Thoughts about COVID-19 and its impact on the industry By Andrew Tottenham, Managing Director, Tottenham & Co March 31, 2020 at 1:50 pm Most of Europe is in lockdown. The whole United States will probably follow suit in the next few days or so, as the virus spreads across the country and its devastating impact becomes widely known. There is about a month’s lag between infection and death, less if health services are overwhelmed. It must be remembered that the picture that the number of dead paints was painted three or four weeks ago. The length of time before this is “over” and the depth of the crisis will very much depend on what we do now. As I mentioned in my last article, when you discuss the exponential growth of the spread of the virus, a small change in the transmission rate can have an extremely large impact a month or so later. That is why hand washing, lockdowns and social distancing now are so important to slow the rate of transmission. Slowing the rate of transmission will “flatten the curve”; that also means lengthening the period of this crisis, but reducing fatalities, giving us enough time, perhaps, to develop effective treatments and vaccines. We hear from some political leaders that “lockdowns” and “social distancing” will be relaxed in a few weeks. Others are a bit more realistic and forecast that it will be some time in the summer or beyond. I think the reality is this: We still don’t know enough about how the disease is spreading, how it infects people, how long they stay infectious and people’s actual behaviour during these lockdown periods to state with any certainty when this relaxation might occur — more time is needed. All land-based gambling venues in Europe are closed. But online gambling continues to be up and running and provided personnel can be distanced from one another, the health impact on employees should be low. Most regulated and responsible operators realise the increased risk that isolation will have for their customers in terms of gambling harms and are taking actions to mitigate that risk. This will be extremely important when we come out of the other end of this catastrophe and the continent-wide clampdown on the gambling industry, which has been in abeyance, restarts from where it left off. The industry needs to demonstrate now that it is responsible and can be trusted; now is the time to earn that trust. If it succeeds in lowering the temperature of the debate and adding some scientific rigour, the measures imposed by legislators and regulators might be less damaging than otherwise. There is a risk that governments will be looking to replenish their coffers by increasing taxes and gambling revenues will be seen as a soft target. Unfortunately, the actions of a few irresponsible operators could scupper that chance. Already, the media is criticising the whole industry for the irresponsible actions of a few operators; two based out of Russia were mentioned in a recent Daily Mail article. There’s nothing the regulators or European operators can do about that, but that doesn’t stop “Mr. Angry”. The online sector has seen two effects. Nearly all sporting events have been cancelled, which means little to bet on and revenues have already declined substantially. Analysts are predicting, even with the substitution effect of betting on virtual sports and obscure events (for Europeans) such as table tennis and Japanese baseball, that it could be as much as a 70% decline in revenue if the crisis continues and events are cancelled for the remainder of the year. On the upside, online casino games have seen a surge in activity of up 20%, which has to date partially compensated for the lack of revenue from betting. Players may have more time on their hands, one of the two essential components for gambling (the other is money), but we are only in the first weeks of this crisis and many are worried about what the future might hold for them. Will I still have a job? Will I still be paid? In times of uncertainty, people will reduce spending on discretionary items and gambling is discretionary. If we go into a steep recession as some economists are predicting, demand may decrease dramatically. Lotteries, which depend on retail sales and impulse purchases at the checkouts, are reporting revenues down 25% to 30%, and a decline in the size of prizes may lead to a further drop in sales. The longer this goes on, the impact on land-based operators and suppliers could be substantial. Governments may be helping out with payments to furloughed employees, but rents on premises still need to be paid and debt still needs to be serviced. Highly leveraged companies, usually those that have been involved in private-equity buyouts, will face a cash squeeze, sooner or later. Strong balance sheets will survive. Certainly, we will see some companies go to the wall because of this pandemic. When this crisis is over, what will the world look like? Will demand just bounce back? Will things go back to as they were before? Firstly, I do not think demand will “bounce” back. We are likely to be in a deep recession; demand will creep back slowly as consumer confidence returns. Initially, it may be that venues (casinos, bars, restaurants, etc.) will be allowed to open, but with limited occupancy and strict social-distancing rules applied. That presents another challenge for operators, one I will discuss in a future article. The psychological impact may be deeper. If the crisis has been severe, perhaps people will become less social, unwilling to go to places where large crowds congregate, going out less frequently and to smaller venues where there will be fewer people. Will people want to get on airplanes where they are packed in shoulder to shoulder with 200 or more of their fellow passengers? It is a bit of a chicken and egg; airlines will only add capacity as and when demand is demonstrated and without capacity, it is difficult to demonstrate demand. Hotels may not want to open all their rooms at once, but slowly add capacity as demand returns. This will certainly have a depressing effect on the demand for leisure destinations that depend on tourism. It is important not to downplay the psychological impact. I was reminded that the Blitz during the Second World War (and I am not downplaying it), nightly blanket-bombing raids from the skies above the UK, lasted only 11 weeks, yet it has had and still has a major effect on the national psyche. Truth be told, we do not yet have answers to all of these questions. We are only at the beginning stages of this crisis. As events unfold, the picture of the future will become clearer and plans can be put in place to reopen shuttered premises. Until then, we must stay home and wash our hands frequently.