You’ll remember that our last instalment looked into whether UK-focused operators would start exploring opportunities in non-UK markets.
The reason for this potential change of strategy is simple: money; or to be more precise, how much the UK is costing them if they fail to toe the line with the Gambling Commission’s social responsibility and player protection measures.
Operators are getting miffed at being on the end of what they view as easy, but also unfair, fines from the regulator. As I mentioned last week, the general public and mainstream press never defend the gambling sector when a tax hike or financial penalty hits them.
Contrast that with the amount of coverage lone traders or SMEs of all shapes and sizes get whenever there is even the slightest rumour the government is looking at raising tax revenues and you get an idea of how the sector might feel.
The Commission’s recent fines have been eye-watering; running into the millions of pounds. And no matter how much money operators generate, a penalty of a few million quid will hurt any company, whether they are William Hill or Paddy Power, and never mind your average online gaming start up.
For all the fuzzy feelings operators try to generate, the issues the Commission’s fines raise are striking because of how serious they are. The gambling sector stands accused of not protecting the personal – lack of player protection and social responsibility obligations, encouraging problem gamblers to keep on playing (and losing); to what some might describe as downright criminal – failing anti-money laundering regulations and not following proceeds of crime regulations.
The fact that the fines have become so recurrent also reveals a highly disturbing picture of how gambling operators grow and make their profits: much of the growth they have been generating for nearly 10 years has actually been produced off the back of highly debatable business practices and a shocking lack of concern for vulnerable and at-risk gamblers.
Latest to be hit by a multi-million-pound fine is online casino 32Red, which is part of the Scandinavian group Kindred, which owns the major Swedish online sportsbook Unibet. The £2m fine it was handed by the Commission led it to review its operating practices and new measures are now in place.
But just as revealing was Kindred chief executive Henrik Tjarnstrom’s comments when the group published its most recent results. “Tools have been put in place with a focus on sustainability (and) have had a cooling off effect on top-line growth but the team is doing a fantastic job with the brand. It is not growing as fast as it used to but it is much more sustainable,” he said.
This is a scenario that will be replicated across the UK as operators put in place social responsibility measures and actually put them into practice.
Or consider William Hill’s statements in mid-July around its ‘Nobody harmed by gambling’ policy. Its newly-appointed director of sustainability Lyndsay Wright said: “Getting this right is critical to our long-term success as a business. We want our customers to enjoy gambling as part of their leisure time and to stay betting with us for the long term – which means only gambling what they can afford. We’ve taken steps towards solving this – but it’s just not enough. That’s why we’ve set the bold ambition that nobody is harmed by gambling.”
The likes of William Hill, 32Red or Ladbrokes make much of these commitments, but the reality is that all of them still work on the 80-20 rule that shows gambling companies generate 80% (often more like 90%) of their margins from just 20% of their player base. The rest is always welcome but essentially grist to the mill. However, remove the high rolling 20% and casinos and bookies’ revenues will look very different.
Again, the operators often talk of changing those models, but talk is all it is. Add to that the fact that bookies will be very quick to refuse bets they feel the slightest discomfort with or will close the accounts of players who tend win too often; even if it’s just being a few hundred pounds up over the year, and their PR-friendly talk stands in marked contrast to their practices.
Do the players care? Not the recreational punters who have a bet on the Grand National once a year, but then those are not the customers operators are after. The higher spending, regular gamblers are the ones who will provide steadier revenue streams for operators, but then they will also moan about their treatment as their accounts are closed as soon as they win too often. And yet they will keep coming back for while the high rolling whales are the ones the operators really want. Somehow a balance is found between all those different moving parts.
But the industry does need new ideas about how it can grow without having to rely on the 80-20 model. This is not new and judging from the regulatory and business toils it keeps on going through, it still has a lot of work to do. If it doesn’t, expect more fines, or worse, in the coming years.