iGaming in 2019 – An Industry Review

Posted by Harry Kane on Saturday, January 4, 2020

Let’s face facts; 2019 was a tumultuous year for iGaming in the UK (and indeed across the globe), with a series of peaks and troughs impacting on operators, customers and regulators alike.

From the roll out of the controversial FOBT cap to the exponential growth that gripped the U.S. market, British operators have seen their fortunes rise and fall significantly over the course of the last 12 months.

This trend also looks set to continue in the near-term, particularly with the government considering further crackdowns on the gambling industry as a whole.

In this post, however, we’ll cast our eyes back over the developments of the last 12 months, whilst asking what operators can learn from a disorderly 2019.

Boom and Bust in the iGaming Marketplace

The UK Gambling Commission (UKGC) regularly unveils the latest statistics from the iGaming marketplace, and these reports have told the tale of relentless growth over the course of the last few years.

This trend continued throughout the whole of 2018, with the GGY for online gambling in the UK peaking at a staggering £5.6 billion in the final quarter before 2019.

Whilst this represented a relatively modest increase of 2.3% on the previous six month period, it also built on the double-digit growth that had been recorded in the year ending March 2018 and the 12-month period prior to that.

In September 2018, the iGaming market also evolved to claim a 37.1% share of the gambling industry in the UK, as online channels continued to boom at the expense of brick-and-mortar casinos and bookmakers nationwide.

Whilst the market may have appeared to be in rude health as 2019 approached, however, the figures released at the end of Q1 provided a stark reminder that iGaming continues to bear the brunt of huge regulatory and legislative challenges in the current climate.

More specifically, the nation’s iGaming market suffered its first ever revenue decline in March 2019, with the total GGY by 0.6% to £5.3 billion. Unsurprisingly, the cumulative GGY across the whole of the gambling industry in the UK also decreased during this period, falling by 0.3% to just £14.4 billion.

The stark and unexpected decline in the iGaming GGY also had an impact on the market’s overall share of the gambling pie in Britain. In fact, the iGaming market share declined by 0.1% to 37%, and this will represent a significant concern for operators who are active in the sector.

The question that remains, of course, is what triggered the decline in iGaming yields during Q1 of 2019? Well, further inspection in the figures shows that a decline in online sports betting represented the primary cause, with this sector’s total yield falling by 11% to £1.83 billion despite a recorded 2.7% increase in turnover.

These figures make for confusing reading at first glance, but detailed analysis has shown that a significant decline in the horseracing segment is the single biggest factor in the market’s falling GGY.

More specifically, the revenue generated through betting on horseracing fell by a whopping 15% to £522 million, with this segment suffering from declining TV coverage and a subsequent drop in demand. This was augmented by a comparatively modest 4.4% decline in online football betting, which generated £991 million in the year ending March 2019.

Similarly, virtual sports betting also slid by 12.5% to £68.6 million during the most recent reporting period, suggesting that the novelty value of this market has declined as the overall marketplace has matured.

It’s not all bad news for operators in the iGaming space, however, as whilst sports betting may have declined the online casino sector has fared considerably better. In fact, the GGY for virtual casinos increased by a healthy 6% in the year ending March 2019, peaking at £3.11 billion overall.

In total, casino turnover increased by 8.7%, whilst the iGaming sector was also bolstered by a 7.4% rise in the GGY for online bingo. With virtual pool betting also shooting up to £33.7 million, brands who were active across multiple verticals were able to largely offset their sports betting losses as 2019 got underway.

Despite this, operators will be concerned that the revenue declines experienced in 2019 could be extended into 2020 and beyond, especially when you consider some of the regulatory challenges that lie in wait in the months ahead (we’ll have a little more on this later).

Changing the Regulatory Landscape – A Seismic Year for iGaming Brands

Whilst the FOBT cap may have been announced back in the spring of 2018, it wasn’t officially rolled out in the UK until April of this year . This came after some initial confusion pertaining to the official date of implementation, which had previously being scheduled for the autumn budget of 2019.

However, it’s mere premise was already enough to send the value of iGaming shares plummeting nationwide, with William Hill one of the worst-affected brands having seen their stock price plunge by 11% to £300.5 following the unveiling of the new legislation.

This left the legendary bookies valued at a relatively meagre £3.56 billion, and whilst it has since recouped some of this value, the brand is one of many companies that has struggled to cope operationally with the fall out from the £2 FOBT cap throughout 2019.

To this end, William Hill reported a loss of £64 million during the first half of 2019, which included the initial three months following the FOBT cap rollout. Similarly, the brand’s full year profits for 2018/19 showcased a total loss of 15%, and this trend is unlikely to reverse any time soon.

This highlighted how the brand struggled more than most from the fallout of the betting cap implementation, with this legislative shift triggered an estimated 700 store closures and revenue losses to the tune of almost £1 billion.

In the case of multi-channel operators like William Hill, it’s also fair to surmise that the aforementioned decline of online sports betting will have compounded these losses during 2019.

So, whilst the 0.6% in iGaming revenues will have only had a nominal impact on William Hill and similar operators, this must be considered alongside an FOBT cap that has triggered a 25% slump in the revenues generated by fixed-odds betting terminals.

For many, the FOBT cap has signalled the death knell for offline gambling and sports betting in the UK, and brands like William Hill have been quick to alter their business model by increasing their online presence and targeting burgeoning casino markets overseas (we’ll have a little more on this later).

However, even some of these best-laid plans have been impacted by another legislative shift, which has seen the government unveil a 6% hike in the remote gambling duty (RGD) payable by iGaming brands active in the UK.

This saw the rate of RGD hiked from 15% to 21% in October as part of the Chancellor’s autumn budget, significantly increasing the amount that online operators now have to pay on any profits garnered through their UK operations.

This has come as yet another blow to multi-channel brands, whose profit margins are being squeezed across both on and offline operations. So, whilst it made sound financial sense for the Treasury to offset its own tax losses accrued as a result of the FOBT cap by targeting the lucrative iGaming market, this has caused untold issues for some of the biggest brands.

At the same time, it has encouraged some iGaming brands to realign their operational strategies and exit the UK in order to focus on more favourable markets.

More specifically, the recent legislative changes are indicative of a highly mature and saturated market, and one that has also become increasingly competitive over the course of the last few years.

This has caused the UK marketplace to become slightly less profitable and increasingly risky throughout 2019, with prominent online operators such as ComeOn having chosen to shut down it British operations before the autumn budget was announced.

The operator, which has operated in the UK since 2014 and owns the MobileBet.com and GetLucky.com brands, will instead increase its presence in a number of Europe’s burgeoning growth markets (namely Sweden, Denmark, Poland and Malta).

Each of these markets is rapidly expanding but still relatively immature, whilst they’re not as stringently regulated in the UK and offer a far superior risk-reward profile in the current economic climate.

Interestingly, ComeOn was the second iGaming operator to announce its withdrawal from the UK market during Q3 in 2019, with the online bingo and casino brand JPJ Group having previously followed a similar path.

This operator manages the renowned and much loved Vera & John and InterCasino brands, which stopped accepting new customers on August 5th and ceased their UK operations completely on September 3rd.

When announcing their own decision to exit the UK, the ComeOn brand also suggested that the UK license may have lost its symbolic value in the eyes of operators.

After all, this is no longer required to afford brands a sense of trust and credibility, with licensing jurisdictions such as Sweden and Malta now equally revered throughout Europe.

In this respect, 2019 may well be considered as the year when the UK lost its iconic status in the global iGaming marketplace, whilst the last 12 months have also seen years of unprecedented growth grind to a sudden halt.

In Other News – Underage Gambling and Opportunities Across the Atlantic

As the UK market has become increasingly well-regulated in 2019, we’ve also seen a far greater focus on preventing underage gambling in the UK.

Safeguarding the vulnerable demographic of underage gamblers remains one of the core strategic objectives for the UKGC through 2021, and the Commission’s 2019 report on this issue suggests that the regulator is moving in the right direction.

Overall, the UKGC’s annual survey of young people (aged between 11 and 16) found that 11% had spent their own money on a specified gambling activity in the seven days prior to the study being undertaken.

Interestingly, this showcased a noticeable decline in comparison with 2018, when up to 14% of 11 to 16 year olds indicated that they had gambled during the previous week. This also continues the downward trend in the number of active underage gamblers in the UK, which had peaked at a hefty 23% in England and Wales in 2011.

As an aside, the declining number of underage gamblers also coincided with a fall in overall gambling participation during the last 12 months. Overall, participation decreased from 39% in 2018 to 36% this year, and this suggests that attempts to protect problem gamblers (such as self-exclusion platforms) have become increasingly successful in 2019.

In purley numerical terms, it’s estimated that 350,000 11 to 16 year olds in the UK gamble frequently, and whilst this remains a huge cause for concern there’s no doubt that the amount of underage gamblers continues to fall markedly on an annual basis.

On a final note, it’s also worth noting that sustained growth in the North American iGaming market has hit the headlines repeatedly in 2019. This has also captured the attention of British operators, many of whom are targeting the lucrative U.S. market as a way of offsetting their domestic losses.

William Hill and Paddy Power are leading this charge, with these operators amongst the hardest hit by recent regulatory and legislative changes in the UK.

The former’s aggressive expansion into the States could ultimately see its international sportsbook portfolio break through the $1 billion barrier during 2020, whilst Paddy Power’s parent company Flutter Entertainment procured its Canadian rival The Stars Group in a £9.3 billion deal aimed at creating the world’s largest betting firm.

Both of these operators reacted quickly to the decision of the U.S. Supreme Court to overturn the Professional and Amateur Sports Protection Act (PAPSA) of 1992 in May last year, which had historically prohibited sports betting at federal level.

Since this significant legislative move, a number of U.S. states have legalised sports betting both on and offline, whilst more are expected to follow suit in 2020. As a result, UK brands are aiming to develop a viable presence as the market expands, whilst benefiting from potentially huge revenue shares and relatively lax regulatory boundaries.

This trend will definitely gather momentum in the near-term, and there’s no doubt that the sudden expansion of the U.S. market has provided one of the highlights for British iGaming firms in 2019.