Industry concerns: public perception, excessive regulation, and eSports By Andrew Tottenham, Managing Director, Tottenham & Co November 8, 2019 at 2:52 am Recently, I had the opportunity to participate in an Ampersand Assembly, organised by Clarion Gaming, the behemoth behind ICE events and many other things. The idea behind such meetings is to bring together people from the gambling industry to discuss concerns and ideas that are affecting or could impact the industry. In this case, about 50 participants came from across Europe, including operators, regulators, suppliers, and, of course, advisors. There was no pre-agreed agenda, as the organisers intended to promote open discussion. Participants were encouraged to put forward the issues they wanted to discuss. Unsurprisingly, many people wanted to discuss the poor state of public discussion surrounding gambling, the deteriorating relationship between the industry and the regulator, and how to improve those matters. I think the conclusion was that in the current political climate in countries across Europe, it is difficult to see any headway being made in the near or medium term. After over two decades of expansion, along with new issues involving regulation of a new technology (online gambling), the gambling industry in nearly every country in Europe is experiencing a tightening of the regulatory environment and poor public perception of the industry. These two are a vicious cycle: poor public perception leads to pressure on politicians, which leads the regulator to clamp down, which leads to worse public perception, and so on. The conclusions from the sessions on this topic was that the industry needed to work to improve its public image, particularly the public benefit that the industry provides. Without a positive public image, it will always be a whipping boy, with politicians demanding ever-tightening regulations. Also, the industry needs to work with the regulator to regain their confidence, so that the regulator is a defender of the industry, not just the consumer. To do that, the industry needs to bring an end to its scandals, stop pushing the envelope with promotions and bonusses, and get behind a comprehensive and effective responsible gambling framework Regulators need to realise that they are in this too. The more the regulator punishes the industry for shortcomings, through admittedly some problems were egregious and punishments well deserved, the more trust in the regulator is diminished. It is not in the regulator’s interest that public confidence in the regulator is destroyed. An improved environment is not something that is going to be achieved with rational arguments – politics today is all about the emotional. Flying under the radar and hoping problems will go away is not an option. An idea that was floated was the hypothecation of taxes, where the tax revenue goes to some good cause. Generally, I’m not in favour of this. Some states in the US earmarked lottery taxes to go towards the state’s education budget. So people felt good about the lottery, because their taxes did not go up to pay for schools. But when lottery sales declined, politicians did not take money from elsewhere to make up the shortfall – they simply increased the taxes on lotteries. However, the idea is not without merit. In British Columbia in the late 1980s, casinos were only allowed if they were operated by charities, and by a different charity each night. Casino operators had to find charities that wanted to operate a casino as a fundraising opportunity. The maximum bet was $2, no slot machines were allowed, and the venue could not be permanent – it had to move every few days. Operators would rent a casino to a local charity for 50% of the revenue, with the casino providing the venue, equipment and dealers, while the charity provided the cage staff. One of the pioneers at this time was Great Canadian Casinos, founded by the late Ross McCleod. Ross had a background in the fairground industry and was used to moving equipment around. I had the opportunity to consult for him at the time and asked him whether it was a good idea to have charities “running” casinos. Ross understood the power that came from involving local charities. People did not perceive the casinos as being a negative but rather as a benefit to their communities. He and his fellow operators were seen as the “good guys,” gaining the confidence of politicians and regulators. Research had told Ross that each person who directly benefitted from a charity would be closely connected to at least five others – fathers, mothers, brothers and sisters, aunts, uncles, cousins, and so on, and that those people voted. Politicians knew that attacking the gambling industry would be a vote loser. The industry had friends, something that is in short supply in Europe now. Over time, the BC casino industry was allowed to increase the maximum bet (now $100,000), have their casinos remain in permanent venues, and ultimately operate slot machines. The challenges facing the industry in Europe are not unique; they have been experienced by gambling operators in other countries. Some have overcome such challenges and others have failed. It’s time to learn lessons from elsewhere. Often, in a country, the industry, and especially the online sector, is not locally-based and people cannot perceive any benefit; taxes are paid to the Government and become part of central spending. Perhaps it is time that the industry made a concerted effort to fund local charities so that they can gain friends; then politicians will undoubtedly take note. Another session was on eSports. Being of a generation who missed out on this, I was keen to find out more. In their drive to attract a younger demographic, land-based casinos have latched onto the fact that eSports is a hugely popular pastime for both participants and spectators. If casinos can host eSports events or provide betting opportunities during these events, they might attract and generate revenues from a new market. However, as with any new market, most early efforts have met with failure. eSports gamers, while being extremely passionate about their pastime, are not known for spending on much outside of the game. Events held in Las Vegas have produced an increase in occupancy, but with some gamers sleeping five to a room and spending nothing elsewhere in the resort. Pizzas and beer are ordered in from Uber Eats, and the only time gamers are seen in the casino is when the hoodied young men cross the casino floor late at night, going elsewhere. The only other area where casinos saw an increase was the demand for bandwidth. In that session, much was said about how, if they are to be effective, betting opportunities need to be “authentic”, as part of the game, not just an overlay. Gamers will bet and will buy loot boxes in the game (I won’t get into the argument as to whether loot boxes are gambling or not), but only if the bets are low value, highly frequent, and easy to place during the course of a fast-moving game. Gamers are a community and they have strong opinions, which is an ideal environment for betting. However, we are discovering that in online communities, opinions change and spread very rapidly. You can be flavour of the month one minute and then, the next minute, you are dead. Games are fashion-driven; until a game is released it isn’t known whether it will be a commercial success, yet the investment in a game is huge. This makes me think that it will be very difficult – and unlikely – for a betting operator to become involved in game publishing. Nor does a joint venture with a publisher necessarily make very much sense – what value add does the betting operator provide if the bets are low value and game-specific? The hugely popular game Fortnite, released two years ago, amassed an audience of 125 million players in its first year. It generated $2.4 billion in revenue in 2018, even though the game was given away for free. The game makes its money from micropayments, by selling costumes and skins as well as quarterly “Battle Passes,” and from other sources such as its YouTube channel, which has more than 30 million subscribers. Imagine if the publishers had also built in relevant betting options – what would their revenues look like? Events such as Ampersand Assemblies are sorely needed so that experiences can be shared and discussed in an open environment, with a diverse range of people and experience. In this way we can learn from others and hopefully overcome the challenges we face today.