Analysis: The regulatory crackdown is going to get worse before it gets better

For anyone thinking the troubles of 2017 could be left behind, the first week of January was a rude wake-up call. The Gambling Commission’s announcement that 17 online casinos were under review, with five at a real risk of losing their licence hit the sector like a blast of wind from a winter storm.

Barely a week into the new year and operators and suppliers were scrambling around for more news on exactly who was under investigation and what the implications were. And the big question was whether this was the beginning of the end of the Gambling Commission’s investigations or merely the end of the beginning. Although one thing nobody could legitimately say was they had no warning.

The directional trend of regulation in the UK has been clear for some time. Operators have witnessed the Gambling Commission take a far more active role, requesting more information, visiting premises and making clear public announcements of its expectations. But it seems some have been slow to take on board the numerous and varied warnings, and it could be the case that we really haven’t seen anything yet.

The calm before the storm

By continuing to operate in broadly the same manner it always has, there is a real risk the industry has turned a problem into a full blown crisis. This investigation is just one of many, including the CMA enquiries and triennial reviews that are still to complete, and there is every expectation that more is to come. And it won’t be able to keep this all in-house with the press likely to jump eagerly on the first significant story.

While the industry coverage of the Gambling Commission announcement was fulsome there was relatively little interest shown by the mainstream media. “Online casinos ‘failing on problem gambling’,” said the BBC in a brief story while the Guardian and Times focused on the money-laundering angle. The press it seems hasn’t quite yet grasped the potential magnitude of what is happening here, but this won’t remain the case for long if any major name is caught up in the licence suspensions.

We’re currently caught in an unprecedented holding pattern, where enforcement action is pending against a range of targets and investigations continue into a variety of issues, but nothing is actually happening. Once the dam breaks there could be a flood of negative news coverage that could sweep away years of goodwill impacting everyone, although this will not be one where the impact is felt uniformly.

An unequal distribution

One of the most likely impacts from the online casino investigations specifically is that it will affect all operators, but it won’t be equally felt by all. We’ve seen the likes of Sky Bet and LeoVegas ditch potentially problematic affiliate programmes and there has been a lot of work behind the scenes on systems and processes by all the major operators. But what’s clear from conversations with operators in the sector is many are already feeling the impact of increased requirements to chase up source of funds information.

High-value players who have happily played for years without needing to supply data are understandably unimpressed by a sudden need for years of bank statements. While customers being prompted over their problem gambling traits are beginning to act to mitigate them. This is only going to be magnified when tools such as the sector-wide self-exclusion come into play. It’s certainly plausible that these increasing friction points with VIP customers could cause a slowdown in casino revenues at the major operators, or even that it is already doing so.

It could also lead to players leaving to new operators in the market or even to those less concerned with their long-term position in the market. In the short-term at least those playing most tightly by the rules could stand to lose out the most. But in the medium term those with a culture and system designed for the old world of online gambling are going to need to undergo significant re-training of staff and major overhauls of operating practices to stay relevant in the new market. When the majority of your marketing, CRM and customer service practices are looking to be out of line with best practice it’s tough to suddenly reposition yourself without feeling a bit of pain.

Darkest right before the dawn

Looking at the sector as a whole it feels like it’s going to get worse before it gets better. There are so many potential pitfalls to avoid, so many potential issues that could still come up and so little will from the wider sector to get on the front foot in solving them. There is a real resistance to any change that can directly impact bottom line and it may require more legislation from government to really force it through.

But among this there appears to be some “good” news. The appointment of the new head of the DCMS, the government department ultimately responsible for regulating gambling, was a beam of light in the darkness for the sector. Matt Hancock has consistently voted against more regulation of gambling and was described by Goodbody analysts as “business friendly” with all that implies.

The suggestion there is this could lead to less dramatic action against FOBTs and the sector when the results of the triennial review are finally published. But it’s a bit of a stretch to think there will be a sudden reversal of tighter regulation of online gambling, and the continuing move towards more consumer friendly measures seems inevitable and arguably necessary. And segments of the online gambling industry looks set to find that pushing too hard at an open door can sometimes mean it slams back in your face.