Think before you legislate! By Andrew Tottenham, Managing Director, Tottenham & Co April 13, 2018 at 1:01 am With the impending Supreme Court of the United States opinion regarding whether the States have the right to offer sport betting, and whether Congress overstepped its powers with PAPSA in 1992 in limiting the number of States that can do so, many States are pre-emptively lining up to legalise online sports betting. I thought therefore I would write a short piece outlining what our politicians might want to think about before they take the plunge and allow online gambling of any kind within their jurisdictions. There have been many attempts to size the US sports betting market; this will be fairly necessary knowledge, in the event the States are given the right to offer sports betting. Some of the extant estimates are obviously spurious, because they do not understand the difference between the total amount bet (handle) and the total amount won (gross profits.) Some legislators just don’t understand the difference. You should read some of the debates. They’re hilarious. According to London-based consultancy firm Ficom Leisure, Spain looks to become a major market for online sports gambling and betting; some predictions have it reaching as much as €1.5 billion by 2023. You might then expect there to be howls of ‘Disgrace!’ and ‘Close them down!’ from the media and parliamentarians. Far from it. In fact, a bill was introduced in the Congress of Deputies, the lower house of the National Parliament, to reduce the taxes on gross win/profits from 25% to 20%. Taxes usually go up; they very rarely come down, and if they do, it is usually because of the dire economic straits of the industry, not because of its success. Late last month, the upper house of the Slovenian Parliament kicked out a proposal by the government to legalise online sports betting and allow in operators from the rest of the EU. Currently, the right to operate sports betting in Slovenia is reserved for the State monopoly, Sportna Loterija. The National Assembly passed the online sports betting bill, only to have the upper house veto. It will now need a two-thirds majority in the lower house if it is to become law. Before legislators, like those in Slovenia or Spain, start along the path of allowing online sports gambling, they might look to the UK to understand what the implications are. There is much debate around specifics: should the market be controlled by a State monopoly, should you allow only a limited number of licenses, should those licenses be restricted to the existing land-based operators, if they are limited, too, or should the licences be open to all comers. Or, perhaps, should they follow the UK’s example and allow any qualified operator into the market? I won’t examine in any depth whether or not gambling should be reserved to a State operator. I’ll only say I question why the Government should be in the business of gambling at all. And if they are, should they also provide the oversight? I can see why a regulator may wish to restrict the number of online licenses whilst it learns of the special requirements of how to regulate the online gambling sector, like they did in Spain, and over time slowly open the market to other operators as their knowledge of how to regulate and the resources available increase. As for the second question, whether the licenses should be restricted to existing operators, I have to ask why any government would. Perhaps there is a belief that online revenues will cannibalise land-based revenues, although the evidence for this is shaky at best. Studies to this point have shown that online gambling revenue tends to be mainly new money, rather than a displacement from land-based operators. In jurisdictions where land-based operators have entered the online gambling market, there is some crossover seen in their loyalty programs, but nothing like you might expect given the noise the industry has made in some countries about unfair competition. There is quite a difference between the skill sets required for land-based retail gambling and online gambling. One requires management to make sure the facility is staffed, that the staff is motivated, that the facility is clean and opens and closes on time, that there is food in the kitchens, that the gambling is well controlled and the service exceptional, and so forth. The other is essentially a digital marketing business. Admittedly, the land-based operators in Europe are now learning how to use digital tools to retain customers, increase visitation and spend. But this difference in skill sets is, I believe, the reason that the first the land-based operators who moved into the online sector lost their shirts very quickly. There is an argument to be made that, if the original licensing policy is intended to regenerate a specific town or area, restricting online licenses to operators in the regeneration area allows those operators to use their loyalty programs as incentives to bring online customers into their land-based locations. However, to my eye, it’s a weak argument, and the policy might be better served in another way. For those that just want to restrict the number of licenses, I don’t see any valid argument, full stop. Once you allow a single online license, you have effectively allowed wall-to-wall gambling. The gambling is available from one end of the jurisdiction to the other, and the number of tables, slot machines or betting opportunities is in the hundreds of thousands. Most casinos in Europe are restricted in some way: either by the number of licenses, the maximum number of table games or slot machines, or a high gambling tax rate which restricts the respective number and size by reducing the return. Online gambling faces no such restriction. It is all day, every day, everywhere, wherever your phone can go. Land-based operators who are tied to a specific location generally cannot afford to use expensive media such as television to promote their products. TV is, by definition, broadcast, not narrow cast, and it is very difficult and inefficient to target a local market (Europe, unlike the U.S., has few local TV stations) or market segment. Because online gambling is ubiquitous, television can be a very efficient form of advertising. It’s no accident that it is difficult to watch commercial television in the UK without seeing advertising for one form of online gambling or another. So legislators need to understand what they are doing when they legislate for online gambling. In particular, they need to understand that, if they do legalize and legislate it, it will immediately be omnipresent. I personally have nothing against it. I just want our parliamentarians to think a little about the implications before they take the plunge, so they are not surprised by what happens. Judging by many of the recent debates, that is not happening. Then again, parliamentarians thinking? Now there’s a thought.