Egaming industry predictions for 2019- regulation, innovations in compliance and convergence in gaming and gambling

Andrew Tait, Partner, Gordon Dadds

Convergence of Gaming & Gambling Regulation

Video gaming has always been popular among the younger generation, moving from the arcades to static home-based consoles and now to fully interactive, mobile gaming with players competing against each other 24/7 across the globe. The global market is currently estimated to consist of 2.3 billion gamers, spending US$140bn per year, an increase of 13.5% since last year and on track for year-on-year double digit growth for the next decade. There are little or no rules or regulations governing this burgeoning industry, despite 30% of gamers thought to be under 18. By comparison the equivalent online global gambling market is currently valued at US$47B, with 6% of 11-16 year olds in the UK currently gambling online.

Some jurisdictions are already discussing controls over gambling related features, such as loot boxes which are awarded or purchased during video games to give random benefits. The Gambling Commission is vigilant in its enforcement against illegal gambling on the outcome of video games. The bigger issue though is the growing prevalence of problem gaming especially amongst under 18s. The perfect storm of increasing numbers and use of freemium mobile games, the urge of competitive glory, use and reliance on in-play purchased items, and the natural inclination of children to succumb to peer pressure, is creating a Goliath that will take years to slay. Here in the UK the DCMS parliamentary committee has opened an enquiry and has called for written submissions on the regulation of eSports and potentially addictive technologies. I think that 2019 will be the genesis of regulation for the video gaming industry, starting with imposed self-management controls to help gamers limit the duration of their play sessions and spend.

Global Critical Mass of Regulated Online Gambling

There has been an acceleration of online gambling licensing moving across the globe in the past 5 years, with Europe more or less regulated, and changes now happening in the Americas. More and more countries are realising that it is in the national interest for the sector to be controlled through regulation, rather than relying on vagaries of prohibition and the default of a consumer unfriendly black market. Of course, the thought of increased tax dollars helps swing the vote, notwithstanding the fallacy of arguments brought by some sectors such as land-based casinos in France and many parts of the US, that online gambling will erode their customer base. It is inevitable that with the increase in mobile technology and broadband penetration, online will continue to grow and surpass land-based gambling.

I believe that 2019 will be the year where online regulation will reach a sufficient global critical mass to become the norm. At that point the “Remainers” will be the exception rather than the rule and seen to be out of touch. We can even expect China and other parts of Asia to eventually open up, albeit under tight state control. With this wider market, compliance costs and restrictions will come more into play, further forcing consolidation of the .com giants with regional niche players.

Compliance Through Technology

With greater fragmentation comes a great need for some form of standardisation between country compliance regimes. This is naturally happening with AML and GDPR, principally in Europe but we can expect to see responsible gambling also becoming more codified. Indeed, I expect that 2019 will see a big ramp-up in gambling software providers either being forced to (via technical standards) or else doing it themselves in order to differentiate themselves by building in further AML and problem gambling controls into their gambling software.  It is clear that the human element in the form of customer service teams are either deliberately or inadvertently failing to monitor or pick up on signs of money laundering and problem gambling. Therefore, automated analytical based screening of player behaviours and transactions is the obvious way to go, given the complexity and scale of manually reviewing all indicators.

Technology is a necessity for operators to cover the increasing workload of compliance, especially with increased age and identification controls coming in to Great Britain and elsewhere next year. Indeed, the Gambling Commission has asked their operators to update their AML risk assessments to reflect the anticipated increased use of verification technology. The risk teams using these improved technologies will need to be thoroughly trained on them, potentially reducing the footprint of mass ineffectual training into focused, specialist and certified standards of training. The multi-jurisdictional nature of compliance, especially for the big operators, will require complex backend risk and compliance platforms. The efficiency of these will dictate the ability for operators to meet compliance standards in real time, thereby improve conversion and retention rates, whilst at the same time avoiding all those big fines and reputational damage.