Will a Reliance on VIP Gamblers Hurt the iGaming Industry?

Posted by Harry Kane on Thursday, January 30, 2020

There’s no doubt that iGaming operators are under increased pressure as 2020 gets underway, particularly with the legislature in the UK pledging to clamp down on online gambling in conjunction with the UK Gambling Commission (UKGC).

The UKGC will certainly be casting its regulatory eye over the iGaming space over the next 12 months and beyond, as it continues to safeguard potentially vulnerable gamblers and uphold its core strategic objectives through 2021.

One area of concern remains the industry’s reliance on so-called ‘VIP gamblers’, and this is something that has inspired a recent report from the UKGC.

But what exactly were the findings, and could the marketplace suffer as a result of this perceived reliance in the months ahead?

How Problem and VIP Gamblers Are Driving the iGaming Space

The Gambling Commission’s most recent report has focused primarily on high-rolling VIPs, who are defined as frequent and prolific gamblers who wager relatively huge sums on a regular basis.

Not only did the findings highlight the extent to which operators (and the industry as a whole) relies on such players, but according to a report in the Guardian they also exposed a huge flaw in the UKGC’s drive to safeguard vulnerable and potentially problem gamblers.

After garnering in-depth data from a total of nine betting firms, it was revealed that one anonymous (but high-profile) operator took a staggering 83% of their total deposits from just 2% of their customers, and this trend was commonplace throughout the marketplace as a whole.

For example, another participating brand took 58% of its betting account deposits from a VIP cohort that made up just 5% of its consumer base. A third accepted 48% of its total deposits from a meagre 3% of customers, and in almost all instances operators drew the majority of their revenue from a relatively tiny group of players.

As we can see, these players had been afforded VIP membership status in the overwhelming majority of cases. This has raised significant concern, particularly as the amounts wagered by VIPs and the frequency with which they’re required to place bets makes them disproportionately likely to develop a gambling addiction.

At the same time, critics have observed that by relying on such player demographics, operators are essentially facilitating problem gambling and creating a scenario where potentially vulnerable individuals are being incentivised to wager disproportionate amounts of cash.

VIP membership schemes have already come under fire from government bodies and anti-gambling campaigners, due the sums of money habitually lost by participating players and the widespread use of free bets and cashback offers to rewards loss-making wagers.

With the government set to review the existing gambling legislation in the UK and the cross-party Gambling Related Harm Parliamentary Group (APPG) also pledging to crack down on iGaming in 2020, it’s apparent that the release of this report has come at the worst possible time for the industry.

At the same time, its findings have also compounded the outcomes of similar reports that have been conducted over the last couple of years or more.

More specifically, a previous study carried out in conjunction with the iGaming platform PlayNow.com highlighted the site’s clear reliance on high-rollers and gamblers who showcase potentially problematic behaviour.

Incredibly, it was discovered that a meagre 5% of the players (619 in total) accounted for 45.9% of all casino wagers processed through the site, whilst 82% of all transactions were attributed to 20% of the most active customers.

Perhaps more alarmingly, these 619 gamblers placed an incredible average of 12,594 individual wagers per month, with this translating in 420 bets each day.

The highest spenders staked an average of $66,361 (£50,674) during each four-week period, highlighting incredibly problematic behaviour that has drawn considerable criticism from individuals throughout the industry.

This, when considered alongside the most recent report, only serves to reaffirm the perception that the iGaming sector (and the gambling industry as a whole) is overly reliant on potentially vulnerable players. This only conflicts with the outlook of the UKGC, but also a government that’s increasingly keen on legislating in the marketplace.

Exploring VIP Status Further – The Key Concerns for Regulators

As we’ve already said, the leak of the most recent report has come at the worst possible time for the industry, whilst it also highlights an issue that has already become apparent to the UKGC since the beginning of 2018.

More specifically, the award of VIP status to players has been cited as a factor in seven out of 10 regulatory penalties issues to operators for failing to prevent problem gambling during the previous two years.

In one particularly high-profile incident, the Guardian also revealed that high street giants Ladbrokes had agreed to pay £1 million in compensation to the victims of a VIP gambler who had stolen the money he used to place wagers.

Over two years, the player in question was showered with gifts including free tickets to football matches and business class flights as part of this VIP membership, encouraging him to continually increase his spend in order to receive incrementally more valuable prizes.

Betfair was also revealed to have helped a problem VIP gambler to hide his addiction from his wife, and this drew considerable criticism from the UKGC.

These incidents betray the poor practice associated with VIP programmes nationwide, while perpetuating the fear that empowering players with VIP membership is actively creating an entirely new generation of problem gamblers.

Another section of the report, which was also obtained by the Guardian under the existing freedom of information laws, provided justification for the notion that VIP members are more likely than others to become problem gamblers.

In total, the commission estimates that there are 47,000 VIPs in Britain, with approximately 8% of them considered to be problem gamblers. Incredibly, this is 11-times the rate found in the general public, and it certainly raises legitimate questions about the existing VIP membership schemes in the UK.

Of course, the report doesn’t actually reveal how many of these gamblers currently sit within the ‘at risk’ category, but it’s statistically likely to be far higher than the UK average.

Another key concern raised by the UKGC is the use of algorithms to target potential VIP players, and this was also touched on during the report.

These algorithms have become increasingly sophisticated throughout the digital age, enabling operators to track betting patterns and behaviours with far greater efficiency. As a result, they’re more effective at identifying prolific gamblers with the potential to wager more, with this data used to determine VIP membership rather than highlighting vulnerable players.

Each of these individual concerns would be enough by themselves to pique the interest of the UKGC, which remains focused on safeguarding vulnerable and problem gamblers in the UK. When combined, however, they create a significant issue that risk action from both the government and the UK legislature.

What Resolutions Have Been Proposed to Help Safeguard VIP Players?

After the details of the report was leaked, the UKGC was quick to issue a statement and confirmed that it was already taking decisive action to address the poor practices associated with VIP programmes in the iGaming market.

According to a spokesperson, operators “must improve their interaction with VIPs”, while the Commission has also “challenged the industry to make faster progress to improve how they manage their customers.”

“We have also taken robust action against operators who fail to protect consumers and we will be even tougher if behaviour does not change,” said the regulator, whilst it was also suggested that the UKGC would be willing to further in order to keep players in the UK safe and protected at all times.

Some potential solutions have been discussed in the leaked report, with the most obvious being to ban VIP schemes and eliminate this status from the marketplace.

This would strike a significant blow to the iGaming marketplace, however, particularly in terms of revenue and profitability, and it’s thought that the UKGC would prefer to pursue an alternative course of action.

A more moderate solution would be to investigate and potentially change how VIP customer service representatives are incentivised, with a greater emphasis placed on the promotion of responsible gambling rather than sheer sign-up volumes and optimising the amounts wagered by high-rolling players.

This would most likely see the establishment of limits or thresholds at which VIP gambling activity is classified as problem behaviour, at which point operators would have to act by either restricting the player’s account or recommending self-exclusion measures.

A similar move could also see operators forced to limit the incentives that they offer to scheme members, in order to reduce the individual amounts wagered, make VIP wagering less appealing and ensure that losing wagers are no longer rewarding.

Finally, we come to the preferred approach of the UKGC, which would involve putting pressure on all operators to draw up an industry-wide VIP code of conduct which all brands must adhere to.

This follows the tried and tested regulatory path of placing the onus of responsibility on operators, whilst creating a transparent set of guidelines that help to protect players whilst also empowering sustained growth in the iGaming market.

This may well compel operators to use the algorithms currently reserved for identifying VIP candidates to instead classify problem gamblers, highlighting at-risk individuals and helping them to manage their behaviour over time.

Whilst we have yet to see which option the regulator will recommend, the most crucial thing is that the UKGC takes decisive action and creates a viable VIP membership (or alternative) structure that adequately protects vulnerable players.

Otherwise, the iGaming sector may find itself at the mercy of politicians and the members of the aforementioned APPG Group, which has already proposed a radical overhaul of the online gambling industry in the UK.

The Last Word – By Decisive Action is Key

This is a key consideration, and one that makes proactive intervention from operators and the UKGC increasingly pressing.

After all, there’s no doubt that the market leading iGaming operators are overly reliant on players who frequently tread a fine line between high stakes wagering and problem gambling.

At the same time, the APPG is increasingly motivated to follow the regulator’s lead by creating new legislation that safeguards potentially vulnerable gamblers. This group has also been inspired by the controversial FOBT cap, which slashed the maximum betting stake to just £2 and was finally rolled out in April of this year.

According to Labour MP Carolyn Harris, who chairs the APPG Group, the findings could well inspire the existing government to conceive and implement new legislation soon rather than later.

“This report shows how completely reliant the industry is on people with gambling problems and that they are profiteering from them,” she said in a statement. She also went on to suggest that VIP membership schemes and associated practices “should be banned to protect problem gamblers and stop the transfer of money from vulnerable addicts”, and this should serve as a clear warning to operators throughout the UK.

Brigid Simmons, who’s currently the chair of the Betting and Gaming Council (BGC) trade body, has echoed these sentiments. “Our industry recognises the need to change practices in this area and we’ll soon publish the terms of a review for a new industry code of conduct”.

“We intend to consult widely on the shape of this new code, to ensure we are always putting the welfare of our customers first.”

This will undoubtedly become a leading priority for the BGC, which was only established last year as a response to the crackdown on FOBT activity. More specifically, it’s primary purpose is to safeguard the industry against future legislative changes, in a regulatory climate that’s increasingly unfavourable.

So long as it’s fit for purpose and regulators can agree on a viable code of conduct, the industry should avoid the worst of the fall out as 2020 gets underway.