If you were looking for a good investment opportunity 10 or 15 years ago, buying shares in an online gambling company would have been a good bet. The industry in the UK has been booming for well over a decade now. The most recent figures estimate gross gaming yield from the remote sector to be over £5 billion annually, with healthy tax receipts in excess of £2 billion. Since the 2005 Gambling Act, operators have taken full advantage of liberal regulation in the UK to turn us into a nation of gamblers. Advertising is everywhere, from TV to print, search engines to social media apps, and close to 50% of Brits bet in one form or another each month.
But whilst the industry has grown exponentially in one of the world’s biggest markets, at the same time the voice of protest has grown louder within the media and from MPs in parliament calling for tighter regulation to tackle social issues caused by gambling. It is now estimated that around 0.7% of the population could have a gambling problem and after measures were taken to tackle the issue offline last year, in 2020 it looks like it will the online sector’s turn to have its wings clipped.
So, what changes can we expect, and what impact are they likely to have?
Ban on Credit Cards
The first big change to effect online gambling operators will be a ban on credit cards to fund accounts, to be introduced in April 2020. It is estimated that upwards of 10% of all deposits made on gambling sites are through credit cards. The Gambling Commission has identified this as a key issue for those with addictions. Players can rack up huge debts by gambling money that is not their own in an effort to chase down their losses.
Reduced Maximum Stakes
In 2019, after a vociferous media campaign, new regulations reduced the maximum bets at Fixed Odds Betting Terminals (FOBTs) in betting shops to £2 from £100. It is now expected that a similar reduction may be enforced for online slots and casino games, following a review in the first half of 2020. It is widely believed that such a change would have a significant impact on the UK market. Indeed, hundreds of millions of pounds were wiped off the value of gambling companies when the regulator announced it was considering the move. Whilst many players stake less than £2 per spin on slots, high rollers who account for a large proportion of the revenue from online games, have a greater propensity to gamble with bigger stakes. Should it happen then this will be one of the most significant changes in regulation in the next 12 to 24 months.
Restrictions on VIP and Loyalty Rewards
Many recovering gambling addicts have commented that VIP managers offered aggressive bonuses and loyalty rewards to keep them playing even when they felt like they wanted to stop. It is expected that the Gambling Commission will restrict or even ban the kind of promotions that operators can offer to their biggest spending customers in an effort to reduce problem gambling. Any regulation that would reduce the revenue from the highest value customers in an operator’s database will have a significant impact on gross gaming yield, and this is another area of regulation that gambling companies will fear.
Restrictions on Advertising
In 2017 the industry spent £1.5 billion on advertising, including TV, print, online and sponsorship deals like Premier League Football clubs and TV shows. The proliferation of ads and the seamless way in which they are meshed into every form of media, as well as aligned with the most popular recreational activities, including big sporting events, has contributed to what opponents of the industry refer to as the ‘normalisation’ of gambling, which itself is a contributing factor in the growth of problem gambling. In particular, advertising on social media, which targets all age groups, including under 18s who are too young to gamble, has come under fire. It is likely that new restrictions will see a ban on betting companies advertising across social media, and on TV during big sports fixtures. Further regulation may restrict the way in which operators use third parties like affiliate marketing websites as well.
These are just four areas in which the online gambling industry will face tougher regulations in 2020. A cross party parliamentary group is also working with the UK Gambling Commission to bring about a new gambling act in the next five years that will encompass each of these areas and more. Whatever happens, gambling companies are in for a tough run, and changes will inevitably be reflected in reduced share values as the market adjusts to new revenue expectations.