Analysis: Everything is awful and everybody’s happy

Since the inception of the online gambling industry two industry “truths” have remained absolute. Firstly there is only one real route to success, and secondly that route changes irrevocably on a regular basis. In an industry where the received wisdom changes so frequently, if you stand still long enough then eventually people will come around to your way of thinking. And there is no doubt the path is about to take another sharp turn.

Two major news stories over the past couple of weeks have led to talks of revolution and revolt and inspired tales of almost endless ambition. The industry myth making machine has been cranked up to the maximum again as everyone tries to work out just what the PASPA and FOBT rulings mean for online gambling in Europe, with the overriding conclusion seeming to be it’s great news for everyone. Share prices are up and confidence is high.

But, perhaps, there is room for a little caution over the impact of the acronyms on what remains a fragile and structurally impermanent sector. We’re in the middle of is a major shift in the balance of power away from the European industry heavyweights towards regulators and US gaming giants and one where it’s far from clear what is good and bad news.

The big online shift

It seems somewhat antithetical to cite changes to the land-based sector as key drivers for the online business, but that’s the story being told. FOBT players will come rushing to online slots, which will somehow not attract any form of additional regulatory controls, and PASPA will lead to an online sports betting revolution across the pond in fairly short order. The truth, as always, may be slightly different.

The repeal of PASPA should create a large and diverse retail sports betting sector in the US in relatively short time, with Eilers & Krejick estimating  “32 states regulating for a market worth $6.03bn by 2023”. For the online sector the picture is a little less clear, as while it looks likely states like New Jersey and Pennsylvania will have some form of online offering the status of the other 30 is far from certain.

This hasn’t stopped any of the major online operators and suppliers from attacking this emerging market with gusto, however, and really who can blame them? The US is potentially the largest greenfield opportunity in the history of online gambling and to miss out would be a major strategic error. But the consensus, even among those operators flying the star spangled banner high at their corporate presentations, is it will be a long road with a lot of local stakeholders to placate along the way.

It’s hard to envisage a scenario where PASPA doesn’t overwhelmingly favour the interests of US casino groups, tribal organisations and racetracks. Partnerships and joint-ventures are likely to be the core route to market for most European organisations and as we’ve seen in New Jersey this could throw up some unexpected winners and losers. The supplier space looks slightly more favourable to non-US firms although it’s worth noting just how much financial and corporate muscle the US supplier groups have to flex. Trying to gain a foothold in the US is a fight worth fighting, but one that will take no small amount of financial and management resource.

The fight worth fighting

It’s interesting to see both William Hill and Paddy Power Betfair looking to separate their US interests from their core business as much as possible. Much as the Australian sports betting sector is best treated as a distinct operating unit so too it feels like the US will be best suited to this approach. But just as we’ve seen with Australia any underperformance or operational difficulties here can become an unwelcome drag on the wider business.

Because make no mistake there are a number of battles that will need to be fought closer to home, with the FOBT saga the first in what looks set to be a wider war against gambling over the next few years. The surprise announcement that came with the FOBT stake reduction that remote gaming tax would be raised to an as-yet undefined amount at an as-yet undefined time showed just how weak the position of the egaming industry has become in the UK.

It’s a vaguely absurd announcement, but the industry just had to take it on the chin. The RGA and Sky Betting & Gaming have both spoken out against it but it feels like a cry into the wind at the moment. The absence of a strong united industry voice allows those who want to increase tax and regulation to push against an open door.

There is too much reactive sabre rattling and too little constructive forward thinking. How does the industry look in 10 or even 20 years’ time? It’s not clear anyone really has a clear vision at the moment and this is problematic for a sector at such a crucial time in its development. Because even the good news looks bad right now.

Trying to see the future

Perhaps most interestingly the FOBT staking reduction is being seen as a net-positive for the online gambling industry with a belief based as much in hope as expectation that this will lead to a surge in online play and accelerate the shift from retail to online. It’s an entirely plausible outcome, although far from proven, but one that will likely bring with it as least some of the negatives from the FOBT debate.

Can the industry manage to put systems and tools in place to prevent a similar outcry over online slots? It’s certainly possible. But you wouldn’t want to be backing that too heavily at short odds. Especially as there seems to still be a real resistance to change in the wider egaming sector. Perhaps the clearest example of this is around bonusing in the casino sector in the UK.

A huge wave of fines, regulatory actions and even a rise in taxes has had very little material impact on marketing strategies. For the large part everyone is just ploughing on as before. And much the same can be said of the wider picture. GVC changed the game with regards to grey markets, and brought back some realism in regards to regulation creating pots of gold for all, but otherwise there is a general persistence with what has always worked.

Against this backdrop we have a rapidly shifting regulatory picture and a new consumer base that views gambling very differently to the generation which came before. An industry that views FOBTs restrictions and PASPA as bold bright news is one that seems in need of a shift in thinking.

The next steps

With a hefty slate of regulatory changes set to come and likely yet more fines or even licence suspensions it’s a tricky time for the sector. Operators are having to own the problem of problem gambling and are having to justify their role in the leisure industry as well as paying a more hefty price to be a part of it. And with each new regulated market this scenario will be played out again and again in slightly differing ways.

Sacrificing some revenue for the greater good is actually a good thing for the industry long-term, but in the short-term it’s bringing with it a fair bit of pain. Exactly what the outcome of increased social responsibility measures, taxes and, crucially, a shift from passive to active monitoring of player behaviours will be is impossible to gauge, but the direction of trend is fairly clear.

The current model certainly isn’t broken but is looking more fragile by the day. It feels like a time to think big, to be bold. But at the moment the perceived risks seem to outweigh the theoretical rewards, and so to the status quo will continue. For now.