Covid-19 and gambling’s shifting regulatory sands

If one word covers the gambling regulatory response to the Covid-19 pandemic lockdowns in a selection of European jurisdictions it would appear to be panic.

From the extreme of Latvia, which banned online gambling altogether, through to ad bans, bonus restrictions, deposit limits and other measures and controls imposed in Spain, Belgium, the UK, Portugal and Sweden, the sector has been the subject of a continent-wide regulatory tightening in the weeks since mid-March.

“The political response to gambling and Covid-19 in many European countries has been to reinforce negative regulatory momentum, over concerns that stay-at-home measures might exacerbate issues of problem gambling,” said the analyst team at Morgan Stanley in mid-May.

The operators would appear to be more than aware of the change in the weather. “That the industry acknowledges the effect all of this could have on regulatory structures around gambling was clearly evidenced by BGC members volunteering, rather than being forced, to remove all of their TV and radio advertising in the UK during the Covid-19 lockdown,” says David Clifton, partner at legal consultancy Clifton Davies.

Yet, while there are clearly very public concerns being voiced in many countries about the possibility of an increase in online play due to the closing of all land-based gambling venues since mid-March, there is as yet only patchy evidence of a greater take-up of online gaming during the lockdown.

“While we understand that policy makers seek to reassure and protect their citizens in these difficult times, we also believe the concern about an ‘explosion of online gambling’ during the lockdowns has simply not materialised,” says Maarten Haijer, secretary general at the European Betting and Gaming Association (EGBA).

“On the contrary, the data available from regulators and operators shows a significant decline in online gambling over the past months and most of the restrictions introduced, or still being discussed, have not been evidence-led.”

Precautionary principle

In early May, the UK Gambling Commission issued new guidance for operators covering a wide range of measures that were a response to what it claimed was “new evidence” that some gamblers may be at greater risk of harm during the lockdown.

The move came after the publication of an open letter from the UK Culture Minister Nigel Huddleston which requested “regular intelligence” from the industry on patterns of player behaviour during the current crisis. As the letter suggested, players of online casino games have been identified by the Commission as over three times more likely to be problem gamblers than those who take part in general sports betting.

The letter continued: “This follows reports received by the Gambling Commission of a recent increase in consumer activity around online slots, poker, casino gaming and virtual sports, following the cancellation of most live sport and the closure of all land-based gambling premises.”

However, even the Commission admits this evidence is mixed. The data it cites comes from operator data submitted to the Commission as well as that from a fortnightly consumer survey from YouGov undertaken on behalf of the Commission. The first shows an 11% decrease in active players while the YouGov survey shows the vast majority of gamblers have not increased either the time or money spent on gambling.

In fact, the data rather suggests that more people have decreased gambling time and money spent than have done the opposite. Compared to the 2.7% of the 2,339 respondents who said that their gambling habit had increased either in terms of time or money in the past four weeks, nearly 10% said they had decreased the time or money spent gambling or stopped altogether.

To be sure, there is some displacement activity. The operator data seen by the Commission shows a 25% year-on-year rise in active players for slots, poker up 53% and virtual betting up by 88% – though in the last instance, the survey appears to take no account of the Virtual Grand National which took place in early April, assuming some betting on the event had also taken place in the run-up and during the survey period.

Something must be done

Despite the lack of any evidence of increased play – or increased chances of harm – the Commission pressed ahead with new guidance which included, in the words of Stephen Ketteley, partner at law firm Wiggin, significant amends to the social responsibility code which he says the Commission has put forward “without, as far as we are aware, releasing any details of the consultation”.

Stephen Ketteley, Wiggin

Similarly expressing reservations about the apparent direction of travel were the gaming team at Mishcon de Reya who accused the Commission of amending codes “by the back door” and without any industry consultation. “Many will view these measures as further evidence of a strident regulator imposing more and more onerous restrictions in the absence of evidence of increased problem gambling,” the team added.

But the UK is not alone in taking what appears to be pre-emptive action. In Sweden, the minister with responsibility for gambling Ardalan Shekarabi cited the “major risks” during the pandemic for the introduction of temporary deposit and bonus limits in online.

The move came as something of a surprise even to the regulator which took some time to respond, saying it had “no objection” to the plans though it noted that the new SEK5,000 (£420) deposit limit was significantly higher than the average player would spend in one week.

The reaction from the Swedish Trade Association for Online Gambling or BOS (Branschföreningen för Onlinespel) was more pointed, making similar complaints to what is being said in the UK about the lack of evidence behind the decision.

“Our members have a hard time seeing the dramatic increase in online casino that Shekarabi repeatedly says they are experiencing,” the BOS statement said. “We are looking for independent sources to substantiate this claim. When we asked our members, on average, a very slight increase for online casinos was noted, corresponding to a 1% increase.”

All this comes as the Swedish operators are questioning the government’s policy with regard to the channeling of online activity towards the regulated market. BOS recently released a report commissioned from Copenhagen Economics which suggested government claims on the rates of channelisation are debateable, particularly with regard to online casino where the report estimated one in four bets was now taking place offshore.

The suggestion is that the new restrictions will only exacerbate this problem. “I would suggest that the Swedish restrictions go beyond what is necessary and will further hamper the ability of the licensed market to effectively outcompete the black market,” says Martin Lycka, director of regulatory affairs at GVC.

The Danish version

A major driver for the adverse political and regulatory reaction to gambling during the lockdown, in the UK at least, comes from the media.

“The UK media, in particular, is extremely vocal in its criticism of the industry and ultimately the regulator,” says Kirsty Caldwell, gambling compliance consultant with Betsmart Consulting. “In turn the regulator is placed under increasing pressure from the public and the government to be seen to take strict and decisive action.”

Kirsty Caldwell, Betsmart Consulting

It is instructive then, that in the absence of feverish tabloid activity, the Danish authorities have been able to present evidence that contradicts the expectations elsewhere. The Danish Gambling Authority (Spillmyndigheden) said in mid-May that since 11 March, when all Danish land-based venues were shuttered, there has been a 60% decrease in deposits with licensed operators.

“Although it is still too soon to measure the full effect of the coronavirus crisis on the gambling market, it does not appear as if the decrease in gambling at land-based casinos and gaming machines as well as betting has caused an increase in gambling on online casino,” said Danish Gambling Authority director Morten Niels Jakobsen.

Haijer from the EGBA  points out that in reality the likelihood is across Europe there will be a decline in gambling – whether land-based or online – in all regulated territories this year. “We suspect that, with overall gambling market shrinkage and revenues declining right now – both online and offline – this year online gambling will achieve a slightly bigger piece of a much smaller pie.”

Life after lockdown

At some point (hopefully) this year, post-crisis a degree of normalcy will be evident with both land-based and online gambling. The betting shops will be open once again, as will the kiosks, the casinos and the bingo halls while sports betting as we knew it will once again be up-and-running.

But whether the measures introduced at the height of the crisis will also pass into history is much more open to question. “I would hope that as lockdown restrictions begin to ease around the world, regulators will begin to apply some of that focus to working with the industry to look at how things may have changed going forward,” says Caldwell.

But is this likely?  The team at Morgan Stanley are less than hopeful: “We see risk that these temporary limits may ‘stick’ and/or that regulators and political groups may move quickly onto the next set of issues (online stakes, affordability limits, VIP schemes), that could be further headwinds for revenue growth,” they wrote. “We see online casino stake limits in the UK – and potential for concurrent duty rise – as the most material near-term risk.”

Indeed, it is worth noting that the Italian government has already instituted a 0.5% turnover tax on all Italian sports betting to be dedicated to sports. Not for the first time, cash-strapped governments across Europe are likely to view the gambling sector as an easy revenue-raising target.

Yet, as has been postulated many times before, more tax and tougher regulation often has an equal and opposite effect. “I’m afraid I see only more draconian online regulation coming in those jurisdictions that already have established gambling regulatory regimes,” says Clifton. “The winners could well turn out to be unlicensed online operators unless legislators and regulators alike wake up to the real threat that they pose.”

Regulated operators, meanwhile, face a dilemma, and one which may eventually lead to legal action. One lawyer who opted to remain anonymous suggested the recent actions on the part of the UK Gambling Commission, where there was both a lack of evidence and arguably justification might elicit a potentially explosive response.

“Taken together, one would think the Commission will have to come out with much, much more evidence to support further restrictions or regulatory requirements,” the lawyer warns. “If they don’t, the opportunity to challenge the Commission’s powers increases, as does the appetite.”