Can iGaming Market in the UK Avoid a Backlash in 2024?

Posted by Harry Kane on Tuesday, February 25, 2020

While the iGaming market in the UK is hardly on the precipice of disaster, there are signs that it may be inching towards a regulatory and legislative cliff-edge as 2020 gets underway.

Industry insiders have certainly witnessed a number of red flags over the course of the last 18 months, from the increasingly stringent regulations imposed by the UK Gambling Commission (UKGC) and the government’s huge crackdown on fixed-odds betting terminals (FOBTs) to growing concerns surrounding the reported exploitation of vulnerable gamblers.

With online slot gaming and the issue of sportsbook sponsorship in football having also received Parliamentary scrutiny of late, there’s no doubt that the iGaming market could face a significant legislative backlash over the course of the coming months.

But can operators and the UKGC take steps to avoid this, and what lessons can be learned from similar markets in Europe?

The Challenges Facing iGaming in the UK

In some respects, the iGaming industry in the UK is used to the concept of scrutiny and the omni-present threat of existential crisis.

After all, the gambling industry as a whole has always faced strong moral and ethical objections from lobbyists, while it has always watched from afar as the tobacco and alcohol markets have been hit with increasingly stringent legislation and constantly rising tax levies.

Now that Parliamentarians in the UK have largely completed their crusades against the tobacco and alcohol industries (while continuing to generate significant tax revenues from the respective market leaders), however, it’s only natural that they should have turned their attention to the gambling and iGaming markets.

This has been borne out by a number of legislative changes over the course of the last year or so, as Westminster continues to impose an industry crackdown and its politicians leverage the growing antipathy shown towards gambling to achieve effective PR triumphs.

The most striking legislative shift took the form of the aforementioned FOBT cap, which was officially rolled out in May 2018 and slashed the maximum betting threshold for fixed-odds betting terminals from £100 to just £2.

It was the former Tory Culture Secretary (and now the Secretary of State for Health and Social Care) Matt Hancock who led this charge, with the new measures having been subsequently rolled out in April 2019 and forecasted to reduce operators’ profits by more than £200 million.

This drastic measure was imposed despite its potential to trigger job losses and a raft of high street closures across the UK, and the fact that FOBTs contributed an estimated 56% of all bookmaker revenues.

It also caught the industry off-guard, with the UKGC having proposed a cap of £30 to help safeguard vulnerable gamblers (which is one of the regulators core strategic objectives through 2021) and maintain viable growth in the marketplace.

This is indicative of the changing attitude towards gambling as a whole, and a series of more recent proposals suggest that politicians and cross-Parliamentary groups are about to target iGaming with the same ferocity.

To this end, the Gambling Commission has announced that a ban on the use of specific payment systems to place online bets and deposits will come into effect on April 14th this year, following an investigation by the government’s Department for Culture, Media and Sport (DCMS) and the revelation that 20% of all virtual wagers are funded this way.

This move has been strongly supported by the cross-Parliamentary group for gambling-related harm, who have also proposed replicating the £2 FOBT cap in the virtual slot market.

Online slots currently account for nearly two-thirds (64.5%) of the online GGY in the UK, making them key drivers of profit for virtual casino operators.

When you consider that online table games are the next biggest contributors at just 15.8% (and that players can currently wager in excess of £500 per spin on some slots), this is another dramatic proposal that will have a seminal impact on the iGaming space.

While each of these proposals can be debated from a moral, social and economic perspective, however, they should serve as red flags to operators and have the potential to significantly alter the iGaming market as we know it.

Sponsorship and Football – Could the UK See a Complete Crackdown?

Some lobbyist and Parliamentarians are also targeting the increasingly co-dependent relationship between football teams and online gambling brands, with the latter providing huge investments in the form of shirt and stadium sponsorship.

In fact, it’s estimated that there are now 80 separate sponsorship deals between betting brands and football clubs in just four of the major European leagues, including the Premier League, La Liga, Serie A and the Bundesliga.

This represents something of a grey area from a regulatory and legislative perspective, however, which is why the issue of gambling sponsorship in professional football has become such a major talking points in recent months.

Despite adopting an increasingly stringent approach to regulating the gambling industry since 2018, for example, the UKGC has always claimed that banning sponsorship is hard to justify without concrete proof that this creates social harm.

The current regulatory approach adopted by the Commission is defined in Section 327(2)(a) of the Gambling Act 2005, which provides guidelines for operators looking to advertise their products and verticals.

While all sponsorship deals must comply with these guidelines and the industry code for socially responsible advertising, the only genuine caveat revolves around the targeting of gambling products at children.

For example, football clubs cannot feature gambling brand logos on replica shirts aimed at customers under the age of 18, which are typically defined by their size and the fact that they’re not liable for VAT.

Such logos and promotional messaging cannot be published on any commercial merchandising that is marketed directly at children either, and teams that comply with these rules will not incur any sanctions from the UKGC.

This type of advertising is also subject to the general code of conduct imposed by the Football Association (FA) and the Premier League, which stipulates that branding or logos should consist of one single area on the front of the shirt and not exceed 250 square centimetres.

This is something that Huddersfield Town fell foul of in the summer of 2019, when the Terriers were fined £50,000 for breaching the FA’s rules and displaying a kit which featured the sponsor’s name (Paddy Power) on a huge sash across covering the front of the shirt.

Although the kit was worn as an advertising stunt (with the terms of the new sponsorship deal actually dictating the removal of Paddy Power branding from the front of the strip) and during a pre-season friendly rather than a competitive game, the FA acted swiftly and underlined that fact that the current advertising standards are imposed without hesitation.

Of course, it can be argued that there’s more than a little ambiguity in some of these rules, but they at least provide a general guideline for sports teams and gambling operators to follow.

So, although we may see some instances where specific teams are sanctionedand the Football Association itself has largely severed its own ties with iGaming brands, there are no immediate plans from either the FA or the UKGC to ban gambling sponsorship in the sport.

However, the incumbent government could well intervene by reviewing the advertising codes of conduct in this respect and proposing significant legislative changes, which may include a de facto ban of commercial sponsorship agreements between football teams and gambling brands.

Perhaps the biggest indicator of this is the stated desire of the Tories, Labour and the Liberal Democrats to review the Gambling Act of 2005.

After all, this details the existing legislation for all advertising standards pertaining to sports sponsorship deals and any additional promotional activity involving gambling brands, and this may well be one of the areas in which Parliamentarians would look to make considerable changes going forward.

This would be part of a wider reform, of course, but with the Tories having previously echoed Labour deputy leader Tom Watson’s assertion that the current gambling legislation represents ‘analogue legislation in the digital age’, the potential risk to operators and those who profit from lucrative advertising deals is significant.

Why UK Operators Should Heed Lessons from Across the Border

The market leading operators in the UK should definitely pay more than lip service to this risk, especially given the previous government’s intervention into FOBT activity and its subsequent decision to slash the maximum betting threshold to the detriment of the industry’s growth.

There’s also lessons to be learned from across the continent, with the Italian coalition government of Lega and the Five Star Movement having delivered on the latter’s manifesto pledge to ban online gambling brands from advertising on television, radio in April 2019.

This advertising crackdown also banned future sponsorship deals between gambling operators and Serie A sides, costing teams as estimated total of €20 million (£16.9 million) following its introduction in July last year. It also triggered a series of regulatory and legislative changes in the wider industry.

These included a number of tax hikes, which saw the levy applied to online casino and bingo operators increase to 25% of total GGY. The corresponding tax for online sports betting rose to 24%, while even brick-and-mortar operators saw nominal increases to their liabilities.

The coalition also laid out plans to restrict affiliate marketing and slash the number available online gambling licenses from 85 to 50 by 2023, casting doubt on the long-term future of the market and triggering a marked decline in revenues.

In fact, the Italian market posted a year-on-year decline of 3.7% in March 2019 alone, as turnover fell to a relatively paltry €140.2 million (£121.2 million).

Not only did these changes go further than expected, but it’s also fair to surmise that they were based primarily on emotion and faux moral outrage than any data or informed scientific opinion.

Additionally, the UK government has recently followed a similar path by introducing a 6% hike to the Remote Gaming Duty (RGD), which will enable the Treasury to recoup the tax revenues lost through the FOBT cap and oversee a supposed clampdown on the iGaming industry.

Make no mistake; the approach of the UK government and its recent actions should come as a genuine concern to operators, as they may be the first of numerous changes aimed at reforming the overall marketplace and creating a similar legislative climate to that in Italy.

The Last Word – Can UK Operators Avoid This Backlash?

The future actions of the government remain outside the control of gambling operators, of course, and the question that remains is whether they can avoid any legislative backlash (or at least mitigate its impact) going forward?

Well, operators certainly need to be more proactive when tackling potential concerns and regulatory issues head-on, with significant reforms required to the so-called ‘whistle-to-whistle’ ban on TV advertising agreed by gambling brands last year.

While this was welcomed at the time, it has failed to significantly reduce the amount of sponsored messaging on show during live broadcasts (including pitchside promotions and shirt sponsorship in addition to television advertising).

According to a study undertaken by The Conversation, one Premier League game between Bournemouth and Crystal Palace last December featured a grand total of 974 instances of gambling advertising, suggesting that the leading gambling operators were simply paying lip service to the issue with their blanket ban.

Not only this, but the figures prove that TV advertising accounted for just 15% of gambling brands’ total spend in 2018.

In fact, it was online advertising that dominated the €1.78 billion (£1.56 billion) marketing spend in the iGaming market, and addressing this may help operators to avoid the wrath of legislators in 2020 and beyond.

With this in mind, operators would probably benefit from considering wider restrictions on advertising activity across numerous marketing channels, in a bid to help safeguard children and comprehensively address the issue in hand.

In general terms, operators must also cooperate fully with the UKGC, which as we’ve already said has made the protection of vulnerable gamblers its key priority through 2021.

This will not only help them to establish themselves as ambassadors for responsible gaming, but it can also create a progressive self-regulatory approach that reassures the public, alters the reputation of the iGaming market and negates the perceived (and growing) need for government intervention.

Without this, iGaming operators may leave themselves exposed to a slew of increasingly stringent legislative changes across both casino gambling and sports betting, which could in turn impact negatively on both revenue and profitability.