Regulus Partners, the strategic consultancy focused on international gambling and related industries, takes a look at some key developments for the gambling industry in its ‘Winning Post’ column.
Italy: commercial gambling – ad ban demonstrates failure to communicate
Further to last week’s reports, Italy’s council of Ministers approved the so called ‘Dignity Decree’on Monday which introduced a blanket ban on gambling advertising and gambling-related sports sponsorship from 1 January 2019 (excluding lottery). This will have far-reaching ramifications for gambling operators and directly impacts many sports, most notably football, whose teams rely on sponsorship, partnerships and gambling related advertising revenue to a greater extent in Italy than many other markets. It also highlights how brittle is the compact between commercial gambling and politics, and how quickly regulation can change when the mood swings. It might be tempting to think Italy is ‘different’; we would suggest it offers further valuable lessons to enter the ‘what not to do’ playbook (which is becoming something of a repetitive tome).
A brief look at Serie A in Italy shows that 12 out of the 20 teams have partnerships with betting brands ranging from straight advertising to betting partner, with some clubs presenting live odds on screens in stadia (a lower penetration than the EPL, but with a higher club revenue mix from betting sponsorship, we believe). Current sponsors largely map the larger Italian sports betting operators, with only bet365 missing from the major non-lottery operators.
Bwin (GVC) – Inter Milan
Eurobet (GVC) – Cagliari, Lazio, Sampdoria,Genoa and Udinese
SNAI (being acquired by Playtech) – Rome, Milan
Betfair (PPB) – Juventus
Planetwin365 – Napoli
Goldbet – Torino
The EGBA has estimated that betting companies spend around €120m pa in Italian sports sponsorships (c. 50% of total Italian betting-brand advertising, mostly football), suggesting both a significant loss to Italian football (likely hard to replace in one go at similar rates given the scale) as well significant disruption to Italian betting marketing budgets (given the central role of football sponsorship within that).
Serie A has warned that this ban will directly impact on the competitiveness of the teams and will redirect money away from Italy to other overseas markets, though it is unclear that the government is listening: offers to participate in discussions to find solutions to gambling-related harm are likely to be seen as too little too late. The president of Genoa FC warned that the measures were likely to encourage illegal gambling and not likely to solve any issues. The question remains as to whether teams sponsored by the gambling sector which visit Italy for matches from overseas could also be affected by the ban, though given the maelstrom this is something of a secondary issue for now.
Long experience has shown that nothing is certain in Italy from a legislative perspective, but it is probably wise to prepare for the worst. This ban is clearly far more severe than the English FA’s decision to sever commercial links with the betting industry and the UK DCMS position on sports advertising. But it comes from a country whose government was until recently routinely labelled as ‘pro-gambling’ and where football was considered very powerful. Times are changing and unless gambling companies offer much more compelling reasons why they belong in the entertainment sector and demonstrate how they are mitigating harm (both doable, neither done well), then more reactions such as this are likely, in our view.
Please see our blog on gambling-related harm and the troubled pursuit of balance here: VIEW BLOG
UK: In Parliament – the calm before the squall
This was a relatively quiet week in the politics of gambling. The DCMS is being kept busy by the steady flow of Parliamentary Questions on matters of gambling policy; but as usual the answers yielded little insight.
The Tory peer and career PR man, Lord Chadlington has now got the bit firmly between his teeth on gambling-related harm. He pushed HM Treasury this week on how much it expected to pull in from FOBTs before stake reduction took effect; and also asked DCMS “what assessment they have made of the care available for families and individuals who are affected by suicides connected with gambling.”
It seems likely that these questions are connected in Lord Chadlington’s mind – and that his weighing of the benefits of one versus the costs of the other may be somewhat different to HM Treasury’s.
Elsewhere, a further eight MPs added their signatures to EDM 1440, which calls for the swift reduction in FOBT stakes (“to prevent any further gambling related harm or possible loss of life”). The Leader (and sole MP) of the Green Party, Caroline Lucas (Green, Brighton Pavilions) was among them as were six Labour Party MPs (until now this has been an SNP dominated motion). There are still 22 MPs who signed the original EDM on stake reduction (EDM 174) who have yet to sign this one, which indicates that support will continue to grow.
Timing is everything – at least it will be next Wednesday when two debates on gambling policy take place in the Palace of Westminster. In the morning, the Bishop of St Albans will lead a discussion in the Lords on the timing of FOBT stake reduction (the noble prelate is likely to favour sooner rather than later); while in the afternoon, Clive Hawkswood of the RGA, Brian Chapple of Justice for Punters and a representative of the Gambling Commission will take up the question, “Should bookmakers have a regulatory time limit to pay out bets?”
US: sportsbetting – beware Delaware?
The revenue data from Delaware, covering 20 days of June, is the first we have of the newly regulated US sports betting sector. On the face of it, the stats are very encouraging: US$7m of handle and US$1m revenue suggests a c. US$17m annualised revenue market across just three landbased venues.
However, it is almost certainly far too early to be so simplistic, in our view. First, it is unlikely that 14% margins are anything like sustainable – with 5-6% much more likely as a long-run singles market average. Second, there is almost certainly more “first mover” customer activity to strip out than long-term engagement to build in, suggesting that early over-trading is more likely than a growth curve. Third, it is telling that 75% of the revenue came from just one venue, demonstrating that not all venue partners are born (anywhere near) equal. Finally, with only US$125k of revenue accruing to the three providers (SG, GVC, WH), there is a clear demonstration of how relatively small B2B pickings can be.
Spain: gambling duty – turning luck into opportunity
Spain offered a rare nugget of fiscal-regulatory positivity in Europe last week, with a reduction in gambling duty by 5ppts to 20% passed in the 2018 federal budget. The tax change comes as Spain prepares to accept new licensees and is likely also a recognition that secular growth is driving receipts. The change will save operators c. €30m pa, which is not insignificant in a small crowded market dominated by a few large operators. If this windfall is recycled into better product, high-return marketing, innovation and harm minimisation then both the market and the government’s tax yield will sustainably grow – giving the remote sector a much-needed positive model to point to. If on the other hand the tax cut is split between more aggressive advertising and higher offshore profit margins, then the government is likely to revisit both the rate and the regulatory framework. The Spanish government has given its remote gambling sector a clear short-term positive; it is up to the sector to learn lessons from elsewhere and turn it into a long-term success story.
Kenya: gambling duty – reductions proposed as operators flex muscles
It has been reported that the Kenyan Finance and National Planning Committee has also proposed reducing its gambling tax, following an operator backlash to a recent imposition of more significant increase in rates of duty. The government had become concerned with rising levels of problem gambling, in particular among young people, and decided to use tax hikes to help control the situation (as well as provide a handy boost to central coffers, no doubt). The rates implemented on 1 January this year amounted to 35% of revenue as well as 20% tax on customer winnings.
However, the gambling lobby in the country is powerful, and reactions such as the ceasing of operations by a lottery operator, and the dominant SportPesa terminating its domestic sports sponsorships appear to have had the desired effect. The proposed new rates – 15% of revenue and 10% of customer winnings – will now go to the National Assembly and the President for consideration. It is understood that SportPesa has now signed new sports sponsorship agreements, suggesting it is content with where the tax rates have landed. This further demonstrates the power the large Kenyan operators hold and their importance to the economy, and also, of wider application – the value of effective lobbying…
India: gambling regulation – Law Commission recommends urgent legalisation
Two years after being asked by the Supreme Court to study the possibility of legalising betting, the Law Commission of India has published a wide-ranging report recommending that government should legalise and regulate gambling. The report, titled “Legal Framework: Gambling and Sports Betting including in Cricket in India”, identifies a number of benefits of making such a move, including (tax) revenue generation, employment creation, prevention of fraud and money laundering, and protection of vulnerable persons and sports’ participants. It also suggested several specific measures to promote responsible gambling and prevent problem gambling. The Commission recommended that match-fixing and sports fraud be made criminal offences with “severe punishments”.
As attention now turns to see how the government responds to this report, it would be dangerous to assume that a recommendation turns into legislative progress, with India perpetually disappointing in terms of speed and offering more opportunities for in-fighting than even the US. However, India does have the benefit of being a very small ‘dark grey’ market relative to the country’s size, meaning that even small, fragmented regulated opportunities are likely to be a positive for the sector overall.
UK: Horseracing – tote-all recall
The in-house racecourse pool operation, Britbet, will begin trading at 55 racecourses next week – with more than a little help from prior arch-rival Betfred. The racecourse-owned partnership has struck a deal with Fred’s newly PE-backed tote to provide it with access to its pools and the infrastructure required to accept bets on course. The arrangement will see changes in that where racecourses formerly received a commission and rental fee from Betfred’s tote, they will now pay Fred for the use of the equipment and access to pools, leaving revenue (after costs) to be distributed back to the courses – effectively becoming a white label, and leaving all but three of Britain’s courses with access to the same pool. Racing has therefore taken more control, with Betfred reducing risk – how this plays out economically will depend upon whether historical declines can be transformed into growth.
This is good news for tote customers, racing (and Fred!), at least in the short term, as one pool is far more attractive than a split (though for customers, this mitigates a risk they were mostly oblivious to rather than represents an improvement on its own). The key now is for courses to turn risk into better product and customer experience – or the reward will all be Fred’s…
UK: Horseracing – broadening the gene pool
The BHA has announced a new initiative to make the sport more diverse and inclusive – both in terms of participants and consumers – with a published action plan and search for an executive to oversee its administration. Brainchild of the recently formed Diversity in Racing Steering Group – an eclectic group of racing’s administration and wider participants including BHA CEO Nick Rust and ITV Racing’s Rishi Persad – the plan is to make the sport of horseracing accessible to all with the long-term aim of removing all barriers to entry, participation and enjoyment on all levels.
The horseracing ‘establishment’ has struggled to shed its label of ‘old boys club’ despite making fundamental changes to its management since the separation of The Jockey Club as regulator and key executive institution. There has inevitably already been some criticism of ‘box ticking’ and ‘fig leaf policies’; however, the more racing involves broader demographic and socio-economic groups, the greater the chance it will retain and enhance its relevance as a consumer product. The challenge is now to implement change in a way which not only meaningfully impacts stakeholders, but also noticeably improves the customer experience.