Lockdown legislation: were measures to protect online players warranted?

Once coronavirus forced governments across Europe to impose varying degrees of lockdown to stymie the spread of the illness, there were fears house-bound individuals would turn to online gambling and that problem gambling rates would rise. In addition, those who like to have a flutter on sport would switch to slots and casino games in their droves rather than make do with Russian table tennis and Nicaraguan soccer filling the void created by the disappearance of most sports. As a result, and with betting outlets, racetracks, bingo halls and casinos mothballed, regulators and governments have introduced or tabled measures in an effort to ensure safe online play and protect those at risk from harm.

For instance, Spain adopted measures in April to restrict gambling marketing, while in Finland the government recently rolled out reduced monthly and daily loss limits for online play. Portugal, meanwhile, has been pondering partially or fully closing its regulated gambling market during the crisis. Latvia pulled the trigger and banned gambling altogether during lockdown, much to the surprise and chagrin of the market’s key stakeholders. And in Sweden, online casino operators were furious about additional, albeit temporary, planned restrictions on how they operate, but more on Sweden and Latvia later.

In May, the Gambling Commission (UKGC) unveiled new guidelines for online operators, and that’s despite the regulator stating there had been “no evidence to suggest an increase in problem gambling” during lockdown. Besides ramping up player monitoring and interactions with potentially vulnerable customers, the most significant measure was the banning of reverse withdrawals, a controversial feature that let customers cancel their request to transfer funds back to their bank account. It was a move roundly welcomed, yet in reality it did seem the regulator would ban the practice at some point.

“The reverse withdrawal concept has been a major bone of contention for years… in my opinion, reverse withdrawal should never have been allowed,” says Ian Sims, founder of affiliate compliance monitoring start-up Rightlander.

For David Clifton of Clifton Davies Consultancy, the regulator’s hand was forced in the current climate. “I believe the Gambling Commission found itself pushed into a corner where it had to be seen to be doing something. Its CEO [Neil McArthur] has received severe criticism from industry opponents for failing to clamp down on operators at a time when those same doomsayers were – wrongly as it now turns out – predicting an immediate and dramatic increase in problem gambling rates during the lockdown. I suspect the absence of any advance notice of the additional guidance from the UKGC – let alone a consultation – will be considered by some as underlining that the regulator’s decision to move quickly was to an extent motivated by a desire to assuage its critics.”

Those critics have grown louder during lockdown, with calls for online gaming stake caps of a few pounds being a common plea. Media reports, such as BBC News highlighting how Google search terms for online casinos hit an all-time high in the UK during lockdown, only added fuel to the fire as debate raged across both sides of the argument. So, UK operators probably breathed a sigh of relief that the UKGC didn’t introduce more swingeing measures. “Surprisingly for once, the Gambling Commission hasn’t gone as far as some Covid-19-related restrictions imposed in other jurisdictions,” Clifton remarks. Sweden is a case in point.

Stockholm syndrome

Sweden’s Minister for Social Security, Ardalan Shekarabi, recently tabled proposals that mean from 1 July until the end of 2020 online casinos would come with a weekly deposit limit of SEK5,000 (£415) and a cap on welcome bonuses of SEK100 (£8.30). Licensed Swedish operators are already only permitted to award one bonus per unique customer. Players would also have to set time limits under the new plans. While sports betting was later exempted from the original proposals, there is a certain irony here that Sweden never really went into lockdown.

Ardalan Shekarabi

The government took the curious decision to swim against the tide and allow life to continue pretty much as normal, albeit with restrictions on non-essential travel, no gatherings of 50 or more people, and the closure of senior high schools. It’s a decision that raised eyebrows in neighbouring countries. Either way, Shekarabi’s plans drew a fierce backlash from operators and trade body Branschföreningen för Onlinespel (BOS), which accused Shekarabi of creating a ‘Wild West 2.0’. Even the Swedish Gambling Authority has seemed lukewarm about the ideas.

Like most casino operators, Mikael Pawlo, former chairman of Swedish operator Mandalorian Technologies and co-founder of Mr Green, also fails to see the minister’s logic. “A weekly limit of SEK5,000 will just have players shop around without any chance of operators controlling what’s going on. As a gambler, you may still lose some SEK500,000 per week within the system and not one operator will be able to spot it. So, the risks just got elevated.”

Pawlo is equally perplexed by the SEK100 bonus. “The bonus cap will make new players go to international unlicensed alternatives where there are zero safeguards in place. Both measures will significantly make the public health situation worse and hurt the licensed, law-abiding operators. The government should rethink this promptly.”

Ever since Sweden’s re-regulated market went live on 1 January 2019, channelisation has suffered. The fear among licensed companies is that greater restrictions will put another dent in the channelisation rate as players choose unlicensed sites with unlimited bonuses and scant RG protocols, including no option to self-exclude with national register Spelpaus.se. At the time of writing, 52,243 Swedes have self-excluded from licensed sites.

Copenhagen Economics recently produced a study commissioned by BOS that suggested channelisation in Sweden is 80%-85% for sports betting and just 72%-78% for online casino. This falls well short of the government’s target of at least 90%. The SGA suggested channelisation was 91% in Q2 2019, yet the regulator revised this estimate down to 85%-87% in November 2019. Meanwhile, affiliate Bonus Finder recently produced data detailing how Google search terms for unlicensed brands rose 300% in the past 12 months while “casino utan license” (casino without a licence) rocketed by 710%. Bonus Finder also identified 54 unlicensed sites targeting Sweden.

Speaking on the condition of anonymity, the CEO of one licensed online casino operator in Sweden tells EGR Intel: “The black market is a huge threat and, were the channelisation to drop another 10%, I think the whole regulation will implode and fail within two to three years. Politicians are naïve and think they can control the market through legislation, but everyone knows this does not work on the internet; consumers don’t care about the law if the black market better satisfies their preferences and if the black market is only a click away.”

While Sweden’s operators are up in arms at the proposals, Latvia’s parliament took the unexpected and somewhat draconian measure of simply suspending online gambling altogether during lockdown. Never mind deposit and bonus limits; just pull the plug completely. The dozen licensed online operators in the Baltic state were simply forced to shutter their sites and they haven’t been able to take a single bet since in a market that generated €55.6m GGR in 2019 – a rise of almost a third over 2018. There is no indication at this stage when the suspension will be lifted, with legal sites offline for over eight weeks at the time of writing.

“We are astonished that they took these most tough measures,” says Sverker Skogberg, SVP for public affairs at Paf, which operates Pafbet.lv and Pafcasino.lv in Latvia. “We think it is too harsh. We have been investing a lot in the Latvian market, as well as being a government-owned company with a proven track record for responsible gaming so, of course, we are wondering how long it will continue and have written a polite letter to the parliament.”

Speaking more broadly about coronavirus-related restrictions, Skogberg says: “We think there is a general misunderstanding that online gambling has been increasing, but we have numbers showing slightly the contrary.”

State of play

So, has online gambling risen or spiked due to the pandemic and lockdowns? Quantitative research on the subject is a bit thin on the ground, although the UKGC released data from the largest operators covering 80% of the market showing that while sports betting plunged 31% year-on-year during the month of March, there was a 25% increase in slots bets. Somewhat frustratingly though, we weren’t afforded insight into April – the first full month of lockdown. The government didn’t instruct people to stay at home until 23 March. The data showed that total bets on ‘other gaming’, which includes casino, rose 3% year-on-year during March, while poker and virtual bets jumped 38% and 40% year-on-year respectively.

However, the Betting and Gaming Council pointed out that virtual sports account for 0.35% of all bets placed and, therefore, a 40% rise should be put into perspective. Furthermore, the UKGC said active players increased by a quarter for slots and 13% for other gaming in March. Sports betting actives dropped 11% but leapt 88% and 53% respectively with regards to virtual sports and poker. The regulator also noted that while the average session length reported by operators decreased by four minutes year-on-year to 22 minutes, the number of sessions that lasted in excess of an hour increased by 23%. Almost one in eight sessions went on for more than 60 minutes.

Across the North Sea in Denmark, the Danish Gambling Authority (DGA) reported that online deposits with betting sites and apps plunged 60% between 9 March to 3 May 2020 compared with the same timeframe last year – ostensibly due to a shortage of sport. The country entered lockdown on 11 March, at which point all arcades and casinos (3% of the total market in GGR) closed their doors. The regulator also revealed that the licensed online casino market grew by a weekly average of 2% year-on-year during the period – a far smaller increase than the 8% rise from 2018 to 2019 – while casino deposits with online casinos were also up 2%.

Furthermore, registrations for national self-exclusion scheme ROFUS were stable at around 23,000 by 1 May. Morten Ronde, founding partner of Nordic Gambling and CEO of the Danish Online Gambling Association, says: “The Danish Gambling Authority’s analysis really proves what we were suspecting all along; that the players’ spending behaviour has not changed much because of the Covid-19 crisis.”

Ronde continues: “Personally, I had expected that the online casino spend would increase a bit during the crisis, but this has not been the case. I think that the financial uncertainty has played a role here; people are careful not to spend too much money when they look into an uncertain financial situation in the coming time.”

This could be a correct assumption, of course, or it could be partly down to the fact that since January 2020 players have been required to set deposit limits, while bonuses are capped at DKK1,100 (£130). In fact, LeoVegas CEO Gustaf Hagman referenced this as one reason for the Nordic region delivering a “slightly weaker quarter” during the group’s Q1 trading update call to investors.

Time on our hands

The pandemic has upended many people’s lives. Most leisure activities are off limits due to lockdowns and vast swathes of populations are being paid not to work. In the UK, some 8.5 million people have been furloughed, with the government paying 80% of their wages. As Regulus Partners remarked in a recent note, if you wanted to design a social experiment to create the optimal circumstances for the mass adoption of online gaming and/or ‘niche’ betting, if only for the lockdown period, “this ticks all the boxes”.

While it’s true to say a portion of the working population are financially ‘better off’ on furlough by avoiding the costs of childcare and commuting to and from work, many are tightening their belts with the deepest recession in living memory imminent. The Financial Times recently published data collected by London Business School into consumer spending in the UK during April which showed that, despite spending on alcohol and tobacco, DIY and online shopping all rising, gambling fell 25%. This would seem to back up the evidence so far that consumers haven’t flocked to online gambling and sports bettors haven’t switched en masse to other products.

In Sweden, though, it seems state-controlled AB Trav och Galopp (ATG), which practically has a monopoly on horse betting, has benefited from the lack of sport, especially top-level football. Data from analyst firm Redeye, calculating licensed operators’ net gaming revenue (NGR) based on gaming duty paid (18%) to Sweden’s tax authority, revealed that ATG’s NGR leapt 37% from March to April. That was an increase of SEK143m (£11.9m) from SEK382.7m (£32.7m) to SEK525.8m (£43.85m). This, according to Redeye, means ATG captured 33.5% share of the online market in April.

With this sharp rise in NGR – described as “insane” in a tweet by Videoslots CEO Alexander Stevendahl – it is easy to see why licensed casino operators feel they are being unfairly targeted by Shekarabi’s proposals. “The Swedish government seems to have acted based on the wrong assumptions that online casino spend will explode during the corona crisis,” Ronde reaffirms. The proposals have made some rethink their options. Entertainment Laboratories (Enlabs), the company behind Optibet, planned to enter Sweden this year. But not now. “We will not enter Sweden in 2020,” says CEO George Ustinov. He adds: “A one-limit-fits-all philosophy is too simplistic. For some, a SEK5,000 deposit limit is a great tool to limit their excessive exposure to gambling, while for bigger players this might sound like a joke.”

There is no getting away from the fact that people being unable to work and go about their daily lives would cause regulators and politicians to intervene. In some instances, though, it was probably a case of being seen to be doing something while in others it was akin to using a sledgehammer to crack a nut. For example, it’s naïve of Latvia to think players have refrained from using unlicensed options during the temporary ban. Of course, no one wants to see gambling-related harm spike during the crisis, and early signs would appear to point to online gambling, particularly casino play, remaining reasonably stable. Whether it stays that way remains to be seen. The question for operators is whether coronavirus-related restrictions end up permanent. Just like society, the industry could be entering a so-called ‘new normal’ for quite some time.