Tottenham Report: Channelisation – the key to successful regulation? By Hannah Gannagé-Stewart, CDC Gaming Reports June 23, 2021 at 10:00 pm The Danish regulator Spillemyndigheden released a self-congratulatory notice earlier this month, announcing that it had achieved 90% channelisation in 2020. Hitting this milestone probably felt worth shouting about, given that ‘channelisation’ has become somewhat of a buzzword and bone of contention in European regulatory circles of late. It is an interestingly overlooked factor of many policy discussions among those outside of the industry. While player protection is ostensibly top of everyone’s list of reasons for having a regulated market (as well as the convenient kickback of tax revenue, of course), that punters may, if they so wish, choose to bet with non-regulated operators or the so-called black market is rarely considered in great detail. In order to prevent that from happening, argue most industry trade bodies, regulation should be designed to enable licensed operators to out-compete the black market. Most players would prefer to bet with a licensed operator; they feel safer, feel their money is protected and don’t generally wish to play any part in breaking the law. However, critics of non-competitive regulatory regimes would argue that features such as betting limits, bans on bonusing and in-play betting, and high taxation can lead to black-market operators being in a position to provide a more appealing product. In Denmark, it seems, only 10% of the population are currently drawn to offshore operators. We’re left in the dark as to why that may be, although a recent report by H2 Gambling Capital, commissioned by the International Betting Integrity Association (IBIA), reveals that the Danish celebrations may be short lived. While rated among the optimum betting markets, with an impressive 86 points, Denmark “is likely to see onshore channelisation fall” according to the report. This is a result of a new betting tax that was introduced earlier this year, raising gross gambling revenue tax (GGR) from 20% to 28%. “The government has conceded that this is likely to make offshore operators more attractive and result in a 9% reduction in the onshore channelling rate, which was calculated at a healthy 89% in 2019”, the report points out. Meanwhile, Spain’s online betting tax was reduced from 25% to 20% GGR in 2018, pushing its onshore channelling rate up from 71% in 2017 to 76% in 2019. So, as we can see, these legislative tweaks matter. In Denmark’s case, what is perhaps more of a shame is that it took some time for the market to see significant improvement after liberalising in 2012. At that stage, channelisation was 69%, not too far behind Spain’s current level – meaning it took seven years to improve channelisation by 10 percentage points. The H2 Gambling Capital report places Great Britain top of its list of the most optimal markets and cites the jurisdiction as having a 99% channelisation rate. This, of course, is before any regulatory changes that may be introduced as a result of the ongoing review of the Gambling Act of 2005. One market that has regularly come under fire for failing to achieve optimum channelisation is Sweden. Its tax rate of 18% GGR on the licensed online betting market does fall within acceptable levels for channelisation. However, the country has seen its channelisation rate fall from an initial 91%, according to H2, to between 80% and 85%. The reasons for this are multiple, but include the fact that in Sweden, licensed operators are not able to offer bonuses or promotions related to major sporting events, which offshore operators can. In a report into the channelisation issue in Sweden published last year by Copenhagen Economics on behalf of Swedish Trade Association for Online Gambling, or BOS (Branschföreningen för Onlinespel), it was found that licensed sports betting sites faced a medium-high degree of competition from unlicensed sites. Online casinos in Sweden had a similar problem, with channelisation in that vertical even lower, at between 72% and 78% and falling, according to the report. Meanwhile, the Swedish government applied a raft of extra limitations on the market during the pandemic, again in the name of public health, but possibly leading to the unintended consequence of channelling players out of a safe regulated environment into the black market. Earlier this month, Sweden’s Constitutional Committee of the Riksdag took aim at the measures, which have repeatedly been extended. In a statement the committee said, “It has become clear that [Minister for Social Security Ardalan Shekarabi] has based his statement on information that does not allow for a definite conclusion as to whether gambling had increased or not. The minister is responsible for his opinions and also for the information he provides being correct.” In other words, the continuation of draconian restrictions on the market has not been informed by data that suggests gambling has increased as a result of the pandemic. It is a common story within this industry that frightening statistics are bandied about, often informing policy, but that most of those close to the industry agree we are yet to even decide the best metrics for measuring harm in gambling, let alone applying them to quantify the problem. Perhaps the answer to the channelisation problem is not first and foremost to quibble over tax rates or restricted features, but to agree on a set of universal metrics for measuring harm. Once the industry is armed with that data, policy makers can be better educated on where the risks truly lie and what the consequences of certain types of regulatory manipulation are, not just on operators and their ability to compete with the black market, but, ultimately, on the player.