The New Face of Gambling? Addressing New Regulatory Proposals

Posted by Harry Kane on Saturday, August 29, 2020

Ever since the government Department of Digital, Culture, Media and Sport (DCMS) recommended the imposition of a £2 betting cap for fixed-odds betting terminals throughout the UK (this was subsequently acted on by regulators), the prospect of similar legislation being rolled out in the iGaming space has been discussed at length.

Such conversations have been driven by the All-Party Parliamentary Group (APPG) for Gambling Related Harm, which features prominent members including former Conservative Party leader Iain Duncan-Smith.

This group has recently unveiled a number of proposed reforms and measures in a comprehensive MP’s report, including those aimed at advertising, betting limits and the wider objective of ending gambling-related harm in the UK.

We’ll explore these measures further below, while asking whether this report could represent the new face of the iGaming industry.

Taking an Overview of the APPG’s Findings

It’s no surprise that iGaming in the UK has come under increased fire of late, with the controversial FOBT cap setting a new precedent for government involvement and interference in a lucrative private marketplace.

Of course, this legislation was also supported in part by the UK Gambling Commission (UKGC), which has made the protection of vulnerable gamblers its core strategic objective through 2021.

Interestingly, it has also been argued that the desire to target the £5.3 billion iGaming niche in the UK is an indirect result of the FOBT cap, which caused bookmakers to lose an estimated 56% of their cumulative revenue and significantly reduced the tax income paid into the Treasury every single year.

With this in mind, the decision to further regulate the iGaming market and legislate within this space may well be being motivated by a desire to recoup some of this lost revenue.

Regardless, the comprehensive list of proposals from more than 50 MPs in the UK would represent a huge reform of the iGaming market, particularly if they were all to be implemented by the government.

With famous anti-gambling campaigners including Carolyn Harris, Tracey Crouch and former Labour Deputy Leader Tom Watson driving the legislation, there will certainly be a significant push to redefine online gambling in the UK and curb the perceived excess that exists within the market.

Let’s Get Started – Could We See the End of iGaming Advertising?

According to The Guardian publication, one of the first proposals would see gambling advertising reduced dramatically both on television and online.

This is something that has driven conversation in the industry for months now, ever since UK gambling firms agreed to a voluntary, ‘whistle-to-whistle’ advertising ban during sports broadcasts aired before the 9pm watershed

This was met with acclaim by many, particularly following a BBC investigation which found that most ad breaks featured during the 2018 World Cup broadcasts (the majority of which aired before 9pm GMT) contained at least one gambling message, with others including two.

However, there were some who viewed the blanket ban with cynicism, particularly with television advertising accounting for such a small percentage of operators’ total marketing spend.

According to figures at the time of the announcement, TV advertising accounted for just 15% of the total spend in 2017. Conversely, nearly half of the £1.56 billion marketing budget was invested in digital and online ads, with the amount spent on banner ads and paid search nearly doubling the number reported in 2014.

This suggests that operators may be looking to control market regulations by proactively banning a relatively minor advertising channel, while simultaneously maintaining their online presence and brand awareness.

Even now, Coral and Ladbrokes’ parent company GVC Holdings is continuing to push for a total and permanent ban on advertising during live broadcasts (excluding horse racing), even those that are scheduled to air after the 9pm watershed.

While some exceptions may be allowed for messages that promote responsible gambling and associated campaigns, GVC’s proposals would still impose limits on the number of ads featured during breaks.

Regardless of whether you consider this to be a relatively cynical move or not, it cannot be denied that the proposal has not impressed the members of the APPG for Gambling Related Harm.

This is why they are instead proposing a total ban on all forms of gambling advertisement, in a move that could have far-reaching effects for a number of market players and affiliates.

To begin with, operators would have their main channel for targeting players and building a viable customer base eradicated, making it extremely difficult to compete aggressively and reach casual players or novices.

Perhaps most intriguingly, this measure would impact most noticeably on new and emerging operators, who would be denied the opportunity to build their brand in the mass marketplace and compete effectively with more established rivals.

These entities have already built their consumer base and brand recognition, of course, so major players such as William Hill and Ladbrokes would arguably be able to create something of a monopoly online.

There are other factors too, not least the potential impact on football club and sports team sponsorship deals. The same principle can be applied to the commercial relationships and sponsorship arrangements that exist between gambling operators and commercial broadcasts, costing these entities millions of pounds over time.

If this measure and blanket ban was to be imposed, it would undoubtedly send shockwaves throughout the UK market, and at the very least change the way in which operators promote themselves and their verticals online.

The End of VIP Schemes and Inducements to Bet

While the first measure may seem sweeping and transformative, it has nothing on the notion of ending so-called VIP Schemes and the “inducements to bet” that underpin the relationship between online casinos and their players.

If we start with the former, you may have heard that a recent investigation conducted by the UKGC found that several established iGaming brands were heavily reliant on VIP schemes and high-rollers for the bulk of their revenues. This piqued the interest of the regulator and legislators alike, so it’s no surprise that the APPG has recommended eradicating such schemes.

The findings of the report were certainly telling, as it was revealed that one high-profile (but anonymous) operator took a staggering 83% of their total deposits from just 2% of their VIP customers.

While this represented the most stark finding, it was far from a one-off, with nine betting firms reporting similar trends throughout the UK.

For example, one operator took a reported 58% of its betting account deposits from a VIP cohort that comprised just 5% of its player base. Another accepted 48% of cumulative deposits from just 3% of customers, and in most instances such players had been offered constant rewards and incentives to bet as part of VIP membership.

This also ties into the concept of “inducements to bet”, which is a term that’s essentially used to any type of welcome bonus or recurring promotion that’s marketed by iGaming operators.

There’s a significant crossover between the mechanics of VIP membership schemes and inducements to bet, and the virtual elimination of welcome offers, bonuses and similar measures in their current form would have a potentially crippling impact on the online gambling space.

The maths are certainly clear when appraising the potential impact of banning VIP schemes on established iGaming brands, as this would compromise most betting firm’s primary source of recurring income.

From a purely financial perspective, the financial consequences of this could arguably be more impactful than the aforementioned FOBT cap, as while current VIP players would still be able to wager, the reduction of wagering incentives would most likely slash their contributions considerably.

The impact of ending welcome bonuses and similar inducements is slightly harder to quantify in financial terms, but it would certainly hinder the capacity of operators to target casual players online and market themselves successfully to new demographics.

Such a move would also undermine the primary incentive for players to register with a new casino site in the first place, and in conjunction with the widespread advertising ban could see both extremes of operators’ player bases eroded within a short space of time.

The £2 Slots Betting Cap – What Would This Mean for iGaming Brands?

Last, but by no means least, we come to the biggest and arguably most transformative proposal of all.

This takes the form of a £2 stake limit for online slots, which is modelled on the controversial FOBT cap that caused such upheaval, job losses and financial hardship in the offline wagering market.

The premise of this reform is simple; as lawmakers would impose a £2 betting cap for the online slot vertical, while third-party organisations would also be set-up to carry out affordability checks to determine whether or not players can realistically afford to gamble.

There’s little clarification regarding the latter point, but it does mean that some players may be prohibited from wagering online even if they’re operating within the chosen £2 limit.

While it’s tough to call, this measure would arguably see the biggest impact in terms of iGaming revenues, particularly when you consider the dominance of online slots and their growing popularity amongst new and casual players.

According to UKGC figures released at the beginning of 2018, slots accounted for nearly two-thirds (64.5%) of the total iGaming GGY in the UK, with this number expected to increase incrementally over the course of the coming years.

No single vertical or gaming genre comes close to this percentage, with table games (15.8%), other games (12.3%) and card games (12.1%) trailing far behind the online slots niche.

Clearly, a £2 cap would have a dramatic impact on the cumulative turnover generated within the iGaming space, although it could be argued that operators would at least be able to maintain their existing margins as prizes and payouts would also be reduced accordingly.

However, this would raise an additional issue in terms of the attractiveness of slots, which currently comprise the bulk of operators’ games libraries and is thought to provide a compelling hook for new and inexperienced gamblers alike.

Similarly, serious or high-rolling gamblers would be deterred by the likely elimination of large or progressive jackpots, creating yet another scenario where both extremes of the typical player base are impacted by a particular measure.

This is a common and worrying theme for operators, particularly as many are already dealing with the 6% RGD hike rolled out last October (which increased the amount payable by brands to 21%).

The Last Word – Could These Measures Force Operators Overseas?

The clear takeaway here is clear; as the UK government is clearly looking to legislate within the iGaming market and assume far greater insight and control over the way in which the sector is managed.

This objective is also borne out by the proposal that regulators and the UKGC should be afforded far greater control over everything from available payment options to the innate design of individual games, while it has also been recommended that a new ombudsman is appointed to resolve conflicts between consumers and firms.

Of course, those at the heart of the APPG claim to be motivated by the perceived failure of gambling firms to learn their lessons following a series of safeguarding failures over the course of the last two years.

In this respect, operators have failed to cover themselves in glory as the UKGC has sought to introduce greater protections for players, with firms paying out a record £19.7 million in total fines during 2019 alone.

However, this doesn’t change the fact that the introduction of all or even some of these changes would have a dramatic impact on the market and individual operators, particularly multi-channel brands like William Hill that have already seen their revenues and prosperity slashed during the last 18 months.

The primary fear here is that companies will eventually be compelled to relocate overseas, with relatively autonomous regions such as Malta and Ceuta in Spain serving as attractive and viable safe-havens for brands. Make no mistake; the rate of RGD is now higher in the UK than it is in Spain, which is one of several regions that’s looking to incentivise iGaming market growth across the globe.

At the same time, continental iGaming markets such as Sweden, Germany, Bulgaria, Poland and the Czech Republic are continuing to thrive, and this (along with the increasingly regulated nature of the UK space) has already encouraged some brands to exit the UK during the last year.

More may be about to follow, with many of these recommendations likely to be rolled out in one form or another in the near or medium-term. The question that remains is how far will the government go, and are they interested in striking the balance between creating a fair but profitable iGaming market in the UK?