CEO round table
Published 8th June 2014
Brian Mattingley, CEO, 888 Holdings
The biggest single issue within the next year is going to be point-of-consumption tax in the UK. We are a pretty large operator in the UK, and the Royal Assent Bill has been pushed forward, so point of consumption tax is going to be hitting us.
We have a pretty extensive plan to try and mitigate some of that 15%, and I think that’s going to be quite a challenge. Just under 40% of our business is in the UK, so you can imagine it’s a pretty hot topic for us at the moment.
Another issue which is going to be a challenge for the industry is the US market, and I will split that into two. First, the US market that is currently open, that is Nevada, Delaware and New Jersey is going to be potentially slower than we had thought. And there’s going to be a lot of work needed with the regulators in all of those three states to ensure that, where possible, some of the over regulation that is in place is cut back a bit, so we can actually start to use the likes of affiliates, and start to drive more traffic.
At the moment, New Jersey, which is probably the only market of the three that is going to make any money, is running at an annualised rate of around US$120m to US$130m a year. We, the industry and a lot of analysts anticipated it would probably be double that.
We are also aware there is still quite a large illegal gaming market here in the US, so the advertising campaigns we are running are not driving a lot of traffic to the respective brands.
The next issue is going to be which US state markets open next. Are we going to get Pennsylvania, California or New York? And if we do, there will be then a lot of work with regulators to see how they are going to issue licences. Are we going to have another set of regulations from Pennsylvania, or are they going to work around some of the regulations that exist within New Jersey or Nevada?
Every time there’s another set of regulations, it’s another set of software, another ring-fenced network, so it means the whole market becomes that little bit more diffi cult as it opens up. Harmonisation is highly desirable, but are the regulators still going to go their own way?
Finally, will there be any federal intervention? Is the challenge mounted by Sheldon Adelson on online gaming in the US real, and will it gain any traction?
If the US market simply doesn’t open up, what are companies going to do for growth? One of the Senators we were talking to [at the East Coast Gaming Congress] said that there doesn’t have to be a bill passed, what Sheldon Adelson’s lobbyists could be doing is asking for a two-year consultation period, which means that nothing could happen for two years.
Since Nevada first announced its intention to regulate, the US has always been considered to be a golden egg. Is that still the situation there now or not?
Rory Anderson, CEO, 12Bet Europe
The new licensing conditions in the UK will clearly have a major impact. I would think the Commission will be inundated with applications, as they seem to have got most things right so far. 15% off the top is going to affect everyone who is not already licensed in the UK.
It will be very interesting to see how the various operators react. Many will no doubt cut marketing to maintain their short term profitability, so the changes will significantly effect affiliates too.
The increased taxation on FOTBs came out of left field and there is no room for certainty. For example, I would not say it’s probable, but it’s possible there will be a blanket ban on TV advertising for betting and gaming firms in the next two years.
There will be changes and it will be the agile and adaptable companies that will succeed. There seems to be less talk about a harmonised European approach to regulation. The penny seems to have dropped that this is a double-edged sword. For example, perhaps a relatively reasonable UK 15% GGY tax would not be possible under a harmonised European regime.
A lot of people are assuming the World Cup will be huge for bookmakers, and for sure turnover will be high for most big players. However, there is no room for complacency and risk management teams
will need to be on their toes. Just because results were unpredictable during the last World Cup, does not mean we can assume the same this time round.
Mobile will continue to grow and it seems that for many, mobile marketing is becoming more responsive and cost effective than for desktop. So it will be interesting to see how affiliates continue to adapt to these continued developments.
Liam Casey, CEO, Tailorbet
A transformative move away from optimising for mobile, and building for the truly native mobile customers. There is a data-based realisation that there needs to be a greater focus on customers that are truly mobile native customers.
These are customers that will have signed up, transacted and played only through mobile devices. They will never interact with product via desktop. This will require a re-architecture of the core mobile infrastructure of many third party providers (Playtech, Microgaming) and will offer transformative opportunities for smaller and more nimble third party software providers that have little or legacy infrastructure, the chance to steal a march on the more established players. Guts.com and LeoVegas have made some interesting progress here already.
UK point-of-consumption tax will drive marketing and vertical innovation. I believe the tax in the UK combined with the commoditisation of the betting and gaming experience across operators (same games, same betting markets, same marketing offers), is going to drive a significant level of experimentation and never-seen-before marketing initiatives and potential new products.
Some operators will embrace disruptive innovation via a focus on these new initiatives and products and the ones that simply look to squeeze extra margin from their current vertical offerings will struggle to drive an improving P&L.
A truly customised one-to-one experience will become a core focus, transforming retention metrics. Some operators in Europe have managed to make headway in terms of developing a more one-to-one & properly customised customer experience (Betsson Group brands, Paddy Power).
It’s these companies, and by extension, platform and infrastructure providers, that can offer a level of customisation which can be easily leveraged at an individual customer level and ultimately transform the commoditised “me too” operator offering into a more personal, and therefore more compelling, customer experience.
The US will continue to underperform in terms of revenue numbers. This will impact on the business plans of third party infrastructure companies that have invested heavily in the regulatory openings. This will require a significant refocus of their future plans, if they are going to drive EBITDA for their shareholders.
This underperformance, particularly in terms of customer ARPUs, will slow down other overall plans from companies eyeing up the US market, until the numbers improve. Betfair’s TVG project is one that will be watched carefully here.
Ron Goudsmit, Chairman, European Casino Association
A positive development we are seeing and will be seeing more and more is that the online market is becoming properly regulated. Since more jurisdictions are regulating online, the land-based operators are gradually being given the opportunity to broaden their distribution channels and compete on a level of playing field, once the different taxation levels get sorted out, unless a licence-plus system is in place.
A common misconception is that a low taxation level is needed for legal online operators to be profitable, so they can compete with the illegals. They should not be competed with but banned. The European Casino Association fully supports the need for a clear definition of what it takes to be a legal gambling operator. First and foremost, the operator must have a licence to operate in the Member State of the player.
Furthermore, the operator must not be definable as illegal with respect to the applicable law and procedures of any other Member State. Rapidly developing new technologies will help in fighting the illegal offers more efficiently and at the same time ensure conditions are created to protect the consumer.
In the context of the upcoming European Commission Recommendations (June 2014), consumer protection will be one of the key issues in the online gaming world in Europe.
Isabelle Andres, CEO, Betclic Everest
Although it is obviously taking a longer time than expected, I still believe regulation is one of the challenges facing operators that will force them to review and adapt their business model and operations. In this respect, it will be quite interesting to see how historical bookmakers react to the forthcoming licensing regime in the UK.
Mobility is obviously another big change in the way our product is consumed, and actually it has already happened to a great extent. A growing portion of turnover is now transacted via mobile devices, which means that in the coming 12-24 months, I expect that more than 50% of volume will come from mobile for most online operators. This means that we will have to start not only thinking of web adapted to mobile (our way now I suspect) but definitively the other way round.
Customer centricity is another challenge for the industry, and where I also expect to see major changes in the coming 12 months: improved segmentation, tailormade promotions, dedicated services. In short, an individual-focused approach as opposed to the mass-market model deployed by the industry to date.