Can the UK weather the regulatory storm?

When it comes to online gambling regulation it seems it never rains, it pours. And it looks like a regulatory storm may be brewing for operators in the UK.

Yesterday’s announcement of a review into gambling advertising alongside a deceptively broad strokes look at social responsibility measures from the UK government came hot on the heels of a Competition and Markets Authority investigation into the industry. And let’s not forget we have the potential introduction of duty on gaming free bets due in August 2017.

To look at these events in a vacuum it appears the UK government has decided to bring the online gambling industry to heel, but this is as much a situation of circumstance as design. The appointment of a new Minister for Sport Tracy Crouch in May 2015 was likely a catalyst, but the new point of consumption gambling regime and the huge growth of the sector are all factors in the increased scrutiny.

However, it’s arguable the industry also has itself to blame.

Spend spend spend

After years of being shut behind blackened windows and treated like a part of the vice industry, gambling was reborn as part of the entertainment sector in 2006. So it was perhaps not surprising the egaming industry grabbed the opportunity with both hands. Online gambling has grown to become a £4bn industry in the UK and this has been fuelled by a huge advertising spend, not least on TV.

Paddy Power Betfair noted in its H1 results presentation it was the second largest advertiser on satellite TV platform Sky, only beaten by Unilever. It is a level of exposure that’s tough for regulators to ignore, and PPB is just one of half a dozen major brands which are omnipresent on the various sports channels on Sky. Viewers on a Sunday afternoon are assailed by adverts to “bet now” and some pushback was surely inevitable.

The existing carve-out for daytime bingo advertising and sportsbook advertising around televised football matches feels perilously poised. With the UK government’s focus placed on social responsibility it feels hard to justify relentless daytime advertising for gambling in the long-term, although the combined forces of Sky and the gambling industry may present a powerful lobbying body that will fight to retain Premier League advertising opportunities.

Are you feeling cheated?

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, however. At the heart of the enquiry is a look into what could be termed as deceptive marketing. Bonuses offered on terms that can occasionally be almost impossible to adhere to, offers withdrawn due to a reliance on overly restrictive T&Cs and bets cancelled due to pricing errors.

Most of this is understandable and stems from widespread bonus abuse. Any operator not having watertight T&Cs attached to a bonus offer is likely to be taken to the cleaners by an army of forum-informed players waiting to spot a loophole. But equally bonuses and free cash offers are a hard drug to give up for the egaming firms. It’s hard to find a piece of market research that doesn’t show the primary motivation for signing up for a gaming account is free money and bonuses. So it’s not surprising the industry is so reliant on these. But bonus abuse is so widespread that they have begun to see monsters under the bed.

Some enforced correction to bonus offers seems inevitable. It’s more arguable just how much of an issue the ability of players to get a bet on really is. Several industry sources suggest it’s simply not an issue and not something that even exists to a significant scale outside of horseracing. But some independent analysis will be welcomed although a return to the mythical “good old days” of bookmaking where 120% books with no special offers seems unlikely.

Think again

What is needed, however, is a shift in perspective from the industry. If egaming wants to legitimately become an entertainment-driven sector it needs to treat its customers the way the wider leisure sector would. Rightly or wrongly the industry has at times given the impression of pushing at the margins of what’s permissible and acceptable and still viewing its customers a little adversarially.

“Gambling inevitably involves risk, but it shouldn’t be a con,” Nisha Arora, CMA senior director for consumer enforcement, said. “We’re worried players are losing out because gambling sites are making it too difficult for them to understand the terms on which they’re playing, and may not be giving them a fair deal.”

And there is a clear message coming from government too, that the players interests rather than just those of the industry’s growth and profitability need to become more central to the debate. “It is important that gambling regulations strike the right balance between allowing the industry to contribute to the economy and enable people to bet responsibly whilst ensuring consumers and communities are protected,” Crouch said.

The time for self-regulation and for the industry to get in front of these issues may have passed. We’ve recently seen some moves to get in front of these issues with the establishment of the Senet Group, the Bad Betty advertising campaign and more of a focus on responsible gambling, but beyond this genuine changes to operating practices are few and far between.

Raising the stakes

With so many issues under investigation it seems optimistically implausible that no action will be taken on any of them, and as with all political issues an element of compromise and horse trading may be required. The loudest lobbying voices are also likely to be those with large land-based interests and there will be considerable efforts to safeguard the future of the FOBT sector.

FOBTs generated £1.7bn in revenue during the 12 months to September 2015, according to Gambling Commission numbers. Any significant changes to their staking limits or availability could decimate share prices and profits at the likes of Hills and Coral. The question then is will this powerful group be prepared to accept some concessions that, at worst, will inhibit growth in online gambling to protect FOBTs?

Whatever happens it seems as if this is an inflection point for online gambling in the UK and the industry needs to present a united front in order to have as much influence as possible on what direction we turn. And perhaps taking some short-term hits to revenue growth to safeguard long-term profitability may be in order, not least around T&Cs and advertising. The phenomenal growth in recent years has made the business too big to ignore, and now it needs to decide exactly what public image it wants to present.

There is a real opportunity to take a big step towards establishing egaming as a true part of the adult entertainment sector if the industry is brave enough; if it can shake off its reliance on bonus offers, protective T&Cs and direct response TV advertising and move towards a softer more brand driven future. But does it want to gamble?