One year on and another jurisdictional report… it’s quite natural to look introspectively at the thoughts and predictions of last year to measure their accuracy or indeed if any came to fruition.
Continuing M&A activity
One of the main themes across the industry last year was that of merger and acquisition activity – this year is no different. At the beginning of the year, Paddy Power and Betfair completed their €9 billion merger creating a giant in the online gaming market; while any day now, we expect to see Ladbrokes and Gala Coral consummate their deal. This time last year, 888 and GVC Holdings were vying for the hand of bwin.party with the latter coming out on top earlier this year to tie up the deal. 888 was again unsuccessful recently when it teamed up with Rank Group to acquire William Hill but their advances were spurned. I think we would all agree that this is not the end of the M&A activity with some actively looking for opportunities, be it to enter into new geographical markets, player acquisition, acquire new technological advancements or to shorten the development cycle of building in-house.
The UK and Brexit
The UK was in the headlines last year as a result of the considerations of the Point of Consumption Tax which was introduced at the end of 2014. That seems to pale into insignificance now given the result of the UK European Union membership referendum which took place in June of this year. The referendum, more commonly known as the Brexit referendum, shocked many observers when it resulted in a majority decision to leave the EU. For the gambling industry it has particular significance. Three months on and there are still very few who understand all the implications for the sector. While it has been argued that there will be limited overall impact, there are significant challenges for some jurisdictions, Gibraltar being one of those. The potential issues for Gibraltar operators stretch beyond ensuring that they are compliant when addressing their EU business, they have the very real issues surrounding the border with Spain, leading to difficulties with movement of labour and goods. This has led many, if not all, to consider worst-case scenarios and to plan and build structures to minimise disruption wherever possible. The one good aspect to all of this is that the delay by the government in invoking Article 50 is giving everyone some time. The gut instinct tells me that there may be a few twists and turns before this is all settled and the entrepreneurial spirit within Gibraltar will have some impact in the end.
“Grey becomes black and white”
The title of this paragraph gives a clue to my musical leanings as a teenager but it came to mind as I thought about an interesting and more prevalent development in the sector over the past couple of years; that of the involvement of regulators when it comes to the suitability of licensees as determined by their interest in markets outside of their particular control. It wasn’t that long ago when it was simple, the world was one homogenous market, one colour… you could serve everything with one infrastructure sitting in a reliable data centre with disaster recovery in another, if you were very advanced. With the incessant and unstoppable move towards regulation worldwide, jurisdictions are declaring their colours as to whether they are black or white but regulators are increasingly looking at the level to which their licensees have previously or may currently be conducting business in black markets. Companies in the UK applying for a licence have had to declare their business interest in all markets over a certain level; the Division of Gaming Enforcement in New Jersey has gone as far as trying to decipher between grey and black markets; California has hinted at levels of suitability based upon historical activity in the US market and most recently, PAGCOR in the Philippines, in its move to introduce licensing for foreign-based operators has referred to black markets in Asia. Ultimately, this points to highly regulated markets with little room for offenders.
US Market – another year on
Another year on and very little movement in the quest to regulate the US, however, the fact that an event hasn’t happened only makes it more likely that it will in the future! This time last year we were talking about the possibility of another state emerging. The latest betting is on Pennsylvania to open up next but it is improbable that anything will happen before the highly anticipated elections in November. Other states listed as having the potential to open up include Michigan, New York and California, however predicting timeframes would be futile at this juncture. There is no doubt that the number of interested parties are extensive and will contribute to the lengthy process. When one considers other open and regulated markets where all gaming is regulated including poker, casino and sports betting, it takes some foresight to ever see this happening in US States given the myriad stakeholders.
However, a lot of work to date has been done in a few states. In New Jersey in particular, other states would do well to consider the extensive work they have put in and the experience gained. As a final note on the US, I will refer back to a point made last year… it is very important that regulating states are pragmatic when it comes to the siting of servers and other factors such as taxation. As a case in point, ARJEL in France has just announced that its licensed online betting operators have incurred a collective loss of €5 million last year! This is in a country of 66 million people and where sports betting increased last year by 30% to a record €1.4bn. Having to place infrastructure in individual states adds unnecessary costs on operators while also limiting competition and preventing economies of scale.
Virtual, fantasy and reality
In the absence of substantial real-money gaming and betting market options in some markets, there has been a significant rise in the development of a number of gaming/gambling offerings such as social gaming, fantasy sports, esports, virtual and augmented reality. While traditional gambling products have taxed the minds of regulators across the globe for many years, these new offerings are likely to cause much consternation among this group going forward. Offerings and products in this space are so rich and complex that the demarcation lines between gaming and gambling are not so clear any more. We have the question of digital and other forms of currencies and whether their use constitutes gambling, a trend that is likely to continue and will likely need to be regulated. The rise of esports has been quite phenomenal, and I do have to admit that it is difficult for me to get my head around this one… not being a millennial probably doesn’t help! But the growth in the sector has given rise to large increases in gambling, thus putting the sector in the crosshairs. After a very rocky period in the world of fantasy sports, there seems to be some semblance of normality coming back to the sector. At this point in time, seven US states have passed daily fantasy sports bills with many more proposing some form of regulation. Finally, the advent of Pokémon GO has catapulted the topic of augmented reality into the spotlight. The sector is still in its infancy, the technology is developing but the customer experience possibilities are exciting, suffice it to say that it will be another area that will require consideration in terms of regulation.
And so to wrap up with some summary predictions for the coming year. Jurisdictionally, there will undoubtedly be further developments within Africa and South America – both are generating a good level of focus this year. The markets throughout Asia are ever-developing, and while I’m sure there will be more twists and turns to come we are already reaching a new level of clarity on the opportunities.
From a technology point of view, further advancements in cyber-security defences will be required to combat ‘deeper’ attack capabilities and larger global data leaks are inevitable. There will be faster loading and more immersive games, faster mobiles released to play them on with more AR and VR development aplenty…. Oh, and not forgetting, a new president of the United States.
Article appeared in the eGR Jurisdictions Report, 2016