The risk and reward of Poland

Poland’s under-fire online gambling market appeared to be thrown a lifeline in early April with the news GVC-owned bwin would be applying for a licence. It was a surprise turn for a market otherwise viewed as a no-go zone by the major operators and it raises some interesting questions about the future both of Poland and the wider European model.

On the face of it the Polish market is a huge backwards step for the progress of online gambling in Europe. It is regulation broadly in name only with a monopoly on online casino, a punitive turnover tax on sports betting and a number of restrictions imposed on marketing. And operators have been near unanimous in their condemnation.

It can reasonably be viewed as protectionist and while the requirement for a local land-based presence has been removed, it has seemingly been set out to deter operators rather than encourage them. Clive Hawkswood, chief executive of the RGA, spoke out against the Polish market back in September last year warning of what would follow.

“We have advised the Polish authorities that their fiscal framework is not workable. Until it is changed, few operators will take up licences in Poland. This will continue to stifle competition, value and choice for consumers,” Hawkswood said. So far he’s been proved correct.

Making it work

The list of unlicensed operators who have withdrawn from Poland in recent months is something like a who’s who of the European egaming scene. Betfair, bet365, William Hill and Pinnacle have all ceased activities in the region and one of the more Polish-focused operators EnergyBet told EGR it would be withdrawing due to a “highly restrictive and hostile regulatory environment”.

An RGA report commissioned into the market suggested total online betting revenues for 2015 were €82m, with a per-adult GGR of just €2.6. Of this around 70% was in the hand of offshore operators, according to the report, which makes the withdrawals in recent months all the more interesting for their long-term implications. That is, after all, a substantial potential revenue uptick for the local operators who remain.

The 12% turnover tax makes the current model of online betting unworkable and almost certainly significantly restricts growth based on the unattractive nature of the product offering. But it doesn’t make a market unworkable for those operators that remain. Firms simply pass on the 12% tax to the players with a £10 bet attaching a “charge” of £1.20, or alternatively could offer 4/6 where it would previously have been 10/11.

For the likes of Fortuna and STS, the opportunity also exists now to establish a stranglehold on what is still potentially a sizeable market with a population of nearly 40 million and a growing economy. It’s probably unrealistic to expect per capita spend to reach the levels of the Nordics or the UK, but at the same level as Spain it would mean a market north of €200m in sports betting alone. 

Playing for keeps

That said not all operators have pulled out of Poland just yet, and it will be interesting to see what kind of “black” market forms in the coming months. In Italy it was noticeable the regulators eventually took the view it was better having some firms inside the tent and those still active in the unregulated market were neatly folded in over time. And it’s equally notable that Italy also eventually shifted from a turnover tax to a GGR-based system.

The chances of either or both happening in Poland are impossible to price up at the moment, but the actions of operators will be a major influence on this. Should more follow bwin’s lead and look to enter the market and persist with the 12% turnover tax the legislative status quo is likely to last for some time yet. Should a large and respectable ‘black’ market persist then the pressure for change may be more substantial – although the soon-to-be introduced ISP and transaction blocking sanctions will make unlicensed play that much more complicated.

There is precedent for the former in France where the fact nobody is making any money from sports betting hasn’t prevented an active market with a number of major names present trying, and so far failing, to effect change from within. At the same time the market has a certain international validity and provides a large tax take for the government and something of a shield for the likes of the FDJ and PMU.

What comes next?

The more interesting question then is who else will apply for a licence in Poland? Or indeed who will end up being awarded one? It would only take two or three major operators, many of whom have historic (and in some cases active) operations in Poland, to legitimise the market and leave a spectre of a single product with a large turnover tax as an option for a viable regulated market in Europe.

With other nations in the Eastern European region, most notably the Ukraine, moving towards regulation and the existence of several ‘models’ for them to adopt there is a need for the industry to show its commitment to fair and open markets. This may mean allowing some markets to continue to exist without a presence from the major operators in order to preserve the bigger picture goals.

Will discretion prove the better form of valour when it comes to Poland? There is a reasonable argument it will, but top line regulated revenue boosts are tempting to listed operators and it would be no surprise to see others follow bwin in. Either way it will be fascinating to see how this all plays out, and the only thing we can say with certainty is the next few months of activity in the Polish market will be watched closely by the entire industry.