Is it the end of an era for the white-label model?

The UKGC is looking to take someone’s licence away.” That was the somewhat prophetic warning of one senior industry exec all the way back in 2017, when the UK Gambling Commission really started handing out seven-figure fines in earnest. Fast-forward two years to September 2019, and it was EveryMatrix which became the first real pelt on the wall. The Malta-based firm was not technically stripped of its UK B2C licence, but rather gave it up in late September, having had its white-label sites frozen by the Commission over fears about its interactions with customers and its level of affordability checks.

EveryMatrix said that the suspension had “irreparably damaged” the B2C business and it had become “unsalvageable,” with multiple partners having ended their contracts with the firm, EGR understands. The closure of these brands followed hot on the heels of a similar issue at FSB, which was also still having its B2C licence reviewed – but not suspended – by the Commission at the time of writing. It begs the question; is the white-label model still fit for purpose?

Tangled webs

“Trying to run a white-label business is a nightmare nowadays,” says one exec from the B2B side of the sector. “We shut ours down a while back because we could see it was almost impossible to control all our clients – all you need is one bad apple and everyone gets shut down. When you consider everything you have to know about your partners, it seems impossible; what streaming services they’re using, what affiliates they have, if they’re using cartoons in their ads and so on.”
The exec adds: “The nature of white labels is they’re often too small to get a licence on their own, and historically, those are the people that have pushed the limit of what’s acceptable.”

The UKGC took pains to clarify in September exactly what it expects from white-label operators going forward, saying they are responsible for their partners’ activities and required to carry out due diligence to ensure partners are “competent and reliable”.

Richard Williams, a lawyer at Keystone Law, suggested the directive was a subtle change of direction from the Commission which had previously “turned a blind eye” to white-label arrangements. “A white label is a quick way to get up and running with a gambling operation ‘by the backdoor’, but it’s certain that the Gambling Commission is going to be paying far more attention to these operators in future, particularly where the press gets wind of a scandal,” Williams said. “If I was a white-label partner, I would be thinking about obtaining my own licence as soon as possible, in order to avoid this sort of disruption.”

Test and innovate

It’s not always that easy of course. Firms on white-label agreements are often start-ups on limited budgets which are trying to bring a new concept to the market. Taking a year-plus and thousands of pounds to sort out licensing could feasibly stifle new innovation in the industry.

“We came from the school of leanness,” says one exec who brought a product to market on a white-label arrangement. “Don’t shove all of your cash into licensing if you don’t need to. Be lean and get some sort of MVP out there just to see if it’s worth doing.

“There is an enormous amount of restrictions in our industry and white labelling was one of the most direct routes to market without waiting around. If you do wait around, your idea might have been copied or become irrelevant. So, I think it will be a shame when white labelling dies because without it, we would never have been able to launch.”

The clampdown has already had casualties for start-ups. Swipe-to-bet app Bookee was an EveryMatrix white label and will be shut down in November following the provider’s licence revocation. Bookee founder Adam Wilson subsequently took to LinkedIn to clarify the closure of the brand was “entirely connected” to EveryMatrix shutting the platform off, adding: “This note is not to drum up sympathy, but rather to raise awareness that white-label agreements come with a certain amount of freedom while also providing a distinct lack of control.

“We built a brand from scratch on a shoe-string budget and went from taking micro stakes to over £20m in bets staked over a three-year period… And then with two hours’ notice, we were told the lights were being switched off through no fault of our own, and there was nothing we could do about it.”

Long tail

That’s the downside of course, and in an industry where market share is already being soaked up by the biggest companies, less innovation can’t be a good thing. But there is upside from the increased scrutiny; specifically, that the long tail of UK operators might be curtailed a little. Operators from far-away places looking to use white-label agreements to satisfy Premier League sponsorship requirements may be kept out of the UK market going forward – unless they are willing to go through the full licensing process. It’s hard to argue that is a bad thing – unless of course you’re a Premier League club sponsorship manager.

There is also an argument to be made that the downfall of the white-label model is being overblown somewhat. Is it really too much to ask for a provider to know whether its partners are doing anything illegal? There is surely still a space for smaller networks with closer oversight of partners.

As the start-up exec notes: “It’s not like white labelling is just the Wild West. Providers give you a full audit and we did quarterly reporting on customer interactions, had proper problem gambling protocols and shut down plenty of accounts. It wasn’t like we were just having it off until the GC got wind and then we ran off with our cash.”

New model

888 is perhaps an example of what the white-label model might look like going forward. The firm shut off a host of bingo skins around two years ago to ensure compliance, and while revenues initially suffered, the network looks more sustainable going forward.

“We closed tens of skins that either weren’t adapting to our rules or weren’t big enough,” 888 CEO Itai Pazner recently told EGR. “And we’ve developed monitoring tools and made sure everyone is extremely aware of the risks. We take a zero-tolerance approach if they do things that are outside of our guidelines. And I think, at least on our platform, it’s quite clear that they can’t mess around.”

The changes have had a negative effect on revenues; Pazner said they were partially to blame for a 44% drop in H1 B2B, but they were also needed to ensure a more suitable business going forward.

If the wider white-label sector can mirror that adaptation and ensure a smaller, more responsible group of partners, then perhaps white labelling can remain a feasible route to market for firms looking to try something a little bit out of the ordinary.