Germany’s Bundesrat has finally agreed on the make-up of its inter-state mandate moving to revamp its federal gambling framework by 2021. However, featuring an overly complex licensing procedure and muddled policies, strategic consultancy Regulus Partners finds little to cheer on ‘German progress’…
Germany has done what it was expected to with regard to online gambling policy, possibly for the first time in over a decade. Equally, it is both an inter-state agreement and, we believe, a framework that is compatible with EU law… something likely to be discovered fairly soon!
The option chosen was simply to extend the number of licences and allow Schleswig-Holstein an opt-out of those elements it doesn’t like. This is the worst case scenario for German facing operators, in our view, since they are likely to be forced to play a game they cannot win.
The framework, other than the number of licences, is largely a rehash of the 2012 Treaty. The tax rate on sports betting will continue to be 5% of turnover; but whereas sports betting is currently taxed but not regulated, in the new licensing regime there will be customer turnover limits of €1000 per month, severely curtailed in-play (to match outcomes) and the potential for additional state safer gambling and/or duty requirements.
The betting landscape, which is currently c. 70% in-play and likely c. 80% ‘heavy user’ dominated in terms of revenue (many of which would be impacted by the turnover limit), therefore cannot function as it currently stands. High margin, multiple-led, mass market offers may thrive, but these are not currently dominant across the market (though Tipico and Bet3000 have some omnichannel expertise here). The level of dislocation and black market leakage is therefore likely to be immense for all those operators choosing to get a licence (and since substantially all of the big operators exposed to Germany are already registered with the tax authorities, the regulators know where to look).
Perhaps a bigger issue is that gaming would effectively be banned, which we estimate currently to be c. 47% of the market. No doubt some displaced gaming revenue will end up in betting, but without in-play the ability to offer similar products is severely limited… whether virtuals will be allowed is potentially significant here – though we would doubt it.
Most are likely to go to the black market or simply to stop. Hence our estimates last week that c. 70% of the current German online gambling market (c. €1.8bn) is at risk in revenue terms, and therefore (potentially more than) all profit. With Novomatic (and Gauselmann B2B) already having taken the hit, the biggest visible losers are likely to be Tipico (biggest exposure but at least high betting margins), GVC, Bet-at-Home (both low margin betting and gaming) and Stars (substantially all gaming); with 888, JPJ and many Nordic-led operators also taking a material hit in terms of growth, comps and cash flow.
The big question now is whether the treaty will be enforced as it stands. However, a combination of Supreme Court / CJEU rulings and recent tightening of Germany’s telecoms and media regulators suggest a very dim view will be taken of any operator trying to plead EU freedoms (and we doubt S-H will either be meaningfully joined or provide a market beyond its own borders).
The global regulatory landscape is also increasingly inter-connected: while a private ‘dark grey’ operator might be inclined to get away with it, any that are public or regulated in Tier One Point of Consumption jurisdictions could easily decide (or have it decided for them) that it is far to risky in terms of overall licensing footprint.
Our central thesis, therefore, is that the Third Inter-State treaty will get EU approval and by live for 2020 – with very significant operator disruption to immediately follow, especially given the level of management complacency about the German regulatory environment that has been fostered by years of legal wrangling, political discord and easy money.
UK: In Parliament – Nobs out to get gambling?
This week saw the launch of the first parliamentary committee review of gambling regulation in Britain since the rather disappointing select committee inquiry of 2012. After months of diligent lobbying, the bookie-bashing Bishop of St Albans, the Rt Rev Alan Smith has succeeded in gaining approval for “a special inquiry committee on the social and economic consequences of the gambling industry”.
The proponents of the inquiry (which has no direct legislative powers) have identified a range of issues that the committee is likely to address, including an assessment of economic costs associated with gambling that in many respects reflects the RGSB’s harm reporting framework (mental health issues, homelessness, crime and others). It will also look at the taxation of offshore gambling companies (presumably input VAT exemption); advertising; the involvement of gambling in sport; and gender and ethnic dimensions of addiction. Interestingly, it will also consider “whether the Gambling Commission and local authorities are correctly regulating gambling” – potentially putting the regulator in the dock alongside the regulated.
In any policy debate, benefits should be considered alongside costs. Although the inquiry briefing is silent on this, it ought not to be beyond the wit of the industry to seek an appropriate degree of balance – and in particular to ensure that the committee weighs consumer benefits and civil liberties. To achieve this will require grown-up engagement from industry participants.
While operators are unlikely to welcome the committee (particularly at a time when gambling regulation is pervaded by such a high degree of uncertainty), the bishop’s move may present the best chance yet for an honest discussion about the role of gambling in Britain today.
On Tuesday, it was a case of “another week, another debate on online gambling” – in the words of Richard Graham (Cons, Gloucester). Graham led last week’s Westminster Hall Debate on online gambling protections and was one of 17 MPs (Conservative, Labour, SNP and DUP) to support Ronnie Cowan’s (SNP, Inverclyde) Westminster Hall Debate on gambling-related harm.
The session laid bare the panoply of concerns and legislative proposals that constitute public policy discourse on gambling. While the soon to be extinct FOBT received a large number of dishonourable mentions, the focus for discussion was almost exclusively online gambling (with occasional forays into esports and video game loot boxes). Suicide and effects of gambling on children were the most commonly cited harms; and advertising was the most widely discussed aspect of industry practice (although sponsorship, bonusing and account restrictions all received repeated mentions). In terms of solutions, the institution of a statutory levy (at 1% of GGY), schools-based education and matters of regulatory devolution (Scotland and Northern Ireland) proved most popular.
The sheer breadth of issues raised (most of which do warrant discussion) demonstrates just how far out of control the debate on gambling regulation has moved. Responding for the Government, sports minister Mims Davies (Cons, Eastleigh) provided a balanced and factually accurate response (gently debunking some of the MPs’ statistical mis-statements along the way). The fact is though that serious issues continue to be debated in Parliament with an absence of respect for the facts.
For sanctimonious humbug, few can compete with Iain Duncan Smith (Cons, Chingford) who claimed (unchallenged) that there are 3 million “gambling addicts” in Great Britain. According to the former Conservative Party Leader (and applying the diagnostic criteria for problem gambling), anyone who has occasionally thought about gambling is an addict. On this basis, we must assume that most adults in Great Britain are addicted to sex, booze, Theresa May and the Duchess of Sussex. It’s a wonder that any of us manage to function at all.
We would not go as far as the Campaign for Fairer Gambling (who published another excellent piece this week on the need for honest debate on gambling policy) in suggesting that Iain Duncan Smith should face criminal charges for misleading Parliament; but some form of correction would appear to be in order.
The debate also contained some useful feedback for the industry on how to engage with Parliament. Four MPs warned of the perniciousness of lobbying by gambling companies, including Graham Jones (Lab, Hyndburn), who drew parallels with Big Tobacco. David Linden (SNP, Glasgow East) delivered a particularly damning attack as he recalled “the bullying that Members of this House received from the Association of British Bookmakers”, noting that “on a public health issue such as this, it is important not to give in to bullying by big industry or lobbyists. We in this House should, quite rightly, tell the Association of British Bookmakers where to go”. Linden need not bother as the ABB is already on its way out; but his point stands. These days, the industry is much better at engaging with policy-makers and politicians – and critics in particular. Continuing to listen and respond rather than spin and project are likely to be critical for gambling operators as they navigate through these troubled waters