In 2016, it’s not just operators that carry the burden of regulatory compliance and certification.
Suppliers too have to develop products and services to conform with specific regional requirements. This is one of the factors that has driven the current wave of consolidation involving both gambling operators and suppliers, as barriers to entry have increased.
The trend towards regulation in virtually all European markets has resulted in suppliers incurring a huge range of additional costs, including those relating to technical certification, licensing and taxation considerations. In addition, suppliers are finding themselves squeezed financially, with operators incurring increased costs and, of course, local gambling taxes.
Sports betting remains the most dominant form of gambling in terms of sheer turnover, and the sportsbook suppliers wishing to expand into the regulated markets of Europe have had to revise or alter their technical systems in order to comply with regulation.
Gross gaming revenue for gambling overall within the EU28 stands at around €26.6bn a year, with sports betting accounting for €15bn, 37% of which is generated through online operators. The online market in Europe as a whole still has some way to reach maturity, even though markets like the UK are arguably already saturated. The increased financial burden on operators and suppliers, has been a contributing factor at least, in the increased number of trade sales and high-level mergers, such as Ladbrokes/Coral, Paddy Power/Betfair, and most recently Openbet.
Local regulations, mass complexity
Regulation is here to stay and the landscape in Europe, where most jurisdictions have separate licensing requirements and technical standards, is far from ideal for iGaming businesses.
Spain, for example, has a unique regulatory system with one regulator for online operators and suppliers, and around 17 different regional regulators for land-based sports betting. For sports betting terminals (SSBTs) as an example, an operator can offer these in bars and clubs in the Basque region, but not in Madrid. Sports betting also has no blanket definition, with operators requiring additional licences to offer special markets, like politics and eSports, as well as a separate licence for horse and dog racing.
A further example of local regulation complexity, also from Spain, is that the Spanish DGOJ does not permit players to deposit funds into their account and bet on an event that has already begun. For example, if Real Madrid are playing Barcelona, and 10 minutes into the game a user deposits 20 euros into their sports betting account, the system must restrict the player from using these funds to bet on this game or any other match that started before the deposit was made. Finally, one must add that licensing in Spain is only available during certain “windows”, resulting in a rush to submit applications prior to the deadlines.
In Italy, regulators are heavily involved in most aspects of operators’ businesses, for sports betting dot it (.it) operators at least. Although there is no requirement for supplier licensing, being compliant to the unique standards is a challenge for all suppliers. AAMS (Amministrazione Autonoma dei Monopoli di Stado) involvement means that operators are largely required to seek approval for the sports and events they are wishing to offer in pre-match and live, and are required to communicate all bets to the AAMS and are limited in terms of the maximum win.
Last year saw many operators and suppliers leave the heavily saturated UK market, faced with not only the introduction of the point-of-consumption (POC) tax but the licensing requirements for operators and B2B suppliers. Operators like Pinnacle Sports and SBObet no longer accept UK based players. The same applies to many software providers that have been well established for many years.
Soon-to-be regulated Portugal has advocated taxation on turnover, ranging from 8-16%. This is not ideal due to the way sportsbooks operate, given that users with relative modest sums in an account can turnover a much more considerable amount.
For example, a user can have 100 euros in their betting account and place many bets that are resulted and settled and turnover 500 euros. If you are taxing 8% on 500 euros, this user would incur a bill of 40 euros on an initial deposit of 100 euros. That is 40% regardless of whether they win or lose.
A well-traded sportsbook would be performing well at a margin of 10% inrunning. The operator working under the proposed Portuguese law would have no choice but to increase margins for these markets. This is not a new phenomenon – operators such as bwin have released different prices for the dot.fr and dot.it markets for a number of years. For small to mediumsized operators, having systems available with flexibility and scalability is vital.
Greece is a very unique betting market, with licensing largely closed to new entrants. However, an operator can work under someone else’s licence, as bet365 has done and attracted the largest share of the market. Changes to the regulations in Greece to bring them more in-line with other European countries have been touted for some time, but nothing has actively changed, with the Greek government currently focused on more pressing economic matters.
Spain, Italy, UK, Portugal and Greece are harsh and varied examples of how the landscape for operators and suppliers has changed in recent years. Many have understandably shifted attention away from regulated markets to focus on those yet-to-regulate and grey markets. Although a financial burden and a technical challenge, this environment can be seen as a spur for suppliers to increase the quality of their products and services in the long term.
The value of regulation
For companies that are listed on the stock market, have aspirations for an IPO, or looking at a future trade sale, all know that investors look at revenues and clients from regulated markets. These are deemed more stable and transparent. This is reflected in the prospectuses and financial reports of all the publicly listed gambling companies, with all highlighting the percentage of revenues and clients coming from regulated jurisdictions and market strategies.
Many in the industry point to Denmark as an example of regulation done right. As with most regulation, processes will be altered and adjusted every year, with nothing set in stone. In Europe at least, an all encompassing gambling regulation for the EU states would be sensible and appropriate, but unfortunately too cumbersome to advocate.
Regulation is therefore a permanent fixture for gambling operators and suppliers, and this will only advance further in the next few years. Any sports betting operator worth their salt will consider and plan for this in terms of building its technology and choosing the appropriate suppliers to equip them to grow to newly regulated markets.