Looking back and forward By Andrew Tottenham, Managing Director, Tottenham & Co January 9, 2019 at 2:45 am 2018 was a year to remember, possibly for all of the wrong reasons. For the European gambling industry, there was not much positive during the year, with plenty of bad news to write about. The exceptions are the successful opening of Melco’s satellite casinos in Cyprus; the fall of PASPA in the US, which represents an opportunity for European betting operators and suppliers; and a reduction in taxes for online gaming operators in Spain One trend was additional operating restrictions of one form or another. The much-publicised UK government review of stakes and prizes for FOBTs eventually took place, which plumped for the politically expedient maximum bet of £2, despite the absence of any evidence to suggest that a £2 stake limit would limit the harm from gambling. In some sense the bookmakers only have themselves to blame: they did not ever manage to get ahead of the issue, and tried to use rational arguments to fight what became an emotive issue. The weakness of the current UK government did not help, because they weren’t prepared to lose friends in order to keeping the bookmakers happy. At the same time, the online gaming sector was hit with a 40% tax increase, going from 15% to 21% of GGR, to make up for the loss of tax revenue from FOBTs. It could have been worse: Albania banned all gambling. The 4th European Money Laundering Directive continued to bite, with companies having to comply to somewhat different standards in each Member State. Operators in the UK found themselves to be subject to eye-wateringly high fines for poor AML policies and procedures. I have sympathy, because this is a new area, where a tick box approach has to be replaced by a constant review of the processes involved. And, quite frankly, you don’t find out if the processes are good enough until they prove not to be. Some of these operators held their hands up and notified the regulator, only to be slapped with fines. For example, Svenska Spel, the national gambling monopoly operator in Sweden, founds itself on the receiving end of a SEK8 million (€780,000) fine for AML process deficiencies at its Casino Cosmopol subsidiary. Advertising restrictions for all gambling except land-based casinos came into force in Italy, along with a sharp increase in taxation. The new populist government followed the theme of the previous government, which sought to decrease the number of gaming machines in public places to protect the population from gambling. It decided that all gambling operators could afford to pay for some of the burden of Italy’s budget excesses. The increase is 2% of GGR for online and land-based betting, with online gaming subject to an additional 5% of GGR, an increase in tax rates of around 10% for betting and 25% for online gaming. The increase in costs, at a time when advertising has been banned, is likely to cause severe pressure on margins, with smaller operators going out of business and only operators of scale being able to continue to operate profitably. There may be some opportunity for consolidation, but the overall outlook does not look good. Talking of consolidation, a few companies changed hands this year. CIRSA was acquired by Blackstone, Italian company Snaitech was majority-acquired by Playtech, and Estonia-based Olympic Entertainment Group was acquired by a group led by private equity firm Novalpina. There were also numerous acquisitions in the online sector, and I suspect this will continue. The increase of interest of private equity funds in land-based gambling businesses shows their confidence in the possibility to grow the business further, I suspect through acquisitions. In the timeline that these funds work to, it is difficult to see how organic growth could give them the increase in shareholder value that they will be looking for. For land-based gambling businesses, there are quite a few buyers out there and market is starting to look a little crowded, which is good for the seller but not so much for the buyer. Governments continued to take a long hard look at loot boxes. For those of you who are unfamiliar with this controversy, loot boxes, which are hugely popular, are available in some video games. With loot boxes, players can acquire – for money – certain elements of the game, such as more powers, different “skins”, and additional tools. The players do not know what they have bought until they have completed the transaction and then opened the box. All this appears to be harmless except for the fact that there are markets where you can sell unwanted items from the boxes, thereby giving a value to the contents of a box. Gambling in almost all jurisdictions is defined as paying a consideration to receive a prize (value) with the outcome being dependent wholly or mainly on chance. (The meaning of “wholly or mainly” is defined differently in each jurisdiction.) If all of the conditions above are met, it is gambling. The fact that, in the case of loot boxes, someone else gives the value for the “prizes” does not make any difference; this is gambling. The regulators in the Netherlands, Belgium and the UK agree, so what action they will take against those “facilitating” the gambling will be interesting to see. Expect more on this in 2019. Casino di Campione went bankrupt in July of this 2018. The Italian casino finally succumbed to the combined pressures of a very high wage bill and high levels of taxation from the municipality. Ordinarily, the bankruptcy of one casino would not be too newsworthy but Casino di Campione is the major employer and largest taxpayer in this small region of Italy. Unless both the municipality and the unions are willing to make major concessions, don’t expect this to be solved any time soon. I expect two of the remaining three casinos in Italy, Casinò Municipale di Sanremo and Saint-Vincent Resort & Casino, to hit the skids as well, possibly followed by the Venice Casino. Sweden finally took the sensible step of regulating online gambling, licenses being issued to about sixty companies who applied and are prepared to operate under quite strict conditions. The market opened on January 1 of this year. In addition, licensees will have to compete with the national behemoth and previous monopoly, Svenska Spel. That could be quite a challenge, as those who have tried to unseat the former French monopolies Francais des Jeux and Pari Mutuel Urbain can attest by showing their scars. What else can we look forward to in 2019? The Netherlands may finally get its online gambling laws passed and pave the way for the privatisation of the national casino monopoly, Holland Casino. In Greece, we are told, the bid for the Hellinikon Casino will finally get underway within the next weeks. The German region of Hesse may take the first step to going its own way (again) by exercising the break clause in the German Interstate Treaty on Gambling and start issuing its own licenses for online gambling. Overall, I expect not to see the relaxation of regulations in any place of significance; rather, regulations will continue to tighten and taxes will continue to increase. On that note it remains for me to wish you all a Happy New Year!