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.
UK: Politics – Crouch bows out with “alternative facts”
Last week’s resignation of Tracey Crouch as UK minister for sport (and gambling) marked a new low in the recent history of Britain’s gaming and betting industry. Whether one views Crouch’s decision as a noble stand on a matter of conscience or as a futile act of petulance, it is hard to identify any good that will come from it. Her resignation seems to contain so many of the problems that have bedevilled attempts at sane policy in this sector for so long – myopic lobbying (on all sides), political dithering, bullying and unpleasantness and the triumph of emotion over reason.
Whether one agrees with Crouch’s views on gambling regulation, she has undeniably been the most engaged gambling minister that we have had for at least a decade. In contrast to most of her predecessors in the role, she appeared to care and she did her best to make a good job of a thankless brief (as well as being a tireless and effective champion of sport). Her departure seems likely to set back the industry’s relationship with the Government, has caused further damage to its public image and – possibly most seriously in practical terms – may well deter her successor from investing much in the way of personal political capital in this fraught area of politics.
It is difficult to fathom what precisely caused the Member for Chatham and Aylesford to resign. As a backbencher, she had expressed concern about machines in betting shops (a concern that even the ABB seems to have now accepted was justified – whether or not it agrees with the £2 stake solution). Once she was put in a position to do something about it, she pursued the matter with vigour (in contrast to many of her peers who find that with great power comes great amnesia) despite the shifting sands of Cabinet reshuffles that saw her serve three Culture Secretaries in as many years (including her maternity leave).
Given the length of time it took to achieve the goal of stake reduction (15 years on from the old Gaming Board’s first attempt to rein in FOBTs), it seems somewhat perverse that Crouch should step down over the question of whether the coup de grace should be delivered in April or October next year. It is difficult to avoid the conclusion that the six month ‘delay’ was simply the final straw – the point of divergence with ministerial colleagues that sapped the last reserves of her patience.
What happens next is anyone’s guess – the entire FOBT saga has had more twists and turns than Chubby Checker on the Cresta Run. No sooner had we thought that the matter had been put to bed than it has leapt back out again. It seems hard to believe that the Government will change the timing of FOBT stake reduction but if Crouch’s stand galvanises the support of enough disaffected Tories (Boris Johnson, Iain Duncan Smith and Sarah Wollaston have been among the more high-profile Conservatives to speak out on the subject this week) then Labour may scent (another) chance to embarrass the Government on gambling policy. However, a further ironical twist could be that a stand against the timetable could push out the timetable further – a calculation the government (and perhaps GVC) is possibly banking on to see legislation passed in a timely manner.
The question of who will replace Crouch as sports minister has wider implications for the industry – and the balance of risk is on the downside here. The episode has damaged the reputation of the new Culture Secretary, Jeremy Wright (indeed, it is not inconceivable that he might be moved on) and is almost certain to accentuate his allergy to gambling matters. It is critical that operators start to find positive ways to engage with Government (for example, how they might contribute to a more vibrant post-Brexit Britain) in order to eradicate the stain of years of whining, discord and controversy.
Tracey Crouch’s resignation letter provided another warning of a deeper and darker threat to gambling in Britain (and elsewhere). In explaining her decision to step down, she stated that “two people will tragically take their lives every day due to gambling-related problems”. This seems to be an entirely bogus claim, yet it is now being repeated with such unquestioning conviction and regularity that it is fast becoming accepted as a fact. We will return to this subject in more detail at a later time. For now, we simply observe that it is disappointing that in her final act as minister she should perpetuate such palpable nonsense (the claim seems to be based entirely upon the deaths of 17 people in Hong Kong more than a decade ago).
Our aim here is not to trivialise the subject of gambling-related suicide – it is an extremely serious and tragic issue – but to point out that simply because we don’t know how many people take their own lives in relation to gambling problems does not justify making things up, just as it does not permit the industry to downplay the issue. Those in positions of regulatory-political authority have an ethical duty to deal in facts rather than peddle hysteria.
For operators globally, the challenge is clearly to do a much better job of understanding and addressing harms – both in relation to those experienced by customers; and the damage to their own long-term interests when societal concerns are allowed to become headline news. For now, the damage still appears to be mounting faster than the attempts at repair.
UK: in Parliament – Play School Politics Pans FOBT Fiasco
Tracey Crouch’s final week at the DCMS was a certainly busy one. In his Budget Statement on Monday, the Chancellor of the Exchequer, Philip Hammond set the rate of Remote Gaming Duty at 21% (slightly higher than expected; somewhat lower than feared) with the change due to take effect from October next year (to coincide with stake reduction on FOBTs).
The gambling concern lobby had made it clear that they would oppose any later date than April 2019 for action on FOBTs; and had set their traps accordingly. Anticipating disappointment, Lord Griffiths of Burryport (Lab) had already scheduled a debate for Tuesday on the timing of stake in reduction. Concerns were expressed about both FOBTs and TV advertising but the debate was rather tame by comparison with what was to come.
In the Commons that day, the chair of the Health Select Committee (and former GP), Sarah Wollaston (Cons, Totnes), the Shadow Health Minister, Jonathan Ashworth (Lab, Leicester South) and Paul Blomfield (Lab, Sheffield Central) used a debate on income tax to deliver strongly worded criticisms of the Government’s decision to wait another year (Iain Duncan Smith used a further debate on income tax two days later to the same effect).
Thursday brought DCMS oral Parliamentary Questions. The Labour and SNP Shadow Ministers for DCMS, Kevin Brennan (Lab, Cardiff West) and Hannah Bardell (SNP, Livingston) put the Culture Secretary Jeremy Wright on the spot in relation to the perceived delay on stake reduction. Wright insisted that there had been no delay and that the date for implementation of the new regulations had actually been brought forward from April 2020.
However, Wright was not to escape that easily. Later in the day, Labour’s Deputy Leader cornered the Culture Secretary with an Urgent Question on the timing of stake reduction, precipitating a prolonged debate, involving MPs from all major parties. Perhaps significantly, around half of the 20 MPs who criticised the Government during the debate were from its own party.
In addition to a range of questions on FOBTS, Watson repeatedly asked Wright whether or not his sports minister, Tracey Crouch had resigned (as press reports had suggested). As he bobbed and weaved in response to questioning, Wright extolled the “outstanding job” that Crouch was doing as sports minister and denied that the commercial interests of the betting shop sector had any influence on the timing of stake reduction. It is likely to have been a source of some embarrassment to Wright that within hours of the debate, his “outstanding” minister had indeed tendered her resignation to the Prime Minister and claimed that her personal commitment to the role was incompatible with “commitments made by others to those with registered interests”.
The situation in the House of Lords was also proving rather dicey for the Government. Labour’s Lord Stevenson of Balmacara and the Liberal Democrat Lord Clement-Jones branded the decision to wait until October 2019 before implementing the £2 stake maximum “a disgrace”. This was followed by a rather longer debate on gambling addiction (led by the Bishop of Portsmouth, standing in for the bookie-bashing Bishop of St Albans). Impassioned testimony on the harms of excessive gambling was drawn from a large number of peers. The ensuing discussion roamed free across the wide range of controversies that currently dog the industry, including TV advertising, sports sponsorship, funding for research, education and treatment and even little old bingo which Lord Stevenson described as “that used to be a social game for grannies, but it now seems to be a way into the wider world of gambling because of the opt-in payments and the ability to get on to it” (no, we’re not sure what this means, either).
The Liberal Democrat Shadow Attorney General, Lord Thomas of Gresford left the House gave full vent to his antipathy towards the industry, depicting operators in distinctly Transylvanian tones. “These gambling companies constantly look for new blood to suck”, he said. His party colleague – and former children’s TV presenter, Baroness Benjamin drew attention to issues of gambling participation and problem gambling among children and gambling-related debt for university students. It is perhaps a sign of the low pass that the industry has reached that Humpty’s, Jemima’s and Big Ted’s best mate is now on gambling’s case.
UK: horseracing – one each end and steady as we go…
Betfred and Alizeti have now secured the original Tote’s long-term future on British racecourses, in a now predictable denoument to the Britbet saga in the form of a seven-year £50m deal. The latest plot twist therefore ends us back at the beginning of a story even Moliere would find too contrived and farcical to be believed. First the Tote was sidelined in favour of a new pool operated by the courses (Britbet) to have been launched on removal of the Tote’s monopoly status in July 2018, in turn causing Fred to remove all his non-contractual support for racing. The first ripple against (most of) GB racecourses’ plan occurred when Ascot confirmed it would not be joining Britbet; following which Britbet secured a temporary deal with the existing Tote from July 2018. An unexpected curve ball then arrived in the form of a 25% stake purchase by Alizeti Capital, and now finally the Fred-Alizeti Tote has secured its historical (and liquidity critical) on-course position with increased financial firepower and strategic drive (or at least hope of such).
The Alizeti-backed Tote has promised a “double Levy” as well as planning to reducing deductions (increasing the payout ratio). These are noble sentiments, but so far significantly increased prize money in GB has not led to a better betting product (more runners, more competitive racing), so there is a clear danger of low productivity spending, in our view (however popular with some stakeholders). Equally, increasing prizes is a good way to stimulate gambling if targeted to recycling participants who are happy to be net losers, though this is not how the pool is typically played anymore: increased prizes which end up in the pockets of lucky punters playing at long-odds and rebaters are unlikely to stimulate sustainable demand. Plans to revitalise the Tote are welcome and much needed – but none of the levers are simple or all that well connected after years of poor management and significantly increased competition, in our view (with much of the reported ‘GB’ Tote revenue increases in GC stats being international rebaters, we believe) – a bold vision needs much more than throwing good money after bad, or the only winner will be the wily bookmaker from Warrington…
Australia: online regulation – effective disruption?
The ACMA has released its first annual report on enforcement progress of the amended Internet Gaming Act 2001, which became effective in September 2017 and strengthened the ban on in-play and gaming, as well as providing a legal framework for anti-offshore measures (prohibition enforcement, including for services and advertising; deterrent and disruption tools; consumer awareness). The ACMA’s Task Force (IGT) has spent the first twelve months contacting overseas regulators (POC and POS), operators and suppliers (platform, content, payments, affiliates, etc), principally flagging the ‘reinforced’ illegality of offshore supply, in-play and gaming, as well as the determination to enforce. Combined with this broad approach, 62 specific investigations were conducted, with 38 breaches identified and a 68% compliance track record on identified breaches so far – with the remainder escalated to Federal authorities (border protection, courts). Thirty-thee software providers and 10 PSPs were also notified, both of the legal change and potential liability under the Act. The reported impact of this activity has been 33 of Australia’s ‘most popular’ offshore sites ceasing to accept Australian customers of 56 site exits measured (of a 138 site sample). These are clearly material interventions, even in a potential market of c. 700 betting operators (albeit some with shared ownership) and at least double the number of gaming operators.
So can the ACMA claim victory? Certainly in part. Some big brands have exited the market and the fact that many but not all exited on the passage of the Act demonstrates that the enforcement threat has been an important component. Further, broader media awareness and restricted payment options will undoubtedly make mass market penetration difficult. Consequently, the IGT has almost certainly reduced mass market participation in offshore gambling and is likely to arrest the adoption curve going forward. However, we doubt that many harder gamblers have been disrupted, making the revenue impact perhaps less than the ACMA believes. Enforcement pressure is also likely to mount with growing channel shift and diminishing consumer choice caused by the fiscal-regulatory framework. In the short/medium-term, however, the big winner is horseracing, which does not face domestic competition from either in-play or gaming; distorting the market even for racing-mad Australians.
Herein lies a key question for regulators and enforcement tools. If the job is to be measured in participation rates, then Australia’s actions can be seen as at least partly successful, though the march of channel shift on a AU$17.7m landbased gaming market can only be slowed, not halted, in our view (tellingly the Australian betting market is only 22% the size of this and already 65% online for domestically regulated supply). If the job is measured in revenue (awkwardly invisible for offshore supply), then Australia’s actions are unlikely to have dented activity much beyond poker (which requires large business participation to deliver the required liquidity), in our view. There is of course a logic for regulators to focus on influencing the largest populations – but it is in harder gambling cohorts that many of the social problems and most of the potential taxes are likely to be found…
US: DFS regulation – the Big Apple takes a toothless bite out of DFS
A New York State Judge has ruled that DFS games violate the state constitution, challenging the 2016 Fantasy Sports Law (which stated DFS was not gambling and provided an oversite and tax framework). While the ruling has inevitably caused some concern given NY’s importance to the DFS market, we suspect there will be little practical effect at this stage. First, the state is likely to appeal, which would (or should) provide a stay while this takes place. Second, the judge recognised the elements of the 2016 DFS law that exempted the product from the definition of gambling under state penal law – which gives operators cover to continue. The (not very) worst case scenario therefore appears to be status quo during either an appeal process or a constitutional amendment. However, this process might all be made moot if New York legislates for sports betting in the meantime, which is likely to both deal with the constitutional issues of gambling in state and make DFS a far less relevant product.
A perhaps more relevant if less reported court ruling occurred in Indiana last week, which found that DFS providers were not violating sports players IP through use of data, since it constituted “material that has newsworthy value”. While dangerous to extrapolate (across states or product groups), this would seem close to the critical difference between data and database rights in Europe – which might explain why US sports leagues are so keen to get some form of specific statutory value transfer rather than relying on IP. Nevertheless, while such an interpretation might make the free use of a lot of sports data possible, in-play data is likely to require the cooperation of the leagues, and this is increasingly where digital value is likely to sit as states regulate sportsbetting (where allowed).
Ireland: TV sports rights – time to phone a friend…
Former rivals, Sky and BT Sport have further strengthened the content sharing deal agreed last December, by extending it to Ireland. The agreement adds BT Sport to the Sky platform of channels allowing subscribers the ability to view all Premiership and Championship Football in one place. This additional arrangement, follows a similar content sharing between Sky and Channel 4 for Formula 1 arranged in September this year.
The changing viewing habits from TV to streaming and OTT platforms, combined with record rights figures for sports in particular, is forcing mainstream TV and cable channels to fight for market share – forcing even long-term rivals to consider collaborations and mergers (Disney – Fox). Collaboration is a logical response to declining viewing figures in traditional channels, though it does not yet create the corollary of proving the OTT economic model (especially if rights inflation continues): the future remains dynamic and highly uncertain for all stakeholders, but broadcasters in particular, in our view.