The white paper is better and worse than you think

It wasn't all good news, but this is more the end of the beginning than the beginning of the end for the UK online gambling sector

If the UK industry was hoping for a soft landing from the white paper it’s probably feeling a little bruised this morning. In policy terms there were no real shocks, although there remains a lot of variance around final outcomes, but it was the tone that really stood out.

What we will not permit is for operators to place commercial objectives ahead of customer wellbeing so that vulnerable people are exploited.

Gambling harms can wreck lives, impact families and communities, and even lead to suicide in extreme cases. The package of measures outlined in this white paper will significantly increase protections with the aim of preventing harm.

Oof. This was a reasonably balanced policy paper, even devoting a full sheet of A4 to the merits of the industry. “Gambling participation is generally not in itself harmful and may even be positive,” it even said at one point. Incredible. Drink it in. You may never see the like again.

But this was very much the exception to the rule, an attempt at balance in what was otherwise a pretty critical document calling for significant and systemic change in the online gambling sector. Perhaps the most illustrative passage discussed the potential for lost revenues from higher value players as a result of affordability checks.

It is our view that much of the foregone revenue is likely to be that which was coming from financially vulnerable customers or those who were gambling at significantly unaffordable levels.

This is a government that has listened to gambling reform campaigners and been won over by many of their arguments. Things need to change, and these changes are going to come at a cost and the industry is going to pay it. The government estimates it at 8-14% drop in NGR depending on the outcome of various consultations.

What comes next?

And there will be consultations. So many consultations. Oh man there are so many of these things. There are a dozen headline consultations and quite a few more smaller ones and there are around 60 projects for the Gambling Commission to work on as a result of the white paper.

All of this is intended to be completed before the 2024 general election and most of the consultations are set to run concurrently during summer 2023. You don’t need to be a natural born pessimist to think this is unlikely to generate optimal outcomes for anyone.

I’ve already read several reports suggesting most of the major operators have already made these changes and there will be minimal impact going forward. This is just patently not true.

Some firms have a £10 max slots stake, a lot higher than the worst case £2 outcome. All firms now have affordability checks at fairly low levels, but few are as low as £2000 over 90 days and there is a lot of devil in the detail as to what those checks will be and what actions should follow them that is simply absent from the white paper.

There is a great deal still to be decided through the pending consultations and a really wide variance in potential outcomes from an improvement to the current environment to a meaningful decline in revenues from where we sit today.

What are the headline changes?

The biggest variation in impact will not be affordability checks, however, it will be what we end up with as a max slots stake. The white paper has kicked this to a consultation where the DCMS (not the Gambling Commission) will decide if it will be £2, £15 or any point in-between.

The white paper seems to imply the mid-point of £8.50 is acceptable and has modelled NGR impact (4-6% drop in slots NGR) on this, so you could reasonably assume £10 is where we may end up. This would have relatively low impacts on most operators, but we absolutely can’t dismiss the possibility of a £2 stake limit out of hand.

What will continue to suck the most oxygen out of the air, however, will be affordability checks, with the government helpfully making these as confusing as possible. Initial background checks at £125 a month or £500 a year are really designed to be an “all customer” thing.

These will be background database checks to spot really obvious issues such as court judgements and financial distress and are already conducted by most of the major firms on new customers and large sections of their existing user base. This is pretty much business as usual. Next!

OK, how about enhanced checks at £1000 daily losses or £2000 losses in a rolling 90 day period? That’s a bit more interesting and a fair bit lower than were many firms currently have their intervention levels set. But as with everything here the devil is in the details.

How will affordability checks work?

There will be a consultation on how this is brought into effect with the white paper at pains to stress it wants customers to be asked for financial details as a last resort once database and open banking checks have been exhausted. It also gives precisely zero guidance on what customers should be allowed to spend post-checks.

There’s probably a degree of flexibility around the limits here and I could easily envisage a sort of de-factor third tier of checks that more closely resemble current enhanced due diligence. But equally a scenario where £2k is a fairly hard limit could easily happen too.

The government expects all this to have a fairly large financial impact, interestingly seeing as much as 14% decline from the initial background checks. This feels high to me with many operators already doing these, and I note its overall estimate is a GGY drop of 6% to 11% or £380 million to £710 million.

There is a lot of variance here still. What is also interesting to note is the language used in the white paper. It discusses “binge gambling” (the £1k limit) and “sustained losses” (the £2k limit). Providing a regulatory framework around those concepts rather than simply defined limits could be an interesting outcome.

As I’ve mentioned though what the nature of these checks are, and what comes after the checks is where the revenue impact is. And we simply don’t know what that will be yet. It could, honestly, be anything. I really hope there is some clarity in the consultation around what acceptable spend levels are too, but I suspect there won’t be based on the white paper.

Neither the government nor the Gambling Commission will set universal rules on what proportion of a customer’s income they should be permitted to gamble, but the intention is that these checks should be used to detect and prevent harm alongside all the existing obligations to consider a range of indicators of harm.

And this confusion is likely to lead to more delays and legal challenges. At least one operator group I am aware of has come very close to launching a challenge to the current system and any increase in friction or revenue impact seems sure to tip them over the edge and get the lawyers on the bat phone.

What’s the message?

Another potential area for clashes is a mostly ignored paragraph around public health messaging. There are set to be big changes on the responsible gambling messaging contained on advertising in the UK. You may remember this from such films as “when the fun stops stop” or “bad betty”, but the white paper states this is no longer up to the industry to decide.

Instead the Department of Health, who are not it should be said especially favourably disposed to the industry, and the Gambling Commission to decide what messaging should be in future. Bearing in mind the Department of Health put out a report in 2021 that said gambling can cause depression, financial distress, alcohol dependence and suicide there is a chance this messaging becomes a tad punchier.

The Gambling Commission too has been empowered rather than neutered by the white paper as some hoped or expected it would be. The white paper notes a strong regulator is a pre-requisite for the UK market and tasked the commission with being more proactive in regulation with increased funding resources to “use its enforcement powers to full effect”.

It doesn’t take an overly pessimistic person to suspect this may lead to some clashes in future.

Advertising? You’re ok mate.

Perhaps the most extraordinary aspect is how advertising and marketing effectively gets a total wave through. There are no proposed new limitations on advertising or bonusing or VIP programmes. There is a hope and an expectation that the Gambling Commission, now tasked with fighting a billion new fires, can keep all of those under control with current rules and voluntary agreements.

There is one consultation on free bets and bonuses but the scope of that feels very limited and more around the language and rollover requirements and expiry dates. Specifically it says bonuses should be offered in a “socially responsible manner, which does not encourage excessive or harmful gambling”. A lot of wiggle room there and it’s unlikely to lead to any major impacts on either operators or customers.

One interesting point to note is the requirement for more opt-in marketing not least the idea that cross-selling should be opt-in only. How that would work in practise is far from clear, but it’s certainly one of the more subtle changes that could have a big impact depending on how it’s regulated.

But advertising essentially gets no changes. There is absolutely no prospect of a ban from this white paper or even a major reduction in advertising. Nothing about bingo ads on daytime TV, casino ads on daytime radio or pitch side ads in football. There is some talk of age-gating on social media, but that’s about it.

You sense the biggest impact of all will be reformers will focus their attentions on advertising in the mid-term as an area requiring further change. In fact some are already doing so in their commentary.

More free passes

So what else is there? There’s a bunch of additional proposed changes, including making game design “safer”, adding sports betting to land-based casinos and giving affiliates a free pass. The white paper explicitly says they shouldn’t be regulated and any misdemeanours are the operators’ problem to deal with.

And finally one area that gets fairly summarily dismissed is the idea of winning bettors getting greater protection. The white paper notes "Being a successful bettor is not a protected characteristic in discrimination law." There is a request for operators to be more clear as to why they restrict bettors and a note that excessive commercial restrictions can fuel the black market, but anyone expecting much change here is somewhat optimistic.

But perhaps that’s the overall message here. Optimism is required for the next stage. This is not the beginning of the end, and it’s probably not even the end of the beginning. We’re maybe half way through here and there is still a lot of work to do and a lot that can still change.

But you’d not want it any other way would you? What fun is there in clear and simple rules? You can’t win a game if everyone knows how to play it perfectly after all.