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.
US: regulated sportsbetting – e pluribus confusionem?
The US Federal government formally considered sportsbetting for the first time since the overturn of PASPA, in the form of a House Judiciary Subcommittee hearing (Crime, Terrorism, Homeland Security and Investigations); inevitably, it promised to revisit the subject also. The subcommittee heard a range of views from representatives from the NFL, AGA, Nevada (regulator) and two ‘anti-gambling’ lobbyists (including the former AG of Nebraska). The 1.5 hour session offered little that was illuminating beyond well-rehearsed stakeholder positions, but there are some clear themes and perhaps some emerging tensions to consider.
First, with 40% of the experts coming from an anti-gambling position, the extent and the public platform of the concerned should not be under-estimated. Clearly in ‘casino states’ like Nevada and New Jersey, this voice is muted, but it is likely to be much stronger in (pretty much all) others. It is relatively easy to paint online gambling as among the most dangerous of channels and global operators are only just getting to grips with how to disabuse the public of this notion (still rather badly, in our view). There is therefore a key danger of seeing ‘false positives’ in the casino states speed of adoption and (relative) liberality of approach (product, tax, other restrictions/requirements): both of these are likely to diminish rapidly from here with further rollout.
Second, integrity is a subject all can agree is important but few can articulate clearly how to deliver. This is very dangerous, for three reasons. Most obviously, suggesting legalised sportsbetting is a threat to integrity only works if there is a credible threat of mass market engagement in low level corruption – this is not how it works in reality, where the illegal market is the perfect place to hide. Indeed, (effectively) legalising sportsbetting is a demonstrable cornerstone of delivering effective integrity. Second, integrity seems still to be a stalking horse – there is little or no direct link between integrity and IP (though data is a key component of both): if integrity continues to be used as a means of extracting value, then integrity is unlikely to be delivered. Finally, a patchwork quilt of integrity requirements is likely to be a leaky bureaucratic nightmare, in our view, almost inviting the sort of embarrassing scandals that set the US on the path to prohibition in the first place.
Third, ‘states are the best placed to regulate’. In landbased environments, that claim can be made with some substance. However: how online proxy betting will be treated; how liability insurance products will be developed and treated in order to solve for likely massive state liquidity imbalances (especially on local teams) locked within local regimes due to the Wire Act; how banks and payment processors will cope with myriad product rules and internal boundaries; how tribal borders are to be treated; how the data/IP of teams from ‘anti-gambling’ states / stakeholders will be used; all these generate state-by-state issues that will not only create operational/commercial headaches, but potentially also jurisdictional and legal ones.
Finally, sports betting is a ‘low profit margin business’. This is a dangerous one to keep repeating also, in our view. In what way is sportsbetting a low margin business? Certainly, US sports tend to achieve a GM of c. 6% given the singles mix, but turnover (handle) is an outcome, not an input variable (see our blog “Price Wars”). Even then, it is a higher payout ratio than most slots and table games – only lottery is significantly higher margin. Whether it is a low margin business where it matters (revenue as a proportion of cash-in / profit margins on revenue, not handle) depends upon the fiscal-regulatory framework, customer profiles and the scale / competence of the operator. Stakeholders configuring decisions to the assumption that sportsbetting is a low profit margin business are likely to get those decisions wrong, in our view – operators may be able to revisit them, but legislators and regulators might have a much tougher time: to the detriment of their entire (state) sector.
The fact that the Federal government is still interested in sports betting should not be discounted, in our view. We agree with the consensus view that Federal legislation on sportsbetting is very unlikely in the short / medium-term for many reasons. But any significant missteps in the emerging state-by-state system could invite another Federal intervention – and it is unlikely to be a welcome one…
UK: gambling politics – Why Watson’s RET plans could leave him bunkered
With the one of the biggest shows in world golf getting underway this week, it was only fitting perhaps that Tom Watson once again teed up the latest debate on gambling regulation. Fresh from the launch of last week’s par-beating report into gambling and mental health, Labour’s Deputy Leader drove hard once again at Government policy, promising new legislation upon the party’s accession to power. At a bacta-sponsored fringe event on ‘Lessons to be Learned from the FOBT Campaign’, Watson also revealed a rider to his plans to impose a problem gambling research, education and treatment levy on British licensees (at 1% of GGY) by announcing that those most responsible for harm would also pay the most.
This was a particularly bizarre trick shot for Labour – at once simplifying and complicating arrangements in this vexed area of regulation. It is to his credit that Watson has deduced that voluntary-compulsory arrangements are likely to result in confusion and mutual recrimination. The logic is elementary but somehow lost on the current Government (voluntary arrangements are fine but one ought not to blame operators entirely if they take the law at its word and cough up the bare minimum). Yet in calling for a so-called ‘smart levy’ (where those operators with the greatest risk profile pay a higher rate than more responsible peers), Watson may have overshot the green. It is of course, a noble – and theoretically valid – aspiration but it is difficult to see how it might work in practice (most obviously, who would determine the basis for rate differentials).
The proposal – if pursued – would be likely to deepen intra-industry tensions and so undermine a lot of the good work being done at present (by operators and the regulator alike) to achieve greater cohesion. In any case, we already have a ‘polluter pays’ system by proxy. The increasingly eye-watering voluntary settlements agreed in relation to licensing breaches mean that the sinners (where caught) must stump up more than the sainted. The Gambling Commission is planning to review the whole area of industry funding for RET, including its Licence Conditions and Codes of Practice that effectively require licensees to give something to someone (with no obligation – other than a moral one – to bankroll execution of the National Responsible Gambling Strategy). We consider it unlikely that Watson’s variable rate proposal is likely to make the cut with the regulator – and that a future Labour government may also think better of driving straight at that particular sand trap.
UK: football and gambling – Spurs cock things up (again)
This week’s revelations about Tottenham Hotspur’s choice of betting partner in the Sun are unlikely to be helpful to anyone in either football or betting – except perhaps Arsenal fans (the former manager of which was in the ban betting camp). The club’s decision to sign a deal with the Russian-based 1XBet (for an Africa-facing sponsorship) ran into controversy when reporters revealed that the betting site was streaming (and taking bets on) cock-fighting (coincidental to Tottenham’s logo, we believe) and children’s football (amongst other wholesome entertainments).
With the Gambling Commission reported to be on the case, the issue should hopefully be resolved sooner rather than later – but a small amount of damage may yet have been done to those who wish to preserve the status quo on gambling sponsorships. There is also potentially an issue emerging with the fact that 1Xbet is licensed in the UK as a white label (Vivaro Limited): not a problem in and of itself, but potentially a raising questions about accountability and control, especially among the UK’s (very) long tail of remote (in both senses) licensees (and an issue some POC regulators are very keen to avoid entirely). Never has the need for stringent stakeholder due diligence in this area been greater…
Global: M&A Watch – OPAP / Stoiximan; Comcast / Sky.
- OPAP is set to acquire 36.75% of TCB, holding company of GML Interactive, which operates as Stoiximan in Greece and Cyprus, and Betano in Austria, Germany and Romania, for €50m
- Comcast has won the sealed-bids process run by the UK Takeover Panel to take majority control of Sky plc, having offered £29.7bn (£17.28 per share). Subsequently, 21st Century Fox has agreed to sell its 39% stake in Sky to Comcast for £11.6bn.