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The rapid growth of black market gambling operators is leading the online gambling industry into a mid-life crisis
The online gambling industry is in a very odd spot. It has seen rapid regulatory change over the past 10 years and the result is seemingly a severe identity crisis. It’s an industry of the past, trying to be one of the present and the tension is really beginning to show.
For the most part this is a business that wants to be a modern tech industry, fully regulated and mass market focused, but often it’s something quite different. What we often see in practice is a high-value player focused business existing right on the edge of regulatory limits on a creaking tech platform.
This is not new. It’s always been this way. But the way the industry is set up, and the way the businesses within it and much of the senior leadership were created makes it very hard to break away from the model of old to create something truly new. And this is causing some strains.
While it’s true that marketing, product and payments are almost unrecognisable from the old days, culturally the industry is still a child of the 90s. It’s where most of the power players of today took their first steps and the culture is embedded in the way the industry operates.
What we came from…
The early years of online gambling were an energetic mess of experimentation and rule breaking. A vision of the future that found itself slamming against the technology limitations of the present. Payments, marketing, product and player numbers were all very limited and models built up to find workarounds for these.
There was a desire to push at the boundaries of what is possible, to find ways around roadblocks. Back then, mainstream marketing also wasn’t really an option so alternative player acquisitions routes came into play. SEO was calling yourself casino-on-net and adding a million keywords to your page in tiny fonts, affiliates was ringing up whoever owned the top-ranking page and offering them 30% rev share.
This made one key strategic imperative come to the forefront and that was to focus on maximising player value. That ethos is still imbedded in the sector. Players back then were hard to find and easy to lose. They still are, largely. And this creates an operational dynamic that is honed on squeezing as much from each active player as possible.
Brands were largely an afterthought or something incredibly generic. Owners hid in the shadows while regulations were something you signed up for so you could look credible. It’s tempting to say the industry of today is nothing like this now, but it’s honestly much closer than you’d imagine.
Even as a world of marketing has opened up and content has evolved to a level way beyond what seemed possible back then, it’s still in some ways a business built around affiliates, bonusing and slots from the 80s. And the sports betting product is still remarkably similar to its initial incarnations.
Regulation, and to a lesser extent the stock market, is changing this. Senior leadership teams are increasingly filling up with management consultants, analysts and executives from outside the sector. But they are looking more to change the operational performance, and add value via M&A.
They want to build on existing models not rip them up and start again. Innovation is dead, long live regulation? It’s certainly the view of one long term senior executive I spoke to.
The industry is run by suits now no longer the renegades who created innovation. It’s also part of the business cycle. It’s now a mature industry and innovation by its nature slows down with the more mature sectors.
But what is radically different is alongside this management consultant led, M&A driven regulated business we see a shadow industry that continues in the vein of what came before. You can call it offshore, or black market or whatever you like but it’s largely the spirit of the old online gambling sector and it is the place where innovation and risk taking still lives large.
What comes next?
The entire industry began life as grey. This is where everyone sat initially, even those claiming to be whiter than white since time immemorial. And from this big shifting mass of grey we now see migration to both white and black, with no huge conceptual difference between the two in the minds of those working in them. It’s the same products, strategies, way of working, skill sets and objectives. It’s the same…job.
We now have an almost perfectly bifurcated industry, with a regulated white sector and an unregulated black sector and very little in-between. The old world of grey market gambling is rapidly fading away and most of what is presented as grey these days (viz Norway or Japan) is really black by another name.
For black markets read predominately but not exclusively crypto casinos and sportsbooks serving any market in the world, and less classic US offshore sites. And these black and white market operators are far more similar than they are different. It’s just about risk tolerances, exit goals and a willingness to say you work in gambling not in technology or media or marketing.
If you were an innovative thinker, where would you rather work? In an industry that allowed you to take risks, try things and get big, big rewards for being right or one where your idea probably gets mothballed, and you might get some options at a 20% discount and a mention in the company newsletter. The regulated sector is hard work, increasingly boring and insanely competitive.
The black market sector meanwhile offers seemingly endless freedom. You want to try some streaming marketing? Go for it? Want to get a star that appeals to under 25s to promote your brand? Absolutely crack on. Want to take crypto from anywhere and everywhere in the world? Go for it. Want to try new game types that might not make it past a suspicious regulator? Well then my friend you are very much in luck here.
The existential problem
What can be easily missed is this is exactly what the industry looked like to many of those working within it 20 years ago, and not massively different to how it looked even a decade or so back. This is an industry that grew on rule-breaking innovation, and not a great deal of long-term thinking. It is full of people who want to move fast and break things who are increasingly being told to slow down and fix stuff.
As one exec puts it:
It’s not such much the people it’s the machine within the orgs that’s slows it down. Also we are paying the price for legacy tech and data integrations. The M&A activity of the big companies has this left them so big and corporate that they lose their edge on innovation. It happened Google and Facebook to a degree and they started buying innovation. US focus is also a major distraction.
There is a real danger of hubris and decline. No real innovation and no real desire to look outward. It’s a bad mix. What we may find is the industry starts to resemble other tech sectors rather than continues to forge its own identity, which has both advantage and disadvantages, but it will absolutely keep it further and further away from the non-regulated online gambling sector.
The UK for example is in serious danger of navel gazing its way into irrelevance. For too long it has been the centre of gravity, and to some extent innovation, within the sector but increasingly it’s a small island on its own. Its market leaders are also victims of their own success in a way and have their own challenges that both work for and against the UK segments of those companies.
Meanwhile in Asia, Africa and Latin America the old spirit of innovation and risk taking lives on, and this is increasingly where money and talent is heading for that one last, or one first, payday. It’s a mix of young innovators and old heads who know how to extract the most value from a well worn and well proven model.
And those businesses being created in the black market have a real shot of becoming the white market leaders of the future. A multi-billion dollar business is hard to ignore and can find a way to get into the white market. Believe me, it’s happened more than once before.
In many ways it seems like we’re on the cusp of history repeating itself within the sector and there isn’t much regulators can do to stop it.
Back to the beginning we go…