Will the CMA investigation prompt a major shift in customer acquisition strategies?

Few “shock” announcements have been so heavily trailed as that from the UK’s competition and markets authority (CMA) that it was launching enforcement action on five operators and opening a larger investigation into the sector. Rumours had been sweeping the sector for a week before, but prior to that it was clear something was going to give in the industry’s ongoing war with both its customers and itself. The question is how much trouble has been stored up and how much bad news is left to come?

It’s not aftertiming to suggest the CMA news was a long time coming. Back in October 2016 the issue was covered by this very website. “While the DCMS investigation will understandably draw more attention, it’s arguably the CMA enquiry that may have the biggest long-term impact on the online gambling sector,” it read. And so it may prove. Operators have been pushing at an open door for many years when it comes to T&Cs around bonuses and withdrawals but it seems it may end up slamming back in their faces.

First up there is the matter of the five firms facing immediate censure from the CMA. Ladbrokes and William Hill are the first two names to emerge and the remaining three will be watched extremely closely by the sector to see if there are any apparent trends. Are these failings specific to a certain operator group or are they more systemic within the industry? That is just one of the big questions that needs to be asked. But looking more closely at Friday’s announcement it would be an eternal optimist who believes this is the end of the matter.

More to come

The CMA asked for customers to send in more information on a variety of well-worn industry practices for further investigation and it would be a surprise to see this initial gang of five remain the only firms to face enforcement action. There is also the question of just how far the enforcement will go with licence revocation a real threat along with meaningful fines and substantial remedial changes to operating practices. And it’s that final aspect that could be the most impactful of all.

The huge, sprawling online casino sector is sustained by operators big and small that use broadly similar models to gain and maintain margin. Big bonuses pull players in and keep acquisition costs down and the need for brand marketing low, while strict, and in some cases restrictive, T&Cs help massage margins and reduce player churn. More bonusing with similarly tough T&Cs keep players active and depositing and, occasionally, some legitimate barriers placed in the way of withdrawals can help keep the monthly numbers looking healthy.

It’s a model that has created a lot of value for operators over the years, but it’s one that is looking increasingly fragile in the wake of closer regulatory scrutiny in the UK at least. An operating model based on treating customers in an adversarial manner may have come from a protection against bonus abuse but it’s not fit for purpose in a modern entertainment-driven sector. This CMA review and the pending enforcement action could mark a real sea-change for the sector and a shift in the relationship between operators and customers in the casino sector. Along with the tax on bonuses it could lead to a significant shift in the main marketing tool used to recruit players too.

Paper over the cracks

It would be a huge mistake for the egaming sector to see this as a short-term issue to overcome before it returns to business as usual. This is not a moment to paper over the cracks, it’s time for a radical shift in thinking and approach. There is a quiet revolution already taking place in terms of changing the product for a modern casino player and something equally revolutionary needs to take place in terms of acquisition and retention marketing. Because if not the industry risks creating a crisis from an opportunity if it doesn’t make more radical changes to the way it works.

The CMA investigation is just part of a larger series of reviews and revisions to gambling legislation in the UK, with additional action likely to be required around AML issues and potentially advertising in the near future. The industry seemingly faces a choice of continuing to try and tweak an increasingly outdated looking model in response to regulatory demands or look to reinvent itself for a new operating environment and a new generation of customers. And those who make the wrong moves could find themselves struggling to survive.

While it’s possible the UK remains an outlier on this, we should expect to see similar moves made by regulators around Europe and it’s clear that Australia is of a similar consumer-protection mindset. What worked in 2010 may not work in 2020 and the online gambling sector is faced with the task of reinventing itself once again. But perhaps it will need to be pushed a little harder before it takes the leap.