Regulus Partners, the strategic consultancy focused on international gambling and related industries, gives an insight into some of the key developments in the gambling industry as part of its ‘Winning Post’ column.
Europe: Remote markets – Lies, damned lies and growth statistics.
Italy’s online gambling market finished 2017 in style, with c. 34% overall regulated market growth (excluding lottery and skill games) to c. €1,330m. Sports betting was especially strong, with December results against a weak comparison period +287% YoY to €82m, leading to official betting market revenue for 2017 up 59.4% to €556m (42% mix). Online casino grew 29% to €567m (43% mix), while poker was flat at €153m (12%). These are impressive figures that cement Italy’s position as the second biggest market in Europe (albeit against only 22% of the UK). They are also highly misleading.
The Italian sports betting market is undoubtedly experiencing strong underlying growth online. However, there are two elements to the stated figures which need to be taken into consideration. Firstly, SKS365, the second biggest operator in the market, only gained a full domestic licence for online sports betting in April: this added c. €65m to the 2017 figure, with c. €15-20m missing from Q1, and all missing from the prior period; 2017 market revenue is therefore understated by c. 3% and growth overstated by c. 16ppts. Secondly, Italy is a market of multiples (excluding bet365), with high but volatile margins: December’s revenue figure is c. 40% bigger than normalised performance, further flattering growth by c. 8ppts. Underlying growth in Italy is therefore likely to be closer to a much more ‘normal’ (for less developed markets) 32%: highly attractive, but a very different figure from the nearly 60% officially advertised. These market dynamics are also worth considering within the context of Italy’s forthcoming expansion of online licensees, with 120 new licences added to or replacing the extant 86.
Q4 trading statements are likely to be very positive for most European betting companies given spectacular football margins, while the reduced recycling ‘excuse’ for lacklustre staking growth is genuine enough. For example, we are increasing our expectations for UK remote sports betting revenue in 2017 by c. £110m, which allows a medium-term growth pattern of c. 20% to continue. However, underlying trends point to a material slowdown from the very strong growth seen since c. 2012, with 20%+ reducing to c. 12% (albeit without a major international football tournament in the Summer). While margin volatility is different to non-comparable statistics, it nevertheless significantly distorts underlying trends and will also create extremely difficult comps: stakeholders should not be too satisfied with the outcome for 2017, or assume that the period of super-normal mobile growth is continuing unabated; equally, companies should not panic too much this time next year.
UK: In Parliament – Generals move but war goes on.
The gambling debate returned to full swing in Parliament this week as questions were asked, meetings were held, reports were issued, reports were disputed and appointments made.
Mrs May’s Cabinet reshuffle saw Karen Bradley (Cons, Stafford Moorlands) move on up to become Minister for Northern Ireland with Matt Hancock (Cons, West Suffolk) taking her place. Hancock has been a supporter of the horse racing industry (Newmarket is in his constituency) but this has not always ensured his sympathy for betting (before becoming a minister, he called for offshore gambling operators to pay duty in Great Britain).
It is perhaps not ideal that in the middle of a major review, gambling should lose both its Secretary of State and its regulator (the CEO of the Gambling Commission, Sarah Harrison steps down this month); but such is the Sisyphean nature of the exercise. Fortunately, the sports and tourism (and gambling) minister, Tracey Crouch has stayed in post and will hopefully see matters through to their conclusion.
The week also witnessed the slightly more obscure appointment of Carolyn Harris (Lab, Swansea East) as chair of the Labour Campaign for Gambling Reform. The group has enjoyed a slightly chaotic start to life but Harris’s appointment hints at a widening of the regulatory debate around gambling. Harris remains chair of the FOBT All Party Parliamentary Group which convened once more this week. While the Association of British Bookmakers has repeatedly deigned to appear before the APPG (fearing – not without reason – that it would not face an objective hearing), we understand that its Senet Group offshoot did face the group’s scrutiny this week.
Perhaps the most intriguing exchange took place in the Commons on Thursday where Toby Perkins (Lab, Chesterfield) put a market down that whatever decision the DCMS makes as a result of its gambling review, Parliament will want its say. Perkins sought reassurance that the Government would “allow a debate in Government time on the issues relating to FOBTs so that we can ensure that this crucial issue is properly debated?”
The question was fielded by the Under-Secretary for Transport, Paul Maynard (Cons, Blackpool North and Cleveleys), who – although speaking off-brief – seemed to offer a surprising level of sympathy and encouragement. Maynard acknowledged that FOBTs was an important issue in his own constituency and then “urged” Perkins “to apply for all sorts of debates so that we can keep exploring the issue further.”
Veteran FOBT campaigner, Stephen Timms (Lab, East Ham) probed once again on the fiscal effects of stake reduction but Crouch only offered him a repeat of her previous answers on the same point.
Elsewhere, the trade associations BACTA and the ABB once again agreed to disagree on FOBTs. The Centre for Economics and Business Research published its review (sponsored by BACTA) of the likely economic impact of stake reduction on B2 machines, concluding that the impact would in fact be positive.
The ABB countered that HM Treasury figures showed a net cost to the UK economy (from a £2 stake) of £5.5bn to £8.5bn over ten years. This of course is incorrect – the Government figures indicate a range of £3.9bn to £8.5bn – largely related to the discrete impact on betting shops rather than on the economy at large. However, perhaps the important question is not who is right and who is wrong (neither trade association to our knowledge possesses a crystal ball) but why so much resource has been devoted to such matters when it might be better employed in harm prevention and treatment. It is all too easy to blame the gambling industry for this but perhaps we should instead question the review system that propagates this activity.
Still, at least the week provided one moment of harmony as figures from across the gambling divide convened at a pub in central London to enjoy a few drinks with Labour Party Deputy Leader, Tom Watson (Lab, West Bromwich East). More mediation is required but whether we give peace a chance in 2018 remains something of a long-shot.
Australia: Betting market – A different route to a similar outcome.
Betting market figures from Racing Australia to June 2017 illustrate a now familiar pattern: growth continues to be attractive but it is increasingly being concentrated into dominant operators and online channels. Overall staking grew by 13.5% to AUS$32.6bn, accelerating a medium-term CAGR of 7% (from FY10), largely due to mobile and sports betting. From a market segment perspective, thoroughbred horse racing still dominates, up 15% YoY in staking terms and representing 55% of the market. Sports betting grew by 18% to 30% of the market, with dogs and harness racing flat in absolute terms, with share declining to 15%. Online share has grown 24% to AUS$20bn (61% mix), with retail flat in absolute terms at AUS$13bn (39% mix), albeit at higher margins.
The Australian market is increasingly looking like a two-horse race given the growing dominance of Tabcorp and Sportsbet (PPB), a position likely to be further cemented by fiscal pressures, the removal of in-play and the Tab-Tatts merger. As with many domestically regulated markets, opportunities for the mid-tier to monetise their position is increasingly tough, while Australia’s regulatory and product framework makes European-style innovation largely redundant. However, if this leads to the two major operators focusing more on servicing the mass market than the heavy user, then it is possible that they might learn skills that become increasingly relevant in Europe.
Indiana: Sports betting bill – Good intentions, but beware unintended consequences.
In anticipation of a Supreme Court ruling on PASPA later this year, Republican state representative Alan Morrison has introduced a sports betting bill in Indiana which includes a 1% of betting turnover “integrity fee” payable to sports governing bodies. The NBA and MLB have been involved in discussions with Morrison regarding this bill, which also makes provision for sports bodies to control which bet types are offered.
Criticism from operators, and industry body the AGA, has been predictably fierce, and we think they have a point. While, in our view, there is a logic to the industry contributing to the costs of sports integrity regulation given the shared interests, the proposed integrity fee plus other applicable taxes would amount to a highly prohibitive 39% of revenue fiscal burden for any operator licensed in the State. Granted, this is a bill in its early stages, but all potential consequences of legislative changes must be carefully thought through. Otherwise, a highly restrictive regime along the lines of that which exists in France, for example, will allow a thriving black market to persist, and the US (or at least any States which go down this path) may find itself back where it started.
Global: tennis – Integrity unit tools up ahead of independent review interim report.
The Tennis Integrity Unit has published its annual review for 2017, highlighting a reduction in the number of betting alerts received, and recent increases in its resources, including the establishment of a dedicated education and training division. However, at least on the face of it, there appears to continue to be a lack of any specific dedicated betting expertise within the organisation. It may be that this apparent gap is addressed in a new model for an expanded and independent tennis integrity organisation, which the Unit has submitted to the independent integrity review panel for consideration.
The latest update (12 December 2017) on the independent review website suggests that the publication of the review panel’s interim report has been held up by the process of dealing with one party subject to criticism in that report. Such process is expected to be concluded “within the coming weeks.”