The US and Europe appear to be on diverging paths when it comes to regulation, with opportunities for online operators opening up in the former while policymakers seem intent on curtailing their business activities to the point where market exits are likely in the latter.
As we look to the year ahead, industry experts share their thoughts on the opportunities and challenges facing the industry.
In part seven we talk to experts in regulation. In part one we heard from igaming operators and suppliers, in part two land-based operators and suppliers and part three finance experts. Part four then turned to those in marketing, part five recruiters and part six technology and innovation experts. In part eight we will focus on social responsibility.
Interviewees
Mark Balestra, partner, Segev LLP
Melanie Ellis, partner, Northridge Law
Gustaf Hoffstedt, chief executive, Branscheforenigen för Onlinespel (BOS)
David McLeish, partner, Wiggin
Looking back at 2020, what – other than the Covid-19 pandemic – did you feel was transformational for the industry? And how much of a lasting effect do you think the Covid-19 pandemic will have going forward?
Mark Balestra: I can’t think of anything, but I’m not sure there was ever going to be much that was truly transformational. It was poised to be a year of growth and adaptation to the new legal landscape in the US, not transformation.
Like most industries, gaming and gambling has been gradually undergoing the transition into digital distribution. There are those who have for whatever reason been slow or reluctant to make the transition, but with Covid-19 they had no choice. The last year forced businesses to embrace digital channels for distributing their products, and for the most part, they’ve discovered that it is very doable. The pandemic necessitated innovation in a way that we’ve never seen.
Melanie Ellis: Aside from the obvious, some of the major challenges faced by the UK gambling industry in 2020 stemmed from increasing regulatory restrictions, including the ban on credit cards being used for online gambling from April 2020. The Covid-19 pandemic has accelerated the shift from land-based to online gambling and also led to some particular products, such as live casino and betting on esports, surging in popularity. Once restrictions are lifted there may well be a boost to land-based casinos, as people will be keen to make the most of their freedom to enjoy nights out with friends. However, much damage has been done to the sector and sadly some operators may not be able to continue.
Gustaf Hoffstedt: Sweden and Denmark passed the 50% threshold, with a larger proportion gambling online compared to land-based gambling. Approximately 10 additional EU states plus the UK are on their way to undergoing the same transformation. The pandemic will accelerate this development, but the transformation to online gambling would have happened anyway.
David McLeish: The long-awaited announcement of the government review of the Gambling Act in the UK is likely to culminate in significant changes in the domestic and, to an extent, the international landscape. The outcome of the review and the Gambling Commission’s consultation on affordability has the potential to either remove ongoing uncertainty in a positive manner or trigger further consolidation and/or UK market exits from smaller players that elect to focus their firepower elsewhere. It may also shape the approach of regulators in other regulated, or regulating, markets. That is why the industry’s approach to the calls for evidence is key.
The pandemic has undoubtedly accelerated the need for industry participants to ensure diversity in terms of both product offerings and geographical focus – particularly for historically retail-led businesses.
What do you feel is going to be a game-changer for the industry in the coming year?
MB: The sports entertainment industry has been walloped by Covid-19 and it’s going to be a long time yet before attendance at major sporting events reaches pre-Covid-19 levels. Prior to the pandemic, the courtship of sports gambling and sports entertainment was just getting underway. We were on the cusp of something big, and the need for new revenue streams will make it even more explosive than we thought it would be. We’re going to see some huge deals being made between sports teams and gambling businesses – and probably a lot of them.
ME: Mass vaccination and the removal of Covid-19 restrictions will obviously be a game-changer for the land-based gambling industry worldwide. In the UK, the government’s review of the Gambling Act 2005 will bring much-needed certainty to the online industry in relation to future changes to regulatory requirements. I believe operators should look at the review positively, as an opportunity to engage with the government on how they are regulated in the future.
GH: Virtual Reality. But don’t listen to me, I’ve said that for a decade and so far I’ve been wrong. I just wish that the end consumer could experience what I have at some of the coolest booths at ICE.
DM: A combination of the outcome of the Gambling Act review and the reshaping of business focus, whether that is organic or, more likely, through mergers and acquisitions.
On the other hand, what do you feel could disrupt the sector or slow progress?
MB: Two things – and they overlap. First, one has to wonder how many online gambling addictions were created and/or worsened in 2020. The industry may have to reckon with the social impact of an epidemic. And in addition to grappling with the social component, the industry could be facing renewed anti-gambling efforts at the policymaking level, fuelled by the increased incidence of problem gambling. Second, and somewhat related, I would imagine disposable income will be scarce among a large portion of consumers. So, perhaps a lot of customers whom gambling operators would ordinarily count on for revenue will be either gambling with money they don’t have to spend or simply just not gambling.
ME: Increasing requirements for operators to conduct affordability checks on customers and pressure to restrict VIP programmes will increase the compliance burden next year and may well dampen revenues. Ultimately, I do not believe that operators want to take money from customers who are suffering from problem gambling, or who cannot afford their level of gambling. However, there is a risk that the measures put in place will make it difficult for customers who are gambling safely and within their means to continue to gamble as they have done in the past. I hope that both the Gambling Commission and the government, in its review of the Gambling Act, will take a pragmatic approach, bearing in mind the need to strike a reasonable balance between protecting those who are vulnerable and protecting the individual freedoms of those who are not.
GH: We operate in an industry with a low reputation. We’ve done that since our industry was born 25 years ago, but the problem has deepened. That is somewhat of a contradiction, since most jurisdictions have gone from monopolies to regulated markets, and as a consequence our legal right to exist and operate has been strengthened. But nevertheless, it appears that we haven’t seen the bottom yet. New records of decreased reputation are broken annually and it is always possible to fall another 100% in reputation compared to last year. Low reputation causes, among other undesirable things, a high political risk – a risk that can evolve in tax raises and regulations that disrupt the market.
DM: The macroeconomic impact of Covid-19 will inevitably take a toll on most industries. However, as the online gambling industry has matured, so have the sources of finance available to it (be it from private equity or via the recent rise of SPACs in the US).
Do you feel an imbalance is developing, with rapid expansion across the US contrasting with increasingly stringent regulations in the more mature European markets?
MB: It depends on what sector you’re talking about. In a lot of ways there are already imbalances – in sports betting in particular – due to Europe’s progressive policy compared to the US, and the US is actually on the way to evening things up.
ME: Liberalisation and restriction of gambling comes in waves and at the moment we see the US on the curve up towards greater liberalisation and the UK, along with a number of other European jurisdictions, a good way down the curve towards greater restriction. What might seem to be an imbalance is purely a result of those European jurisdictions beginning the move towards liberalisation 10-20 years before the US. Ultimately, the US is likely to find itself in a similar position to Europe, with each state operating its own licensing regime for gambling but potentially finding themselves needing to increase regulatory requirements in light of negative public and political sentiment.
GH: It comes as no surprise that Europe is slowing down. The reasons vary of course, but one thing that unites most EU jurisdictions seems to be that the politicians fail to understand that it is not themselves, nor the gambling industry, that defines the future of the gambling market. The power is in the hands of the consumer. The consumer decides via her smartphone whether horse betting, casino or esports shall grow, and also whether the regulated or the unregulated market shall prevail.
DM: Online gambling is a truly global business – there have always been pockets of interest in growing markets with consequential impacts on valuations driving M&A activity on the back of it. The race to control your own technology roadmap appears to be at the forefront of minds currently in the US. However, the US and the mature European markets are at very different stages in their life cycles. The opportunities in each have their pros and cons as do the myriad of possibilities in other areas of the globe. There can only be some many winners in each market and spreading yourself too thinly could be as risky as putting all your eggs in one basket – only time will tell who gets the balance right.
