The UK embarks on the revision of the 2005 Gambling Act and commences the Fourth National Lottery Licence competition
Opportunities and risks for the Gambling Commission, which is itself under review
by Michael Haile
2021 will be a challenging year for United Kingdom’s Gambling Commission (Gc), a year full of demanding undertakings, which are fraught with formidable risks.
The Fourth National Lottery Licence Competition
Undoubtedly, the most taxing endeavour for 2021 is to run a successful Fourth National Lottery Licence competition (4Nlc), which has a duration of ten years.
|Selection questionnaire||August 2020 – October 2020|
|Invitation to apply||October 2020 – July 2021|
|Announcement of preffered applicant||September 2021|
|Fourth licence award||October 2021|
|Transition period from third to fourth licence||October 2021- July 2023|
At the end of August 2020, the Gc globally announced the launch of the Fourth National Lottery Licence competition, even though the complex operation started at the beginning of 2017.
The National Lottery (Nl) is one of the world’s largest lotteries, the third in Europe measured by sales, after Lottomatica in Italy and Fdj in France. The current licence is due to expire in 2023. Since launching in 1994, the Nl has raised more than £41 billion for good causes.
The fourth licence will differ from the current (third) licence. The most significant modifications include:
- A fixed 10-year licence duration with no option of extension. Camelot, which currently runs the third licence, obtained a 4-year extension in 2012
- Playing age will be raised from 16 to 18
- A new incentive mechanism (which splits how much lottery income is devolved to good caused and to the operator) will be established, to ensure that the interests of the operator is more closely aligned with returns to good causes
- The fourth licence will require the operator to foster a closer relationship with lottery money distributors, which currently is almost non existent
- The fourth licence will be more flexible, allowing the operator to have more operational flexibility
- The player protection systems and procedures will be further strengthened
The most daunting risks for the Gc are three: that apart from Camelot no other operator participates in the competition or the one/s that do participate are poor candidates: the transition from one operator to another in case Camelot loses the licence: a judicial review if one of the participants is not satisfied about the process.
The first mentioned risk is the one that will emerge in the extremely near future. The first and second licence competitions were rather competitive. In fact, Camelot initially lost the second competition, it oNly regained the licence following a judicial review, to the embarrassment of the regulator and the government of the time. The third competition was almost a “non-competition” as the oNly participants were Camelot and Sugal and Damani, an Indian operator without any European experience. The rationale which other operators do not participate is that they consider the position of the incumbent too unassailable and the cost of organising a bid is too onerous (the calculus is that for 2020 the average cost to organise a bid is between £35 and £40 million). The Nl being a monopoly, winner takes all.
If this occurrence repeats itself in 2021 there will be long term consequences for the Gc, government and good causes. If Camelot is confident it will win the fourth competition it is not farfetched to think that it will offer a “pinchpenny” bid, which the Gc and government will most probably be obliged to accept as there will be no time to organise another competition and the Gc cannot extend the licence period as it has already done so in 2012.
From an operational point of view the key risk stems from transition from one operator to another in case the licence is assigned to a new operator, maiNly due to technological integration. Two years do seem abundant for a transition period, but one must consider about fulfilling technological upgrades and integration, internally and within the point of sales chain (around 44,000 retailers and oNline), two years might not be sufficient. This type of operation has no global precedent as such a blueprint does not exist. Risks that derive from transition, financial as much as reputational, is also one of the major reasons that discourages other operators from participating.
Transition is the weak point of the UK competition model. The Nl is oNly 25 years old, much younger than other lotteries. Countries that have opted for a privatised lottery market chose two types of simpler models: to sell the existent public operator accompanied by a fiscal regime (Austria, Denmark, Greece, Ireland) or through an English auction, where the bidder that offers the highest bid wins and manages the lottery and the infrastructure.
The 2005 Gambling Act Review
The role of the Gc according to the 2005 Gambling Act is consultative, which is one of its statuary missions, but generally its positions have sway in government policy. The 2005 Gambling Act has not got through important revisions in the last 15 years but there is uncertainty of what amendments will be proposed. The Gc 2020/21 Business Plan is revealing where its priorities lie as it has put player protection first on the list. Therefore, the gambling market is expecting further restrictions and it uNlikely to obtain a tax break. Regarding player protection, the strategic objectives are the protection of their interests, intensify measures to prevent harm from gambling and raise standards of the UK’s gambling market.
According to some sources, oNline casino’s loyalty programs are under scrutiny, they could even be abolished altogether. Also, deposit and spending limits could be imposed on players. Such an imposition could be devastating for oNline casino operators.
The Gc is also looking to equate the regulations that govern terrestrial to oNline gambling. This was inevitable. When the Gc and government lowered fixed odds betting terminals (FOBTs), an electronic slot machine, maximum stakes from £100 to £2, many players moved oNline, where on similar products players can even stake £1000 a go.
Advertising and Marketing
Until 2018 all advertising and marketing in the United Kingdom was regulated by the Advertising Standards Authority (Asa) but from 2018 the Gc took over the regulation of all advertising that involved gambling.
Generally, much of the public and the political class consider the rules that govern gambling advertising to be too lax, above all within sporting events. When in the last two decades sponsorship from tobacco and alcohol companies was banned, it was gambling firms that maiNly took their place. The Gc and much of the general public are alarmed at the level of sponsorship of gambling companies within the sporting world, maiNly in football, and at the extensive amount of advertising during live games, where minors are exposed to gambling spots. It is uNlikely there will be a total advertising ban, but the Gc is looking at ways on how to reduce the number of advertising spots, which are inescapable during football games, or to allow spots to be viewed oNly after 21.00 hours. This last measure would be financially injurious as Premier League games are played in the afternoon. It is ironic that most of the sporting world in the UK is funded by lottery money.
A New Way to Regulate
2021 will also see a review of Gc’s role. The Gambling Commission was created by the 2005 Gambling Act. Even though it has acquired further regulatory powers in the last 15 years, a comprehensive strategic review of its role and responsibilities has never taken place. The government, with the Gc’s input, intends to fulfil this assessment within 2021. The Gc recognises that the gambling market has been substantially transformed since 2005, as have altered the risks to society that come from gambling.
There is a perception, fed by the media, that the Gc is an ineffective organization without sufficient powers, so is almost guaranteed that the regulator will acquire further powers, such as greater ability to fine and suspend licences and operators.
Internally, it is likely that the regulator will be restructured, with an eNlarged technological platform and a more penetrating use of data. For this transformation to succeed the government recognises that the regulator requires additional resources. Currently, the Gc has a budget of approximately £20 million, excluding the Nl which has its own budget, far too modest to be able to regulate a market of £150 billion. There is even talk of changing the name of the regulator so to regain public trust in the organisation.
In conclusion, UK’s gambling market will see major changes in 2021, but these shifts will also bring with them risks that the Gc must balance. All the proposed amendments will generate considerable costs to operators. While for the giants of the sector it will not be an issue to come up with the required investment to adapt to a new regulatory landscape, the same will not be true for the smaller ones, with the risk of creating quasi monopolies in the various sectors of the gambling market. In such a market the losers would be consumers, due to less choice and innovation. Inevitably, that would feed illegal gambling.