888 ‘can expect’ regulator fallout
888 repercussions, New York tax lobbying, iCasino potentials, Pennsylvania look at esports, payments services shake-up +More
Good morning. On today’s agenda:
The regulatory repercussions from 888’s VIP revelations are examined.
DraftKings and FanDuel press the case for a New York tax rethink.
The potential for iCasino gets an airing in New Hampshire.
Pennsylvania is looking into esports betting regulation.
Payment services laws in the UK are heading for a shake-up.
888 reverberations
The admittance this week over AML and KYC failures is likely to have further consequences in the UK and elsewhere.
Not the end of the affair: The UK Gambling Commission is almost certain to take another look at 888’s compliance processes in light of this week’s revelations regarding elements of its handling of Middle Eastern VIPs, suggested industry sources.
Recall, 888 was last the subject of a regulatory settlement in March last year when it paid a £9.4m fine for social responsibility and AML findings.
While the failures this week took place under 888’s Gibraltar license, the Commission will now want to examine whether there are, in the words of one consultant, “systemic problems”.
“They will go through everything with a fine tooth comb,” the source added. “If the UKGC gets a sniff of that Middle Eastern business going through the UK – that doesn’t bear thinking about.”
Call the cops: The UKGC has previously made it clear it doesn’t intend to be the “world’s policeman” and, as one legal source suggested, “if an operator meets its responsibilities, then the Commission doesn’t have a problem”.
But if, as happened this week, an operator is “seen to fail elsewhere,” it calls into question the operator’s suitability and effectively invites the Commission to “do a deeper dive into your business.”
“If they see failings elsewhere, as night follows day, it means the Commission will be wanting to look again at 888 sooner rather than later,” said the legal source.
The other shoe: As was noted by C+M earlier this week, the other issue on the horizon is the Commission’s pending regulatory settlement and/or fine to be handed out to William Hill. Sources suggested this is in relation to KYC and responsible gambling failures within the UK retail business.
It is widely rumored the settlement/fine will exceed the £17m regulatory settlement paid by Entain in August last year.
Industry insiders indicated William Hill will be hit with a settlement of between £20m and £30m. The company itself previously provisioned £15m.
The dotcom dilemma: As expert sources put it, the issue with the VIP business from the Middle East isn’t so much that it is clearly gray market revenue, but that equivalent AML procedures are harder to complete.
“It’s much easier to build a picture in a regulated country than in countries where the consumer might want to be hiding the full extent of their wealth.”
Proactive: Vaughan Lewis, chief strategy officer at 888, said the company was “proactively keeping the Gibraltar regulator fully informed about our internal investigation”, adding it was keeping the UKGC “fully informed about the internal investigation”.
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New York hearing
Operators and suppliers take the opportunity of a New York state legislature joint committee hearing to press for the regulation of iCasino.
Who ordered the baloney? A year on from a launch that FanDuel president Christian Genetski said “far exceeded expectations”, both he and DraftKings CEO Jason Robins lobbied the assembled lawmakers to consider changing the “not remotely sustainable” tax rate of 51% to 35%.
Genetski said FanDuel had decreased investment as measured by media and promotional spend as a result.
FanDuel’s spend in Maryland and New Jersey – “healthy tax environment states” – was triple that in New York.
A “more competitive” rate would see it invest a further $200m-$300m in the market and would give other operators a “plausible path” to reinvest as well.
He admitted in questioning that it was counterintuitive that lowering the tax rate would lead to more tax.
He added that even if the rate was 35% New York would still be FanDuel’s least profitable state.
Look what you made us do: In separate testimony, DraftKings’ Robins said operators had accepted the 51% tax rate during a “moment in time”. “We were in one of the biggest bull markets in history, sports-wagering operators were having money thrown at them by public investors if they just went out and had a great initial start in New York,” he said.
Asked whether there was a Plan B, he said that would involve worse odds for consumers, dialed back promotions and zero partnership with local sports teams.
“We would make nowhere near the total amount of revenue and profit we would make in a more favorable setup but at least we would have a sustainable market.”
Genetski added: “We were not going to say ‘no’ to the New York market.”
Tell me what you want: The big ask is iCasino, which Robins said “actually bolsters” land-based casinos. “In all states with legal iGaming, brick-and-mortar casinos have continued to thrive since the legalization of online casino gaming,” he suggested.
Arguing against a 51% tax rate on iCasino, Robins said a lower tax rate would generate more growth. “We would have to have a better tax rate,” he said.
Howard Glaser, representing Light & Wonder, also put the case for iCasino, noting that in those states that feature the product it brings in twice the tax revenue of sports betting.
The iCasino press
An online casino bill (SB 104) introduced by New Hampshire State Sen. Timothy Lang in early January was discussed during a Senate Ways and Means hearing on Jan. 25 – Lang chairs the committee.
Ayes and nays: The bill would legalize online casinos and poker through a bidding process that would award 3-5 licenses through the state lottery – similar to the state’s sports-betting structure. The hearing provided some insight into who supports and opposes iGaming in New Hampshire, setting up a fight between national operators likely to win a bidding process and local gambling venues that feel they will be negatively impacted.
Supporters: Adam Schmidt (Light and Wonder), Rebecca London (DraftKings), Dr. Mark Rubinstein (CCSNH).
Opponents: Peter Bragdon (Churchill Downs).
London calling: Speaking on behalf of DraftKings, London noted that online gambling isn’t cannibalizing New Jersey casinos, with the state’s existing gambling seeing continued growth following the introduction of iGaming.
Churchill Downs operates a poker room in Salem, NH, under the state’s charitable gaming laws. It was the only New Hampshire card room to speak against the bill but is not the only operator opposed to iGaming expansion.
The concern: London’s cannibalization comments are unlikely to convince the numerous New Hampshire gaming operators (small poker rooms and charity casinos) that adhere to the state’s charitable gaming structure:
35% of revenue is designated to charities.
State law caps poker buy-ins at $250.
Caution horses: With these restrictions, competing against online sites will be difficult. Bragdon, representing Churchill Downs and, by extension, the other land-based gaming establishments, wants the state to take a more cautious approach.
He noted the state rolled out HHR in 2021 and the impact on charity gaming is still unclear, and suggested bundling iGaming into an HHR study proposed in a separate bill (SB 51).
Time to believe the hype? Heading into 2023, iCasino was hyped as the next chapter for US online gambling. Less than a month into 2023, the hype looks real. The calendar hasn’t flipped to February, and four US states have started the legalization process:
Kentucky – a gambling expansion package with OSB at its center includes online poker.
Indiana – legislation legalizing online casinos and poker.
Maryland – a bill to place online casinos on the ballot in 2024.
New Hampshire – legislation legalizing online casinos and poker through the NH Lottery.
US notebook
In Georgia a bipartisan group of 11 state senators has introduced SB 57 to legalize sports betting.
The Minnesota Sports Betting Act has been introduced in the state legislature to legalize mobile and retail sports betting at casinos owned by the state’s 11 tribes, racetracks and sports teams.
A bill has been introduced in Vermont that would legalize sports betting in the state.
BetMGM’s hopes
Compelling: During its investor day last week, BetMGM CEO Adam Goldbaltt said that the industry was “sowing the seeds for future legislation”. “The reality is we are not expecting any new legislation this year, but there's a lot going on behind the scenes to pave the way for future legislation,” he added.
“The reality is there is a healthy black market, tax dollars are being foregone, players are not being protected and compliance guidelines are not being respected,” he said.
“It’s a pretty compelling argument, if you believe in free markets,” Goldblatt added. “I don’t believe market distortions sustain over time.”
PA eyes esports betting
Esports betting has been slow to unfold across the US, but states are gradually starting to include it in their legal sports betting industry – the latest is Pennsylvania.
Calling for backup: A Pennsylvania lawmaker is planning to introduce legislation that would include esports in the state’s legal sports-betting industry. In a Jan. 27 memo, State rep. Ed Neilson urged fellow lawmakers that Pennsylvania “should quickly add esports” to its gaming portfolio in an effort to bolster the economy and its accompanying tax revenue.
He’s calling on all House colleagues to co-sponsor a bill that would make it a reality.
Staying ahead of the curve: Neilson said incorporating esports into the state’s sports-betting legislation will help Pennsylvania remain “properly positioned” in the gaming industry and not lose its share of the market to surrounding states. He said competitive gaming is on the rise, and Pennsylvania is ripe to capitalize on the trend.
The esports industry was valued at $1.1b in 2022 and is set to generate nearly $1.8bn in “the coming years”, according to the memo.
Hot and cold: Philadelphia had been growing into a hotbed for esports, though its popularity and potential has waned over the years. The state’s Overwatch League franchise team, the Philadelphia Fusion, is relocating to Seoul, South Korea, for the 2023 season.
Plans to build a multi-million-dollar esports venue for the Fusion has also pivoted to a multi-use facility for concerts, comedy tours and seminars.
The scoop: If regulation is drafted and approved, Pennsylvania would be the 13th state to legalize esports betting. Although, as we’ve seen in the past, it may come with some caveats.
Many states impose additional restrictions on esports that ultimately curb the segment’s potential, such as bet limits and rigorous regulatory approvals.
It remains to be seen what Pennsylvania’s legislation will look like, but taking the first step to create a regulatory framework around it will at the very least provide an opportunity for esports betting to occur.
With that being said, it’s also not promised that PA operators will actually offer it, as is the case with many other states.
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UK payments moves
Payment services laws in the UK are heading for a shake-up.
See ya! Crypto and digital payments are evolving at such a pace that legislators feel the existing guardrails for licensing, marketing and consumer protection are increasingly outdated.
The Treasury has published a review and call for evidence on the current payment services laws alongside findings of a post-implementation look at interchange fees.
The changes “could have a significant effect” on UK banks, e-money business and all other payment service providers, said John Casanova, payments lawyer at Sidley.
“The lack of detailed proposals in the review suggests that respondents may have a significant opportunity to call for specific changes to the regulations and related standards,” Casanova added.
Gambling payment processors have until the consultation deadline of April 7 to get lobbying.
Areas where developments are expected, and sooner rather than later, experts say:
Safeguarding regime updates, with additional burdens for processors holding customer funds.
Strong authentication and its impact on consumer behavior and business innovation.
Settlements (eg: should firms be allowed to delay payments where there are financial crime concerns around, for instance, fraud?).
Fraud prevention and customer protection on the termination of payment services.
Currency conversion requirements.
Whether the definitions and scope are flexible enough to account for the rapid evolution of crypto.
What’s the difference: In addition, Brussels is planning to update its Second Payment Services Directive (PSD2), which is likely to further diverge the regulatory paths of the UK and European Union.
“Statements suggest the government may have an appetite for significant shifts away from EU standards in certain areas, although it is likely to be selective and iterative rather than break with the EU regime wholesale,” added Sidley’s fintech partner Max Savoie.
Gambling processors serving both regions “should monitor in tandem the proposed reforms… and should consider the impact of changes and divergence”, Savoie added.
Global notebook
GeoComply has joined the World Lottery Association as an associate member.
Industry specialist training provider iGaming Academy has re-launched its flagship Anti Money-Laundering & Counter-Terrorist Financing and Responsible Gaming training courses.
Sport integrity notebook
The International Betting Integrity Association said Europe was the leading source of suspicious betting activity alerts last year, with 268 alerts reported to sports governing bodies from 61 countries across 14 sports. That was a 145 rise YoY and above the average 230 annual alerts seen between 2019 and 2021.
Calendar
Feb 6-7: World Regulatory briefing at ICE
Feb 7: Wiggin Betting & Gaming Seminar
Feb 8: Gaming in Germany breakfast
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