Crouching Tiger, Hidden Black Swan

By Dan Waugh, Principal Consultant, Regulus Partners

When in 2003, the white tiger Mantecore sank his jaws into the neck of Roy Horn (of Siegfried & Roy) on stage at the Mirage Casino in Las Vegas, he unwittingly illustrated the problem with risk management in the gambling industry. A preoccupation with ‘on-model’ risks (such as security, high-rollers and cheats) can blind us to ‘off-model’ risks - such as losing the biggest draw in Vegas to a moment of feline displeasure (at an estimated cost of $100m).

The tale of ‘Mantecore & Roy’ was told by the author Nassim Nicholas Taleb in ‘The Black Swan’, as a parable for Big Data induced risk blindness in the banking industry; but it seems likely that what happens in Vegas must also have relevance for our gambling industry.

The application of technology to age-old games of chance has transformed our industry world-wide and the seductive new allure of Big Data is easy to understand in companies wishing to achieve greater operating efficiency (through reduced labour and expenditure more closely aligned with revenue). There is however a hidden danger that the more we come to believe that we can predict and control circumstances, the more likely we are to become blind to the possibility of alternative outcomes.

Indeed, it may well be that the serial inability of the industry to manage political risk effectively is a product of its obsession with ‘on-model’ risk management rather than a paradoxical anomaly – a fascination with statistical probability or form which causes us to lose sight of seemingly random events outside our direct control.

We have seen this most clearly in remote gambling where data omniscience and physical dislocation have resulted in the objectification of online gamblers, who are often classified as “accounts” rather than “customers”. The sector has been fascinated by the idea of “personalisation” (taking inspiration from Amazon amongst others) seemingly without noticing that the reduction of a human being to a series of clicks and transactions betrays a deeply impersonal outlook.

That traditional (land-based) gambling has been partly inured to this is down to an inherent culture of service (admittedly, not always good service), proximity to the customer and relative technological backwardness. Yet it is clear amongst the larger corporations in Great Britain that these are not badges of honour. Land-based operators want to be seen as ‘tech savvy’ too – and if that helps them to reduce labour costs (a perfectly natural preoccupation in a high-wage economy like ours) then so much the better. The push to multi-channel brands and the so-called ‘single view of the customer’ seems likely to accelerate this process.

The most obvious risk from all of this is to the consumer. Once the customer is objectified, the operative cares less about his happiness and well-being and may behave differently towards him (through marketing, use of bonuses, game design and simple duty of care). In its turn, this carries clear political dangers in terms of government intervention to address problem gambling (in terms of both perception and reality) but may also involve more fundamental commercial risks.

First, there is the danger that technology-driven change undermines the customer experience. It is not by chance that the betting shop’s fall from relative grace over the last decade has coincided with a decline in customer-employee interaction as machines have changed the economics and behavioural patterns of many shops.

 Second, the more our business decisions are determined by algorithm rather than consideration, the more we erode our own abilities to learn and understand rather than simply perceive – or as Taleb writes, “Technology can degrade (and endanger) every aspect of a sucker’s life while convincing him that it is becoming more ‘efficient’”.

Above all, we should be aware that the seemingly endless possibilities of Big Data may blind us to opportunities and threats by offering the illusory comfort of precedence. After all, Siegfried & Roy performed their act more than 2,000 times before Mantecore brought the curtain down for good.

Time for gambling to embrace uncertainty

By Dan Waugh, Principal Consultant, Regulus Partners

One of the fundamental characteristics of gambling is its simplicity. Its rules are constant and its outcomes unambiguous – there are no shades of grey between red and black – only the occasional hint of green. We win or we lose and we are left in no doubt as to why.

Perhaps this basic law of gambling has conditioned those who work in and around it to expect the same thing from real life. This at least would explain the reaction from many parties to the publication of the Responsible Gambling Trust’s suite of reports into harm and B2 gaming machines (aka FOBTs).

There was a palpable air of dissatisfaction when the research was presented and discussed at last week’s Responsible Gambling Trust Harm Minimisation Conference. The bookmaking industry had been hoping for exoneration; its critics for vindication. Neither side got exactly what it wanted.

The reports – which drew on an unprecedented array of machine and player data – contained a trove of insights into how people behave in relation to gaming machines. It was fascinating, thought-provoking, stimulating stuff.

Damningly though, it wasn’t simple or conclusive. There was no instant gratification; no unarguable implications for policy. Instead – as is the nature of good research - there were further questions for the data and the call for more and different data to be assessed.

If there were feelings of disappointment with this outcome, its roots lie in the curious compact which spawned the research. Quite simply, the research was part of a Westminster fudge – a means of dealing with political concerns not wholly related to the subject matter. The RGT’s acceptance of its role within this fudge was presumably the price it was willing to pay in order not simply to justify the expense of the project – but more critically to add political weight to calls for the gambling industry to provide access to its data.

While Derek Webb’s Campaign for Fairer Gambling has drawn attention to concerns of harm in relation to B2 machines, it seems probable that the main societal (and so political) issue is far more visible and visceral. The way that machines have changed the economics of the betting shop (combined with the passing of the old demand test) has led to their clustering on Britain’s high streets – sometimes with the same operator running several shops within spitting distance of one another.

At the same time that the shops have become more visible, their character has also changed. The shift from over-the-counter bets on horse-racing to machine play has eroded the betting shop’s perceived value to communities. Indeed, some of the most damaging attacks on the industry have come from those who loved it best – from the ranks of customers and employees.

The question of maximum stake sizes is at best tangential to these concerns – indeed there may be some validity to the claim that a reduction of stakes on B2s (in isolation) might lead to an increase in clustering.

Then there is the matter of lobbying by the rest of the land-based gambling industry, who seem opposed to the B2 principally because they cannot have them (or in the case of casinos, that they alone cannot have them). There is perhaps a degree of envy here but more powerfully a sense of affronted logic.

The maximum stake sizes on the main machine categories in Great Britain proceed as follows: 10p for D, £1 for C, £2 for B4 and B3, £5 for B1…..and oh, £100 for B2. It is the position of the stakes on B2 in relation to the other machine categories (and the phenomenal success of these machines) that irks here. It is this which underpins the BACTA position that if machines with £100 maximum stakes aren’t harmful, then all licensed gambling operators should be allowed them.

The logic is simple to grasp – but it is only logical viewed through the prism of industry self-interest. Government is unlikely to see that the answer to the FOBT issue lies in their further expansion. It may be ‘unfair’ but life – as with gambling – is unfair.

It is difficult to believe that B2 machines would have been encompassed within the Gambling Act 2005 had the framers of the legislation known then what we know now – but the genie escaped from that particular bottle some time ago. As Professor Peter Collins wrote in 2003: “It is always easy to relax regulations and increase the availability of commercial gambling opportunities, it is extremely difficult to cut back the supply if it is decided that, for whatever reason, there is too much gambling”.

The fact that the research did not provide the resolution that some had hoped for need not negate its value – if we are prepared to engage with it in a spirit of honest inquiry. This means resisting the urge to draw selectively on its findings in order to support pre-existing positions (and critically being mature enough to know that absence of evidence is not the same as evidence of absence). It means being prepared to embrace uncertainty and ambiguity; to ask questions in order to feed curiosity rather than as thinly veiled means of making statements or scoring points (as happened all too often at last week’s conference).

It also means ensuring that research is used appropriately, rather than being harnessed to the needs of politicians. It will be interesting to see whether the pleas of NatCen’s Heather Wardle are heeded - to institute a long-term programme of progressive research in place of these large-scale but ad hoc studies.

Carl Sagan, the astrophysicist wrote: “It seems to me what is called for is an exquisite balance between two conflicting needs: the most sceptical scrutiny of all hypotheses...and at the same time a great openness to new ideas. Obviously those two modes of thought are in some tension. But if you are able to exercise only one of these modes, whichever one it is, you’re in deep trouble.”

Consumer behaviour in relation to gambling isn’t rocket science but it is complex. The RGT research offers the entire gambling industry a glimpse of the shape of things to come. How the industry embraces this new age of disclosure and regulatory data-driven policy-making is likely to influence its ability to stay out of further trouble.

Juggling the tectonic plates - what makes for a good chief executive in the gambling sector?

By David Loveday

Every time a chief executive role becomes vacant in the gambling industry the rumour mill cranks up and even new betting markets are released by competitor firms with a list of possible names - ranging from the plausible to the outright fanciful. (My name appeared in the runners and riders for the Ladbrokes job in the list compiled by Paddy Power last week – I will leave you all the speculate where my odds of 11/1 place me on that spectrum).

Given the nature of the gambling industry, it should perhaps be no surprise that this type of high-profile speculation is an important element of the make-up of the sector, and it may even be one of the contributing factors behind the lack of talented individuals entering the sector from the outside.

But there are other reasons that can be identified behind this lack of supply of new blood.

First, expectations on the part of stakeholders in gambling companies tend to be sky-high and they generally eclipse the reality of what is actually possible and achievable (partly due to the growth-driven nature of small-cap; partly the lure of attractive cash flow and partly due to an over-simplification of regulatory and technology issues). Second, this is a sector which fairly neatly divides between companies which cut their teeth in unregulated markets (with an extremely 'entrepreneurial' culture and risk profile) and those from heavily regulated backgrounds (with the equally challenging opposite culture akin to government or police).

This has led to a disconnect: while the balance between unregulated and regulated is now changing markedly, the expectations of stakeholders have yet to catch up. The job of the modern gambling chief executive is therefore to manage this tectonic shift, from whichever part of the scale the company is on. The sheer complexity of the task relative to the size of the companies might be another reason for the reluctance of big hitters to join the fray from the outside.

Given this backdrop there are, I believe, a number of attributes which contribute to the suitability and success of a chief executive in this sector. Different chief executives will suit different companies at various stages of their evolution. Businesses need to pick the right people with the right profile. Would you put an entrepreneurial/start-up guy in charge of a major PLC? Has promotion from within worked? Are left-field candidates ever given the time and support to get to grips with the sector's idiosyncrasies and complete the job?

A large part of the equation is understanding what the new chief executive will have to deal with once they have taken up the role and what it will take to handle the multi-faceted and rapidly changing issues that will inevitably arise. Here’s my brief rundown of what I think these issues are:

Management skills

Any new boss needs to be able to assess their inherited team then make sensible judgement calls. Bringing in an army of staff from a previous role is tricky and they have to deliver very quickly to be deemed successful. Harnessing the talent within is critical, as is getting this balance right. This point dovetails nicely with culture - do you break it, modify it or add to it? In an industry where a lot of companies are very similar (but are often convinced they are very different) you have to carry the troops and the senior management team along with you. Destruction or modification of a culture just for the sake of it is potentially dangerous and damaging.

Technology

Any CEO has to grasp the technology required and really understand how it can be a help rather than a hindrance, whether land-based, remote or, increasingly, multi-channel. Technology in this sector must be understood from the start. From a transactional point of view, the modern gambling company can be (and increasingly should be) hugely advanced and highly complex - and so, therefore, is the supply chain. The old adage of ‘leave it to the techies’ simply won't cut it any longer.

Regulation

The impact of regulation on  gambling can never be under-estimated. Regulation has to be understood, the CEO has to have a sure grasp of the issues, and all decisions in this regard need to be well thought through. I believe that here relationship building (rather than grandstanding, mudslinging or simply ignoring) is of vital importance; this sector can get political very quickly, so the ability to handle key governmental stakeholders is key, This is a key difference between gambling companies and other tech-driven consumer businesses; it is hugely dangerous to get wrong and often thankless to get right (keeping gambling off the public agenda is often the best outcome!).

Owners, board members and investors

Given the nature of the market all of these important factors are liable to huge change. They need to be understood and managed by the CEO as they evolve. Communications is key - to the staff, to the customers and of course to the owners. Strong communications can build confidence, especially if expectations are set at realistic levels and risks are properly articulated. The CEO needs to embrace this factor and lead this battle. Their profile and the perception of who they are in the outside world must be positive and accessible but also frank, grounded and carrying gravitas.

The competition

Competition is always fierce. The chief executive needs to know how to fight, defend, co-operate, destroy, merge or acquire the competition. To survive, every CEO has to be adept at this kind of combat and has to lead from the front in addition to being a player in the wider industry. All CEOs have read the art of war; in this sector as with any other the CEO must avoid fighting battles that cannot be won. They need to fully understand both their own and their company’s weaknesses as much as those of their opponents ranged against them.

 It all sounds like the CEO needs to be something of a Clark Kent and it is true that they will need to deploy extensive powers. For anybody who has never been a CEO, I can tell you now it is a lonely role. When things go well you get little credit (it would have all happened anyway!) and when things go badly it is entirely your fault.

Anybody who takes on the role of chief executive at any company will soon find out that there are consequences to having ultimate decision-making authority. But what really makes it a lonely job are the questions that can keep you awake at night, such as who is spinning you a line, who can you ultimately trust, and who among your staff are telling you things they simply think you want to hear.

The gambling market can be a brutal and unforgiving place, and reputations can be shredded if decisions go awry. As Napoleon well knew, every leader needs a bit of luck to carry them along, but it is my belief that a chief executive job at a major firm can be rewarding, and not just financially.

The recklessness of responsible gambling

By Dan Waugh, Partner, Regulus Partners

Perhaps it’s the contrarian in me, but at a time when the gambling industry is keener than ever to demonstrate its CSR credentials, I find myself turning against responsible gambling.

To be clear, I fervently believe in the need to tackle problem gambling, based upon a combination of research, education, intervention and treatment. It’s just that I struggle with the increasingly common invitation to “gamble responsibly”.

I have four inter-related problems with the notion of ‘responsible gambling’ as a consumer message.

First, I suspect that very few people actually wish to gamble responsibly. Indeed, part of the thrill of gambling is that it feels in some way irresponsible. Gambling offers a recreational way to break taboo without breaking any laws or (in most cases) causing harm. It is a small act of rebellion against societal norms – and who ever heard of a responsible rebel?

If I’m right about this, then there’s a good chance that the invocation to “gamble responsibly” will fall upon deaf ears. This is a shame because others have already done a good deal of the legwork here. In 2009, Paul W. Smith, the director of corporate social responsibility at the British Columbia Lottery Corporation launched GameSense (gamesense.bclc.com) as a way of promoting healthy and informed attitudes towards gambling through engagement with the consumer on his terms rather than the operator’s (interestingly the campaign’s references to gambling were often oblique).

My second (related) point is that as words of advice go, “gamble responsibly” verges on the facile. It has a directness that harks back to a bygone age of advertising where consumers where instructed rather than influenced; but whereas we might be expected to know what to do with the motto “Drink Beer”, it’s not at all clear what we are meant to do or not do with “gamble responsibly”. One might suspect that the aim here is less about influencing positive behaviour and more about being seen to be responsible; but it’s just as likely to be down to lack of thought and insight.

Beef number three with “gamble responsibly” is the implication that it is the consumer rather than the operator who determines whether the gambling is responsible or not. The question of whether problem gambling arises from the gambling or the gambler is long contested – and the truth is likely to lie between the two. Clearly, adults need to take responsibility for their own actions but this certainly does not absolve the gambling industry of its own duty of care. The danger with “gamble responsibly” is that it lets the operator off the hook too easily.

My fourth and final issue with the notion of ‘responsible gambling’ is that it suggests that there is such a thing as irresponsible gambling, which we must assume is a proxy for problem gambling. The implication is that people who get into difficulties with gambling (often as a result of deep emotional distress) are behaving irresponsibly.

There are undoubtedly a large number of people (let’s take the readership of the Daily Mail as a yard-stick) who consider problem gambling to be a form of degeneracy rather than a mental health disorder. By promoting the idea that problem gamblers are irresponsible we may well reinforce these stigmas. This will not only make it harder for sufferers to seek help but may also make matters worse for them by inducing feelings of shame (which may in turn lead to harmful behaviour).

As someone who believes that the words we use reveal our intentions, I see this as being much more than a matter of semantics. We should applaud those who are trying to promote healthy attitudes towards gambling but good intentions need to be married to insight – and simply telling people to “gamble responsibly” seems unlikely to lead to harm reduction.

Perhaps it’s time that we reframed ‘responsible gambling’ in terms of the industry’s duty rather than the customer’s and allow gamblers the pleasure of being a little bit irresponsible again. 

Responsible gambling - compulsion or conscience?

By Dan Waugh, partner, Regulus Partners

A few months ago, I found myself discussing with one of Britain’s leading authorities on gambling, the recent flowering of harm minimisation initiatives. I asked her whether she thought it mattered that this appeared to have come about largely as a result of political sabre-rattling. She answered that it was progress that mattered rather than the path taken to get there.

While I understood her perspective, I wasn't sure at the time that I fully agreed with her – and the trumpeting of several more responsible gambling projects in the meantime has served only to deepen this doubt.

From where I stand, the question of whether the gambling industry is driven to tackle problem gambling through intrinsic or extrinsic motivation is critically important. I hold this view for two reasons: first, that intrinsic motivation leads to better solutions; and second that those solutions will be more sustainable.

If the problem of problem gambling is considered to be primarily a matter of perception then the solutions will be more about style than substance. Responsible gambling programmes founded on considerations of political necessity (whether this be defence against regulatory intervention or the pursuit of liberalisation) are likely to be characterised by highly visible, functional and tangible measures designed to demonstrate that ‘something is being done’.

This approach has a number of drawbacks. Hastily assembled solutions designed (whether by the industry or government) to ameliorate social concerns run the risk of being ineffectual or even damaging in terms of problem gambling (the law of unintended consequences). Even where the merits of a particular measure are clear, there is the question of trade-offs – could the time and money involved have been better spent on other, more effective interventions?

At last year’s Responsible Gambling Trust Harm Minimisation Conference, Professor David Forrest raised the question of whether more subtle, ambient measures (such as encouraging sociability) might be more effective in combating problem gambling than the development of technological interventions like pre-commitment. Yet amidst the debate that has enveloped the industry this year, this question has been ignored.

The key to more effective customer protection in gambling has to be greater understanding of the problem – and this means research. In 2003, Professor Peter Collins wrote: “We need research into all aspects of the causes and consequences of problem gambling, which will include careful monitoring of whatever regulatory, prophylactic, and therapeutic measures are adopted to combat problem gambling.”

More than a decade later, progress has been disappointing. We should acknowledge that the field of problem gambling studies is both relatively young and incredibly complex, involving a range of disciplines (including psychology, sociology, economics and neuro-science) which are just as likely to vie for precedence as work together towards holistic solutions. Efforts are also hamstrung by vested interest, where parties hope not so much to learn from research but rather to gain support for their respective positions. Lastly, research is often undertaken without the active support of the industry itself and so misses the insights that might be gained from close observation of customer behaviour. Once again, motivation is critical. Research entered into collaboratively and in a spirit of honest enquiry has to be the bedrock of effective harm minimisation.

The second reason why intrinsic motivation is so important is that it will drive longer-term and more sustainable solutions. Where the alleviation of political pressure is the aim, the energy behind responsible gambling programmes can be expected to dissipate as scrutiny subsides. This would not be so bad if political pressure declined in line with the incidence of harm. However, this is not the way that politics works.

It is not simply with gambling companies that we should be wary of motivation. Politicians, civil servants and regulators may be just as susceptible to favour expediency over effectiveness – and in such cases it is the vulnerable and damaged who lose out.

The difficulty with all of this is that it’s far more straight-forward to compel adherence to a set of rules than to hope that companies will care enough to address the issue without carrot or stick. Yet the examples of some companies (often owner-managed businesses, who benefit from long-term perspectives and proximity to the customer) who approach problem gambling as a matter of conscience rather than compliance should give us hope.

My solution is two-fold. The first part is to bring the human face of problem gambling into the boardroom by requiring the directors of our largest companies to spend time with front-line organisations like GamCare and the Gordon Moody Association. By shifting the issue from the abstract to the real, we may make responsible operation a way of doing business rather than a brake on commercialism.

The second is to establish a proper forum for the gambling industry to come together with the research community, the regulator and the treatment providers to take a long-term, informed and collective approach to dealing with harm. Gambling has a veritable alphabet soup of organisations (formed with the best of intentions) set up to promote responsibility but the linkages between them are often obscure and the areas of intersection contested. As yet there is nothing that is truly comprehensive.

Ironically, the dictates of conscience are likely to lead to a better future for the industry as public trust is more likely to be engendered by considered attempts to reduce harm than by knee-jerk and transparently cynical responses to political pressure. 

Dot com risk: grey markets and black swans

By Scott Longley, Editorial Director, Regulus Insights.

'To expect the unexpected shows a thoroughly modern intellect' - Oscar Wilde

The 9% share price fall that prompted Playtech to issue a stock exchange statement late last week was only the most recent example of how listed gambling companies suffer more than most from the financial market phenomenon of risk on/risk off.

This is the theory that in the wider market asset price movements are driven by the level of risk tolerance on the part of investors. The more dangerous or unstable the global political or market environment is perceived to be, the more investors are likely to gravitate towards safe haven investments. However, if the background mood music is tending towards the benign, the greater the likelihood that investors will chance their arm in an effort to generate greater returns.

With gambling companies, though, whether land-based or online it is specifically the decisions of legislatures and regulatory bodies that are more often the trigger for dramatic share price reactions.

In the online gaming sector the passing of UIGEA in 2006 by the US Congress was perhaps the most dramatic example of investors being caught out by a legislatory act of shock and awe. But the wider industry can point to other examples of business-defining government interventions, such as the Russian authorities moving to ban casinos back in 2009, or even the loss of S21 machines from land based gaming venues in the UK in 2007.

Rather like living on an earthquake fault line, regulatory tremors are a fact of life for all gambling companies. Playtech’s Malaysian troubles, and William Hill’s recent contretemps with the Philippines’ authorities, demonstrate that regulatory issues can strike anywhere at any time, and rarely with any direct warning.

Yet even to characterise reactions to regulatory developments, as shocks, is arguably an error in interpretation. The analogy de jour for unexpected legal or regulatory jolts is that they are somehow black swan events; something so out of kilter with the ordinary run of business, that it is hugely unpredictable. Yet there is an inevitability about legal proscription and regulatory limits when it comes to offering gambling services.

Whether it is the slow crawl of online regulation across Europe, the advent of the UK Point of Consumption (PoC) regime, the issues surrounding machine gaming in UK betting shops, the recent news from further flung jurisdictions such as South Africa, Singapore or Malaysia, the direction of travel is all too clear: more elements of gambling are being noticed and either regulated, or seeing bans tightened and enforced. This process also gives the lie to the oft misused term ‘market liberalisation’; while it is legally true that a ‘banned’ market which regulates ‘liberalises’, if grey market operators are already in the market the commercial outcome is not ‘liberalisation’ but restriction and tax.

The steady march of gambling regulation makes grey market cash flow seductive but dangerously unpredictable. Exposure to it can also limit regulated market opportunities. Companies and investors could be increasingly facing an impossible choice between regulated legal clarity but little profit. Or dot com cash flow with significant potential volatility.

Dot com volatility is made more acute because no enforcement action has taken place in any given jurisdiction, and the likelihood of action taking place in the future is somehow more unlikely. The history of online gambling consistently contrives to disprove such optimistic hypotheses.

According to industry lore there was no likelihood of enforcement of anti-gambling laws being applied to online operations directed into the US. That was until July 2006, when the Chief Executive of Betonsports was arrested on charges of violating the Wire Act.

Likewise, industry sages confidently predicted there was no prospect of European authorities resorting to similar such extreme measures. Then the French authorities arrested then co-chief executives at Bwin, Manfred Bodner and Norbert Teufelberger in Monaco in late 2006. The same Gallic plod persuaded the Dutch authorities to detain then Unibet boss, Petter Nylander, at their behest in Amsterdam’s Schiphol airport in 2007. And, of course, PokerStars and Full Tilt were untouchables as far as the US authorities were concerned – until Black Friday in April 2011 when suddenly they weren’t

In Europe the steady ratchet of the introduction of PoC regimes across the continent has been accompanied by the drip, drip, drip of operator market exits, the issuing of blacklists and the occasional prosecutorial threat. The approach of playing the regulated market game while also deriving revenues from grey markets, and hoping for ‘liberal’ interpretations of European law is becoming increasingly untenable.

Moreover, this process of the closing down of regulatory arbitrage opportunities is now global. The comfort blanket of Asia, has been promoted by some – including the odd City scribe – as an essentially riskless market where the likelihood of any crackdown by the authorities on offshore operators is supposedly very slim.

This is an example of applying inappropriate ideas about risk to a complex legal, regulatory and operating situation. There are few listed entities that knowingly take money out of China; but there are some, and there are a lot more private entities that ply their trade far and wide across Asia.

If it looks like a swan, hisses like a swan, and is black like a swan then it’s probably a black swan: Investors and operators alike should not be surprised if it turns round to bite.

Never mind bet now, what about act now? - Looking into the recent ASA review into gambling company advertising

By Scott Longley, Editorial Director, Regulus Insights

‘From those wonderful folks who gave you Pearl Harbor’ (Proposed advertising slogan for Panasonic that came from a brainstorming session and title of book on the heyday of Madison Avenue advertising by Jerry Della Femina)

If there is some good news for the UK’s gambling companies from the Advertising Standards Authority (ASA) review into gambling advertising published late last week, it is that the market research undertaken as part of the process did at least find some evidence of the success of advertising in persuading consumers to bet more often. Yet while this may provide some comfort to gambling’s marketing executives, the true significance of the report is the support it is likely to give to those calling for tougher advertising controls for the industry.

In conducting its review – the first since the restrictions on gambling advertising were relaxed in 2007 – the ASA commissioned its own qualitative research and also added some questions on gambling advertising to the most recent Gambling Commission data omnibus survey in order to obtain some quantitative insights.

The evidence from this second element of the research is illuminating. While an overwhelming majority (90% of respondents) claimed that gambling ads had not prompted them to gamble, the survey did find that there was a higher tendency (20%) among those who had placed an in-play bet to be prompted by a free bet or other promotional offer.

Moreover, there was a “notable spike” among the 24-34 age group where 44% said they had been prompted to gamble by a free bet or promotional offer.

So at least the industry has confirmation that free bet offers work, and is particularly efficacious among a certain age group and with a particular product.

But that’s as far as it goes for positives. Because unfortunately for the industry the evidence that is accumulating around free bets offers and promotional offers means that it has become an area which the ASA is now targeting for further scrutiny.

The review points out that no specific action will be taken as yet - but the industry is at now on a warning with regard to ads in this area.

The ASA review said it would be taking a more proactive approach to this area after the qualitative and quantitative research undertaken as part of the review found that free bet offers and promotions were “likely to appeal to younger people and prompt them to gamble”.

Of the 398 cases in the last year, complaints over free bet offers were the most prevalent. The review said the ASA and Committee of Advertising Practice (CAP) had already conducted a “large amount of work” on this issue and that it will “remain a key priority”. The review continued: “If we spot a problem we’ll be more likely to seek a published ruling so that gambling marketers know where the line is drawn and why.”

This isn’t the only area where the ASA will be more proactive. Specific in-play advertising also came under greater scrutiny in the review, and in particular ads where according to the market research carried out for the review there was perceived to be a link between betting and ‘toughness’.

We don’t need to be advertising gurus to know which ads might be being referenced here. The review goes on to relate one story from the market research of a ‘male, family-stager from the 24-44 age group’ who said of a Ray Winstone ad for bet365: “Ray Winstone is your archetypal geezer – he has respect, he’s no nonsense, strong, firm, direct.”

Such testimony is great news for Winstone’s agent when it comes to negotiating future endorsement and advertising deals but not much good for anyone else. Though the review noted that research participants could “mostly only speculate about the potential effects of bet now advertising”, it went on to say that there was evidence that these ads did have an impact on the group of male gamblers who “confirmed they were motivated by this type of ad”.

As part of its next steps, the ASA said: “We’ll be more proactive on issues relating to social responsibility, especially around ‘toughness’ in ads and particular appeal to children, finding ways to continue to source data to inform our decision-making.”

The focus will now move to the CAP review that is due presumably in a matter of weeks. This will be looking into the rules and regulations that already apply to gambling to see whether they need to be amended or updated.

But with the ASA signalling more intense oversight, it is now more likely than not that industry practice on advertising will have to change. Prior to the publishing of this review, the main operators were already well aware of the disquiet among advertising and gambling regulators over free bet and promotional offer advertising.

The newly-formed Senet Group has already instigated a voluntary code which stops its members from conducting this type of advertising before the 9pm watershed. But at present only William Hill, Ladbrokes, Coral and Paddy Power have signed up to it, and of course this code does nothing about the ‘toughness’ complaint.

It should also be noted that the ASA review included data on the amount of complaints notched up by the individual firms which prove that the four companies mentioned were together the biggest offenders as far as cases of complaints were concerned.

In fact, it is worth commenting that while William Hill (190), Ladbrokes (184) and Coral (82) all feature in the top 10 of most complaints, Paddy Power tops the lot with a whopping 243 complaints since 2006, a total which outgunned even the 206 complaints received by the ASA about gambling ads generally. The old maxim that “All publicity is good publicity” often invoked in defence of advertising controversy, may be coming back to bite.

Department of mischief or not, this is not the best advertising accolade that we’ve ever seen. If the Senet Group is going to have more impact, it should perhaps look to its own members to follow the ASA lead and look more proactively at stoppering the flow of complaints about gambling advertising at source. It might well come to be seen as the best piece of advice that their respective marketing departments have ever received.