate self-exclusion program, the organisation’s spokesperson Luke Hildyard also claimed that “betting companies are not exactly a force for good in the world”.

He also suggested that the market-leading operators embody the “increasing perception that big business only serves the interests of an elite few”, particularly as wealthy CEOs and shareholders continue to profit while customers wager money that they can ill-afford to lose in a challenging economic climate.

The underlying fear is that operators and their directors are struggling with a conflict of interest in the current market, with the desire to optimise profits and individual earnings occasionally come at the expense of customers and potentially vulnerable gamblers.

There’s certainly some evidence to support this assertion, with a number of market leaders having been hit with significant fines since the UKGC began to reinforce its regulatory framework last year. 888 was fined a record £7.8 million for failing to safeguard vulnerable gamblers last summer, for example, including one customer who staked a whopping £1.3 million.

Earlier this year, the William Hill brand were fined £6.2 million by the UKGC, both for failing to protect its customers and prevent money laundering through its website.

These are not isolated instances either, and while the UKCG is adopting an increasingly tough stance it’s fair to say that operators are struggling to meet their new regulatory demands and deliver a transparent gambling environment to players.

The question that remains, of course, is whether this is really due to a shared conflict of interests between operators or a temporary transition period in which brands are looking to adapt to the new regulations.

This has yet to be fully determined, but there certainly appears to be a reluctance among the leading gambling brands embrace the new regulatory measures and put the needs of their customers above corporate profits.

The Last Word

Interestingly, we’re likely to see the amounts paid to shareholders decline in the near-term, but this has more to do with significant economic shift than a change in the priorities shared by operators and their CEOs.

After all, William Hill has already downgraded its full-year profit expectations for 2018, following the proposed FOBT crackdown and the 6% increase in Remote Gaming Duty (both of which will be implemented in October 2019).

With the spectre of Brexit and concerns over the UK’s concessions over Brexit during these negotiations also providing considerable cause for concern, it’s little wonder that the brand saw its shares slump by 6% and its forecast operating profit declined by £20 million.

With Paddy Power and similar brands reporting similar adjustments to their financial forecasts, both operators and CEOs are sure to bank less in 2019 and the gambling industry undergoes a significant transition.

However, this is likely to mean that brands will have to place a greater emphasis on optimising their profitability in the near-term, and this could further compromise the safety and security of players online.

As a result, companies could come under increased scrutiny next year, as the pressure to prioritise the needs of players will continue regardless of the market conditions. Despite this, most may be unable to transition their business model to focus primarily on delivering a fair and transparent experience, particularly with profits already set to take a mighty hit!