The U.S. sports betting industry needs to get smart! By Andrew Tottenham, Managing Director, Tottenham & Co October 21, 2020 at 8:28 pm I was listening to an online discussion about the growth of online gambling in the U.S. and various industry figures were talking about what products were popular, which states were likely to legalise online gambling next, which companies might come out ahead and what products would be allowed. All appeared rosy in the garden, except perhaps in potentially the largest market, California, where too many vested interests are involved and it is unlikely that legalisation will happen any time soon. What continues to surprise me is that the U.S. online industry, although it contains many European players, does not pay attention to the headwinds that could be building up and isn’t looking across the Atlantic to see what has happened, and is happening, to the regulatory environment there. If the U.S. follows the same path as Europe, they could end up in the same place in a few years’ time and it’s not a very happy place. Everyone is focused on how large the U.S. online betting and gaming markets could be (a plea for some standardised terms), but a few things impact the size of the market. It’s not solely whether it is legal or not, though that seems to be what all eyes are on at the moment. Taxation and regulation also have an impact on the size of the market. Legalisation is important, but so too is the fiscal and regulatory environment. People in the U.S. industry need to understand that how the industry behaves now will impact the severity of that in the future, whether it be legalisation in new jurisdictions or changes to existing regulations. The BetRivers sportsbook in Illinois I have just finished a project looking at online gambling regulations in various European countries, trying to understand what changes are on the horizon and what is driving these changes. The message is clear: The years of significant growth are over. Yes, a number of countries are now legalising online gambling; Germany and the Netherlands are examples. But the proposed regulatory environment in those countries can hardly be described as welcoming and will cost those that currently operate in those markets dearly. GVC estimated that the new German regulations would knock £70 million from its EBITDA. Both Germany and the Netherlands have been allowing operators to target their citizens without too many conditions. The hold they had over the operators was that if they adhered to certain rules, they would be eligible for a license once the country put a regulatory regime in place. Non-compliance would be a reason for denying a license. Last week, Germany issued 15 online licenses, but don’t get too excited. These licenses are valid only until July 2021 when new licenses will be issued. The recently issued licenses allow operators to offer sports betting, poker and slot games. Online casino games are not allowed. The restrictions include a €1,000-per-week deposit limit across all operators. For online slots, stakes are limited to a maximum of €1 and the reel spin must last a minimum of five seconds. I could go on. Spain is introducing an advertising ban, with advertising allowed only between 1 and 5 a.m. and sponsorship of sports teams’ strip will not be allowed. The new chair of the Belgian Gaming Commission, Magali Clavie (a former High Court judge), has the goal of “evolving” the regulator into “Gaming Commission 2.0,” which will focus on player protection and “the control of a strictly regulated gaming sector.” René Jansen, the new chairman of the Netherlands’ Kansspelautoriteit (KSA) regulatory body, was recently quoted as saying he wants to be the “most difficult regulator in Europe”. The UK is about to embark on a review of the 2005 Gambling Act, a piece of legislation that has been called “not fit for purpose” by numerous British legislators. However, the Act, as I have said before, is really a piece of enabling legislation. The meat is in the License Conditions and Codes of Practise, which are easier to change. The UK Government may be looking for some quick wins, but gambling will not be amongst them. Do not hold your breath for a quick review. Instead, expect the recommendations to hit parliament, in the form of secondary legislation, some time in 2023. I believe the main changes we can expect to see are restrictions on advertising and sponsorship, deposit and stake limits, minimum game speeds and a statutory levy. The industry may be able to persuade the Government that a blanket one-size-fits-all deposit limit is not a good idea and that a better alternative is a default level imposed that can be adjusted upwards if the player can justify to the operator that he or she can afford a higher limit. The review in the UK, changes to legislation and regulations in Spain and proposed in Belgium, strict proposed regulations in the Netherlands and Germany are all part of a crackdown on online gambling across Europe. I believe this clamping down is a reaction to the “wall-to-wall” presence of online gambling in Europe. It is hard to get away from it and some operators have abused their positions by, for example, blanketing television with advertising and thinking that as long as the advertisement says “play responsibly,” it is OK. In many people’s minds, it isn’t. A recent poll by Survation UK found that British sports fans by a margin of four to three agreed with the statement, “All gambling sponsorship and promotion in football (soccer) should end.” Fully 26 out of the top 44 British football teams have betting companies’ logos on their strip. The U.S. industry is falling into the same trap. Investors are excited about the prospect of the legalisation of online betting and, if the next president can be persuaded to change the federal government’s view of the Wire Act, casino games too. They are throwing money at online gambling companies that, flush with investor funds, are promoting heavily and signing eye-wateringly large sports sponsorship agreements in the hope that they can outspend their competition and that the losses they incur now will convert into market share and profits in the future. I worry that this activity is firing up the anti-gambling lobby and is bringing forward higher taxation and tougher regulations. A recent example of a not-so-smart action that draws the ire of those who do not approve of gambling was taken by Barstools Sports (owned by Penn National Gaming) in the form of a blog that tries to appeal to a younger demographic, with edgy, off centre, laddish content. They posted an image on their social media account of a very young child holding a sign that read: “Daddy I need -3.5.” After an outburst of indignation, the company said the image was a mistake. It had meant to post a different one and the image of the young child was taken down — but not before It had done its job, garnering media attention both good and bad. Will it make that child want to gamble when he’s older? No. Will more underage people want to gamble because of that image? Unlikely. Did it ruffle the feathers of the anti-gambling lobby? Undoubtedly. The industry needs to get smarter and act more intelligently if it wants a rosy future.