Regulus Partners observes odd Downing Street movements, as PM Boris Johnson seeks direct control of UK gambling reforms. Facing a daunting end-of-year schedule, ensuring that the UK economy can withstand a COVID-19 winter and Brexit fallout… Regulus asks why is Boris picking on gambling?
UK: in Parliament – Casinos reel from ‘curfew’ as Johnson preaches morality
“As flies to wanton boys are we to the gods. They kill us for their sport.” – King Lear
One of the effects of this year’s events may well prove to be a rise in paranoia among those working in Britain’s land-based casino sector. Temporarily excluded from business rates relief at the outset, casinos were mystifyingly placed at the back of the queue for reopening (only permitted to commence trading again a full two months after licensed betting offices).
Last week the Government delivered another hammer blow with its 10pm ‘curfew’ which effectively halves the sector’s trading day and – along with other parts of the night-time economy – removes its busiest trading hours. Support from HM Treasury appears to provide only limited relief – the Jobs Support Scheme means that for some employment costs may actually increase; while VAT reduction is of only marginal value (there is no similar relief on Gaming Duty).
The fault lies not with HM Treasury, which has spent much of this year hastily putting in place large-scale economic support plans to address flip-flop policy-making from Number 10; nor with the DCMS whose sympathy for the industries it sponsors is repeatedly undermined by public health quackery. Casinos entered the crisis in a reasonably healthy state from a trading perspective; but red-tape has significantly impeded their ability to respond to events; and the emergency has hit them harder than most in the hospitality industry. Once trading resumed, casinos were required to offer table gaming (relatively expensive to operate) at 50% capacity while the ability to use technology to adapt has been hamstrung by arcane legislative restrictions (demonstrably not “fit for the digital age”). The situation for high-end casinos is even more perilous, with travel restrictions (on top of everything else) preventing the majority of customers from being able to visit London.
In a national emergency, governments are typically required to adopt blunt policies that have the maximum impact for the population at large. Under such circumstances, there will inevitably be winners and losers. However, after seven months, the Government ought to have worked out which sectors have the greatest need for targeted support. Having played his big hand, Chancellor Sunak and his ministerial colleagues need to look at how they can support previously sustainable businesses that have been excessively impacted by Government policies.
Given the week’s events, Boris Johnson’s statement during Prime Minister’s Questions, “I am not an enthusiast for encouraging the spread of gambling in this country” seemed rather redundant. It was also an oddly irrelevant and unnecessary response. Had Johnson’s interrogator, Ronnie Cowan (SNP, Inverclyde) asked him whether he fancied a stint in Paddy Power’s Department of Mischief, it might have made some sense.
As it was, Cowan had simply asked the PM to confirm or deny a report in the Guardian that Number 10 would take the lead on the impending review of gambling legislation.
The idea of a PM-led review seems strange, even by the standards of this bonkers year. While there are important matters of gambling reform to be dealt with, Number 10’s to-do list is bulging more than normal and gambling rarely makes it onto the agenda even in quiet times. That’s what departmental ministers are for, after all.
Tellingly, the PM appears to have signalled a moral position on gambling (however loosely or recently held) which could be seen to be incompatible with an independent review. It may be that, having led an entirely blameless and morally erect life, Boris Johnson feels that he can dictate what his fellow citizens should and should not do in their private lives: the question is whether the PM really is the Messiah….or just a very naughty boy.
UK: Covid – New study high-lights cross-sell risk
Research findings published this week suggest that cross-selling could be the latest marketing tactic to face regulatory scrutiny. A summary report from the University of Stirling and the University of Glasgow (the first in a planned series) revealed that switching from online sports betting to online casino and slots games during lockdown was associated with an elevated risk of being a ‘problem gambler’.
The study was based on survey responses from 3,866 regular (monthly or more) sports bettors from a YouGov panel. The overwhelming majority ceased online gambling when lockdown was introduced and only around 4% claimed to have switched to “more risky activities – for example online casino and slots”. Those sports bettors with a PGSI ‘problem gambler’ classification were, however, ten times more likely than non-problem gamblers to switch.
Around one-half of PGSI ‘problem gamblers’ and one-third of PGSI moderate risk gamblers substituted another form of gambling (not necessarily a riskier form) for sports betting during lockdown compared with just one-in-ten non-problem gamblers.
The report’s authors advised the Gambling Commission and the industry “should be aware that regular sports bettors who changed their gambling activities during the initial Covid-19 lockdown, especially those starting to gamble on online slots or casino games, were disproportionately likely to be experiencing gambling harms”; adding that “this is a clear marker of harm which strongly suggests that these people should be the target of harm-prevention interventions and, specifically, should be the focus of customer interactions to implement steps to reduce harms”.
In addition, they suggested that under future conditions of widespread cancellation of sporting events “operators should not market alternative products to regular sports bettors, as those who switch are more likely to be experiencing gambling problems”.
The report appears to provide further evidence that lockdown affected ‘problem gambling’ severity rather than scale – with risk of harm increasing for already vulnerable people and receding for the majority of consumers. Its recommendations are consistent with this analysis and thus seem far more coherent than the population-wide controls called for by those who predicted (without evidence) that lockdown would cause increases in the number of people affected by problematic gambling.
While the study is not without its limitations (notably the use of a self-selection panel), its findings have good face value. What is more, operators have the opportunity to replicate the study – using real data rather than self-report.
Given that prevalence surveys have consistently shown a relationship between the breadth of gambling participation and risk of harm, it is perhaps surprising that cross-selling has not been the subject of greater scrutiny in the past (although notably, the chief executive of the Gambling Commission, Neil McArthur has consistently expressed concern). This week’s study suggests that this may be another matter for licensees to grapple with in the upcoming Government review.
Loot boxes – Let’s go down the rabbit hole
The UK government has announced a call for evidence on loot boxes (in so doing detaching one of the two named reasons for a gambling review in the Conservative manifesto from the forthcoming gambling review; the other one, using credit cards online, has already been banned – there are lots of other good reasons for a gambling review, but this is nevertheless curious). Loot boxes in themselves are simple by nature; a player purchases a “mystery box” and receives an assortment of goods – some rarer than others. This feature is not restricted to computer games: eg, Panini football stickers or receiving a random Happy Meal toy.
There are three problems that can stem from the digital nature of loot boxes. The first is practical. Parents may provide credit card details for children and save them in the game system. This can, without monitoring, lead to children purchasing as many as they want at a click.
The other problem is legal. Although unintentional, items or skins acquired in-game can, through third parties, be converted into real money rather than ‘Steam Wallet’ balance. This means that there is a consideration (payment for the skin), chance or a random event (the unknown value of the skin at the time of purchase) and a prize of money’s worth (a tradable skin) – this can therefore be captured by the UK’s definition of gambling (whether anyone wants it to or not).
Finally, and often in combination with the first two points, loot boxes are part of what can make a game compelling – even in some cases addictive. Loot boxes can therefore represent a potentially toxic combination of unlicensed gambling, children, addictive behaviours and misuse of funds. At this point it is a long way from a Happy Meal.
Unregulated skin betting handle in 2016 was estimated to be c. US$7.4bn. Match outcome betting developed into casino-style games that were very easy to access without any age verification. Aware of the risks, Valve issued 23 cease and desists to skin betting sites in 2016 – but only c. 11 ceased operations. The Washington State Gambling Commission and Valve had a war of words in 2016 – with Valve arguing that it had “no business relationship” with operators of gambling sites, and neither “promotes or profits” from gambling. No legal action was taken. Elsewhere, Belgium and the Netherlands have banned them; China has enforced percentage chance information on loot boxes, a more moderate approach.
Regulated esports betting (albeit still materially tiny) has eaten into the overall skin-betting handle, but there is still a large, and essentially illegal market. The margins – given items are not readily convertible cash assets (have to then set up a third-party marketplace to sell-on virtual items) – are low and those seeking skin-betting licenses will struggle to see return. Most therefore are not licensed, but the majority of users would have no idea that there is any gambling involved anyway.
The UKGC online review (March 2018) identified skin betting as a risk area, but 24% of 11-16-year-old participants said fruit machines were their first gambling product, with 21% answering scratch cards: both dwarf skins betting. The rationale of ‘why’ was 41% “I thought it would be exciting” and 40% “to make money”. Little suggests that gambling in younger children can be intrinsically linked to loot boxes, but media hysteria and stigma around video games continues to make it an easy target.
Loot boxes are legal and consumer minefield. They are also distinct from real money gambling in almost every sense, although they share some important legal, behavioural and ‘offshoot’ characteristics. We, therefore, welcome the fact that this issue of loot boxes is being looked at separately; but if the government is hoping that more information will make the job of crafting workable loot box regulation much easier, it may be in for disappointment.