Winning Post 10 – 06 – 16

UK Racing: Twilight Zone

When UK bookmakers make financial announcements, if horseracing is mentioned, it is typically to highlight decline (see Coral H1 as the latest example). This is true from a retail perspective, and can be clearly seen from the Gambling Commission’s official statistics on fixed odds horseracing in LBOs (six-year turnover decline of 3.3% pa; -4.8% revenue pa). This is so often repeated that it has become gospel: racing (from a betting perspective) is in decline. However, this is only half the story, with online horseracing in growth and overall staking levels broadly flat, according to our own estimates. Racing is not in (staking) decline, but it is shifting online. The latest impact of this, is the new-found influence of remote operators through the ‘Authorised Betting Partnership’ scheme (see WPs passim), which have requested extra evening meetings in 2017 at the expense of LBO-friendly ‘twilight’ fixtures. This has displeased land-based operators and it has displeased horsemen. But it isn’t about pleasure, it’s about money; and if it’s about money, it should be about customers.
Money talks…

A major government-sponsored study into the economic and financial flow of money from bookmakers to GB horseracing remains unpublished. However, a good rule of thumb would be that betting variously contributes c. 25% of the c. £1.2bn racing expenditure footprint. The Levy is a relatively small amount of this (c. £75m) and the ABP element of the levy a smaller amount still (eg, LBOs still contribute roughly £50m pa). Media rights represent the biggest single contribution, but this is also more heavily skewed to LBOs from a cost perspective than the channel’s share of revenue would warrant (all LBOs, inflationary despite revenue decline; remote on demand only and much racing televised). However, remote is the present in term of betting volumes: that remote operators now have a voice in terms of fixtures is not only appropriate but vital to the future of the sport.

…but some money talks louder than others

However, racing structurally does not take as much money from remote as from LBOs and the nature of both rights and the ABP makes this unlikely to change soon. Channel shift therefore reduces the available pot. Remote operators may be asking for reasonable adjustments for the future of the sport, but if this accelerates channel shift it will also undermine the funding of racing. Strategically, it is a good thing, therefore, that Levy reform is now very much on the cards; nevertheless, given that the Levy currently represents less than 30% of total bookmaker contributions to racing, a much broader arrangement is critical to long-term success.

Sustainability is key: both sides must work for this

There is an irony that for years the (landbased) bookmakers have demanded more and more races to fill an ‘all day’ betting schedule. In giving them what they wanted, racing has arguably contributed to reducing field sizes (# runners roughly the static; # races per runner roughly static; # races up = runners per race down), which has in turn contributed to declining margins (and probably weaker turnover). Historically, retail bookmakers have understood the relationship between their key product and their customer-base (and even the betting product) very poorly – they did have the field more or less to themselves though. They must now compete with remote voices in terms of product development. If they persist with strongly held but poorly founded assumptions, they will accelerate their own demise. Equally, if online operators fail to take a more data-driven approach, or understand how product demands affect the overall eco-system they will fall into the same trap as the sector they are rapidly overtaking. If racing does not understand how it can put on a more effective betting product for the benefit of all channels, it will be caught in the middle of a race to the bottom. Twilight desperately needs a new dawn in betting – racing dialogue and understanding.

UK: In Parliament: AGGP FOBT inquiry – looking for trouble…

The FOBT All Party Parliamentary Group has announced that it has launched an inquiry into FOBTs this week, the findings of which will be published in early 2017. Given the stated purpose of the group, it would be reasonable to assume the plan is to find evidence and/or raise sufficient concern to force the government’s hand in terms of affecting regulatory change. It is also likely that the group will lobby hard for B2 restrictions in the forthcoming Triennial Review, which might be given some much needed administrative support and clarity after the return of minister Tracey Crouch to duties on 1 July.

UK Horseracing: BHA: Gift horse

For the first time in several weeks, GB horseracing’s governing body had something to smile about, with the accounts showing the loss of 2014 turned into in to a profit in 2015 (2015 revenue up 6.4% to £32.4m – driven by increased fees, net profit from -£0.7m to £1.3m, helped in part by tax credits driven by historical R&D spend into better systems). This news was welcomed by much of the racing press, providing a welcome counterpoise to relentless recent coverage of governance and disciplinary issues.

There are many positives from the annual report, including an increase in the average number of runners per race, which should please both bookmakers, punters and racegoers (probably in that order). More people are going racing, more people are owning racehorses, and there has been a fairly significant rise in prizemoney on offer: racing is in (relatively) rude health (for now).

Germany: Bundesliga rights – squaring the circle?

This week saw the announcement that Sky and Eurosport have secured broadcast rights for the German Bundesliga, covering 612 games per season, from the 2017/18 to the 2020/21 seasons. Regulators had announced earlier in the year that no single broadcaster would be permitted to show 100% of the matches, potentially ending the dominance of Sky in the German market. However, the deal will see Sky covering 572 of the 612 games, with Eurosport picking up the remaining 40, leaving it the clear winner, regulatory change notwithstanding.

The overall fee paid is an 85% increase per season to what was agreed in 2012, with the two broadcasters paying a total of €1.16bn per season. While this amount is still a distance behind what Sky and BT have paid for English Premier League broadcast rights (£1.7bn per season, €2.18bn), the size of the increase shows an upward trend to sports content costs that shows no sign of abating. Further, it is a trend which is likely to be increasingly reflected in betting content rights also.

Of potentially tangential note to the rights deal, is that CVC Capital Partners has recently acquired a controlling stake in Tipico (60% rumoured at a €1.4bn valuation), a leading German bookmaker. It also owns Sky Betting and Gaming, which has an ongoing brand deal (and minority) with Sky. If the German betting market ever does reform sensibly, then CVC – Sky – Sky Betting and Gaming – Tipico makes a very interesting asset combination to leverage.

France: regulated poker: pooling is good but not enough

ARJEL is attempting to reform the struggling French remote poker market by allowing liquidity pooling with other EU states (subject to EC and French Assembly approvals). However, punitive tax rates (2% of ‘the pot’ or c. 50% of revenue), along with the absence of other forms of gaming, are likely to continue to be a major limit to the regulated poker sector. To be fair to ARJEL, the punitive tax rates were not their idea, but that only highlights the scale problem which still remains.

Norway: online gambling study: offshore rig

Norway has Europe’s highest GDP per capita, by a mile – it is double UK or Germany’s; and its EU strategy, although slightly involuntary, is much admired this year by Brexiteers. But not everything is working well. State monopolies on gambling activity and an ambitious, world-leading gambler registration system, designed to identify and control individual spend, has resulted in 60% penetration of the £200m Norwegian online market by unlicensed (in Norway) operators according to a recent study.

There is a strong anti-gambling (and pro control) lobby reflected in Norwegian government policy to minimise the harmful social effects of gambling through a state-controlled system. This allegedly contravenes Norway’s obligations under its EEA agreement, but the EFTA court found the policy to be acceptable if it was “proportionate, fulfilled its stated aims and consistently applied to all operators”.  The potential failure to meet EFTA court requirements probably doesn’t bother the regulator as much as the failure to manage gambling prevalence through monopolistic controls, which, ironically, does not include extra-territorial reach (to prosecute non-locally-licensed supply) or full advertising regulatory controls.  The regulator is compromised in managing responsible gambling activity by the mismatch between laudable policy objectives and a regulatory framework almost designed to encourage offshore gambling supply – an issue now reverberating in Holland, Switzerland, Sweden and elsewhere.

US: DFS regulation: legitimisation in NY- a good thing?

In a move that will bring significant relief to the two big operators, not to mention their shareholders, the Committee on Racing, Gaming and Wagering of New York State has this week publicised its agreement to the legalisation of DFS operations in the state and to the provision of licensing arrangements, based on the premise that DFS is a skill game, not gambling. Although there are still some formal steps remaining, this appears to be a milestone. DK and FD will then resume their business in their major market and avoid the postponed law suit and massive fines filed earlier this year by the NY prosecutor

And yet…

The objective view of DFS, taken by Massachusetts – among ten other states that have this year re-considered the legalization of some forms of internet gambling – that DFS is a proxy for sports betting and that both should be legalized and regulated properly to protect their patrons from various forms of harm – is damaged by this prospective recognition of DFS as a skill game in its major market. New York’s prospective action comes in the same week that Nevada (exempted from the application of PASPA) issues its first licence to a DFS operator, as an “off-track, pari-mutuel sports system”. Although it hasn’t happened yet, the removal of DFS as the vehicle for overturning PASPA would be a set-back for the industry in federal USA, leaving it exposed to the adverse impacts of uncontrolled problem gambling and unlicensed sportsbook operations, not to mention the disparate and conflicting views of the major US sports leagues which provide the subject matter for DFS betting, seemingly driven for the most part by their own financial interests. NBA stands out in supporting legalized, regulated gambling; NFL and NHL both adopt ambiguous positions publicly, whilst investing in DFL prospects; and at the other end of the spectrum, MLB has an equity interest in Draft Kings.

Corporate Updates: Sky Betting and Gaming acquires Core Gaming – Making backend core

Sky Betting & Gaming this week announced the acquisition of casino content provider Core Gaming. Core has worked closely as a development partner to Sky B&G over the last three years, with exclusive content produced for the Sky Vegas brand. There are three things that this deal tells us:

  • Product differentiation (and innovation) is a key part to the Sky Betting & Gaming strategy over the coming years. Taking more development capability in-house, and away from operators on shared platforms, is a sensible route for to take given Sky’s scale and operational capabilities
  • Sky is keen to control more of the value chain, bringing supplier skills in-house
  • The nature of the Core Gaming business, primarily a mobile focussed HTML5 casino games provider, indicates that this is the area that Sky B&G believe to be the next key battleground (eg, in YT June 2015 Sky B&G generated 80% of betting revenue from mobile, growing at 56% overall; but only 57% of gaming revenue was from mobile, growing at 20% overall – this deal is likely designed to help close both the mix and growth gap)

Corporate Updates: GameSys bets on Metric Gaming

Metric Gaming has, since its launch in 2013, secured a number of leading operators as customers of its sports betting product. Customers include established bookmakers Coral and BoyleSports. Now Gamesys, a leading UK-based remote gaming supplier/operator, has chosen the provider to lauch its betting product with. GameSys is planning to launch “Bethotshot” today in time for the start of Euro 2016. At the time of writing the article the site had yet to launch, but there are a number of hours before the start of Euro 2016.

Sports betting is a new segment for the very successful GameSys and it will be interesting to see what difference they can make within this very competitive segment.

Corporate Updates: NetEnt pulls out of Canada – when the golden goose stops laying…

Another week and another provider or operator is withdrawing from the Canadian market. NetEnt announced that it is stopping providing three casino brands in Canada. This withdrawal comes shortly after William Hill’s withdrawal from the market after the company made an investment in (Canada based and Canadian lottery supplier) NYX (with OpenBet). Operators and providers who either have an office in Canada or are attempting to secure deals with the Provincial operators seem to be  increasingly treating the market as too risky / too much in the way of regulated upside. The problem for the remote sector overall is that Canada has long been a large and highly cash generative market, switching off cashflow in return for (typically less/un-profitable) regulated market exposure may work for some, but is it a significant and growing structural pressure on the industry.

Corporate Updates: Leap Gaming – leaping forward faster

Leap Gaming, a leading provider of virtual 3D games in the sports and the casino segment, has secured a further investment of US$1.0m from Fastforward, a listed company that invests in visionary entrepreneurs developing innovative technologies, which includes former Bwin.Party CEO Norbert Teufelberger as a special adviser. This investment is on top of the US$2.5m invested in April 2016. Fastforward now owns just over 41% of Leap. The investment is not a surprise when you consider that the CEO is Lorne Abony previously of Fun Technologies.

Corporate Updates: Camelot Global – Delivering Omin-Channel

In February 2016, Camelot Global signed a deal with one of the lottery operators in Switzerland, Loterie Romande. The deal was for the provision for an online gaming platform that will help modernise the lottery’s offering. Last week Camelot Global, a sister company of the UK National lottery operator Camelot, launched a new sports app before the start of Euro 2016 for Coterie Romande. The app is targeted toward both the player and the retailer to create a ‘digital in retail’ experience for users. The app will allow the users to check results and create wagers on the app before going into the local retail to play. The development is further evidence of the growing focus on omni-channel, which is likely to reinvigorate some retail-led offers but accelerate the demise of others.