The new instability: Why the rising trend of regulation is no cause for celebration

As the New Year fireworks were lighting up the world’s skies, the online gambling sector was facing a far less thrilling start to the year. Italy brought in its gambling advertising ban and celebrated by tagging on a tax hike, while Romania joined suit with a punitive looking tax increase of its own. And this wasn’t a new year, new you shift from Europe’s gambling regulators it was the continuation of a trend that had shaped the sector during 2018.

What we’re seeing is a wrestling back of control from the operators and the emergence of a clearly defined and restricted regulated egaming market that is as capricious as it is authoritarian. It’s a long way from the grey markets of old, and while it brings with it some much welcomed consumer protections and an enforced focus on problem gambling issues it does make long-term planning somewhat difficult. If you’re an egaming operator in 2019 it’s hard to look out and see anything but a sea of fragility.

From the UK to Russia and covering all points in-between there is far less certainty over even the most established regulated markets. The UK is in the midst of a reinvention and there are a number of issues still hanging over the egaming market from credit cards to advertising as well as the tax rise on gaming. Can we really be certain there will be no more tax rises to follow too, not least if we see a change in government?

The big regulated shift

The early part of the decade saw a shift from a grey market led to a regulated market-led approach from the major operators. This, we were told, would offer stability and sustainability for these businesses as they moved into the mainstream entertainment sectors. Revenues from unregulated markets were in some cases cast off like last year’s fashion, donated to less fortunate businesses you could say, and what remained was viewed as highly-rated, future-proof revenues. Except that’s not quite how it’s turned out.

Operators in regulated markets, rather than taking back control and removing the fear of suddenly being blocked out from core markets they depend on, are now looking over their shoulders at a different set of problems. The Italian market is the most obvious example of this. As the second largest regulated market in Europe it represented a brave new world when it was launched in 2008 and saw the likes of GVC (bwin.party at the time), William Hill and Paddy Power Betfair investing heavily in gaining market share.

But with single digit market share, few have made much profit from that market and over the last 12 months have been rewarded with a total advertising ban and a hike in tax rates for their troubles. What’s more concerning about this is the speed with which these moves were brought in, and that there is no clear indication that this will be the end of the changes. Italy has gone from a market everyone wants to be in, to one many online operators can no longer even consider as an option. So much for stability.

And it’s something we’re seeing repeated across Europe. Last year brought a similarly draconian advertising ban in Belgium, warnings of action in the UK leading to operators jumping before they were pushed. Meanwhile the New Year has begun with Romania, widely viewed as one of the more sensible regulated markets in Eastern Europe, tagging on a 2% turnover tax. It’s tempting to view this from an industry bubble as Europe’s governments launching a wider attack on gambling, but gambling taxes are just a lever to pull for governments trying to operate a much larger machine.

The future is…different

What you have in Europe is a lot of nations in dire need of tax revenues and a population who want more to be spent on essential services, with gambling taxes an easy industry to target. It’s a sector that will usually face very little public sympathy and is one that is usually fighting to justify its own existence and its value to society. As such barring a sudden upturn in the global economy, and expecting some form of downturn in 2019, it would be a surprise if these were the last tax hikes we saw this year (not counting the pending UK one).

So what then can operators do in this current environment? One option is to move away from the regulated-only model. What we’re seeing is not a rush but a casual stroll into more grey markets with the activity in Germany a clear indication of this as firms try and find some “easy” revenue in an increasingly difficult market. But beyond this the industry is facing a larger cultural shift where where it needs to prove it takes its public responsibilities seriously.

Until this work has been completed then it will increasingly be fighting regulatory and tax changes on the back foot with both hands tied behind its back. And that should be all the incentive the industry needs to change. Because while 2019 has not begun hugely positively for the online gambling industry so far, there is no reason it can’t get worse from here.

Happy New Year.