Will the Gambling Review Trigger an Exodus from the UK Market?
Posted by Harry Kane on Friday, September 2, 2022
For now, the UK’s remote sportsbooks and online casinos are considering their options in the wake of the recent gambling review, while they await further feedback following a consultation period. While some betting brands reacted with cautious optimise, others raised concerns about the efficacy of the proposals and their potential impact on an industry that employs well over 100,000 people.
For example, Entain welcomed the publication and desire to create a “more robust regulatory framework in the UK that’s fit for the digital age”. However, EPIC were a little more cautious in their response, suggesting that there was a still a long way to go to strike the ideal balance between safeguarding players and maintaining a generative industry.
Some of the proposals recommended in the gambling review are noticeably stark, with a potential £2 slot betting cap and complete ban on digital advertising having the capacity to change the iGaming landscape beyond all recognition. But will this cause an exodus from the UK market, and if so, where are betting brands likely to flock to?
The Gambling Review and Other Regulatory Shifts – What You Need to Know
In truth, the regulatory landscape for iGaming in the UK has remained in a constant state of flux for five years or so, with both the regulator and successive Conservative governments striving to impose increasingly stringent restrictions on operators and accessibility alike.
Back in 2018, the UK Gambling Commission (UKGC) announced its core strategic objectives through 2021, the majority of which were focused on safeguarding vulnerable players and improving the industry’s wider reputation. This led to a series of rule changes and subsequent sanctions, as the UKGC also made enforcement a key and increasingly pressing focus.
Almost immediately, the UKGC compelled licensed UK operators to accept greater responsibility for identifying and protecting players showcasing compulsive behaviour, while also making them accountable for stopping money laundering through their sites. In the spring of 2018, William Hill became one of the first brands to fall foul of the new guidelines, being hit with a fine of £6.2 million for a slew of social responsibility and anti-money laundering failures.
Interestingly, the same brand accepted a whopping £19.2 million fine from the UKGC earlier this year too, worryingly for similar breaches and an underlying failure to safeguard players. The regulator describes these failures as being “widespread and alarming”, while they’ll be used by many to support the recent findings of the gambling review.
In the years since 2018, we’ve seen iGaming regulations become increasingly stringent and tenaciously imposed, with player verification procedures offering a relevant case in point. Now, players are unable to accept deposits from players until they’ve fully verified their age and ID, which may require individual players to send in photographic proof of their identity.
We’ve also seen advertising and sponsorship restrictions imposed on betting brands, with an initial focus on TV promotions and the relationship between companies and sports teams. The latter has recently seen Premier League clubs collectively agree to withdraw gambling sponsorship from the front of their shirts, with this £60 million decision set to take effect from the 2026/27 campaign.
Ultimately, the recent proposals included in the UK gambling review are simply an extension of this regulatory transition, and one that takes the stated goals of the regulator and government to their logical conclusion. Of course, this will have a seismic impact throughout the industry, notwithstanding the impact of the upcoming consultation period.
A Closer Look at Proposed Regulatory Changes and Their Impact
Such changes also create significant financial and operational challenges for operators, and we’ll touch further on whether these may prove insurmountable for some brands later in the article. Firstly, however, we’re going to take a closer look at some of the key proposals in the UK iGaming review, while asking how they’re likely to affect licensed brands.
The £2 Slot Betting Cap
The imposition of a maximum betting cap for online slots is perhaps the most eye-catching proposal, especially with some titles currently allowing players to wager as much as £500 per spin. At the more extreme end of this measure, the maximum cap could be set at £2, similar to the threshold that was imposed on fixed-odds betting terminals (FOBTs) back in April 2019.
Currently, the recommendation is that the £2 cap should be targeted and only apply to young and vulnerable players, whereas a higher limit of £15 would be put in place for more casual gamblers. However, the consultation period may encourage the regulator to impose the lower limit across the board, but regardless, the measure will have a huge impact on operator revenues and turnover.
To meet this challenge head on, brands will have to adjust their payouts accordingly, making jackpot slots and high variance titles a thing of the past. While this means that profitability won’t be too adversely affected, it may disenfranchise high rollers from either playing slots online or encourage them to wager at unlicensed operators.
The Imposition of Affordability Checks
The squeeze that may be placed on so-called “high rollers” makes for an interesting dynamic, as these individuals make a huge and disproportionate contribution to the total iGaming spend in the UK. Remember, a 2020 report published by The Guardian found that one anonymous operator took a staggering 83% of its deposits from just 2% of players, highlighting an over-reliance on VIP and problem gamblers.
This trend was similar across nine anonymous but market leading operators, and it’s with this in mind that the gambling review has recommended the introduction of more stringent affordability checks for players. This would compel high rollers or frequent gamblers to provide proof of earnings, with the precise scope of the measure depending on the findings during the consultancy period.
Even though affordability checks will be imposed on a relatively small number of players, this will increase operational costs for brands. At the same time, it will potentially deter each operator’s biggest spenders from parting with their cash, creating a subtle but direct impact on profit in the process.
Once again, this could also trigger an exodus of some high rollers to rogue and less regulated operators, creating a scenario where the licensed industry takes a significant financial hit and potentially vulnerable players are put at even greater risk.
Restrictions on Digital Marketing in the Industry
The recent iGaming review also made provisions to restrict certain forms of digital marketing, with previous measures focusing primarily on television advertising and pre-watershed messaging. More specifically, a ban has been proposed on certain digital marketing tactics, such as the use of lucrative ‘free’ bets or bonuses to entice players to spend their money.
The issue here is that ‘free’ bets aren’t technically free, as this type of bonus (along with 100% deposit matches) tend to come with heightened wagering requirements and can compel players to wager outside of their means in a bid to withdraw any winnings. Broadly speaking, such offers may also encourage customers to spend more than they otherwise would when betting online.
Once again, the precise form that this measure will take is the subject of the consultation period, which could take months or even years to complete. However, while it will also help operators to reduce or better manage their marketing spend, it may negatively impact their ability to actively target and win new customers.
In a potential regulatory and legislative climate where operators are facing reduced revenues and squeezed profit margins, this could prove to be the final straw for smaller brands who may struggle to compete with their more established and better resourced rivals.
So, Will the UK Gambling Review Ultimately Trigger an Exodus of Licensed Brands?
Ever since the UKGC announced a new set of core strategic objectives through 2021 more than five years ago, betting brands in the UK have been forced to comply with a more stringent set of regulations and far stronger levels of enforcement. Such measures have been compounded by wider tax changes too, further impacting on the bottom line of brands.
If we look back at the aforementioned FOBT levy in 2019, for example, we can see that the maximum betting threshold for these machines was slashed from £100 to just £2. This saw the revenue of offline and multichannel bookies fall by approximately 56% almost overnight, creating significant store closers and job losses throughout the offline marketplace.
Interestingly, this also created a marked shortfall in the government’s Treasury inflows, and the Conservatives sought to correct this by increasing the remote gaming duty (RGD) imposed on digital betting brands. The rate of RGD was hiked by a whopping 5% to 21% in September 2021, creating a higher levy than rival European markets such as Spain, Italy and Malta.
In the wake of this decision and against the backdrop of a constantly changing regulatory climate, we’ve seen two clear and observable trends. Firstly, some European betting brands (such as the
ComeOn casino) have exited the UK market completely, preferring to focus their efforts on less mature and more open entities such as Sweden.
At the same time, established brands like William Hill have reduced their presence in the UK while aggressively targeting high growth international markets such as North America. They’ve been able to leverage their immense experience and impressive tech stacks to forge lucrative partnerships stateside, increasing their revenues by targeting global iGaming growth.
At the same time, brands are also being enticed by markets with much looser regulatory frameworks, including Malta, Gibraltar and Spain. The latter has become a key player in the market amid exponential iGaming growth, empowering enclaves like Ceuta to offer gambling companies a corporation tax rate of 12.5% and profit levies that are as low as 10%.
These markets are of particular strategic importance in the current marketplace, as they combine low rates of tax and more favourable regulatory conditions with impressive levels of player protection and genuine credibility. Licenses from Malta and Gibraltar are also well-respected in the global marketplace, creating a viable alternative to accreditation from the UKGC and all that it entails.
Ultimately, the recent regulatory events have seen brands leave the UK market in a tricklerather than their droves, but the question that remains is whether the recent gambling review will accelerate this trend? This is a difficult question to answer, especially when you factor in the sheer size of the UK market and the enduring appeal of a UKGC license.
The latter has long been considered as a benchmark for integrity, trust and player safety in the industry, particularly among independent casino sites. There’s no doubt that the regulator is looking to help uphold these values through their recent iGaming review, despite concerns about the efficacy of the proposed measures and whether or not they may prove counterproductive.
In the case of the latter, the impact of the review may ultimately fail to protect players adequately and send them flocking to the burgeoning black market, while simultaneously crippling smaller and independent casino brands. These entities have much narrower profit margins than the market leading operators, so even small increases in operational costs and reductions in turnover could see them seek out more favourable market conditions elsewhere.
Ultimately, it’s hard to see a full-scale exodus from the UK market, which remains home to a huge and engaged player base, incredibly evolved tech stacks and a regulatory framework that largely inspires trust in customers. Such factors are highly prized in the industry, especially among larger brands that compete aggressively and cater to a particularly large audience.
However, we could see a small number of online casino and remote betting brands seek out licenses in less mature markets such as Spain and Malta, particularly independent operators that lack significant financial resources. Much will also depend on the final measures imposed after the consultation period, of course, and the industry must wait with bated breath to discover its fate.