Italian job for Europe
With Italy's regulatory model the envy of governments across the EU, eGR looks at how the battle for market share could unfold following the launch of poker cash games and casino.
To the more cynical observers of the European Commission’s policy response towards egaming, there’s a certain delicious irony to Italy’s local licensing regime. So criticised after the Gambelli and Placanica rulings, it is becoming the model of choice for regulating EU member states.
Several recent developments make it hard to disagree with Giulio Coraggio, a senior associate working in the Rome office of DLA Piper and specialising in gaming and technology law, who states: “Until we want to introduce a European gaming licence, this is the model that will be implemented by most of the European countries.”
Perhaps the strongest sign that a tipping point of sorts had been reached came in January in the UK. The Department for Culture, Media and Sport, the government agency with oversight for gambling activity in this member state, announced its intention to go down the local licensing route. It has previously always upheld the principles of free movement enshrined in EU law and the judgments above. This followed the moves off shore of Ladbrokes and William Hill, both citing unfair competition from low-tax operators such as Ireland’s Paddy Power and Gibraltar-headquartered Bwin.
Much of the spread of the local licensing requirement through the EU of course rests upon the European Commission’s tacit acceptance of these regimes. This is ostensibly to appease key member states looking to capture tax from egaming within their borders from operators located in jurisdictions such as Malta and Gibraltar (or in France’s case, to defend its Française des Jeux and Paris Mutuel Urbain monopolies).
The EC continues to grapple with implementing an EU-wide system that can deal with the cross-border nature of egaming. Elements of the new Italian decrees to be issued for poker cash games and casino undoubtedly show the Italian Gaming Authority to be a “mature regulator”, according to Coraggio. This includes stringent safeguards to protect players and allowing operators to locate their legal seat and equipment in any country of the European Economic Area or approved jurisdiction. However, he adds this is secondary to “the main driver of this system, which is to collect taxes from Italian players”.
Regulators from EU member states now also meet regularly not just to compare notes, but also to ensure principles of mutual recognition over licensing requirements as laid down in the Gambelli and Placanica judgments are met, “so as not to rock the boat in terms of them being allowed this local licensing requirement”, according to gaming lawyer Tom Lippiett, an associate at Berwin Leighton Paisner.
Further, both Lippiett and Coraggio say the next stage in the model’s evolution is now subject to serious discussion between Italian and French regulators. “The next step will be an agreement between regulators, so operators can take advantage of the liquidity generated from more than one country,” says Coraggio, helping address what he terms “the main downside of this regime, [that] operators cannot take advantage of the economies of scale generated from players of different jurisdictions”.
This potential liquidity pooling between member states means strong positioning in the Italian egaming market, by far Europe’s largest, could also have a knock-on effect on market share elsewhere.
Jostling for position
With this in mind, it seems an appropriate time to look at how the leading operators are positioned on the eve of the launch of poker cash games and casino. While the launch date for poker cash games has now been pushed back to mid-October (when Microgame’s legal challenge to the cash games decree will be heard and the statutory review period for the most recent version of this expires) and casino games until Q1 2011, regulated remote gaming in Italy is still expected to generate 5.8bn in turnover and 849m in gross win this year (Source: H2 Gambling Capital). The launch of cash poker and casino will also pour an additional 200m into the tax coffers of the Italian government in 2011 (Source: H2).
As can be seen from the data below provided by Italian gambling data business Trust Partners, competition is intensifying between European operators and local brands for the custom of Italian gamblers, the highest spenders on gambling in Europe, projected to lose an average of 434 gambling onshore (land-based and remote) in 2010 (Source: H2).
Italian sportsbetting – Q1 2010
While Italian brands dominate the sports betting and skill games verticals, over the past year Bwin (through its Gioco Digitale acquisition) and PokerStars have made significant inroads into the tournament poker market in the territory and, together with the largest Italian gaming network Microgame, account for nearly 65% of the market.
Microgame’s first-mover advantage and land-based poker terminals means it still retains a healthy lead over its non-Italian rivals. PartyGaming’s Italian poker network, on which Intralot is a partner, has been building market share in the past couple of months according to Simon Holliday of H2, who observes “with some investment and a tail wind, [PartyPoker] could get to 5% by year end”.
Bwin, which recently delayed issuing its full-year guidance for 2010 until timings of the launch of poker cash games and casino in Italy were known, has also positioned for the latter opening itself by inking deals with Dragonfish for its Bwin Italia site, and between Net Entertainment and its Gioco Digitale poker business for Gioco and Bwin.it.
The Austrian operator’s strong positioning in the poker market via its OnGame network and Gioco Digitale, underpinned by its proven cross-selling expertise, means it is most analysts’ pick as the European listed operator set to benefit most from the full regulation of the Italian egaming market.
Italian tournament poker – Q1 2010
(*Playtech: 15.1%)
In January, Gioco also became the first operator authorised by Italian regulators to offer bingo cash games into the market, giving it an instant 100% share of the onshore online bingo market.
Indeed, the length of time it takes a new operator to gain a licence and complete the authorisation process required to offer a new product vertical into the market means mergers and acquisitions (M&A) may now be the only realistic way in for new operators, certainly for those without the advantage of US liquidity-fuelled marketing spends. “They will not be live in the market before eight months,” according to Coraggio.
Italians’ strong trust of local brands would also make it difficult for a non Italian-licensed European operator to gain traction in this fiercely competitive market. “The local brands clearly have a fantastic advantage on the high street. Italians are less comfortable with internet transitions than UK or Scandinavian customers. They like to know where the local office is in case they are not paid,” says Gianluigi Corsetti of Trust Partners.
Surge in activity
For operators opting not to apply for a licence and pay Italian taxes, set at 20% of revenues for cash poker and casino, on top of those paid in their chosen jurisdiction, it has been reported that the new decrees will be accompanied by stringent measures from the Italian Gaming Authority to block non-Italian licence holders, last year accounting for 33% of egaming activity in the country, according to H2.
The Italian government will look to deploy mechanisms similar to those it has used to virtually eradicate the off shore tournament poker market, which include IP blocking and restrictions on advertising dot.net sites channelling players to real-money poker rooms.
According to Coraggio, who advises companies on potential M&A in the territory, this all points to a lot of new activity on this front in Italy because “foreign operators and companies interested in the market will now need to acquire current operators to enter into the market with a large database of players”.
Therefore, signifi cant buys such as Lottomatica’s of Totosi for 40m (May 2008) Bwin’s of Gioco Digitale for 115m (September 2009) and of the largest Italian gaming network Microgame by private equity fund Monitor Clipper Partners (October 2009) are expected to be followed by more such deals before the year is out. Italian operator Sisal is now reported to be in talks to acquire sports book and poker room Betting2000, according to sources who did not wish to be named.
Indeed, with French regulators effectively forcing private operators, particularly in sports betting, into a holding pattern, it is the openings in Italy for bingo, poker cash games and casino which promise to have far greater impact on the battle for European market share between egaming operators over the next 18 months.