A year in review: regulatory reflection

In what some might describe as the annus horribilis for the industry, 2018 has been a year framed by regulation across the global egaming plains. In Europe, a number of leading operators are sheepishly stepping into the New Year with their tails between their legs after being dealt hefty penalties by the UK Gambling Commission and the Dutch regulator, Kansspelautoriteit.

As well as these fines, Sweden has been gearing up for re-regulation while PASPA was famously struck down in the US, meaning regulation has played a prominent role this year and why EGR launched its fifth magazine – EGR Compliance – which has just published its seventh issue to the gambling masses.

Below, we have summarised the key developments and talking points over the past four quarters. It’s certainly not been a year to forget, that’s for sure.

Q1

To kick 2018 off, the biggest news of the first quarter, and perhaps even the year, was dropped as the UK Gambling Commission (GC) opened an investigation against 17 online casino firms for AML and social responsibility failings. In an ominous omission to UK-licensed operators, the GC said the year would see “tougher and broader sanctions on operators who fail to treat customers fairly and make gambling safe”.

As the year unfolded, so did a number of the culprits; the first of which was William Hill, which faced a £6.2m penalty in February for enabling 10 customers to deposit money linked to criminal offences and not adequately reviewing players’ source of funds. Sky Betting & Gaming (SBG) later faced the wrath of the regulator with a £1m penalty for failing to self-exclude 736 customers.

Outside of the regulatory bubble, Q1 2018 started slowly as the industry waited with bated breath on GVC Holdings boss Kenny Alexander’s plans for Ladbrokes Coral after making a multibillion-pound bid for the high street giant at the end of December 2017. A few weeks into the New Year, Alexander exclusively told EGR the deal would deliver big returns to shareholders, much like the bwin.partypoker merger had done.

The industry expected a much messier integration of brands and operations as the inner workings of the deal unfolded, but it is seemingly going according to plan under the new GVC management dream team, which was revealed to EGR via a leaked internal email. The line-up included Ladbrokes Coral veteran Andy Hornby and GVC’s Shay Segev.

The subsequent few months revolved around the integration and consolidation of brands to get rid of overlapping roles and processes. One example was Gala and Foxy Bingo teams merging under a new head of GVC’s bingo division, Jonathan Bowden. Elsewhere, different parts of the business are still in the process of being shifted onto GVC’s legacy technology platform in stages.

The big people news of the quarter included Paddy Power Betfair’s new chief executive Peter Jackson stepping in to fill the shoes of the departing Breon Corcoran in January. Meanwhile, long-standing Rank CEO Henry Birch stepped down from the omni-channel operator to head up online retailer Shop Direct.

Q2

To ring in the second quarter of the year, The Stars Group (TSG) stunned the online gambling world in April with the announcement it was purchasing the privately-owned SBG for $4.7bn. The acquisition would present TSG with a much larger foothold in the UK, as well as greater revenue diversification and enhanced exposure to the sports betting vertical. The deal was completed in Q3 when a subsequent management reshuffle was also announced.

As the spring crept in, and the potential for a repeal of PAPSA in the US raised the sector’s spirits, two companies faced more regulatory pains in May. Firstly the Stockholm-listed Cherry Group sacked its CEO, Anders Holmgren, as the Swedish Economic Crime Authority launched an investigation into possible insider trading. Holmgren was detained and board member and chairman of the Cherry Audit Committee, Gunnar Lind, was appointed in his place. A few months later, in August, Cherry board members Anna Bergius and Claes Ruthberg were also dropped after being connected to the Holmgren investigation.

Fellow Swedish operator LeoVegas was next in line for a fine under the GC’s investigation and was subsequently fined £600,000 for self-exclusion failings, as well as “misleading advertising”. The fault related, in part, to the operator’s affiliates, which were found to have used 41 misleading adverts between April 2017 and January 2018. The operator had made the decision to wind down its affiliate programme in December 2017 as a result of the GC’s tightening standards.

DFS operator FanDuel was acquired by Paddy Power Betfair in Q2

14 May 2018 will go down in history as the day the US Supreme Court ruled the federal ban on sports betting was unconstitutional. Delaware was the first state to open its doors to sports betting in the post-PASPA era, while a handful of other states swiftly followed. Initial analyst predictions valued an expanded marketplace at $6bn in GGR annually by 2023.

In the wake of the move, a myriad of blockbuster deals were inked between major European operators and US casino resorts and racetracks. Perhaps the biggest was the landmark joint sports betting and gaming venture between GVC and MGM. Both companies invested a $100m upfront sum each in a 50/50 deal to create MGM GVC Interactive. Elsewhere, Paddy Power Betfair snapped up a 61% stake in leading DFS operator FanDuel. PPB agreed to contribute its existing US assets along with $158m to pay off FanDuel’s debts.

In Europe, the compliance clampdown continued through the summer, with Kindred Group’s 32Red brand the latest to stray into the GC’s crosshairs, receiving a £2m fine after allowing one customer to deposit £758,000 between November 2014 and April 2017. On a more positive note, June saw the Swedish parliament give the greenlight to operators to apply for a licence in the re-regulation of the online gambling market. The Lottery Inspectorate, which has taken over the role of Swedish Gambling Authority, was flooded with licence applications once the window opened in August.

Q3

Plans for entering Sweden and the US took up the majority of the European operators’ time and energy during the summer (not forgetting the World Cup), but amid the licensing application paperwork and the Europe-wide heatwave, Spain passed a parliamentary bill to lower its online gambling tax rate from 25% to 20% in an effort to drive new business to the market which has, as of Q3 2018, grown 30% year-on-year.

More glaring warnings from the GC swept the sector in August as the regulator warned operators of further impending action for those that continued to place “unfair obstacles” in the way of customers withdrawing their funds. Back in March, the Competition and Markets Authority (CMA) launched its own action against operators after claiming a handful were placing unfair restrictions in the way of customers wanting to withdraw funds.

Camelot took the next GC hit in August in the form of a £1.15m penalty for failing to comply with governance, risk and control regulations. The incidents flagged by the GC dated back to 2016 and the National Lottery provider pledged to rectify its shortcomings. Meanwhile, Playtech stole headlines in August as the supplier announced it was engaged in discussions to take over the Sun Bets contract.

Playtech CEO Mor Weizer told EGR: “Obviously there is no certainty that we will become partners or whether we will be able to conclude that conversation, but the discussions about both Sun Bingo and Sun Bets are heading in the right direction.” At the time of this 2018 recap, no more information on the potential deal was known, but it is likely to be one to watch out for in 2019. New York-based hedge fund manager Jason Ader built a $100m position in Playtech and announced his intention to bring its share price back up after it plunged 26% between June and July. Since then, Playtech founder Teddy Sagi sold off his remaining share in the company, which Ader said would speed up Playtech’s licensing process in the US.

Just as the Dutch government moved to speed up the online gambling regulation process by launching a public consultation in September, the local regulator, Kansspelautoriteit (KSA), stung Betsson Group and MRG with €300,000 fines for breaching stringent rules against allowing Dutch customers to play on their sites. Both operators said they would appeal the penalties, which could impede on their ability to apply for licences once a structure is put in place by the government. Dutch Gambling Authority vice-chair Henk Kessler stated back in October 2017 that he anticipated the online gambling bill would become law in January 2019, but it seems little progress has been made this year.

In September, it was revealed SBG experienced a 30% rise in annual revenues to £670m for the year ended 30 June, with betting revenue up 37% to £407m. SBG said it saw a sustained run of operator-favourable sporting results during the year, particularly on European football, pushing margin above its expected level of approximately 9%.

After a successful year for the Leeds firm, longstanding CEO – and arguably the UK’s most praised boss – Richard Flint stepped down from his position to become executive chairman of the company as the TSG takeover was approved by the CMA in October. Ian Proctor was named the new CEO amid a handful of other senior management moves at SBG and TSG, including a new COO and CTO for the former and an SVP for the global sports platform for the latter.

Stride Gaming hit the news at the end of September for setting aside £4m for an impending GC fine. However, when the fine was made public, it was £3m higher than the bingo firm had originally anticipated. The penalty related to a number of self-exclusion and problem gambling emails not being directed to customer services after a technical failure occurred within Stride subsidiary Daub Alderney’s systems. In November, the company criticised the process behind the “excessive and disproportionate” fine.

Q4

Rank Group and Paddy Power Betfair entered the final quarter with GC fines. For Rank the penalty was handed out for allowing a problem gambler to lose £1m in 24 hours, while Paddy Power Betfair was punished for failing to prevent a gambler from using stolen funds.

The GC’s clampdown seemed ceaseless as the autumn settled, but the worst wasn’t over, and the entire online gambling industry braced itself as the government announced it bring forward the 6% rise in Remote Gaming Duty to April 2019, as well as the cut to FOBTs’ stakes from £100 to £2 per spin. Almost 100 MPs signed a bill aimed at bringing forward the rise to 21%. A mere two weeks before the November announcement, UK Culture Minister Tracey Crouch quit her role after the government’s budget revealed FOBTs’ stakes would not be slashed until October 2019.

Arguably the most exciting news from the year came in October when an early trading announcement revealed William Hill was in the process of purchasing Mr Green’s parent company, MRG, for SEK2.8bn (£242m). Once the initial surprise had settled, it was much easier to understand the thinking behind the deal, particularly with former Betsson chief Ulrik Bengtsson at the helm of Hills’ European strategy. And now that MRG has received its Swedish licence, Hills can secure itself a prominent place in the newly-licensed market.

Mr Green’s Malta office will soon act as William Hill’s international hub

Hills announced shortly after the acquisition that it would move its European operations into Mr Green’s Malta hub, with some staffers relocating from Gibraltar and others based on the Rock facing redundancy. Over 100 roles in London, Leeds and Gibraltar were put under review at the end of November.

Finally, bet365 ended 2018 on a high by making the top spot in EGR’s Power 50 list for the ninth year in a row. According to the firm’s FY2018 results to 25 March 2018, betting and gaming revenues rose 26% to £2.72bn on tech and product improvements in both betting and gaming. The operator made a major move into the US by signing a 20-year deal with Empire Resorts in New York State to provide land-based and online sportsbook and gaming services.

This rounds off the year in online gambling. Looking back on some of the industry’s predictions for 2018, it is safe to say we are still a way off the likes of crypto-powered betting and Dutch regulation, which were among the year’s expectations. Similarly, one prediction touting voice-powered betting as a key movement for 2018 also seems unlikely in the near future, although Kindred appears to have been the first to make a move in this area.

2019 will undoubtedly bring more US and Sweden-facing M&A and joint ventures as operators scramble to enter both jurisdictions. The year is likely to see more regulatory penalties but also a much stricter approach by operators to their own regulatory processes, which may hit short-term revenues relatively hard (think LeoVegas and its UK-facing business) but it will be worth it in the long run.