Will a Tory Government Devastate iGaming in the UK?

Posted by Harry Kane on Tuesday, December 31, 2019

In the build-up to any General Election, the launch of individual party manifestos always represents a major highlight. The most recent releases are no exception to this rule, with Labour pledging free, high-speed fibre broadband for all homes and businesses and the Tories making a variety of vague promises relating to healthcare, taxes and the looming spectre of Brexit.

In most cases, it’s hard to find any common ground between the major parties, with each one pursuing a unique agenda that’s underpinned by variable social and economic values.

However, one topic that does seem to be unifying the political parties in the perceived threat posed by online gambling, with Bors Johnson, Jeremy Corbyn and Jo Swinson all pledging to make significant changes to the 2005 Gambling Act and its implementation.

In this post, we’ll explore these changes in further detail, whilst asking why electing the Conservatives may represent the iGaming industry’s worst nightmare.

Analogue Legislation in a Digital World – Why the Tories are Following Labour’s Lead

The last 18 months have been challenging for the iGaming market and its leading lights, with both the UK Gambling Commission (UKGC) and the government having imposed increasingly stringent regulations for operators.

The Commission has undoubtedly led this charge (having made the protection of young and vulnerable gamblers one of its core strategic objectives through 2021), whilst the current Department for Digital, Culture, Media and Sport (DCMS) has also joined in following sustained pressure from both responsible gambling campaigners and Labour lobbyists.

This led to the announcement of the controversial fixed-odds betting terminals (FOBT) cap, which slashed the maximum bet limit from £100 to just £2 and left bookmakers facing an estimated 56% shortfall in their turnover.

This new piece of legislation was officially rolled out in April, along with a 6% hike in the RGD which left multi-channel operators facing a significant decline in profitability.

Of course, it has been argued that the hastily formulated RGD hike, which has left operators in the UK paying 21% on their gross gaming yield (GGY) garnered from virtual slots, table games and video poker, was only introduced to offset the loss in tax revenue caused by the FOBT betting cap.

Regardless, it’s clear that the drive to more stringently regulate the mature iGaming market in the UK has triggered a domino effect in the industry, whilst also building significant momentum in the quest to safeguard players and improve the perception of the industry as a whole.

In February this year, Labour’s deputy leader Tom Watson also moved to keep up the pressure on operators, famously declaring that the existing 2005 Gambling Act was outdated and best described as “analogue legislation in the digital age”.

We’ll have a little more on Labour’s election pledges later, but it’s interesting to note that Watson’s captivating sound bite was picked up and repeated by Prime Minister Boris Johnson in the Conservative manifesto earlier this week.

This document also echoes Watson’s calls to “review” the 2005 Gambling Act, and whilst it fails to provide extensive details of what this would include, operators should be left in no doubt that the Tories intend to crack down on iGaming activity and best practice in a significant way.

The manifesto discusses the potential for new limits on virtual gambling, for example, which will presumably be applied to maximum deposits and the precise amount that players can wager during a specified period of time.

Interestingly, the Tories are also suggesting that their review will focus heavily on loot boxes and credit use, with the latter issue represent a major concern for all of the leading political leaders.

As for loot boxes, this represents something of a no-brainer, as these consumable virtual items are widely available in video games and can be redeemed to receive a randomised selection of further goods and prizes.

The procurement of these boxes can involve real money, and anti-gambling lobbyists are pushing for regulators to ban this practice and follow the example set in Holland and Belgium last year.

However, significant legislative changes will be required to achieve this goal, with the UKGC having confirmed in 2018 that loot boxes don’t fit their own description of gambling.

The main reason for this is that the prizes on offer through loot boxes cannot be cashed out, but a change in the law will empower the Commission to regulate this practice and take proactive steps towards safeguarding children who are increasingly exposed to gambling-inspired activities.

Such promises represent a major departure for the Tory Party, which has historically been loath to interfere in private sector marketplaces and impose stringent regulations on limited companies.

However, the demand for change in the iGaming market has gained huge momentum during the last 18 months, whilst the aggressive stance taken by Labour and the Lib Dems has undoubtedly forced a change in approach.

This is without mentioning the growing desire amongst parents and UK adults to regulate the marketplace, so it’s little wonder that the Tory’s have sought to regulate the sector in a more robust manner.

This has undeniably been borne out by the extent of the FOBT cap, whilst the 2019 election manifesto is also heavy on intent if a little light on the detail.

Still, it’s hard to escape the fact that Boris Johnson’s charges are following Labour’s lead in the regulation of online gambling, and this will come as disappointing news for operators in the iGaming space.

What Are Labour and the Lib Dems Pledging With Regards to iGaming?

Whilst the Tory’s surprisingly hard line approach on iGaming may come as something of a surprise to seasoned followers of the party, it’s important to compare their approach with the other major parties.

As we’ve already said, Labour have blazed a trail for others to follow when it comes to revamping the 2005 Gambling Act, whilst it has also proposed a number of hard-hitting changes that would completely alter the nature of online gambling in the UK.

One of the first things that the party has called for is a full and comprehensive license review of all existing operators, which would be conducted under the guidance of the the UKGC and seek to identify rogue firms or those that fail to adequately safeguard players.

As a result, operators that failed to meet the standards detailed by the Commission and any new legislation would face being stripped of their license. Of course, the UKGC has famously introduced some incredibly stringent penalties since the beginning of 2018, with London-based software provider EveryMatrix the latest to have its operating license revoked whilst their conduct is investigated thoroughly.

In this respect, Labour’s policy would merely continue this trend, although a widespread license review would force all operators to internally analyse their behaviour and best practices.

Some will argue that this is imperative, with even high-profile brands having fallen foul of the UKGC and faced serious sanctions for failing to protect their customers over the course of the last year or two.

Market leaders William Hill were famously fined £6.2 million for “systematic social responsibility and money laundering failures” in February 2018, for example, whilst a Guardian investigation also revealed how Ladbrokes accepted millions of pounds in bets from a problem gamblers who had stolen money throughout last year.

But what else is Labour proposing? Well, the proposed overhaul of the 2005 Gambling Act will include the introduction of a new ombudsman, which will form part of a tripartite system alongside the UKGC and the NHS.

The thinking behind this is clear; as a Labour government would look to limit the burden placed on the Gambling Commission by creating a new regulator what will assume responsibility for researching problem gambling and minimising its impact on individuals and society as a whole.

This would free up the UKGC to pursue it core strategic objectives and focus on the day-to-day regulation of the industry, whilst empowering public healthcare resources to effectively treat those who have already developed problem gambling habits.

A Labour government would also continue the excellent work of the UKGC in regulating questionable bonus and withdrawal practices, by insisting on transparent terms, universal limits and the remuneration of customers who have fallen foul of such practices.

The new ombudsman would most likely have the autonomy to regulate the redress for such customers, both in instances where they’ve lost money as a result of unclear bonus terms or been allowed to wager freely whilst showcasing signs of problem behaviour.

As if this wasn’t enough, Labour has also proposed a mandatory levy on gambling companies to raise an estimated £100 million to pay for research, education and treatment of problem gambling.

At present, the industry pays an estimated £10 million under a voluntary donation scheme operated by the government, which has created a scenario where some of the biggest firms contribute less than the suggested 0.1% of their revenue overall.

Outside of these decidedly front line measures, Labour has also vowed to treat problem gambling as a serious public health issue. Many will argue that this is long overdue, with the World Health Organisation (WHO) having followed this path at the turn of the century.

This endeavour will be funded in part by the implementation of the aforementioned mandatory levy on operators, although it’s so far unclear whether Labour will introduce further hikes in the RGD payable by brands (although corporation tax will rise during a Jeremy Corbyn premiership).

Controversially, we’ll also see mandatory requirements for elected worker-directors to sit on boards and for 10% of shares in larger firms to be reserved for a worker fund.

This is part of the party’s wider measures to redistribute the wealth in the UK, and afford workers a stake in the companies that they work for. This will undoubtedly revolutionise the structure of the leading iGaming brands in the UK, particularly given that stakeholders will also be afforded a voice on public bodies such as the Competition and Markets Authority.

The Last Word

Then key takeaway here is clear; as regardless of who prevails in the election on December 12th, operators should brace themselves for more restrictions and the introduction of some increasingly stringent regulations in the months ahead.

This is particularly true when you consider that a group of cross-party Parliamentarians are also requesting stark reforms to the iGaming landscape. Referred to as the All Party Parliamentary Group (APPG), this entity is tasked with minimising gambling-related harm in society and proposing ideas to help achieve this aim.

This group is also one of the reasons why operators should perhaps fear a Boris Johnson premiership more than a Jeremy Corbyn alternative, as the APPG is fronted by former Tory leader Iain Duncan-Smith. His desire to reform the Gambling Act from 2005 is certainly well-known, whilst he has also fronted proposed measures such as reducing the maximum online slot stake to just £2 (mirroring the FOBT cap in the process).

Given Smith’s continued influence in the Tory party, it’s clear that the Tories could adopt any of these measures over a five term in government.

Beyond this, it’s also fair to surmise that operators know precisely what they’ll get from a Labour government, enabling them to make concrete plans and realign their various growth strategies.

Conversely, the litany of vague Tory policies create more answers than questions, whilst it’s hard to know precisely how stringently they’ll regulate the iGaming space if they’re elected into office as expected next month.