The regulatory race to run

The news that the 4th EU Anti Money Laundering Directive wouldn’t apply to UK sports betting operators would have been greeted with as big a cheer as any losing favourite at Cheltenham this week. In itself it’s probably only a minor victory and there are bigger regulatory battles ahead, but it meant a nasty looking accumulator fell down at the first hurdle.

Ramping up AML requirements for a business that lives and dies by its ability to provide a fast and seamless experience to its customers is a big win, not to mention the ability to retain business that may have been chased away. William Hill, you will remember, issued a profit warning that saw its biggest share price fall since the financial crisis partly on the back of new responsible gaming measures impacting player activity.

In a business that relies heavily on the 80/20 rule, the departure of some significant VIP clients can trip up even the most smoothly travelling beast. That said it’s not all good news as online casinos – those most reliant on VIPs – will still need to enforce the considerably more rigorous checks on the source of player funds in the future, but sports betting (along with bingo and poker) getting a pass as a low risk business is a positive sign. And it bodes well for what’s to come.

Because make no mistake there are a lot of hurdles the industry still needs to clear during the remainder of 2017. Just as there are no certainties at the Cheltenham Festival, it would be unwise to think there can’t be any dramatic falls in the months ahead.

Tax hikes and sports rights

The budget passed serenely enough. Operators at the time said they were nervous about potential tax hikes, and there are no shortage of those already waiting in the wings. With the UK Chancellor forced into an embarrassing U-turn over an income tax hike there is a worrying hole in the finances to fill. It would be foolish to think the UK’s low looking GGR tax rate would not come under pressure in the coming months.

The budget did contain confirmation the government would push on with a new horseracing levy, which comes into play in April. This should, eventually, see an end to the unsustainable position we currently have but may also see a jump in costs associated with offering racing as a product. That is if the levy manages to navigate the numerous legal challenges set to be thrown at it.

As we’ve seen from the furious marketing around Cheltenham, there appears to be no obvious sign of the industry backing away from racing as an acquisition-focused product and the levy will hit the bottom line of the big players – Paddy Power Betfair estimated £10m annually. The impact will probably not be enough to cause any shift in product strategies and the bluster around deprioritising the second-largest spectator sport in the UK is likely just that, bluster. But it may set a dangerous precedent.

The concept of operators paying the relevant authorities to offer betting on sports, could easily raise its ugly head once more. It’s hard to argue a case for Premier League or Championship football requiring yet another injection of cash to sustain itself, but the lower leagues may have a point to make, as may some of the myriad other sports offered by bookmakers. For now, however, this remains a bit of a long shot to come in.

Triennial reviews and bonus blues

The issue that is being most closely watched is the impending triennial review conclusions. These should be revealed in the coming weeks and the decision on lowering FOBT stakes, adjustments to operators T&Cs and a review of marketing and advertising practices threw up a huge number of potential obstacles to jump. The noise from operators seems fairly confident and positive and certainly the direction of trend so far seems to suggest the hammer may not drop this year.

Based on recent conversations with a range of executives close to the matter, we would price up the industry’s chances of emerging in good shape from the triennial as no worse than evens. But this doesn’t mean the battle is over. Far from it. August sees the imposition of the new bonus tax on gaming products, which the industry has had plenty of time to mitigate and is clearly ahead of the game, to such an extent the Treasury has slashed its predictions of the potential increased tax take.

Nonetheless the only certainty is the tax take will rise in H2 as a result of the bonus tax, and another near certainty is the level of oversight will rise with it. There has been much talk from the Gambling Commission of less words and more action when it comes to enforcement and it would no surprise to see some high profile casualties of this during 2017. Now the gambling business is out in the open as a mainstream leisure business at huge scale it has to be seen to be controlled, managed and responsible by all parties.

While the egaming sector may have cleared one circuit of fences with no big fallers, there is still a lot of ground left to be covered. So far the sector hasn’t coped too well with increased scrutiny and the imposition of much greater responsible gambling measures. A light touch approach from the UK regulators in 2017 may give it enough time and space to shift to a new way of thinking before the government potentially comes back for a second round in the coming years. This race is far from over.