Marketing incentives and inducements to gamble

New Gambling Commission CEO Sarah Harrison recently highlighted ongoing concerns over inducements to gamble. However, as David Clifton of Clifton Davies Consultancy details, the regulators have yet to formulate a code of  practice capable of distinguishing between innocuous and potentially harmful  forms, necessitating that operators err firmly on the side of caution when it comes to marketing incentives.

Sarah Harrison, Chief Executive of the Gambling Commission since October 2015, spoke at the World Regulatory Briefing during ICE on 2 February 2016.

Her speech covered:

• an update on the point of consumption regime a year on from implementation,
• future work on: issues relating to marketing and advertising
• the importance of fair and open terms and conditions
• responsible gambling
• market innovations, and
• co-operation with other jurisdictions

Her comments on the marketing and advertising of online gambling focused on failings by large and small operators alike, including:

• failures to comply with the advertising codes supervised by the UK’s Advertising Standards Authority; and
• the level of breaches in relation to ensuring that significant terms, associated with free bets and bonus offers, are prominent within gambling advertisements.

Free bets and bonus offers form just one part of marketing promotions but they serve to highlight once again the Commission’s concerns in relation to inducements to gamble.

A troubled history: incentives and the regulator

Historically, with the notable exception of substantial restrictions imposed on landbased casinos, there were few restrictions prior to implementation of the Gambling Act 2005 on the inducements that gambling operators could offer to customers.

As a result, the offering of inducements in other sectors of the gambling industry was commonplace, with some offshore remote operators offering matching initial stakes or adding money to accounts when customers’ spending reached certain levels. In addition, some bookmakers offered free on and offcourse bets.

During the Parliamentary debates on what was the the draft Gambling Bill in 2004, it was clear that the Department for Culture Media and Sport did not propose a general prohibition on inducements as it was “not convinced that all inducements represent a risk that would justify a measure so broad in its effect.”

The Joint Committee on the draft Bill agreed, but said that it believed that the licensing objective to protect the vulnerable would make it incumbent on the Commission to use its powers to prevent inducements which amounted to predatory marketing and which threatened the ability of consumers to control their gambling behaviour.

Section 81(1) of the Gambling Act 2005 accordingly provides that a condition may be attached by the Gambling Commission to an operating licence relating, amongst other things, to making offers or inducements designed to induce participation in the licensed gambling activities or being party to arrangements for inducing, permitting or assisting person to gamble.

The Commission set out its proposed approach to such a licence condition when it consulted on what was then the first draft of its Licence Conditions and Codes of Practice (“LCCP”) in March 2006.

It said: “In determining our approach we need to balance operators’ legitimate use of inducements and other marketing incentives to differentiate themselves from competitors and to attract customers against the risk that inducements may contribute to problem gambling.

To prevent ‘normal’ marketing in the remote sphere would put operations regulated in this jurisdiction at a commercial disadvantage to those regulated elsewhere, and might discourage location here and encourage the use of off-shore sites.”

By November 2006, it was clear that the Commission’s willingness to allow operators ordinary commercial freedom to offer their customers incentives to gamble was going to be subject to the proviso that, by doing so, there would be no serious risk of those inducements frustrating the licensing objectives. Encouraging loss-chasing was identified as a specific concern.

A number of queries about exactly what would be permitted under the new regime led to amended provisions finding their way into the final form of the LCCP that applied with effect from the Gambling Act 2005 coming into full force and effect in September 2007.

Those provisions required operators to apply some form of judgment to the incentives they provided to their customers to ensure that they were socially responsible.

The Commission explained that this was “both because it would be impossible to identify every variation of possible schemes and because we want operators to have discretion to devise arrangements within the parameters we set”.

However, as soon as October 2008, the Commission made further changes to the marketing provisions of the LCCP, saying at the time: “it is hard to state with perfect clarity what is acceptable as marketing activity (which is intended to encourage customers to gamble with a particular operator) and what would constitute unacceptable pressure to gamble more than someone otherwise intends”.

Explaining the difficulties it faced in this respect, the Commission commented that the LCCP itself was not the best place to provide examples, but assured operators that it would “provide further advice as to what is or is not acceptable in the Commission’s view by another means”.

In fact, the Commission has yet to publish such “further advice”. In its August 2014 consultation document in relation to the then proposed amendments to the social responsibility provisions in the LCCP, it said that: “formulation of a code of practice capable of distinguishing between the innocuous form of inducement and the potentially harmful has proved difficult”, and referred instead to “a consensus that the acceptability of an inducement or marketing tool depends upon the context in which it is offered or accepted and on its impact on the licensing objectives”.

As a result, the LCCP’s provisions relating to rewards and bonuses continue to cause uncertainty on the part of operators, most commonly in relation to those parts of social responsibility code provision 5.1.1 that state:

• “neither the value nor amount of the benefit is dependent on the customer gambling for a pre-determined length of time or with a pre-determined frequency” and
• “if the value of the benefit increases with the amount the customer spends it does so at a rate no greater than that at which the amount spent increases”

In its Strengthening Social Responsibility document published in February 2015, the Commission acknowledged that further work was needed to “improve the drafting of this code of practice to protect the principle of socially responsible rewards but to avoid prohibiting legitimate and commercially necessary practices”. It is to be hoped therefore that greater guidance will become available to better distinguish between acceptable rewards and those that are considered by the Commission to be inappropriate.

Navigating the terrain

In the meantime:

• ordinary code provision 5.1.2 should be borne in mind, namely: “licensees should only offer incentive or reward schemes in which the benefit available is proportionate to the type and level of customers’ gambling” as too should the following relatively recent comments by the Commission:
• the code is not intended to prohibit a structured approach to rewarding customers, in which a higher level of spend over a significant period attracts a higher benefit;
• an analogy to this might be the different levels of reward offered to occasional customers or to frequent flyers with an airline;
• what the code does seek to do is to restrict operators inducing customers to increase the ‘intensity’ of their gambling;
• the code was attempting to prohibit activity being specified that would push customers into excessive play rather than to prevent any qualifying period or spend being defined; and the requirement for there to be some gambling activity means that the operator can prevent ‘bonus abuse’ whereby customers for example deposit money in an account to receive a free bet and withdraw their funds (and their bonus) without placing any bets with the operator.

Pending greater clarity from the Commission, readers should also bear in mind the following advice from the CAP Executive in October 2014: “Although they will vary depending on the type of gambling and player, inducements and rewards should be proportionate to the amount of money and time spent by the player. They should neither increase at a greater rate if greater amounts of time or money are spent nor encourage players to gamble substantial amounts at regular and fixed frequencies or within a fixed and limited period.

They should also be proportionate to the gambling environment. For example, a one-off reward of a free bet after £50 has been wagered could be acceptable provided giving a free bet is not unusual at that level for that type of gambling”.

Finally, and picking up again on specific concern expressed by Sarah Harrison in her recent speech that failings in the following respects harm the reputation of the industry, it must always be remembered that:

• marketing material must not amount to or involve misleading actions or misleading omissions;
• any incentive, inducement or reward must be set out clearly, including all significant terms and conditions that apply;
• all conditions and factors which are likely to affect a consumer’s decision to participate in a promotional offer must appear, with sufficient prominence, in the advertisement itself; and
• the Commission will be maintaining its focus on the above areas throughout the coming year.