Regulus Partners warns that early 2022 regulatory developments have set a dangerous precedent on the future of gambling advertising. Despite visible flaws across multiple jurisdictions, operators should defend their right to advertise rather than face the dire consequences of caving into regulatory appeasement…
The New Year has opened with a number of threatened or delivered changes to gambling advertising. Gambling advertising has been banned in the Republic of Georgia (tellingly, except at airports and border crossings); the outgoing Dutch minister has launched an evidence-based rear-guard action against a bill proposing to restrict advertising, introduced just two months after the Netherlands finally adopted Point of Consumption licensing; a German fan body has demanded the removal of betting sponsorship in domestic football, citing risk of addiction.
Gambling advertising and its links to sports have been coming under increasing attack for several years but a growing number of jurisdictions are under pressure to restrict or ban – an area of the gambling policy debate that is becoming dangerously ‘normalised’ with relentless criticism. There is a big danger that this is the ‘year of the cave in’ to the anti-advertising lobby, in our view – this would be a dangerous precedent for the gambling industry and legislators to set
There are three obvious reasons why the online gambling sector is in such a mess over advertising in so many jurisdictions. The first is that online gambling generates c. 6-10x the amount of marketing expenditure of landbased gambling per unit of revenue, which uses physical distribution rather than marketing as its means of getting in front of customers
Unsurprisingly, property and front-of-house staff costs tend to be between 20% and 35% of revenue for retail gambling companies – exactly the sustainable rate of marketing costs in a ‘normal’ tax environment. Consequently, while there has been practically no real-terms growth in gambling expenditure in the UK in twenty years for example, there has been a five-fold growth in gambling marketing expenditure, entirely driven by channel shift. However, whereas gambling venues are usually only noticeable to patrons, online gambling advertising is noticeable by everyone (instructively, there is often a backlash when mass distributed venues become highly visible, such as betting shops and slot parlours). Increased visibility causes an ‘image problem’ for the other two reasons.
The second issue is that visible gambling tends to come with a call to action: ‘bet now’, ‘win big’ etc which many viewers see as crass or exploitative. There is robust evidence to demonstrate that mass advertising does not increase population-wide engagement in more harmful play (but it can trigger some vulnerable individuals and it can be misleading, so it does need regulating); nor does it increase participation of gambling in children, which is a favourite and emotive accusation of the anti-lobby (young men should be a bigger concern on a population-wide basis).
The belief that it does population-wide harm is extremely sticky however, and feeds into an ethical view that gambling is somehow distasteful. Harmful is a much more powerful grounds for legislative change than distasteful. However, there is an extremely important distinction: harm is objective and a good reason to have laws which protect people; taste is subjective and a dangerous reason for governments to legislate since it allows groups of people to judge and limit the freedoms of other groups of people for their behaviour based on perception. Simply stating that something is harmful does not make it so, however persuaded some stakeholders may seem to be.
The third problem is that gambling operators feed this narrative with crass advertising (usually designed to win share rather than appeal to a broader audience) and weak consumer protections; especially in the ‘period prior to being caught’, jurisdiction by jurisdiction. While it may be easy to defend gambling advertising in terms of cause and effect, if most stakeholders think it intrusive then this will be an uphill battle where heart trumps mind.
Equally, while individual lapses in care cannot automatically point to a population-wide problem, repeated examples of this turn the debate into a defence of poor gambling operators rather than an explanation of effective gambling operations. The combination of prior prejudice, a counter-productive consumer voice and repeated lapses in customer protection is a toxic combination which inevitably obscures rational evidence and causes politicians to find a badly run sector guilty of what ever it may be charged with: if the anti-lobby looks right about the problem then surely it must be right about the cure…
There is an irony that these issues are driving an anti-gambling advertising in sports debate in Germany so soon after the German government has emasculated the product from a regulatory standpoint: restricting available betting markets, limiting population-wide expenditure levels, and all but banning gaming. This hints at an important point: giving in on advertising is unlikely to buy freedoms elsewhere other than in the specific round of horse-trading the industry happens to be engaged in at the time. Gambling might be a bit safer if it is less visible, but there is no guarantee that the pressure will be off; bartering away freedom for time is a dangerous game.
Gambling advertising is a surprisingly defensible position, in theory at least. Not only is the impact of gambling advertising far ‘less negative’ than is usually portrayed, it provides three significant positives:
- It helps to make domestically licensed operators more visible, thereby enhancing channelling away from black and grey markets (which are nearly always more dangerous to the consumer and un-taxed by the jurisdiction)
- It provides a significant income stream to domestic media and creative agencies – over £1bn in the UK alone
- It provides a vital income stream to many sports, which would be in far worse shape or potentially out of business without income from gambling
Given that the harm caused by gambling advertising is so often misrepresented, that the positives are so often ignored, and that natural allies are created in media and sport, this is a battle that gambling operators can and should win. There might be a dangerous reason why there is often little stomach to do so, however. The vast majority of gambling advertising is about share of voice and calls to action, not customer engagement and brand-building (NB, spending money to get noticed is not brand building). Nearly all the expenditure is therefore a nil-sum game, forced upon each operator by the expenditure of its competitors.
The US sportsbetting market is the apogee of this insanity, in our view, but it has not yet blown up from a regulatory standpoint. When and where it does blow up, if everybody loses the ability to have an arms race, then the sector overall saves money since customers continue to gamble and underlying digital engagement continues to grow or remain robust (obviously enough). Banning bad advertising is a win-win, as Italy has so elegantly and predictably proven.
This too is a dangerous motive and speaks to why gambling advertising is also so unpopular in the first place – so much of it is dysfunctional. Historically, this dysfunctionality has been hidden by high margin secular growth – but that dynamic is now largely a thing of the past: even where secular growth exits an operator will try to own it with advertising and so ruin the commercial dynamics on a sector-wide basis. When gambling advertising undermines commercial value as well as political support, then it is simply promoting the sector’s demise.
Gambling advertising in any form will always upset a core group of people who believe that gambling is inherently harmful; they have a right to be upset and a right to be heard. However, bad gambling advertising is currently offending a much broader strata of society because it is so counter-productive on so many levels. Ironically, therefore, the calls for an advertising ban are calls to stop the sector from making bad commercial decisions. However, if gambling advertisements spoke to potential consumers rather than shouted at existing punters, they would go a long way to fixing this problem, in our view.
It would be difficult to imagine an alcoholic drinks company running the tagline “Drink Now”: Guinness even advertised drinking water ahead of their marquee Six Nations Rugby sponsorship in 2019. By adopting and adapting this more mature and sustainable model, gambling advertising expenditure might then start to grow the segment rather than just create a public brawl over share; which would generate the added benefit of irritating and concerning a much smaller group of people. Then operators might find better reasons to defend their freedom to advertise, before they are thrown away in a misplaced hope of appeasement…
Featured article edited by SBC from ‘Winning Post’ Sunday 16 January 2022 (click on the below logo to access a full unedited version). NB Winning Post will return for 2022 on Jan 9th.