Winning Post: Complications continue over Italian regulations

The results season has pointed to a still buoyant Australian online betting market from a topline perspective. FY18 results from Tabcorp (including UBET), PPB (H118) and bet365 (YTMarch ‘18) all point to c. 13% remote revenue growth (to c. AU$2,650m run-rate market revenue), with Tabcorp outperforming ex-telephone (+16%) and PPB held back by generous offers (a c. 5ppts impact on growth). Underlying remote growth of c. 15% therefore feels about right (with the World Cup having far less of an impact than on any other betting market). This does not suggest much of a slowdown, despite remote betting now representing 64% of total betting from a revenue mix perspective (excluding on-course; Tab-Tatts retail -4%, with 2% SSBT growth to 53% mix and 6% OTC decline, RWWA results not yet in). Australia therefore appears to be bucking the maturity trend, despite having plenty of underlying demand-side characteristics that suggest a slowdown should be coming.

We believe that two short-term distortions might in part be able to explain this. The first is that the bite of POC taxes has only just started – with only SA impacting PPB (and other CBs) and even then not materially – indeed PPB got its retaliation in first with enhanced offers, which would have almost certainly stimulated demand. Equally, the marketing spend of bet365 outstripped revenue growth by 10ppts and represented 26% of revenue. Further, while WH might have been taking its foot of the gas ahead of retreat, it is unlikely that Crown or Ladbrokes was. There is much logic and some evidence therefore to suggest a degree of marketing-led over-trading before tax bites cost bases is present in the latest figures (ex Tabcorp). The TV advertising restrictions (March) also will not have impacted this period much (or Tabcorp – racing and lottery can continue, valuable for the brand as well as the products).

Equally, from September 2017 Australia has clarified its laws, driving a retreat from gaming from many operators (over a c. six-month period), including (the relatively small) secondary lottery market. Prior to disruption, we estimate the online gaming market was worth c. AU$1,100m; some of this will have switched to the black market, some will have been more permanently disrupted (not much), but some will have switched into more readily accessible betting products. It should be noted that a 27% switch would account for all the recent betting growth…

There is a significant danger, therefore, that the Australian online market will face a topline slowdown from H2 as these drivers lap, coinciding with a materially worsening tax driven cost environment (for all but Tabcorp). It is pretty clear why these changes suit Tabcorp (can’t offer gaming online, already paying high taxes, facing secondary lottery competition), but do they make the industry better regulated and more sustainable? In that Corporate bookmakers are (or soon will be) now paying significantly more to the general purse than a rather desultory 10% GST, fairness and sustainability has certainly improved (especially given CBs benefit disproportionately from channel shift, leaving state governments out of pocket). Volumes of advertising also took on headline-grabbing proportions (with little convincing mitigation from the CBs), so restrictions here are likely to improve sustainability from a political standpoint at least. But since Australian sports have largely moved in to fill the tax gap already, and advertising bans tend to reduce the visibility of regulated competition, there is a danger that high costs and marketing restrictions will force ‘over consolidation’, leading to limits to domestically regulated choice that start to nurture a previously fairly niche black market (the more so with the tighter enforcement of the in-play ban broadly coinciding). In this context, it is telling that the recent Integrity Review suggests both product fee reforms and a reconsideration of the in-play ban.

More swingeing, all Australian gaming consumers have also driven away from even ‘semi-compliant’ (or ‘respectable .com’) offers into what is now a clearly black market: expecting consumers not to play or applying caveat emptor to a market which has generated among the highest (recorded) landbased problem gaming rates globally doesn’t seem to tick many ‘better’ or ‘more sustainable’ boxes, in our view.

Australia has been the source of considerable corporate activity recently, both offensively and defensively, with the pace of M&A activity matched only by the speed of fiscal-regulatory change. So far, the show seems to be very much still on the road. However, Australia is also demonstrating the dangers of poorly coordinated, over-devolved and reactionary (in both senses) legislative change very clearly, in our view. After years of growth papering over the cracks, the current pace of change could be about to cause far more underlying fractures than reforms have attempted to solve…

UK: Regulation – Everything Counts or Just Can’t Get Enough?
As those great sages of 1980s pop, Depeche Mode once sang, much in life boils down to a question of trust. The regulatory establishment issued a test of the gambling industry’s trust this week by putting operators on notice that requests for commercial data would expand substantially in the future. Information about play patterns is required to gain greater insights into harmful gambling – and to use these to inform prevention policies.

This is logical and in many respects is simply the extension of a well-trodden path. Over recent years, the British gambling market has provided a crucible for some world-leading research on gambling related harm – precisely because the industry has opened up to researchers. However, it also raises important questions of trust. While the decline of public trust in the gambling industry is well-documented, there are signs that licensee trust in the regulatory establishment may also have weakened (possibly connected to an increase in fear – some may see this as a good thing, but it does not always achieve the ends intended). The occasional tendency to misinterpret or sensationalise research findings has not helped  – and may need to be curbed if operators are expected to engage willingly with the call for data in a way that achieves positive results.

The decision to announce the data sharing requirement rather than asking licensees directly is also curious and may be symptomatic of a trust deficit (possibly subconsciously, but further fuelling the risk of unintended consequences alluded to above). Given the calls in some quarters for industry to be frozen out of the process, there may also be some unease that research becomes something that is done to operators rather than something that they are part of – which a public rather than collaborative call for evidence is likely to fuel, in our view. The question of what might happen if data requests are refused is left hanging – but as we have seen in the area of RET funding, voluntary-compulsory arrangements create ambiguity and tend to be unhelpful.

As we have written previously, more scientific research and reporting of gambling-related harm is long overdue and regulatory drives in this direction are to be broadly welcomed in the name of sustainability. However, the absence of regulatory interest in the psychosocial benefits of gambling may raise concerns of policy imbalance. Licensees have a choice for how they respond to the call for data. We must hope that a positive response will be rewarded with greater inclusion in the future – and that this in turn contributes towards the much-needed restoration of trust across stakeholder groups.

Italy: regulation – pinball to replace slots?
Italy’s upper house passed the Dignity Decree (DD) last week as expected, marking the beginning of a new phase of gambling controls in Italy. According to Deputy Prime Minister Di Maio, the DD addressed only immediate emergencies within gambling, potentally signalling the start of a concerted effort to ‘clean’ up the sector (ie, push through more restrictive legislation, perhaps even more radical in scope). Perhaps flagging what some of these may be, a number of Agenda items were added for future consideration in Senate discussions:

 After the Senate passed the DD, Di Maio took to social media suggesting that his government will replace “slots with pinball machines which harm no-one. Raise your hand if you agree”. While some of these changes contain sensible proposals and others are unlikely to see the light of day, the underlying message is clear – the new Italian government does not like gambling on a pretty visceral level and it intends to use legislation to reduce it – perhaps significantly. There is an interesting question (rather like with other jurisdictions) about whether a more proactive Italian gambling industry could have headed some of this criticism off with a better and more visible record on CSR – but it seems that in this environment and this jurisdiction, that question is now largely out of date. The Italian gambling industry’s best hope is probably the fragility and legislative delivery issues implicit in the political system – but this makes a material position in Italy’s once burgeoning commercial gambling sector something more of a corporate gamble than may be comfortable, in our view…

US: sports betting integrity – Nasdaq offers monitoring solution 
Nasdaq has joined the group of organisations jockeying for position to be authorised integrity monitoring providers in States that authorise sports betting. New Jersey regulations make it a requirement to enlist the services of a licensed monitoring service, while Pennsylvania is considering a similar condition (unless operators can demonstrate that they have a sufficiently robust in-house system).

While the Nasdaq SMARTS market surveillance system appears to offer technology on which to base a formidable monitoring system (reportedly capable of tracking 8bn trades per day, and testing to track up to 60bn per day), all stakeholders should not lose sight of the need for a multi-faceted and collaborative approach, in our view. The ability to monitor markets at a macro level is a useful tool in the integrity-protection armoury, but it is far from the only one. Without an holistic approach – which incorporates expert sporting and trading knowledge into prevention, detection and enforcement strategies – regulators, sports leagues, and operators run the risk of simply ticking boxes and paying lip service to integrity.

Key to this, in our view, is ownership and a show of leadership from the subject matter experts with the most at stake. While there will be commercial opportunities for third party service providers which rightly have a role to play in the ecosystem, it is vital that operators, sports leagues, and regulators engage directly with each other on integrity. If operators can demonstrate their ability to monitor their markets at account level, raise alerts, and assist sports leagues, other operators and regulators (while being open to audit, challenge and scrutiny), and sports leagues do not fall into the trap of believing a monitoring service alone deals with their integrity risk, then all parties will be in a stronger position to lead and shape the regulatory environment, rather than have imperfect solutions imposed upon them.

UK: sports betting integrity – Betway and PPF team up to produce integrity guidance videos
Participant education is another crucial element in a multi-faceted approach to preventing corruption in sport. The PPF has, in partnership with Betway, released a series of bite-size, easy to understand videos aimed at players to help them appreciate the importance of integrity rules and the consequences of breaching them. However, most importantly in our view, the videos also touch on practical aspects such as how corruptors might target players, and how players should deal with such approaches – which simply has to be the principal focus of integrity education programmes.

Too often, the objective of similar initiatives appears to be to produce the most bland, technical and legal run-through of the various rules and regulations, resulting in players switching off within seconds (if they were switched on in the first place). The best examples focus on real life scenarios and provide practical guidance for dealing with situations players won’t otherwise be prepared for, delivered by individuals who have had such experiences, where possible. Participant education is not the same as an academic lecture, and if scarce funding and resources are made available for such initiatives, those involved in producing and delivering such programmes would do well to recognise the distinctio