Focus on the United Kingdom

With events in America dramatically altering not only the US poker landscape but also certain to have ramifications for the game worldwide, it is unclear just what new challenges the UK market faces. When it comes to politics, the UK and the US are often on the same page, with the ‘special relationship’ regularly placing them side-by-side on the world stage. But when it comes to gambling, the two countries have historically been at odds with each other.

Indeed, in September 2007, less than a year after UIGEA pulled the plug on many remote operators’ American dreams, the Gambling Act 2005 came 
into force, giving them a structured licensing framework and allowing operators to advertise on British television for the first time.

Now, however, the two nations look closer to getting on the same page, as the US appears to be taking tentative steps towards legalising online poker – while taking drastic action against PokerStars, Full Tilt and Absolute Poker for allegedly breaching its current laws – and the UK considers reining in its permissive approach.

But while the UK government was a frontrunner in liberalising the industry, it hasn’t really benefited in 
the way it might have expected. It was once assumed that other European markets would adopt a similar approach, but this now looks unlikely to be the case 
says Simon Bernholt, an associate at law firm Olswang. ‘The UK liberalised very early and adopted a very 
free market model. We liberalised the market expecting the rest of Europe to follow suit on the basis that an operator licensed in one member state should be permitted to offer its gambling services in another member state, in much the same way that a banking licence in one can be ‘passported’ across the 
EU. However, this never happened with gambling. Although a green paper on gambling has recently been released by the European Commission, there is no European framework for gambling and it is very much regulated on a state-by-state basis. The British approach has been left behind.’

Taxing issues
Early last year, the Minister for Sport at the time, Gerry Sutcliffe, dropped a bombshell on the industry by announcing a consultation on remote gambling in Britain. The Department for Culture, Media and Sport (DCMS) put forward a number of proposals for the future of the industry, including one that would mean overseas-based operators would be required to get a UK licence in order to continue to target UK consumers. Several reasons were put forward for the rethink, include issues with licensing systems in other jurisdictions, but the government’s real motivation was more likely to have been tax. Over the last few years, big gaming firms like William Hill and Ladbrokes have moved their telephone and online operations away from the UK, citing an inability to compete with companies operating from more tax-friendly jurisdictions such as Gibraltar, the Isle of Man and Alderney. In March this year, Betfair announced it would follow suit.  

Effectively, this means the UK has a licensing regime for remote gambling that few operators are using. There’s no simple way of getting them back onshore in order to recapture that tax income, says Bernholt. ‘The general view of most people in the gambling industry is that the UK is just not competitive enough on a tax basis compared to Gibraltar, Alderney or the Isle of Man. There are a number of ways of resolving this. You could take the approach that France and Italy have taken, imposing very strict licensing restrictions, but there has been a lot of discussion about the fact that online sports betting in France has performed much worse than expected because the tax rates are relatively high. Or you do the alternative and bring UK tax rates down for gambling companies so the UK can compete with offshore jurisdictions as a good location for an operator offering remote gambling services. But then you’ve got the issue of why a gambling company should be taxed lower than a financial services company or a retailer and it is not clear how you square that circle.’ Given that the previous government initiated the consultation and that very little has been said since it closed in June last year, the current status of the consultation remains unclear. The coalition government has not been particularly forthcoming on its intentions for the gambling industry and the DCMS says only that it plans to make an announcement on the topic in the next few months.

Operators are understandably concerned at the prospect of such drastic changes to the UK licensing regime, particularly given the size of the country’s market. According to Global Betting and Gaming Consultants, the UK has the third biggest online gaming market behind the US and Japan. The Gambling Commission’s British Gambling Prevalence Study 2010 reported that 73% of adults had taken part in some form of gambling in the past year, with 14% betting online. And data released by market research firm Nielsen last September found that online gambling had grown at a faster rate in the previous year than social networking sites such as Facebook, with a 40% rise in visitors over one year.

Commercial break
The introduction of TV advertising has been one of the factors behind the increased visibility and acceptance of the sector, but it has been a less effective acquisition stream for poker and casino than other verticals. The Gambling Act allowed advertising but came with a 9pm watershed, although this did not apply to bingo or during some sports programming. According to Verity Blake, head of media at Jack Media, which counts PokerStars and PKR among its clients, this has forced many poker operators to focus on other ways of attracting new customers.
‘Sport is heavily reliant on TV and they do a huge amount of acquisitions through TV, as does bingo. But for poker and casino other channels of acquisition are stronger, such as online marketing and affiliates,’ she says. ‘If you’re aiming for a poker and casino audience you have to buy television after the 9pm watershed so it’s a lot more expensive. But with bingo, for example, you can buy during the day and the TV costs are a tiny percentage of what it costs to buy poker or casino advertising in the evening. You can buy a campaign for bingo and it will work very well. If you buy a campaign for poker or casino the return on investment is a lot lower.’

Blake says social media has had a big impact on the type of television advertising operators are now running. ‘They are integrating their TV a lot more with their social media and that is something that is a new trend. They are aligning their brand much more to make sure their TV fits in with their social media strategy because social media is becoming far more important.’
Although the recession did present some opportunities, with a lack of advertising revenue forcing some broadcasters to drop their rates, it also forced many operators to rethink their marketing spends. Some, such as Ladbrokes and Betfair, chose to pull back on their spending, though there are industry observers who believe such a strategy is simply storing up problems for the future. Others, including William Hill, 888 and Rank Interactive, took the opposite approach, weathered the downturn and boosted their activity.   

Matt Cowley, CEO at The Bank, an advertising agency which counts William Hill among its television clients, says the latter is a much more effective strategy in difficult times. ‘The sensible thing to do would be to increase your marketing spend at this time in order to grab that market share. The market is crowded and I think you will see some operators fall away.’

Many operators saw their growth fall or plateau during the downturn and online poker has had particularly disappointing results in recent years. To balance out poor online performance some poker operators have turned their attention to the live poker scene and there has been a significant rise in the number of live tours in the UK over recent years. Neil Channing, professional poker player and founder of website blackbeltpoker.com, says this was kick-started by the launch of the Grosvenor UK Poker Tour (GUKPT) back in 2007. 
‘Nobody had really thought about having a tour in the UK before, there had only been a European Poker Tour, and when the Grosvenor Poker Tour started, that is when the UK domestic scene really started to get going. They were covered on Channel Four in the first series and one of the reasons people were interested was because they wanted to be on TV,’ he says.

Tours of duty
Along with tours such as the GUKPT and the PokerStars UK and Ireland Poker Tour — now in its second season — smaller stakes tours have also become an important feature of the UK poker industry, with Gala Casino, Sky Poker and Paradise Poker among those to launch tours with modest buy-ins.
‘People who represent smaller sites organisations saw there was a gap. There was a rush to fill that kind of mid-range gap,’ says Channing. ‘It is a little bit bigger than your average guy popping down to his local casino to play the £20 rebuy on a Friday, but a little bit smaller than the other more established tours. This kind of idea of giving people the experience of playing a big buy-in event but for a small cost is becoming very much the vogue at the moment.’
Anything that brings more players into the game is good news for poker operators, and many are pinning their hopes on live poker to help revive their flagging online revenues. Whether or not this can help UK-facing companies turn things around over the longer term remains to be seen.