The regulatory rush

The challenge for policy makers is to find the right balance between security, operator competitiveness and tax revenues. The challenge for operators is to make their business models resilient.

  After the first, here is the second part of the in-depth study by economist Michael Haile for the February GiocoNews magazine. Focus on the regulatory actions taken by the various governments in the field of gaming during the pandemic.   As governments enacted intrusive legislation to stop the spread of the virus, these regulatory responses were inexorably extended to the gambling sector. For land-based gambling operators rules were simple as they were drastic. The policy response, particularly in Europe and in North America, was in the main to close them down, either for a short period of time or for months on end. In Europe gambling premises, as other non-essential retail businesses, were closed for a relatively long periods of time (Italy, Greece, Austria, and Central European countries suffered retail closures but their online operations continued to run unhindered), while in the US the closure periods were limited (On March 17, 2020, Governor Sisolak of Nevada ordered all non-essential businesses closed for 30 days, which was then extended until June 1st). The Chinese authorities closed all casinos in Macau for 15 days from August 15th. However, Australia experienced one of the strictest and longest lockdown measures of all advanced economies. Some Australian states prolonged their lockdown until the end of 2021. In Canada most casinos were closed from March to June 2020. According to Iagr the most common global policy responses to protect players were:

• Providing extra funding to problem gambling research, education or treatment.
• Banning or restricting marketing and advertising
• Banning or restricting gambling products
• Deferring some revenue sharing agreements
• Conducting (additional) public awareness campaigns
• Mandated temporary restrictions on loss limits in online gambling
• Introducing additional player protection measures (e.g., additional affordability checks, preventing reverse withdrawals and restricting bonus offers)
• Extending promotional lottery permits beyond expiry date
• Requiring social distancing measures to be implemented in gambling premises

Regulators’ harm reduction efforts were principally focused towards online gambling. The Uk was one of the countries that developed a rigorous online regulatory action that was Covid focused. The GC issued a Strengthened Guidance rules for online operators. These complex set of regulations, as they are mandatory rules even though they are called guidance, set out a series of actions that not only mandated operators on ways to identify and interact with customers who may be risk of harm but also to understand, measure and report the effectiveness of their approach. The GC’s guidance on harm prevention also expected operators to review thresholds and triggers used to track vulnerability to ensure that they reflect changed financial circumstances that many consumers will be experiencing. An emphasis was placed on those thresholds such as increased play time (so to capture play in excess of 1 hour as this was deemed a proxy for potential harm) or increased spend. Additionally, monitor players’ spend and behaviour that changed during lockdowns. Ulterior checks on play and spend patterns were also put in place specific to new customers. The most controversial part of the set of guidance is the request for operators to conduct affordability assessments, meaning that operators must check if players can afford the amounts that they are losing, and then for operators to consider limiting or blocking further play until the checks have been concluded. These regulations are unprecedented, and for many players rather invasive. Furthermore, the outstanding aspect of these regulations is that in practice, operators are required to behave in a quasi-regulator role. The remaining emergency guidance regulations include halting offers or promotions to customers displaying indicators of harm. The interesting aspect of these regulations is that even if these guidance rules were issued during the pandemic emergency, the GC has maintained these regulations in place. A classic example of emergency regulations morphing into ordinary regulations. An interesting aspect in the Uk is how operators undertook voluntary regulatory action. The Uk Betting and Gaming Council members voluntarily agreed to remove all TV and radio gambling advertising for a period of 6 weeks in response to Covid lockdown. This voluntary arrangement follows the Uk Advertising Standards Authority and Committee of Advertising Practice warning the online gambling industry in March 2020 that its conduct, including the nature and frequency of its advertising, is under scrutiny during lockdown. This voluntary course of action was also followed by the Licensed Dutch Gaming Providers (Vnlok) in the Netherlands. Vnlok agreed to a voluntary advertising code for online gambling (Rok). Rok’s aim is to protect vulnerable groups by extending measures already in place for TV and radio advertising to online advertising. Rok will also prohibit 18 to 24-year-olds from making use of bonuses and ban TV and radio stations from advertising these bonuses. Bonuses will also be capped at €250. Rok was announced in October 2020 will apply until 1st March 2023. Sweden’s policy responses were principally aimed to protect players from unaffordable losses. Sweden’s regulatory body introduced stricter rules regarding deposit and loss limits and login time. Deposits in player accounts were limited to a maximum amount of Sek 4,000 per week (€480 Euro). When gambling on state slot machines in places other than a casino, a corresponding loss limit was implemented. Furthermore, licensees who provide commercial online gambling or gambling on state slot machines in locations other than a casino (Sweden did not enact retail lockdowns), were only allowed to offer a bonus of up to Sek 100 (€10 Euro). In addition, players were required to curb their gambling by setting time limits when playing at online casinos or on slot machines. These emergency regulations were enforced from July to 14th November 2020. These temporary restrictions were however not without consequences. The Swedish online operators trade association, Branschföreningen för Onlinespel (Bos), which was critical of the measures, declared that the temporary deposit caps had drastically set back the government’s regulated market channelisation rate (the traffic towards licenced websites) below its desired 90%. During the pandemic the Finnish parliament approved the country's Lottery Act setting out tighter controls for offshore operators and additional safeguards for the state-owned operator’s (Veikkaus) monopoly. Reforms in the act include the introduction of payment blocking for any operators other than Veikkaus. In addition, mandatory identification – already introduced to Veikkaus’ slots – will also extend to all forms of gambling. This is expected to be implemented no later than 2024. Marketing regulations would also change with the revised legislation. The advertising of gambling games deemed particularly harmful, such as slot machines, will be banned. The result of these regulations enhanced Veikkaus’ monopoly. Belgium, like other jurisdictions, also introduced mandatory loss limits. The regulator introduced specific check sheets based on current regulations in order to ensure that the online controls of licensed websites run efficiently. Once the regulator started making the checks, it found infringements in more than 60% of cases. The infringements mainly concerned violations of the rules concerning bonuses, as they were totally banned during the pandemic. Other infringements concerned violations regarding playing limits and advertising of non-licenced websites. The Spanish government imposed temporary restrictions on gambling advertising from 1 to 5am from March to June 2020. These restrictions meant that bonuses, discounts, free bets and bet multiplier offers were banned, along with advertising by email and social media. However, the country’s state-run lottery companies, Once and Selae, were exempted from these measures. According to the Spanish Association of Advertisers (Aea), state run lotteries account for at least 34% of the country’s gambling advertising spend, making them by far the country’s biggest gambling advertisers. Once on its own is eleventh in the list of all companies who spent the most on advertising in 2019. Being exempt from marketing ban provides state run operators a huge competitive advantage. Spain was not the only country that used pandemic emergency legislations to protect state run gambling operators, potentially distorting the competitive landscape of the market. Protecting operations of lottery operators was not unusual, as regulators were generally careful not to hinder their revenues. According to Iagr, lottery Ggy did not substantially change in half of jurisdictions (47% of respondents) but did substantially increase in 4 in 10 jurisdictions (42% of respondents). Regulators were not only concerned about player protections but passed regulations also to protect operators, particularly those who relied on their land-based operations, from lock down closures. Iagr reported that the top ten regulatory actions undertaken by policy makers to protect operators were:

• Delaying or cancelling audits or inspections of gambling premises (64% of respondents)
• Postponed annual certifications (64% of respondents)
• Conducting audits or inspections of gambling premises remotely (26% of respondents)
• Allowing ‘payment holidays’ for some gambling operator fees (21% of respondents)
• Reducing or cancelling some gambling taxes (13% of respondents)
• Reducing or cancelling some gambling operator fees (11% of respondents)
• Permitting new or modified gambling products (9% of respondents)
• Requiring some real events to be implemented behind closed doors (6% of respondents)

  IMPLICATIONS FOR THE FUTURE -  Gioco News has conducted in the November and December editions analysis on the financial impact of the Covid pandemic on consumers’ disposable income. In the analysis it was noted that 2022 will see a decrease of disposable income of consumers and households. Furthermore, the gambling sector will most likely lose a portion of its player base due to change of habits following social distancing rules and lock downs. If there will be any further restrictions due to future Covid variants the situation will only worsen, and further restrictive regulatory actions will also be likely. The future implications of the pandemic will result in three challenges for the sector: 1) interventionist regulatory practices; 2) increased tax pressures; 3) expansion of parallel markets. Interventionist regulatory measures that were enacted during the pandemic have set a precedence, and in some cases, those enacted as emergency measures will became a permanent feature of the regulatory landscape. The Uk and Sweden provide an excellent example. The Swedish government, following the temporary restrictions, decided to review regulations and launched the “Gambling Market Enquiry”. The enquiry proposes, among other propositions, to impose moderation controls, restrictions on gambling advertising and introduce a licensing regime for software and game developers. Additionally, the regulator, Spelinspektionen, is to permanently secure powers granted by the Sweden Consumer Agency and the Swedish Tax Agency to prosecute unlicensed activities. The regulator will publish a partial report by March 2022 and a full report by the end of October 2023. In the Uk, where the GC and government are conducting a wide-ranging review of the 2005 Gambling Act, an array of regulations are in the pipeline. Apart of the strengthened guidelines already in place, other regulations that include banning sports sponsorship, limiting online casino stakes, tough affordability checks, testing regime for new products, new powers to the GC to tackle the parallel markets, legal redress for wronged punters, and a mandatory levy to fund addiction treatment will most probably became law by the end of 2022. Following the public expenditures by various governments to protect citizens and businesses from economic fallout of lockdowns and loss of tax receipts, governments may seek to increase gambling taxation in the coming months and years. Tax increases will probably be targeted towards online operations as the pandemic has hastened a lasting structural transformation of the sector in most jurisdictions, by substantially reducing and changing land-based operations, alongside an exponential growth of online gambling. Many shrewd operators are preparing for this transformation through mergers and acquisitions. However, stricter regulations and heavier tax burdens will create a space for the unlicenced market if the licenced operators are made less agile and less competitive vis a vis their unlicenced competitors. The Swedish and Uk markets have already experienced an increase of customer traffic towards the unregulated market when Covid regulations were implemented. This could be very problematic, and if policy makers are not careful, they risk undoing years’ worth of policy successes in limiting the size of the illegal gambling market. The long-term challenge for policy makers is to find the right equilibrium between safe play, operators’ competitiveness and tax receipts. The challenge for operators is to make their business models resilient for future Covid variants and ongoing structural transformation of the market.