Going Dutch or paying full price?

After a couple of years on the sidelines, the Netherlands is back in the game and once again the talk of the industry. The regulation of one of Europe’s least understood markets was first trumpeted in 2014 then again in 2016 but, interestingly, the conversation now has a much more negative tone to it. Rather than trying to find potential winners from the Dutch regulation, the industry and the financial markets are more concerned with who the losers will be. A lot, it seems, has changed in two years.

Back in 2016 there was a wary sense of excitement around the Netherlands. The tax rate was punishingly high and nobody was quite sure if it could drag itself over the line, but beyond that there was a sense this could be the next big new regulated market backed by a tech-savvy population with a high discretionary spend. The 2019 version, however, comes with flashing warning signs and the ghosts of regulated market past, present and future whirling around it. Regulated markets are no longer the exciting opportunity they once were.

Regulated markets have shifted from low-risk growth opportunities to a source of pain for egaming operators with increasing restrictions and decreasing marketing opportunities. The UK market with its huge online growth in the 2007-2017 period remains the hope, Italy with its rapid growth and then sudden backlash is perhaps more the expectation and the industry is eagerly looking at how positive the Swedish market ends up being trying to tread a line between the two. But all the time it’s paying more and more for the privilege.

The price worth paying

So what would operators get for their money here? The Netherlands could reasonably be a very large market. Current estimates of the grey market place it at around €400m, but given the right conditions and a per-capita spend closer to the Nordics, this easily becomes a €1bn+ market. For those currently active, however, it’s hard to know what to wish for. A 29% tax rate is going to be tough to overcome, not least if advertising is heavily restricted, although if the market doubles or even trebles from its current size it could be a price worth paying.

If you want a guide to the process of what comes next then read this EGR summary, but it’s in between the gaps of this framework where the really interesting stuff is going to happen. The biggest of these is the proposed “cooling off” period for any operators deemed to be acting in bad faith prior to the regulations coming into effect. This has caused analysts to wonder if Betsson, which has been one of the firms in the Dutch regulator’s sights in recent years, will be subject to the ban.

Analysts at investment bank Berenberg said the proposed ban could take 15% off Betsson’s revenue if it was subject to a ban, but more tellingly described the entire regulatory process as a “lose-lose situation” for Betsson. The same case could likely be made for Kindred, which appears unlikely to face a “cooling off” but nonetheless stands to have a 29% hike on its Dutch revenues once the law comes into effect. That is a number it is going to find tough to outgrow even with the more open market conditions. Other operators are also active in the market at the present time, although the hits may be easier to absorb for the majority of them. But who will be the winners from any regulated Dutch market?

The winner’s podium

The most obvious candidate is Kindred , which arguably has the largest share of the current grey market. If it can build on this then it could potentially outgrow the tax loss and benefit from the additional value a dominant position in a regulated market brings to the business. But arguably other operators have more to gain and less to lose. The Stars Group, which has a large poker player base from the Netherlands, could be well placed for additional cross sell, and so could GVC with multiple brands that could have cut-through in the market including bwin, partypoker and Ladbrokes. There is no getting away from the fact, however, that all operators could be reliant on the regulator looking kindly on past activities.

One likely winner then could be the current land-based monopoly Holland Casino. The operator signed a deal with Playtech back in early 2014 with a now laughably optimistic predicted launch date of H1 2015. The Playtech of then is barely recognisable to the one of now, but would still be a strong partner for any new market launch and offer far more in terms of a joined-up multi-vertical proposition. The main winner, though, will likely be the Dutch tax authorities who will almost certainly be taking home the largest share of every Euro lost in that market. And as a result it will be fascinating to watch just how many operators put themselves through the licensing process with so few bottom-line gains to be made.

Could the Netherlands end up like France or Portugal with a paucity of big players and nobody really making much money? It’s certainly a possibility, but regulated market growth opportunities are going to be harder to come by in the years ahead and it may be tough for anyone to not try and stake their claim. Regulated markets with a combination of high tax rates, restrictive operating conditions and an element of protectionism is not what we were promised by the brave new world of egaming, but they appear to be increasingly what we are getting.