The Key Challenges Facing Online Gambling in 2019
Posted by Harry Kane on Thursday, October 25, 2018
On the face of it, the online gambling market in the UK appears to be in rude health as we approach the end of 2018. After all, this sector generated a gross gaming yield (GGY) of £4.7 billion in the year ending September 2017, while the market grew by 10.1% in relation to the previous 12 months’ figures.
Despite these largely unprecedented levels of growth, however, there’s no doubt that this market faces a number of considerable challenges in the near-term.
From potential political changes to the UK Gambling Commission’s (UKGC’s) core strategic objectives through 2021, the market will come under increased pressure over the course of the next 12 months and beyond.
In the article below, we’ll consider some of these challenges in further detail while appraising the impact that they’re likely to have on the virtual gambling industry in the UK.
Potential Shifts in the Economic Political Landscape
We’ve previously spoken in this blog about the looming spectre of Brexit, with the UK set to exit the European Union on March 29th, 2019.
However, the recent negotiations have been hampered as the harsh realities of Brexit have been laid bare, with likelihood of a no-deal exit becoming more realistic with every passing day.
This could prove particularly challenging for the online gambling market in the UK, with the long-term future of key jurisdictions like Gibraltar yet to be determined. So although the UK government has eased some industry concerns by negotiating a temporary deal that will enable Gibraltar to maintain access to the single market until 2020, further work needs to be undertaken if gambling industry is to avoid sustained and widespread disruption.
The primary concern here is that British operators may no longer see the benefit of basing themselves in the UK or Gibraltar, with the latter’s status as a tax haven for gambling firms not enough to compensate for restricted access to the single market. After all, jurisdictions like Malta offer similarly low tax rates and relaxed regulations, while this country will also remain a member of the single market into the future.
Of course, we’ll know far more about Brexit and the course that it’s likely to take by the summer of 2019, by which time British operators will have a clearer understanding of how exiting the EU will impact on their business.
However, this challenging climate could well be exacerbated by potential tax hikes in the online gambling sector in the UK, which have been proposed by the government ahead of the high profile FOBT machine stake reduction.
Following an investigation by the government department for Digital, Culture, Media and Sport earlier this year, it was revealed that the maximum betting threshold for FOBT’s would be slashed from £100 to just £2. Following subsequent lobbying from successful operators and betting leadership, however, the government has agreed to an extended transition period that will delay the implementation of this measure until April 2020.
Not only has this courted considerable controversy, but the delay is also likely to have an indirect impact on the virtual gambling sector. More specifically, the Treasury is expected to impose a higher tax rate on operators within this market, with an increase to the existing Gaming Duty expected to be unveiled as part of the April 2019 budget.
So while this is expected to offset the future loss of tax revenues through reduced FOBT wagering, it’s timing will also coincide with the UK’s departure from the EU. These factors could combine to have a considerable impact on the UK market, testing the resolve of some operators to remain based on these shores in the process.
This volatile economic and political climate raises other potential issues too, not least the prospect of a snap general election being called at some point during 2019.
After all, there is already considerable pressure being placed on Theresa May’s leadership and the composition of her government, and further tumult either pre or post-Brexit could well trigger a new election in the UK.
The election of a Labour government could well follow given the social divisions that currently exist in the UK, but this would not necessarily be good news for the online gambling sector.
After all, Labour have vehemently opposed various aspects of the online gambling market in recent times, with deputy leader Tom Watson having suggested that rampant advertising and problem wagering represent a “public health emergency” that must be urgently addressed.
While the Conservatives have responded by claiming that it was Tony Blair’s Labour government that first liberalised the gambling market when it was in power during the noughties, this should not distract from the hard line that the party would take if it was to be elected at some point during the next 18 months.
On the issue of problem gaming, a recent report commissioned by Labour found that there were 430,000 identified gambling addicts in the UK. Incredibly, an estimated 25,000 of this number were thought to be 16 or under (we’ll have more on this later), and the party has responded with a number of potential measures to tackle this problem.
One of the measures would prevent people from using debit cards to pay for bets when gambling online, while Labour would also introduce a levy on operators to pay for the treatment of self-declared addicts.
At present, there is a voluntary levy of this type applied to gambling operators in the UK, which currently generates around £10 million per year. Under Labour’s proposed plans, however, a compulsory charge would amount to 1% of operators’ GGY and yield an estimated £140 a year for the treatment of problem gamblers.
Advertising has also been targeted by the shadow cabinet, with Labour calling for a ban on the publication of all promotional messages during live sporting events. This includes periods of time both before, during and after live sporting broadcasts, while it also builds on the decision of the Committee of Advertising Practice and the UKGC to introduce tougher standards on gambling advertising across the board.
While some of these measures have been welcomed by operators, there’s a concern that they would combine to create an austere climate in which brands are forced to trade.
As Sky Bet CEO Richard Flint allured to, for example, there’s merit to increasing the levies paid by operators but not in instances where advertising and payment methods are also restricted.
The key takeaway here is that brands would be see their outgoings increase while their profits diminish, resulting in slower market growth and potential job losses over time.
This is why the next 18 months represent such a seminal period for the UK gambling market, as a number of these potential issues will come to a head and have a significant impact on operators nationwide.
The Rise of Problem Gambling
As we touched on earlier, the report commissioned by Labour revealed that there were an estimated 25,000 problem gamblers aged under 16 active in the UK.
Similar reports have delved even further into the problem, suggesting that a staggering 450,000 children gamble in England and Wales every single week.
The Gambling Commission’s Young People and Gambling Report has offered the greatest level of insight into the issue, reaffirming the rising prevalence of problem gamblers aged between 11 and 15 in the UK. This study also indicated that the overall rate of gambling among this demographic is now 16%, making it a far more pressing concern than underage drinking (9%).
It’s also interesting to note that 75% of 11 to 15-year olds have been exposed to gambling advertisements on television, with a further 63% witnessing sponsored messages on social media websites.
However, perhaps the key takeaway from the report was the fact that children and increasingly being exposed to gambling through less traditional channels, including social media outlets and video games.
eSports tournaments offer a relevant case in point, as do a number of casino-inspired games available through social media channels such as Facebook. The issue here is that children as young as 13 can register for an account of Facebook, meaning that youngsters are being exposed to wagering and simulated gambling experience without any form of additional age verification.
Then there’s the practice of skin betting, which is a relatively new and growing industry that achieved a cumulative value of $5.1 billion (£3.8 billion) in 2017. Loot boxes represent the best and most popular example of skin betting, with players able to redeem this consumable virtual item in exchange for real money during the course of their chosen game.
This box will contain a number of various and potentially game-changing items such as weapons and modifications, although players have no idea what’s included when they complete the purchase.
Unsurprisingly, the opportunistic nature of loot boxes and the fact that they drive real money purchases has captured the attention of gambling regulators across the globe, with the authorities in Belgium and Holland the first to announce a widespread ban and pursue potential criminal prosecutions.
Given that 11% of children in the UK participate in skin betting on a regular basis, you would think that the UKGC would have also assumed a tough stance on this practice. However, an investigation by the commission found that skin betting cannot be classed as gambling activity under UK law, as the items included in loot boxes are confined for use within the game and cannot be cashed out by players.
The commission have continued to monitor skin betting, however, and are facing increased pressure to work collaboratively with game developers to regulate items such as loot boxes. There have also been calls for the UKGC to impose age verification processes on any sites that host casino-style games, including social giant such as Facebook.
This would also require a collaborative approach, of course, and there’s no doubt that problem gambling among children remains one of the most challenging that the industry will face in 2019. We should certainly expect the UKGC to take action in the months ahead, however, as it looks to achieve its core strategic objective to safeguard vulnerable gamblers nationwide.
Online Gambling’s Image Problem
Safeguarding the image of the online gambling industry is another core strategic objective for the UKGC, and one that the Commission has already taken great strides to achieve.
Not only has the UKGC imposed a number of new regulations regarding money laundering and the treatment of problem gamblers, for example, but it has also moved aggressively to sanction operators that fall short of the new industry standards.
Take the online casino brand 32Red, which was recently fined a hefty £2 million for missing 22 opportunities to help a customer who was struggling to control his activity. Despite reaching out for advice, the brand ignored his concerns and instead offered him VIP status and free bonuses to continue his membership.
The player subsequently deposited £758,000 across more than two years, despite his earnings being considerably lower and the fact that he admitted to continually chasing losses.
The UKGC moved swiftly to intervene and sanction 32Red, both for their failure to protect the customer and check whether or not he could afford to maintain his betting activity.
William Hill is another operator that has met with the wrath of the UKGC, with the brand having been fined a huge £6.2 million for failing to adequately protect the interests of customers and prevent money laundering.
This is the second largest financial sanction on record in the industry, after 888.com were fined £7.8 million in 2017 for also failing to safeguard their customers.
The clear message here is that the UKGC is taking an increasingly tough stance on operators that fail to meet new and improved industry standards, with the commission being particularly tenacious when upholding anti-money laundering and social responsibility regulations.
There’s no doubt that we’ll see similar sanctions and operators look to adapt to the commission’s new regulatory stance, while the UKGC will also need to remain focused in its attempts to improve the industry’s image.
To help achieve this, the commission will continue to place a greater emphasis on brands to understand and uphold their responsibilities with regards to safeguarding customers, while executive director Tim Miller has also reaffirmed the need to strike a balance between sustained market growth and greater transparency in the future.
This represents a significant and far-reaching challenge, and one that is crucial if the industry is to alter the way in which it’s perceived by the general public.