UK Gambling Shares Fall as U.S. Market Hit

Posted by Harry Kane on Monday, February 11, 2019

In recent times, the gambling market in the U.S. has grown exponentially as regulations within the sector have been relaxed. This culminated in the Supreme Court last May, when a 6-3 ruling struck down a 1992 law that prohibited most states from authorising sports betting.

This, along with the decisions Pennsylvania and Michigan to legalise online gambling, created extremely positive sentiment within the sector while also creating an opportunity for British firms to boost their profits in a potentially stark, post-Brexit landscape.

However, the path to fully legalising online gambling states remains strewn with obstacles, as the latest ruling by the U.S Justice Department highlights. But what was the ruling, and what impact will it have on UK operators?

Appraising the Ruling by the U.S. Justice Department

When overturning the longstanding 1992 Federal Law last year, the Supreme Court stated that the legislation violated core constitutional principles, which limited the federal government’s ability to control state policy.

In this instance, the Court ruled that the federal government was unconstitutionally forcing individual states to prohibit sports betting, and this seemed to create a path forward for all forms of virtual gambling in North America.

Gambling legislation in the States is nothing if not complex, however, as there are various laws and acts that govern the legality of sports betting and casino gameplay nationwide. One of the most prominent is the controversial Wire Act of 1961, which outlawed interstate betting and identified this as a criminal act.

Back in 2011, the gambling industry scored a major victory when the U.S. Justice Department released a revised legal opinion on the scope of the act, concluding that “interstate transmissions of wire communications that do not relate to a ‘sporting event or contest’ fall outside the reach of the Wire Act.

As governments and administrations change, however, so do to the interpretations of laws and the way in which they should be applied within society. The Wire Act is no exception to this rule, which is why the Justice Department has recently released a new legal opinion that reversed the findings published seven years ago.

This ruling came in November, and it fundamentally questioned the assertion that the Wire Act is applicable only to sports betting. In fact, it stated clearly that the 2011 opinion misinterpreted the statute, while once again redefining the scope of the Wire Act so that it can be applied to any form of gambling that crosses state lines.

Not only will this new ruling have a far-reaching impact in states that sell lottery tickets online, while it may also interrupt interstate compacts and future collaborations between regions like Delaware, New Jersey and Nevada.

In an official memo issued by the Deputy Attorney Rod Rosenstein last Tuesday, the Justice Department will apparently wait for a period of 90 days before implementing the ruling.

In theory, this will allow online casino operators to adjust their near-term growth strategies, while many will also use this time to prepare detailed legal challenges to the latest ruling.

How Will This Impact on the U.S. and UK Brands?

This represents yet another setback for the U.S. gambling sector, with many states having fought for years to legalise sports betting and casino gameplay.

These include New Jersey, Nevada and Delaware, who have blazed a trail for other states to follow in the virtual gambling space and laid the foundations for recent growth in the marketplace.

They’ve also recently signed a pact that will allow online poker fans in all three states to play against one another directly, while the region’s leading operators are also keen to expand this collaboration to include table games and progressive slot titles.

While it remains unclear precisely how the new interpretation of the Wire Act will impact on U.S. gambling operators, at the very least it could threaten this type of pact by making interstate casino gaming illegal. Although this would surely be the subject of a legal challenge, it would also have a short and medium-term impact on the operator’s revenues and future growth opportunities.

It would almost certainly inhibit the expansion of the U.S. market, undermining the forward momentum that was created when the 1992 Federal law was overturned last spring.

Interestingly, the latest legislatory development could also undermine potential collaborations between North American and UK operators. There’s a tremendous appetite for cooperation between both markets, with U.S. brands keen on leveraging the advanced technology and regulatory expertise that underpins the industry in the UK.

Conversely, it was hoped that British operators could tap into a vast and burgeoning market in the U.S., with a view to developing lucrative revenue streams in a post-Brexit world.

With the sudden disruption in this market seemingly hindering these plans (and a number of UK brands already active in the U.S. market), it’s little wonder that the decision of the U.S. Justice Department has hit several high-profile share prices.

The industry’s stock exchange decline was led by 888 Holdings, which shed 5% of its value within 24 hours of the announcement. Paddy Power Betfair also saw its share price fall by 2.5%, while William Hill and Ladbrokes owner GVC lost 3.5% and 4% from their values respectively.

This is the very last thing that UK operators need, particularly with the impending RGD hike and FOBT cap scheduled to start in October. These legislatory and regulatory decisions have already hit the UK gambling market hard, with shares values and projected revenues declining among large, multi-channel operators.

The Last Word

Ultimately, the latest intervention by the U.S. Justice Department has come at the worst possible time, both for North American operators and their contemporaries across the Atlantic.

This is also the second revision of the 1961 Wire Act in the last seven years, highlighting the changeable nature of the North American market and the challenges facing gambling brands in terms of collaboration and long-term growth.

Unfortunately, this is also impacting on British operators, who are desperately looking to forge new partnerships as the Brexit deadline approaches. Make no mistake; these plans will have least have been disrupted by the latest revelations, creating even greater uncertainty in a volatile marketplace.