Calculating the cost of regulatory uncertainty

The UK government accomplished a neat sleight of hand with its long-awaited triennial review, simultaneously promising action on gambling reform while in practice delaying the process for another quarter at least. A proposed cut in stakes in FOBTs naturally took the headlines and additional proposals on responsible gambling measures and advertising restrictions could also be impactful in time. But the overall message was one of uncertainty.

Share prices in the major FOBT operators rose slightly on the release of the report, up around 2% on the day, perhaps as a result of the £50 limit being kept in play for the time being. The reality is, however, operators are not much clearer on the potential outcome than they were 12 months ago. What does seem probable is a compromise position for maximum stakes between £50 and £2 to try and please all stakeholders but we may have to wait until the next budget in March to find out.

For the online sector the wait for additional legislation is likely to be even longer. The CMA investigation into promotions and bonuses is still promised “later this year” with some recommendations on best practice likely to follow and there were further noises made on increased enforcement and penalties for those operators not playing by the rules. The review added it was looking at an alarmingly vague “number of new requirements or initiatives” aimed at sharpening existing social responsibility measures.

Operators were also hoping there would be some clarity on responsible gambling measures, which have become a key area of focus for the regulator and firms are having to quickly update and correct both tech and internal processes. What we got was a clear statement of intent that the status quo would not suffice in future and operators not using tools at their disposal to spot and prevent problem behaviour would need to correct that sharpish. But the details were a little lacking.

The long wait

There appears to be understandable caution in throwing legislation at the problem. The report noted there would be an update to the LCCP next year following yet another consultation period with operators issued with guidance on “expectations around customer interaction” when it comes to spotting and dealing with at-risk behaviour. Alongside this a further detailed study by GambleAware is now underway and its results should be out by 2019 at which point the government would put into place best practice guidelines for responsible gambling.

“While a number of operators are already developing and operating algorithm-based systems to identify 35 harmful behaviours and activity, very few operators were able to review and evaluate the effectiveness of their approach,” the report noted. It added that work already carried out by GambleAware had shown operator data could be used to assess potential problem gamblers using 22 markers and that those markers “could be used to inform tailored interventions based on different risk thresholds”.

While this may all sound a bit like the can being kicked down the road, there was an underlying tone of warning. The report contained a clear message that operators need to act now, rather than wait for the final guidelines to be in place. “This is a key area of opportunity for operators to strengthen their processes to identify and minimise gambling-related harm,” the report noted. And there was further detail on its expectations of operators in the interim.

Operators should “act on the findings of GambleAware’s existing research into harm minimisation in the online sector and trial a range of harm minimisation measures” and “respond constructively” to interim findings expected later this year, adopting any “findings which could strengthen existing responsible gambling policies”. If this wasn’t clear it added: “We do not believe it is acceptable for operators to wait for the final outcome of the research to improve their processes when significant findings have already been published by GambleAware.”

A new advertising environment?

Also due at the end of the year are revised advertising guidelines on promotions with particular reference to affiliates. This is yet another unresolved issue in the sector with operators taking wildly diverging paths so far and no obvious best practice emerging. The nature and the extent of the new guidelines could have significant consequences for operators who depend heavily on affiliates for acquisitions and, of course, on the affiliates themselves.

But that is far from the end of the advertising shake-up mooted. While the industry appears to have dodged any daytime ban or other limits on the number of TV adverts, some fairly impactful changes are being proposed. The UK advertising authority CAP is looking at how advertising could affect problem gambling and one area of focus is on what it calls “urgent calls to action”. The report noted there was evidence “such adverts could encourage impulsive behaviour and therefore risk exploiting problem gamblers in particular”.

The new problem gambling guidance will be published early in the near year with additional work on protecting young people and children due in mid-2018. Along with recent guidance on not promoting games deemed to appeal to children this is having a quietly significant impact on some brands in the sector. Will we see a shift away from the colourful character-led casino brands and games in the New Year in response? It’s certainly likely. Not least if changes are made to the relationship between advertising and licensing.

Just in case you didn’t think there were enough consultations, the report said “The Gambling Commission will consult on making compliance with the advertising codes a social responsibility code requirement of its Licence Conditions and Codes of Practice (LCCP), which means that breaches could be subject to the full range of the Commission’s regulatory powers.”

In short, rather than treating ad bans as a part of doing business and even a badge of honour in some cases they could soon be a genuine licence risk. This will inevitably alter the tone and nature of a lot of gambling advertising and could hit some brands far worse than others.

What happens next?

As with all the measures and proposals mentioned, any final decision on advertising is yet to be decided on and simply adds to the cloud of uncertainty sitting over the UK online gambling market at the present time. While M&A discussions continue to dominate board meetings it’s becoming harder to accurately value companies with so many pending factors influencing both present and future revenues. It would be a brave firm that took a bold strategic leap right now.

For the next 12 months it’s hard to see the major operators not being bogged down with technology roadmap and marketing adjustments due to ever shifting responsible gambling requirements. And while the Gambling Commission would love the firms to make all the changes themselves it’s hard to see anyone in such a competitive environment doing more than is strictly necessary without some regulatory or legislative impetus. So it’s likely change will be gradual, incremental and disruptive.

What will emerge from all of these consultations, reviews and reports by the end of 2019 is harder to say. There is no clear vision from the government and there is no obvious path for operators to follow. Perhaps the best approach would be to truly commit to responsible gambling and wait for other operators to get caught in fines, enforcements and remedial actions in the future. Where there is confusion and uncertainty, there is always opportunity and in a changing UK sector there may end up being bravery in retreat.