Will the UK lose its supremacy as Europe’s leading gambling market?

For a long time now, the UK held its position as the most lucrative market in Europe. With 15% tax of GGR, the most progressive regulations, the most advanced ecosystem and some of the most brilliant professionals in the industry, the UK has had a very long run. During the period from April 2016 to March 2017, the total profit from online gambling (GGR) in the UK reached €5.35bn, according to the Gambling Commission (UKGC), which is 10% higher than the previous year.

However recent changes have had tremendous effect on operator margins and profitability.  These changes include:

Regulations

(1) The UKGC has imposed stricter KYC and AML procedures reducing onboarding of new customers

(2) Tougher limitations on marketing

(3) Restrictions on bonuses and incentives to customers

(4) Enforcing deposit and betting limits and self-exclusion

(5) Higher fines are imposed by the regulator on non-compliance issues such as:

• Failures in protecting problem gamblers and vulnerable players in 888 case, after more than 7,000 people who had voluntarily banned themselves from gambling were still able to access their accounts. The £7.8m was a record settlement in the gambling industry.
• Breaches of self-excluded customers who managed to open duplicate accounts allowing them to continue to gamble under Sky Bet, which were fined £1m by the UKGC.

Furthermore, the commission warned in January that bookmakers that broke the rules would face much larger fines and could even lose their licence to operate in the UK. This substantial increase in regulatory requirements by the UKGC not only caused a spike in compliance expenditure but also hurt profitability in general.

Brexit

What shall be the outcome and how will it affect the gambling industry is still a big unknown factor yet to be determined, for both local and international operators.

Other European markets have demonstrated significant growth

Italy, for example. Italy follows the UK as the second most lucrative jurisdiction in Europe. With taxation rate of 22% GGR on average and outstanding gross gaming revenues (GGR) in 2016 that totalled €1.03bn, up 25% from 2015. This prosperity is due to the more liberal approach to gambling Italy has adapted in recent years, allowing full liberalisation of sports betting. Operators are no longer dependent on the schedule and result of bets or events published by the regulator.  Furthermore, the Italian regulator has been actively taking steps to combat illegal operators so the recent Italian tenders have generated a lot of interest.

Then there’s Spain. The Spanish online gaming market has improved drastically since its inception in 2012 and reached €560.3m in GGR for full year 2017, representing 30% growth compared to 2016. The improvement comes on the back of major amendments to the gambling regulations such as the liberalisation of slots and re-opening the market to an additional, unlimited number of operators. However, the market is still very centralised and controlled by half a dozen companies that account for around 80% of the total market share. Spain’s much anticipated tender, which is now open for the first time for a whole year (previous tenders were open for 1 month only), has drawn the attention of many international operators seeking an entry to this fast-growing market.  The latest piece of good news for the Spanish gambling industry was the DGOJ Resolution to authorise liquidity sharing between licensed online poker operators in Spain, France, Italy and Portugal.

Should the UK regulator continue its current trend causing massive reduction in profitability, coupled with higher expenses due to Brexit,  operators shall be forced to terminate and abolish their licenses and operations in the UK and migrate to more rewarding jurisdictions.

Dina Niron is an advisor to FBC’s Digital Department and the founder of Sparks Advisory where she consults gaming companies on compliance and legal requirements in various jurisdictions