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iGB Market Monitor: clouds on the horizon for UK market, but some silver linings too

| By Joanne Christie | Reading Time: 5 minutes
The phenomenal growth of the UK igaming market in recent years has led some to question whether the strong growth trends have now run their course.

The phenomenal growth of the UK igaming market in recent years has led some to question whether the strong growth trends have now run their course. Recent results from leading operators provide little clarity and in terms of player numbers and trends, the Gambling Commission’s UK participation survey figures show, also, a mixed bag.

Of particular concern to the igaming operators will be the public’s perception of gambling. Data collected by the Commission for its 2016 annual report revealed some worrying findings when it comes to trust in gambling firms.

If there was any doubt over the effect of what many see as the wall-to-wall gambling advertising on TV during sporting events and the very public slanging match over fixed-odds betting terminals (FOBTs), then the figures for trust should prove difficult reading for operators.

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When the Commission began surveying respondents on whether or not they “Agree that gambling is conducted fairly and can be trusted” back in 2008, a reassuring 48.8% of all responses were in the affirmative.

Fast forward to last year and that number had fallen to 34.4%. Perhaps even more alarming is the fact that among those who have gambled in the past 12 months, the percentage agreeing has fallen a whopping 23 percentage points, from 60.7% in 2008 to 37.7% last year.

Promotional offers in the firing line
The Commission has linked this decline in trust to players’ concerns about unfair terms and conditions, and the odds offered by gambling companies, which is perhaps not altogether surprising given it was the Gambling Commission itself that asked the Competition and Markets Authority (CMA) last year to instigate a probe into unfair terms in the online gambling sector.

Of particular concern to the Commission are free bets and sign-up promotions that lure players in with seemingly free cash that has to be turned over many times before players can actually access it.

Offers that require players to play winnings over and over again have long been a bugbear of punters, but despite this they remain the most important marketing tool in the igaming firm’s armoury. Looking at the proportion of online gamblers prompted to spend money by advertising, the most regular prompt remains free bets and bonuses at 31%.

Given that the second most enticing channel, at 24%, was TV advertising, operators are likely to be concerned about the regulatory scrutiny both channels are under right now.

While the CMA review has promotional offers in its sights, the Triennial review — originally focused on FOBTs and social responsibility — was expanded last year to also examine pre-watershed gambling ads, with many fearful a ban on pre-watershed advertising around sports events could be the end result.

If both regulatory bodies hand down rulings that are unfavourable to the industry, it seems clear the marketing models of the biggest operators will be forced to change drastically. That being said, whatever the result, an end to the Triennial review would also likely mean an end to the war of words between various stakeholders on FOBTs and it will surely be easier for operators to work on improving public perception without this background noise.

In this vein, it may even prove a good thing if gambling advertising is reined in – the Gambling Commission figures revealed that 78% of respondents believe there are too many opportunities to gamble. Without the plethora of TV ads accompanying sporting events, they may begin to feel differently.

For some operators it may be a blessing in disguise in other ways – while some of the fears over the UK market this year surround the fact there is no summer football tournament, the reality for many operators is that the extra TV marketing spend associated with big events simply isn’t matched by corresponding revenue rises.

A storm may be brewing…
But while there may be a silver lining to the regulatory concerns about the UK market, the other clouds on the UK’s horizon are much darker and less likely to blow away. The situation in the wider economy cannot be discounted – inflation is up, house prices are stagnating, disposable income growth is slowing, the pound is falling and of course, the process of Brexit is now firmly under way.

As Paul Leyland, partner at gambling consultancy Regulus Partners, pointed out recently, “a bumpy ride for the UK consumer is likely to translate directly into a very bumpy ride for gambling operators”.

It may be some time before we are able to properly assess the affect on igaming operators, partly due to a lack of current information. Those operators that have reported interim 2016 results recently have been something of a mixed bag. Paddy Power Betfair’s regulated markets revenue, of which the UK makes up a large percentage, was up 13% on a constant currency basis, but William Hill experienced a 3% drop in online net revenue.

A better picture of the market overall will emerge once major competitors report, particularly bet365, and the next set of Gambling Commission data for the year to March 2017 is published, although the latter will not be until much later this year.

…but rain is holding off for now
However, if we look solely at the current participation data, obtained by online and telephone surveys in a four-week period in December, enthusiasm for igaming appears to still be buoyant.

Player participation numbers show that players increased from 14.5% in 2015 to 17.3% in 2016. Even better for igaming firms, when lottery is stripped out, the rise is even more substantial, from 9.3% to 12.8%.

It seems that Camelot’s price rises and changes to the structure of its prizes over recent years have not impressed players and the number of players taking part in National Lottery draws has fallen a significant 13 percentage points since 2013 – from 43% to 30% last year.

Given the flagging interest in the National Lottery, it will be interesting to see whether secondary lottery operators such as Lottoland are able to reinvigorate interest in a vertical that is otherwise in long-term decline. 

As we can see from the table below, online participation for 2016 was up in all age groups except the 45-54 group, which fell slightly. Though there was a noticeable rise in the much-coveted — by igaming operators at least — Millennial age group from 17% to 21%, the highest participation rate for online was the 35-44 group at 22%.

Interestingly, there was an almost doubling of the 65+ group from 7% to 12%, and an increase from 13% to 17% in the 55-64 bracket, which may reflect the fact that those in older age groups are increasingly becoming tech-savvy and therefore provide new opportunities for igaming operators.

One thing that may help operators get their Millennial numbers up even further is social media, where last year’s survey also showed encouraging results. The highest rates of social media following of gambling companies occurred within the 18-24 and 25-34 age groups, which both showed rates of 50%. Perhaps unsurprisingly, Facebook and Twitter were the most popular platforms.

Although this latest data is certainly encouraging for the igaming industry in that it shows player numbers are still trending upwards, even if trust is falling, many still have concerns that a dip in consumer sentiment in the UK could set the sector on a downward spiral.

These latest figures were produced before Article 50 was triggered and news on the country’s economy seems to get worse with every new set of economic data. As analysts have repeatedly pointed out, leisure sector industries such as gambling rely heavily on consumers’ discretionary spending power and if this falls significantly, it would be foolish to believe igaming’s growth could continue uninterrupted. 

Related articles: FOBT fiasco is an indictment of all stakeholders (paywall)
iGB Market Monitor April 2017: UK and Denmark (paywall)
DCMS to review gaming machines, social responsibility measures
Secondary lottery providers step up the competition against monopolies (paywall)
Betting operators have spent £456m on TV ads in UK since 2012

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