Online Gambling in 2020 – A Year in Review

Posted by Harry Kane on Tuesday, February 16, 2021

There’s no doubt that 2020 has been an incredibly turbulent year across the globe, with various markets and industries having been decimated by the coronavirus.

While the iGaming markets in Europe and the UK may have avoided the worst consequences of the global pandemic, however, these entities have faced their own unique challenges in the form of increased legislation, more stringent regulations and the pressing need for greater transparency.

In this post, we’ll cast our eyes back over 2020 from an iGaming perspective, while appraising the main events in Europe and their impact on the marketplace.

iGaming and the UK – Just How Turbulent was 2020?

From a UK perspective, it can be argued that the last 12 months relatively serene, especially when compared to the rollercoaster ride that was 2019.

After all, it was during this time that the UK government implemented both the FOBT wagering cap of just £2 and the 6% hike in remote gaming duty (RGD), which helped to decimate offline gambling on these shores and the profitability of online and multi-channel operators.

Of course, the first of these much-publicised moves saw the previous FOBT wagering cap of £100 slashed to just £2, following an independent investigation carried out by the government Department for Digital, Culture, Media and Sport (DCMS).

This measure was far more austere than the £30 threshold that had been previously proposed by the UK Gambling Commission (UKGC), and a result of this, market leading offline brands such as William Hill and Ladbrokes were required to close multiple high street stores and lay off thousands of employees.

In some respects, the decision to increase the RGD from 15% to 21% was a direct response to the FOBT cap, as the Treasury looked to recoup some of its taxation losses that would ensue as a result of their initial measure.

However, this has had the effect of directly squeezing the profit margins of online operators, while creating further financial disruption for the aforementioned iGaming brands that saw as much as 50% of their turnover eradicated as a result of the FOBT cap.

Given the upheaval caused as a result of these measures, it’s fair to surmise that 2020 has been a little kinder on iGaming brands across the length and breadth of the UK. However, we’ve seen a number of small and deceptively important developments take hold during the last 12 months, each of which have helped to shape the marketplace in their own unique way.

This is arguably reflective of the UKGC’s more consolidatory approach throughout 2020, with the decision to compel participation in the self-exclusion Gamstop scheme offering a perfect example of this.

This initiative was launched back in April 2018, with a view to enabling consumers to exclude themselves from gambling activity across a wide range of sites (rather than having to contact each one individually). As of April 2019, more than 50,000 people had signed up to the program, and its initial success deterred the regulator from making operator participation mandatory nationwide.

However, this represented a significant flaw in Gamstop, as players who were developing genuine signs of problem behaviour were simply able to seek out sites that weren’t part of the self-exclusion scheme. This issue was compounded further by the program’s relative lack of robustness, as some players reported being able to access registered platforms simply by changing their email and username.

It should therefore come as no surprise that April saw the UKGC introduce new legislation that compelled all licensed iGaming operators on these shores to participate in the scheme, with absolutely no exceptions allowed.

Ultimately, it’s hoped that this move will close some of the loopholes that have undermined the Gamstop scheme since its inception, while minimising the opportunity for rogue operators to steal a march on more reputable rivals.

This will also help the regulator to achieve one of its core strategic objectives through 2021, which was to safeguard vulnerable players and prevent them from being exposed to both unrestricted gambling activities and excessive email marketing content.

Another key area of focus for operators in 2020 was so-called “VIP scheme”, which online brands use widely to incentivise high-rolling customers and optimise their total spend. The need to address this aspect of iGaming became even more pressing following a report released in January of last year, which highlighted the reliance of online gambling brands on big-spending gamblers.

The report, which was published in full by The Guardian, collated data from nine anonymous iGaming brands, which showcased a clear trend for deriving the vast majority of revenue from a vanishingly small number of players.

The worst offender took a staggering 83% of their total deposits from 2% of its registered consumer base, with this number having increased markedly in recent times.

This compelled the UKGC to take decisive action, although it’s interesting to note that the regulator stopped short of abolishing VIP programs in their entirety. Instead, it unveiled strict new guidance with the purpose of “cleaning up VIP schemes”, in the form of a number of small but important measures that will impact directly on operators.

The most important aspect is the reinforcement of stringent affordability checks, to ensure that customers aren’t allowed to wager more than they can realistically afford. This will require continued due diligence checks over time, while operators will also have to do more to confirm each high value customer’s earnings and viable spend amount.

To this end, operators have also been compelled to name specific individuals with their organisation who will be responsible for VIP account compliance, with such entities required to work at a senior executive level or equivalent (and simultaneously hold a personal management license issued by the UKGC).

It’s hoped that this will create a sense of accountability amongst iGaming brands, while ensuring that customer service representatives are better equipped to identify problem behaviour amongst players and take steps to effectively verify high value customers.

Of course, some experts have suggested that 2020 may represent the calm before the storm, particularly with the All-Party Parliamentary Group (APPG) for gambling-related harm proposing a radical overhaul of the iGaming industry in 2021.

Some of these measures include a complete ban on iGaming advertising (both on and offline) along with a £2 spending cap across all virtual slots, and while it has yet to be seen whether such proposals find their way in legislation, there’s no doubt that the market is poised for sustained upheaval in 2021.

For now, however, many operators are continuing to consolidate after a changeable but slightly less turbulent 2020, while continuing to comply with an ever-shifting regulatory climate within the iGaming space.

What About the European Market – What Did We Learn?

The European market faced a similar set of challenges in 2020, particularly from the perspective of legislative changes and the continued roll out of more stringent regulatory measures.

This gradual evolution was perhaps best embodied by the term ‘consumer protection’, which was widely used throughout Europe last year and created something of a disconnect between continental operators and the regulators that govern them.

This was particularly evident in Sweden, which has emerged as one of the region’s fastest-growing marketplaces since a sustained process of deregulation that began in 2018. Make no mistake; there was friction between Swedish operators and their overworked regulator, with a series of unclear guidelines pertaining to bonus offers and unacceptable sports betting markets creating huge discontent across the board.

This conflict came to a head in April, when the government also intervened to impose new weekly casino deposit limits of 5,000 Swedish Krona (£400) online. This measure was compounded by the introduction of capped welcome bonuses of 100 Swedish Krona (£8), which had a direct impact on operator profits.

Despite initially being described as temporary, the Swedish government has confirmed that the measures will remain in place until the middle of 2021 at least, and this is creating a familiar issue that has become well-known across the length and breadth of Europe.

More specifically, it has been suggested that the introduction of such stringent limits encourage local players to seek out internationally licensed (or in some cases, unlicensed) sites. In addition to Sweden, Portugal and even the United States have reported similar findings throughout 2020, suggesting that regulated markets are continuing to struggle to convince rank-and-file gamblers to play at locally approved options.

Interestingly, even the fast-growing Spanish marketplace has faced a similar challenge in 2020, while also attempting to fight back the tide of government intervention and potential marketing limits.

Interestingly, the Spanish authorities have moved to incentivise the marketplace during the last two years, reducing the tax levies payable by brands while empowering 17.7% year-on-year growth in the second quarter of 2020. However, they’ve also yielded to calls for increased advertising restrictions and marketing limits in the second half of the year, which has in turn created a scenario where operators are finding it harder to reach and incentivise new players.

Developing and relatively immature markets in the East of Europe have a much more prosperous and serene 2020 overall, while the same rule could also be applied to Germany. After all, 2020 oversaw German legislators finally reach a consensus on plans for a fully regulated iGaming market, with this enabling local operators tenaciously with licensed competitors from overseas.

Of course, there were some concerns about the fine print of the new regulatory bill, with one last-minute provision introducing a standalone, 8% tax on slots turnover. However, this wasn’t enough to deter local operators from filing their new license applications, and this should contribute to a more secure and prosperous market in 2021.

This is despite the collapse of German payment processor Wirecard, which a large number of operators nationwide relied on to conduct their business at a national level.

This company imploded after its huge debts and billions of pounds worth of historical losses were revealed, while the consequences for the iGaming market in Germany could have been worse had the government accepted Wirecard’s offer to handle all gambling transactions as part of a newly regulated marketplace.

One European nation that continued to delay the launch of its newly regulated market was the Netherlands, while imposing new and increasingly stringent measures on operators.

The most recent proposals included a requirement for operators to purge their existing databases of customers who were acquired pre-regulation, while the regulator also moved to extend the so-called “time outs” imposed on operators who refused to comply with the latest measures.

As we referenced earlier, this has triggered an increase in the number of Dutch locals who play at licensed international casinos, although the Dutch authorities have at least looked to safeguard nationals by convincing the jurisdiction of Curacao to rein in its own gambling licensees.

Many of these entities were hit hard by the local regulator for targeting Dutch punters without permission in 2020, but fortunately the Netherlands were finally successful in convincing Curacao to take action and create a much safer international marketplace.

The Last Word – An Eye on the US Market?

If we compare the UK and European marketplace, we can also see that both entities are united by their significant desire to target the burgeoning iGaming space in North America.

In the UK, brands such as William Hill and Paddy Power have already made substantial moves across the Atlantic, while more deals continue to be struck as a growing number of local authorities seek to legalise sports betting at state level.

Recently, Ladbrokes’ owner Entain saw its shares leap by 25% to £14.16 at the beginning of the year, after the company reported an £8.1 billion takeover proposal from its existing US partner MGM Resorts. While the firm ultimately rebuffed the offer, it’s likely to pave the way for an increased offer in the near-term and may precede yet another exciting and lucrative deal.

Of course, this followed the decision of Caesars Entertainment to procure William Hill for £2.9 billion, which underlined the preferred direction of travel for UK brands and the appetite that exists stateside for UK firms’ technological expertise and regulatory experience.

This trend continued to gather pace in 2020, having first emerged following the decision of the US Supreme Court to overturn the PAPSA legislation in 2018 (this had previously banned sports betting at a federal level).

It’s likely that it will also continue into 2021, as both UK and European-based firms continue to seek out partnerships and liquidity pacts with fast-growing US operators.