As global news is dominated by the outbreak of COVID-19, industry strategic consultancy Regulus Partners starts off the week by breaking down how the coronavirus has impacted the gambling industry, and at what point gambling needs to take a new approach to enforcement of regulation.
Global: Covid 19 – It’s the end of the world as we know it…?
There’s nothing quite like a pandemic to put life into perspective. Globally, the gambling industry (along with pretty much all consumer industries with the possible exception of pharmaceuticals and toilet roll manufacturers) may be facing the biggest challenge of the 21st Century so far; issues that appeared to be of central importance just a few weeks ago have paled by comparison.
The impact on licensed gambling venues from the Coronavirus outbreak is all too obvious. In Italy, the government has made life simple by ordering betting shops and bingo halls to close until 3rd April (along with cinemas, theatres, bars, nightclubs and gyms). This copies the reaction of Macau (now slowly re-opening but hardly recovering, yet) and Korea, and is now being rolled out in the US (e.g. Pennsylvania, Illinois and Ohio, not yet Las Vegas or Atlantic City) and the Netherlands.
In the absence of state intervention in many other markets, customers (especially older ones – often crucial to landbased gambling) are likely to stay away and spend less as fears for physical health and economic stability bite.
In Great Britain and Spain, bingo clubs are likely to be hit particularly hard. For a start, customer bases are weighted towards older people, more vulnerable to Covid-19; while the pari-mutuel nature of bingo means that reduced liquidity affects the value proposition for those who do turn up. Finally – as was clearly illustrated in the aftermath of the smoking bans – business may not return to normal once the all-clear has been sounded.
Breaks in the routine or changes to the pattern of bingo attendance can prove to be permanent – particularly for highly frequent customers or groups of customers. Moreover, unlike 2005-11, most landbased bingo businesses no longer have the high margins to provide resilience.
The squeeze on casino revenues may be more temporary than structural but operators typically have high fixed and semi-variable costs to support (particularly employment). For destination or resort casino operators, diversification (hotels, restaurants, shows etc) provides no hedge against Coronavirus (and room rates may take time to rebuild once demand starts to come back).
The level of temporary government support here is likely to be critical, but in some markets the unpopularity of the sector may not make it readily forthcoming. Obviously, the biggest retail risk is of forced closure, although this may come with government support and/or insurance options that customers simply failing to turn up does not bring.
Sports betting – both landbased and remote – will take a pounding from the succession of event cancellations. In tennis, the ATP and WTA tours have been suspended; in golf, the Masters has been cancelled; in Formula One, the Australian and Vietnamese Grand Prix are off; all major US sports leagues have gone dark and there is a (big) question mark over the critical college March Madness (possibly still to be played without spectators, but looking less and less likely); across Europe, soccer fixtures are heading for an early bath (including the internationally crucial English Premier League); while Rugby Union fans will have to wait until the autumn to find out who will be crowned Six Nations champions. All of this is likely to knock on to the summer’s showpiece sporting events – particularly the Uefa European Championships which may be squeezed out by the late running of professional leagues.
While conditions are also tough for remote operators, they do have a couple of important advantages over landbased businesses. For one, home-working is a viable (if sometimes imperfect) option and should already be embedded within risk management and continuity planning processes. For another, customers can continue to transact in the event of enforced or voluntary isolation (and may indeed have more money to do so if they are not spending outside the home).
In the absence of major sporting fixtures, they can at least offer markets in unaffected events (Arctic Sports from Greenland perhaps), virtuals and online gaming. Yet herein may lie a trap. It is entirely natural for any business to seek to offset revenue declines in one area by growth in another. The problem is that obscure sports (sorry Greenland) and online slots are considered to be higher risk – and more politically charged – products.
Aggressive or insensitive efforts to cross-sell sports betting customers into casino are likely to result in media and regualtory backlash. Equally, while substitution can be expected among regular gamblers, mass market interest driven by popular sporting events is likely to simply be irreplaceable.
Then there is the risk that the tedium of isolation and anxiety born of major health scares may lead some into harmful gambling behaviours; while diagnostic data analytics may prove less reliable under circumstances of general behavioural change. These should not be underestimated and responsible operators should already be planning around this.
The economic effects of Covid-19 may well prove to be longer-lasting and more profound than the epidemic itself. For some, business disruption may be followed by the release of pent-up consumer spending; but the possibility of increased unemployment and decreased consumer confidence may make it a long road back for others. The outlook draws comparison with the effects of the smoking bans in Great Britain in 2006 and 2007 where a severe external shock was followed by a prolonged recession (due in that case to the financial crisis). As in those days, the industry may also be a soft target for tax-raising once the initial period of crisis has abated.
All of this is happening at a particularly difficult time for many businesses – particularly in western Europe where tighter regulation and higher business costs have already been putting the squeeze on margins. Political and media antipathy towards the gambling industry may put operators towards the back of the queue when it comes to business support or economic stimulus. In the USA, the American Gaming Association has publicly called for government support but elsewhere such moves are likely to be met with moralistic opposition.
Faced with such a wide range of business-critical challenges, operators have no choice but to play the cards they hold, however weak. Early engagement with governments to explain the nature of the business challenges they face is critical. Legislators and regulators need to think hard about whether now is the right time to impose additional regulatory or fiscal burdens on the industry – and what the unintended negative consequences (on the consumer in particular) might be. Some may perceive this as a call to push re-regulation into the long grass; but anyone who thinks that a review of Britain’s gambling laws should be anywhere near the top of the Government’s agenda should probably self-isolate as soon as possible (preferably without access to social media). The Government’s planned review of gambling legislation and the Gambling Commission’s intention to make further LCCP revisions should be deferred until all concerned are able to focus sufficient attention.
In Britain, the crisis is likely to illuminate a division that has been growing more apparent in recent times – the distinction between those who wish to reform the gambling industry and place it onto a sustainable footing; and those who wish to drive it into the sea.
While licensees will naturally be thinking about how best to weather the storm, the more enlightened are also considering what they can do to contribute to the national effort – whether helping public health bodies engage with customers or possibly more imaginative ‘wartime production’ measures that redirect some of the industry’s resources towards the greater good. As tough a spot as the industry is in right now, businesses should keep in mind John F Kennedy’s exhortation to ask not what your country can do for you, but what you can do for your country.
We are not changing our forecasts yet (though nearly all markets will need to be changed), as we do not see much value in frenetic guessing as to the impact while there is so much uncertainty. However, the impact is likely to be material in most markets and is already severe in some. The key hope is that China is already normalising (somewhat), meaning that we are hopefully facing a sharp but temporary shock in most instances. As the underlying picture becomes clearer, we will update and communicate our forecasts accordingly.
It is in this context that the market reaction can be seen as perhaps a little more rational than treating a virus that is still far less deadly than seasonal flu in absolute terms as up there with wars and the .com bubble in terms of reaction (critically against a backdrop of rising valuations, geopolitical uncertainty and fiscal policies still largely inversely proportional to risk).
A crisis, we are told, should never be allowed to go to waste. Covid-19 brings with it three challenges that – if responded to positively – may ultimately make businesses stronger: a sharpened consumer focus (including the alignment of costs to consumer needs); the testing under pressure of resolve to operate responsibly; and the demonstration of their value to society. Nevertheless, things are unlikely to be quite the same again, especially for operators most aggressively caught up in the immediate counter-measures and those who struggle to adapt.
UK: in Parliament – Cease Fire
The subject of gambling regulation in Great Britain finally appeared to recede into the background of British political discourse this week. In recent years, concern about gambling has persisted near the top of the political and media agenda in spite of (or perhaps as a means to relieve tension from) weightier matters of state; yet this week the guns appeared to fall silent.
On Tuesday, the House of Lords Select Committee inquiry on the social and economic effects of gambling received testimony from treatment providers (Gamcare and Gordon Moody Association) and from financial services (Starling and Lloyds) but these appear to have been relatively under-powered sessions by comparison with earlier hearings.
In theory, the committee will reconvene on St Patrick’s Day to quiz the former gambling minister and current health minister, Helen Whately (Cons, Faversham and Mid-Kent), former Culture Secretary and current DCMS minister, John Whittingdale (Cons, Maldon) and the schools and education minister, Nick Gibb, (Cons, Bognor Regis & Littlehampton). Whether this session goes ahead must now be in doubt.
The daily traffic of parliamentary questions on gambling came to a halt this week. The handful submitted on Monday probed how the DCMS might respond to the National Audit Office’s recent panning of the Gambling Commission (Carolyn Harris, Lab, Swansea East and Lord Wigley); bingo and machine games duty receipts in Northern Ireland (Jim Shannon, DUP, Strangford); and the tendering of the fourth licence for the National Lottery and National Lottery reform (including greater controls over scratchcards) from ‘Red Wall Tories’, Richard Holden (Cons, NW Durham) and Matt Vickers (Cons, Stockton South).
Elsewhere, Carolyn Harris provided an interview for iGaming Business in which she put forward the rather unreasonable argument that the ABB’s failure to negotiate on FOBTs would now deny the opportunity for remote operators to engage with her on online limits and controls. That an entire industry should be considered irredeemable due to the historic failings of others seems uncharitable – and a dangerous one for any Labour MP to hold given the party’s recent issues.
UK: Regulation – Betway Hammering piles on the pressure
If the remote gambling sector had a pair of shoes, they would likely make serviceable colanders, given the number of foot-bound shots that have been fired off in recent years. This week’s announcement of Betway’s £11.6m regulatory settlement with the Gambling Commission added a few extra holes and increased the pressure on VIP schemes.
While billed as a record settlement, the headline figure was split equally between divestment of ill-gotten gains and a penalty. The £5.6m punitive element therefore was lower than in some other cases
The report on the West Ham United shirt sponsor’s anti-money laundering and social responsibility failings makes for particularly damning reading – both in terms of the nature of the failings and the recency of some of them. With many more enforcement actions understood to be churning their way through the pipeline, the episode raises two key questions.
First, at what point will the industry be able to say that it has changed and that customer care negligence is a thing of the past (without being undermined by fresh sanctions)? Second, given the National Audit Office’s recent unsatisfactory report on the Gambling Commission – and the Gambling Business Group’s Freedom of Information request on the unevaluated use of £35m in settlement funds – is it time for a new approach to enforcement?
Horse racing: Cheltenham Festival – storm before a lull?
Almost the biggest news of the week was that the Cheltenham Festival took place at all. With the number of sporting shutdowns being announced, by the last day it actually became controversial that so many people should turn out in one place. There will be doubts about major meetings in the next two or three months now; Aintree’s Grand National meeting (odds of 1/4 about the meeting not taking place as we write), the Guineas, Derby and even Royal Ascot under threat. UK Football also has also taken drastic steps (see above).
But go ahead it did and there were the usual stories of brilliance and heroism. The crowds were slightly down due to Covid-19 but those there and those watching remotely were served up the usual treat. Not a meeting for favourite backers with just 7 winning the 28 races, and definitely not one for the romantics either with defeats for the super-popular Tiger Roll, Faugheen, Frodon, Paisley Park and Apples Jade.
SkyBet will have hoped to continue last year’s market dominance with a repeat of their cash-back first race offer each day. But William Hill’s offer of stakes returned (up to £10) if your selection finished second must also have been popular. They may have been hurt when Tiger Roll and Benie Des Dieux were short-priced seconds but not many favourites finished second overall. Overall, however, Sky Bet’s new place as the people’s favourite place to bet on horseracing seems to have been further reinforced.
In terms of GB v Ireland, after last year’s 14-14 draw, there was no contest with Ireland winning 17 (GB 10 and one brilliant French winner). Irish voices were raised before the meeting concerning perceived unfair handicapping and yet they won 5 out of 10 handicaps, the same as last year.
The Elliott/Mullins factor gets steadily more miraculous, equally sharing 14 winners between them. This is great testament to their training brilliance as well as their supply of top-notch horses (partly funded by ‘raiding’ GB prize money as well as a much more generous fiscal support system for the Irish racing industry).
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