Battles ahead for British bookies

In February 2020, before most people could have anticipated the scale of the impact the novel coronavirus (Covid-19) was to have on the British betting industry, or the wider world, William Hill chief executive Ulrik Bengtsson provided a prediction about how the growing crisis might affect his business.

When asked about the potential cancellation of Euro 2020, Bengtsson said it might “not necessarily [be] terrible for revenues”.

At the time, his forecast – of what seemed to be a worst-case scenario – seemed puzzling. Yet the next 10 months saw much more sport cancelled than anyone could have anticipated in February 2020, and while there was a significant revenue hit, Bengtsson’s early optimism seemed to be vindicated.

It turned out to be a year with no Grand National, no European Football Championship, no Wimbledon, no retail betting – ordinarily a £2.8bn industry – whatsoever for much of the year and much of the remaining sports cramped into an altered calendar.

Yet at William Hill, revenue was down only 16% to £1.32bn. Granted, this would be a major hit under normal circumstances, but against last year’s backdrop it looked fairly resilient given that its 2,300 betting shops make it the largest retail bookmaker in the UK.

Flutter’s Paddy Power Betfair (PPB) and Sky Betting and Gaming (SBG) divisions each saw sports revenue increase, by 5% for PPB despite the retail closures and by 26% for the online-only SBG.

Entain, meanwhile, said revenue from its British betting brands grew by 22% year-on-year, which may have been enough to at least partially offset the 40% decline from its UK retail suite.

Looking at the online market as a whole, gross sports betting yield for the operators who reported data to the Gambling Commission, representing about 80% of the market, for the 10 months from March to December 2020 came to £2.01bn.

The impact of the pandemic certainly wasn’t insignificant, but the industry weathered an apparent worst-case scenario reasonably well.

The challenges to come, however, are still numerous and could potentially have a longer-term impact.

Dark clouds forming?

The industry’s financial recovery came in part thanks to strong margins to finish the year, particularly in both October and December. Meanwhile, the crowded third quarter calendar attracted large numbers of customers.

Those trends were clear exceptions: the calendar has returned to normal and margins will normalise too. But more broadly, there is plenty ahead that will change the landscape of betting in Britain well into the future.

As online betting operators brought in £319.6m in December, the Department for Digital, Culture, Media and Sport (DCMS) launched its long-awaited review of the 2005 Gambling Act.

The announcement followed rising calls from opponents of the British gambling industry, such as the Gambling Related Harm All-Party Parliamentary Group (GRHAPPG), which has argued that British gambling legislation is outdated.

The mounting criticism of the industry that led to the review has coincided with the rise of some online products, including live betting. Will Prochaska, chief executive of gambling-related harm

charity Gambling with Lives, says live betting can pose a greater risk than normal pre-match products because of the speed of play.

“We know that the types of gambling products which create the most harm are those that are immersive and have high speeds of play,” Prochaska says. “In terms of sports betting, these specific products are in-play sports betting: that offers multiple opportunities to bet in a short space of time.

“It’s more immersive, in short it’s more addictive, and it causes more harm.”

Yet while the GRHAPPG called for a ban on online live betting in its 2020 report on the gambling industry, restrictions on live betting did not make the DCMS’s call for evidence. In fact, there was little in the review that applied specifically to betting.

But that doesn’t mean there isn’t a lot at stake for the vertical. Many of the questions under consideration deal with cross-product issues such as VIP schemes, deposit limits and marketing, which could lead to a major hit for betting revenue.

The industry – whether through recognition that change is required or recognition of its inevitability – has shown support for the review.

“We welcome the Government’s Gambling Review, which will examine the financial relationship between sports and betting operators,” Betting and Gaming Council (BGC) chair Brigid Simmonds says.

Threat to sponsorships

The most direct application of the relationship Simmonds references is sponsorship, where the English Football League has warned restrictions could lead to a £40m loss for its member clubs.

With Gambling with Lives’ The Big Step campaign having lobbied to end gambling sponsorship in sport, Prochaska says the saturation of gambling sponsorship and the potential harm that gambling can cause mean it should be brought to an end.

“It just seems wholly unnecessary to see that level of gambling exposure, especially to young people and people who may be in recovery,” he says.

Simmonds, however, argues that the funding sponsorship offers to sports provides a great benefit that must be considered amid any sponsorship ban.

“Sponsorship from betting and gaming operators is worth more than £10m a year to darts and snooker, while English Football League clubs receive around £40m a year from the industry,” she says.

She adds that betting’s support to sport is especially important right now, because of the effects of Covid-19.

“Betting operators have provided an economic lifeline throughout the pandemic to the likes of horseracing – through media rights, sponsorship and levy payments – snooker, darts, boxing, the English Football League and rugby league,” she says.

“Some sports are living on a knife-edge because of the ongoing ban on spectators, so the funding provided by our members is even more important than usual.”

Yet the BGC has shown some flexibility in this area already. When questioned by the House of Lords’ Select Committee on the Social and Economic Impact of the Gambling Industry, Simmonds said the industry would consider a voluntary ban on sponsorship. This could make a sponsorship ban among the most likely consequences of the review.

However, Neil Banbury, UK general manager for Kindred, which sponsors multiple football league clubs, argues that the issues with sponsorship could be solved by requiring operators to prove a sustainable commitment to the British market before agreeing a deal.

“There is certainly a lot of sponsorship, and I understand concerns that there may be too much, but I do not believe that means the solution is to eliminate it completely,” Banbury says. “I believe that the bar can be higher to be eligible to involve your brand as a sponsor.

“And then we do work investing in the club and community, ensuring the partnership doesn’t just benefit the club financially, but we also work with the club.

“If we move to a world where there’s a higher bar to entry and that when you are involved that you use it as a force for good, that would be a great place to be in.”

If that doesn’t happen, however, operators will have to search for new acquisition channels. With broadcast advertising under threat from restrictions as well, affiliates could increase in prominence.

Avoiding the worst?

Beyond marketing and VIP schemes – where the industry has already offered concessions such as limiting the schemes to players over 25 – the sports betting industry will hope to avoid harsher limits.

Still, there are many questions in the review that could lead to very severe consequences.

The call for evidence asks questions on hard stake, deposit and loss limits, meaning that each of these could be applied to British betting following the review.

Though Prochaska says there is a “debate to be had” on stake limits for all verticals including sports betting, Banbury argues that any absolute limits risk creating a great deal of harm.

“When it comes to limits, there’s always questions of what level, how they are brought in and whether they are brought in on a blanket level or for certain customers,” Banbury says.

“Limits can be a blocker for a customer. They can be a blocker in terms of harm, but they can also be a blocker in terms of enjoyment and if a lot is asked of a player to raise those limits, they may try to find other ways around them.

“If the limits are a requirement for all players, then you might find players looking for options outside of the regulated system.”

Arguments against the strictest regulation often involve the unregulated market, with the BGC.among those raising concerns about the looming threat

“The industry’s importance to popular national pastimes such as football, rugby league, horseracing, snooker and darts shows why it’s vital that the Government gets the balance right, and does not drive punters towards the illegal, online black market, who have no interest in supporting sport either at a grassroots or national level,” Simmonds says.

Prochaska, however, believes the industry’s invocation of the black market may not always be an answer to concerns.

“I think the argument that you shouldn’t over-regulate regulated sites because people will move to the black market, it suggests a race to the bottom,” he says, adding that action from the regulator to block unregulated sites was feasible and would be of great benefit.

“The other deep concern to me is that very few people knew about black market operators, and the BGC is almost advertising black market operators by talking about them in this way.”

If the industry avoids the strictest limits, it may have to prove it can regulate itself in a sustainable manner.

“What I see is an awful lot of greenwashing: operators promoting safer gambling programmes that put the onus on individuals to reduce harm, which studies suggest only stigmatises gambling harm,” says Prochaska “I’m not a big fan of the industry’s efforts to self-regulate.”

Banbury acknowledges that there is a poor perception around the industry. However, with the operator making efforts to be transparent about gambling-related harm, he adds that some of these perceptions come from events that are, by industry timescales, quite far in the past.

“I think that it’s important that all parties in this debate make changes based on how things are done now, not just how things were a few years ago,” Banbury says. “It’s crucial we acknowledge that we are in a much better place as an industry in terms of mitigating harm than we were a few years ago.”

Affordability under the spotlight

The first question that will affect the industry, however, comes before the review and it concerns affordability.

In a review on player interaction launched in November 2020, the Gambling Commission made a series of proposals that would change how and when operators should interact with customers who may be at the greatest risk of experiencing harm.

That includes a proposed £100 “soft cap” on deposits, with customers unable to deposit any more than this figure in a month until they pass an affordability check.

“I think affordability checks could be a key tool in limiting harm,” Prochaska says. “We believe that anything more than £100 would not be as effective as a soft cap limit. That figure’s really about the upper limit and there has been research from the Social Market Foundation that suggests that that’s the case.”

However, Banbury says that while he agrees with the principles behind the proposal, the specifics in the Gambling Commission's review raise some questions.

“Affordability will be a key part moving forward, and it should be,” he says. “It’s a really important lens that all operators should look at to limit harm.

“But to me the proposed soft limit is fairly arbitrary and potentially very damaging towards the goal of zero revenue from harmful gambling. What we have here right now places affordability in our view of the customer, but not as the only view.

“We need solutions that aren’t putting the burden of proof on customers when we just don’t know what happens to the customer if they just don’t provide that proof.”

Mitigating the burden

A fear that a large number of players will stop playing – at least within the licensed regime – after receiving requests for documentation, has become a common theme when operators discuss the proposed checks.

However, Sonny Cott, operations manager for affordability solutions provider beBettor, says these checks may be less intrusive than many assume.

“One misconception is that an affordability check must require a customer to share highly sensitive financial information to an operator even at low levels of spend and disrupt the customer’s play,” he says.

Cott says that the initial affordability checks beBettor conducts are based primarily on open data that is already available. Indeed, he says such automated affordability checks will be the only viable way to bring in such a change, as manually checking documents for every player above the £100 limit would simply be too labour-intensive.

“Initial affordability assessments based on personalised geo-affordability are a non-intrusive way operators can get an initial understanding of an individual’s affordability without requiring sensitive financial information from the customer,” he says. “These checks can be conducted seamlessly in the background without disrupting customer play, at minimal inconvenience to the customer and with no marks left behind on the customer’s records.”

However, its enhanced affordability checks may involve documentary evidence such as payslips, as well as further open source information.

With some players facing secondary checks, it is inevitable that soft caps will mean losing some customers, and smaller bookmakers may struggle to automate at the same scale as market leaders.

And with some bettors likely to stake more on specific sporting events, meaning they bet much more in some months than others, a soft cap might be one change that could have a disproportionate impact on betting if implemented rashly.

Standing alone

However, any changes to sports betting in the coming year are likely to take a back seat to larger changes in the world of online casino.

Casino games, and particularly slots, have been the top priority of many reformers, with concerns that these are these products that lead to a disproportionate level of harm.

A 2018 GambleAware survey found that slots are over-represented among those who spend £500 per month or more, and these games face much more scrutiny than sports betting.

Many changes proposed to limit harm from slots – for example, to game mechanics such as spin speed, or stake limits for slots – will not have a direct impact on sports betting. Indirectly, however, sports betting could be expected to become a larger driver of revenue for many operators if casino becomes less lucrative.

To campaigners such as Prochaska, meanwhile, a clearer separation of betting and casino may be an effective way to limit harm.

“I think operators should be limited in their ability to cross-sell riskier products to those who are betting on sports,” he says. “I think if you’re going to place a bet on football, you shouldn’t be flooded with ads for slots.”

With this not included in the Gambling Act review consultation, it appears unlikely even in the most sweeping reform scenarios.

But if cross-sell becomes less of an option through other means such as stake limits for casino, sports betting may be required to stand much more on its own, rather than as a revenue stream that can double up as a casino acquisition channel. The vertical proved its resilience in the face of adversity last year, now it must try to do the same again.

Racing’s position on the Gambling Act review
Some of the most vocal opposition to the changes proposed has come from the world of racing, as the sport most intertwined with the betting industry.
Betting advertising and sponsorship is an especially large source of revenue in racing, so much so that in the House of Lords report on the British gambling industry, it recommended a ban on sponsorship in all areas except horse and greyhound racing, where the impact on the sports and to on-course bookmakers was deemed too severe.
But with the horserace levy paid by bookmakers and based on betting revenue being a key component of the sport’s funding, anything that has an impact on betting risks affecting the sport.
The British Horseracing Authority has said that the sport could lose as much as £60m due to affordability checks alone. Needless to say, harder limits could have a larger impact on the sport.
All of this comes at a difficult time for racing. Like many other sports, Covid-19 slashed attendances, and therefore revenue.
Charlie Liverton, chief executive of the Racehorse Owners Association (ROA), says the impact of strict new regulations on the back of the pandemic’s impact could lead to severe consequences.
“The effect of Covid-19 continues to impact British racing, both on and off the racecourse,” Liverton says. “The potential ramifications of government reviews, including the Gambling Act and the affordability review, are concerning.”
But unlike many other sports, racing was in a decline even before Covid, with both betting revenues and attendances falling.
British off-course gross gaming yield on horse racing was £5.74bn in the year to March 2009, but by the year to March 2019, that total had fallen to £4.19bn, while in the partially Covid-hit year to March 2020, GGY was just £3.95bn.
On-course betting revenue, meanwhile, fell from £377.2m in 2009-10 to £251.4m in 2018-19, before a sharper drop in 2019-20 because of the impact of the pandemic in March.
Those in racing will hope the effects of the review will not be too severe, but the sport may need something else to fully revitalise it.