How Will New Affordability Checks Hit the iGaming Market?

Posted by Harry Kane on Wednesday, April 7, 2021

The growing reliance of online gambling operators on VIPs and high-stakes players has become increasingly apparent of late, with the UK Gambling Commission (UKGC) having carried out a detailed investigation in January 2020.

This found that a series of established and market leading operators drew more than 50% of their revenues from a 5% or less of their customer base, with some brands admittedly more reliant than others. In one case, an anonymous operator took 83% of its total deposits from just 2% of its customers, who as VIPs were offered special bonuses and incentives.

As a response, the UKGC rolled out a series of counter measures including the introduction of more robust affordability checks for players. But could this set the scene for further changes, and if so, what impact is this likely to have on iGaming market as a whole on these shores?

What Do You Need to Know About the New Affordability Checks?

According to Matt Zarb Cousin, who’s known as the co-founder of Gamban, the decision to introduce and enforce more stringent affordability checks is long overdue.

Cousin argues that as few as 5% of British gamblers account for 60% of all iGaming profits generated through licensed sites, for example, while refuting the idea that such a measure would represent a significant invasion of privacy from the perspective of players.

There seems to be sound reasoning behind this argument too, as there can be no doubt that operators continue to hold huge swathes of data on players who have registered with their platforms.

In fact, it’s thought that operators already hold more than enough data to carry out detailed affordability checks on players as and when required, while many will be required to carry out this process in instances where gamblers may have already lost significant sums of money.

But what exactly has the UKGC enforced? From October 31st last year, operators have been compelled to ensure that all wagering is “affordable and sustainable as part of each VIP player’s leisure spend”, ostensibly by carrying out affordability and earnings checks in line with their total spending.

What’s more, operators must continue to verify the earnings data provided to them and conduct ongoing gambling harm checks, with a view to identifying instances where circumstances or player behaviour starts to change.

The good news is that operators appear to have embraced these changes on the whole, while it’s not thought that such measures will have a particularly negative impact revenue or profitability.

Could Further Changes be Introduced?

The issue here is that the new affordability checks could actually be the precursor for further (and more radical) changes going forward, particularly if groups such as the All-Party Parliamentary Group (APPG) for gambling-related harm and the Social Market Foundation (SMF) thinktank have their way.

The SMF has proposed a more dramatic overhaul of how VIP schemes are managed, for example, by introducing a widespread spending cap of £100 a month online for all players who are unable to prove that they can afford to lose more.

So, rather than maintaining existing VIP schemes and compelling members to demonstrate their earnings and capacity to participate responsibly, this proposal would effectively scrap high-roller initiatives and simply create bespoke betting limits for players who are willing to meet stringent affordability checks.

This measure has been supported in part by the APPG for gambling related harm, which has also proposed an online slots betting limit of £2 and a comprehensive overhaul of the current licensing landscape in the UK.

The combination would monthly spending limits and online stake caps would certainly have a dramatic impact on iGaming brand revenues and their underlying business models. This is despite the fact that profit margins would largely remain unchanged, as winnings and payout values would also decline in line with diminishing stakes.

The idea of capping monthly spending or so-called “soft losses” at £100 per player is currently being given careful consideration by the UKGC, with the consultation and evidence gathering period now closed and the proposal gathering significant momentum outside of the industry.

The Last Word – How Will This Impact on Operators and the iGaming Market?

Ultimately, it appears likely that a £100 monthly spending cap will be introduced at some point I the future, particularly as this is unlikely to impact on the overwhelming majority of online players throughout the UK.

More specifically, studies show that the average Brits stakes just £2.60 per week through iGaming platforms, totalling just £135.20 per year overall. This coupled, with the relatively small percentage of high-stakes players and VIPs, highlights that the new spending cap would have little impact on the majority of players.

However, the same cannot be said for operators, with the horse racing industry one of the first to speak out against the proposal.

According to the Horseracing Bettors Forum (HBF), the proposed measure would dent the industry to the tune of £60 million, from the impact on income and revenue to levies and media rights.

The total cost was outlined in a written statement issued by the HBF to the UKGC, while the letter also questioned the validity of such a move given than high-stakes betting wasn’t as prevalent within the horse racing niche.

However, the issue here is that online slot and casino games are often cross-sold to sports bettors on horse racing and other disciplines, creating an association that puts sports betting firm in the regulatory crossfire.

The only possible way for operators to overcome this hurdle would be to create a degree of separation between sports betting and online casino wagering, by effectively hosting each entity on different platforms (or at least enabling players to use separate accounts or digital wallets).

This would also incur a significant cost for operators, however, which must be measured against the potential gains of protecting sports betting accounts and customers from any potential spending cap.

Regardless, operators across the board would have to deal with potentially reduce revenue in the light of any spending cap, as it must be assumed that some players who currently qualify as VIPs wouldn’t after affordability checks and limits have been imposed.

The impact of this would vary depending on how reliant specific operators are on VIPs, but the evidence suggests that we’d certainly see widespread disruption at least in the near-term.