Industry predictions: Data costs on the rise and increasingly stringent regulatory controls 

Matthew Trenhaile, betting industry expert

Data costs on the rise

Bookmakers are currently experiencing an operational cost squeeze. There have always been costs associated with the acquisition of new customers. The rapidly rising cost in data for the purpose of live betting is causing operational costs to become untenable for smaller bookmakers that wish to compete with tier-one operators on product. I see sporting organisations’ valuations for their data only increasing in the short term and these costs being passed by the data providers to the bookmakers. This may be compounded further by the same sporting organisations increasingly asking for a slice of bookmaker revenue generated from their data. This cost spiral is sure to drive more M&A as size becomes the only way to survive. It will also raise demand for B2B services which can mitigate other operational costs as an alternative to being swallowed up by a rival. If data costs continue to rise unchecked the market may start to resist, and we might even see some product being dropped in favour of just paying for the premium content. This would be similar to satellite TV providers in the UK which now feel they can only bid for content that commands the highest consumer engagement.

Smarter M&A

Rising costs of customer acquisition and live data will inevitably fuel M&A but buyers might take on a slightly different strategy. Rather than merging two companies competing in the same space with the same pain points and hoping size will make them disappear, I think we can expect to see smarter acquisitions that diversify and provide immediate cash injections. Due diligence on acquisitions has undoubtedly been weak in the gaming industry, while operators feel expanding markets are placing them under constant time pressure to act. I expect the market to wake up to the idea of purchasing operators in regions with limited competition and those with limited operating licences. Operators with decent-sized captive customer bases with well-established brands can improve profitability overnight and with minimal time pressure to realise operational efficiencies from complex mergers of similar operators. Entain has been practising this for years, but this year’s best exponent of this strategy has undoubtedly been Betsson. From the outside, the acquisition of Inkabet in Peru being the jewel in the crown in terms of valuation relative to returns. Customer acquisition costs are the pain point of the moment so why not acquire them in bulk at a discount in a region with lower costs in general.

Tech stability and scalability

Operators often preach about the importance of stability and scalability in their tech stacks and yet I continue to see little evidence they honestly believe this from their actions. I think there might be a realisation that unglamorous back-end work needs to rise up the roadmap ahead of the latest front-end widget. Operators are right to want to take ownership of their tech stacks, but the piper must be paid in terms of doing the necessary hard work. This might result in a reduction in obvious product and UI releases while operators take on this challenge. Alternatively, they might decide to simply buy their existing service providers and bring them in-house. These may not look like glamorous acquisitions, but they might prove vital for long-term growth. Very few operators can say they are operating in a way technically that is easily scalable and resilient to the high spikes in traffic that bookmakers are exposed to. I expect some to try and bite this particular bullet next year.

David Clifton, director, Clifton Davies Consultancy Limited

Gambling Act 2005 review

The gambling review white paper will not see the light of day any earlier than the end of March 2022. When it eventually arrives, there will be no surprise about its main thrust, the Gambling Minister having already emphasised that, despite recent reductions in the overall problem gambling rate, “much more needs to be done” to protect people from gambling-related harm. However, neither the government nor the Gambling Commission will pursue the latter’s original proposal that operators must conduct defined affordability assessments at thresholds set by the regulator. Instead, the Commission will place more meat on the bones of its expectations insofar as proportionate affordability checks are concerned. Earlier suggestions in some quarters that the regulator might itself not survive the review will turn out to be misplaced as the new leadership is already taking steps to move forward with their transformative agenda. Recognising this, the leading parliamentary advocates for far-reaching gambling reforms will moderate their demands to those that they believe stand the greatest chance of success, increasing the prospect of maximum staking limits for online gaming being imposed.

Increasingly stringent regulatory controls

It’s no longer the British gambling regulator that is single-handedly leading the charge towards the imposition of increasingly stringent regulatory controls. I forecast that, more so than ever before, the regulatory compliance requirements for gambling operators across Europe as a whole will become ever more demanding. Introduction of mandatory staking limits and weekly deposit limits for online gambling are likely to be seen in an increasing number of European jurisdictions, as too are more stringent gambling advertising and sponsorship controls. Travelling in a wholly different direction, the ongoing legalisation of online gambling across the US will continue apace with state governors rejoicing in the resultant additional tax revenue that pour into their coffers. However, towards the end of next year, the US industry’s current ebullient mood may well have begun to temper as it weighs up rather more seriously the heavy financial burden associated with customer acquisition cost in an environment where growing public concerns about gambling-related harm and the sheer volume of gambling advertising could equally well have begun to make their mark.

Quality data to shape UKGC policy

Returning to British shores, the Gambling Commission is changing the research methodology that it uses to collect gambling participation and problem gambling prevalence statistics. A pilot online survey (currently running until March 2022) could serve to undermine recent much lauded statistics showing annual reductions (a) from 0.6% to 0.3% in the proportion of the UK population suffering from problem gambling; and (b) from 1.2% to 0.7% in terms of those classified as at moderate risk of gambling harm. The Commission says its pilot is not aimed towards development of a headline score or scale of gambling-related harms, and nor is it designed to measure the cost of gambling harms to society. Instead, it is intended to provide improved quality data enabling the Commission to better measure and understand gambling harms and the wide impact they have. Nevertheless, I forecast this will have a major effect on future Gambling Commission policy, underlining the importance of industry collaboration in sharing knowledge and learnings in a concerted effort to reduce harmful gambling behaviour even further in 2022.