It’s been a challenging year for igaming companies Down Under, but unfortunately the regulatory headwinds show no signs of abating, writes Joanne Christie
To say it’s been a tough year for igaming companies Down Under would be something of an understatement. The passing of the draconian Interactive Gambling Amendment Bill in August shut down the country’s online casino and poker markets, as well as one of the more profitable products for sports betting operators: in-play.
And by all accounts, there’s worse to come for the country’s remaining igaming firms – there’s serious talk about a nationwide point of consumption tax, gambling advertisements will soon be banned during live sport broadcasts before 8.30pm and huge introductory offers are also on their way out.
Even before all the changes were mooted, most of Australia’s big online sports betting firms, certainly those relatively recent entrants with their roots in the UK, were struggling to reach profitability Down Under.
All conquering online giant Bet365 has even gotten off to a slow start in Australia – after heavy losses in its first two years of operation, it finally turned a profit in the year ending March this year, albeit only a very modest one of A$1.2m. And William Hill Australia’s profits fell 85% in the first half of this year to just A$1.1m.
Paddy Power Betfair-owned Sportsbet is the clear exception, with healthy profits of £46m ($80.4m) for the first half of the year, although its market-leading position was well established before it was bought by Paddy Power in 2010.
Even so, Sportsbet CEO Cormac Barry says its business has been hit hard by the in-play ban. “We’ve seen the amount of revenue from live betting near halve from around 15% to about 8% per cent of the business.”
He concedes, however, that some of these losses are being recouped in other areas. “Live play to some degree cannibalised other products, and its prohibition has led to turnover migrating back to those products at Sportsbet and for those looking to bet live, back to offshore operators.”
Unibet’s general manager for Australia Peter Staunton has a similar view: “It has had an impact as this was one of our fastest growing products. In a digital economy, customers will find what they are looking for only a click away and in this case it is often in markets where regulation and compliance is less ambitious than in Australia.
“We believe that bringing all products in under Australian regulation is the only way to provide a safe, secure and fair gambling environment for everyone; customers, operators, regulators, taxpayers, etc.”
Stephen Conroy, executive director at Responsible Wagering Australia, the organisation that was formed to represent the interests of the country’s online bookmakers after the Australian Wagering Council disbanded last year, says the in-play ban simply pushes people offshore.
“The restriction that is in place undermines the integrity of sporting events,” he says. “So long as the ban is in place, disreputable offshore providers will continue to flourish through their opportunity to actively undermine the integrity of Australian sporting events.”
Although online operators would naturally argue that governments should be more permissive to avoid punters going offshore where they face lower consumer protections, in Australia’s case it is certainly an argument that seems to hold weight.
Earlier this year, as legitimate casino and poker sites were preparing to pull out of the Australian market to abide by the new laws, unregulated operators were flagrantly planning to break them.
In July US-facing Ignition Casino launched in the Australian market and affiliates told iGB in August that they’d been approached by operators including Bodog, Rival and RTG, which were all preparing new offerings to cash in on the pullout of the licensed operators.
In September, Australia’s Black Economy Taskforce recommended a crackdown on illegal gambling sites after an investigation found that there were at least 10 illegal exchanges operating in the country, with a combined turnover of $1bn annually.
But if the government’s aim is to do away with unfair competition, it’s hard to see how it can achieve this and add all the additional burdens onto the sector currently being proposed. By far the biggest threat on the horizon is the point of consumption (PoC) tax being bandied about by policymakers at present.
From place- to point-of-consumption
After South Australia brought in a 15% point of consumption tax in July this year, other states have taken notice and Western Australia has announced it will introduce a similar tax in January 2019.
There’s also talk of a national PoC tax, although individual states aren’t too happy at the idea the federal government will collect the tax.
Regardless of whether it’s state or federal bodies which collect the tax, it’s a disaster for the sector, says Conroy. “If a 15% South Australian-style PoC tax was implemented nationwide, it would wipe out the entire profitability of the sector, and jeopardise the more than 2,000 Australian jobs the industry directly provides.
“Australian wagering providers already pay a 10% consumption tax through the GST and hundreds of millions of dollars in product fees to racing and sporting codes nationwide – a 15% PoC tax on top of this would make Australia the least competitive jurisdiction in the world for wagering service providers.”
As the RWA sees it, a 15% POC that doesn’t allow a deduction for the 10% GST already paid is not viable, although Unibet’s Staunton says “a POC based on 5.91% of net wagering revenue in combination with the 9.09 % GST rate resulting in a an effective 15% consumption tax rate” might be palatable for the sector.
As well as hitting profits – and he estimates Sportsbet’s will be halved – Barry says a POC would have other repercussions for the sector. “The tax has the potential to drive consolidation and reduce demand for marketing assets, reduce innovation and generally reduce competition.
“I think inevitably this scenario would lead to worse outcomes for consumers and ultimately those sporting codes who are dependent on wagering for their funding, e.g. racing.”
Survival of the biggest
Although undoubtedly a huge blow to the big operators such as Sportsbet and the other members of the RWC – bet365, Betfair, CrownBet, Ladbrokes and Unibet – these operators would also be the most likely to survive the introduction of a PoC, particularly when combined with other regulatory changes coming in.
It is expected that the television advertising restrictions will come into play in March following a government decision earlier this year. Both Barry and Conroy say they support the move as it should help improve community perceptions about the overload of gambling advertising.
For his part, Staunton says: “I don’t want to speculate in this but long-term I don’t see any major impact.”
In fact, for these operators it could be a blessing in disguise – they can cut marketing budgets safe in the knowledge other operators aren’t gaining exposure to new audiences and as their brands are already established, they’re likely to be at the top of punters’ minds anyway.
The introductory offers ban could benefit the big operators in the same way. Rather than competing with new entrants willing to throw cash away to steal market share from them, they can focus on maintaining customer loyalty in other ways.
It’s likely new entrants to the Australian market that the advertising and introductory bet restrictions are likely to hit hardest.
Without the ability to advertise during the sporting events the nation is so enamoured with and without any way of enticing customers with introductory offers, it’s hard to see how they could encroach on the territory of established operators such as Sportsbet.
Take new sportsbook Neds, for example, spearheaded by former Ladbrokes CEO Dean Shannon. It launched in October with an A$10m advertising campaign and an A$500 sign-up offer.
If neither of those options are available to new operators in future, one has to wonder how they’ll make their mark in an already crowded industry.
Unfortunately, as it happens Neds’ advertising campaign didn’t go down too well anyway, with the country’s Advertising Standards Bureau banning two of its ads for promoting excessive gambling.
Plus, the lottery betting offering it had previously announced it was planning to launch has not yet materialised and perhaps never will given Lottoland’s travails in Australia and CrownBet’s decision to pull its lottery betting site just weeks after launch.
So for both new operators and established ones, the Australian market is a difficult one to navigate at the moment.
Given the fact that year in, year out Australians come out on top of the world when it comes to per capita spending on gambling, there’s little risk that demand from punters is about to dry up.
But with regulations potentially making regulated markets unprofitable unless operators dramatically increase their margins, there’s certainly a risk more and more punters will look further afield to get their bets on.
Related articles: Australia faces regulatory overhaul as Senate passes bill
Australia to ban betting ads during live sports events
Australia to ban online gambling sign-up offers
Tough choices ahead for Australia-facing affiliates
Illegal betting exchanges in Australia worth almost €7bn
South Australia reveals country’s first interstate gambling tax
Australia considers point-of-consumption online betting tax
Fair go, mate: is Lottoland an easy scapegoat?