Labour’s lurch raises the stakes for gambling

By Dan Waugh, partner at Regulus Partners

One should always be careful what one wishes for.

On May 8^th this year, the bookmaking industry breathed a collective sigh of relief as David Cameron’s Conservatives were returned to government by the British electorate. The spectre of an allegedly anti-FOBT Labour administration had been vanquished but few at the time suspected that Ed Miliband’s defeat would usher in an altogether more alarming era with his party lurching even further to the left.

The future of Opposition politics remains shrouded in uncertainty but the rise of Jeremy Corbyn provides a disconcerting political backdrop to gambling in Great Britain at a time when deal-making has raised the stakes on regulatory risk.

The gambling industry – and the bookmakers in particular – appear to have few friends (if any) on the new Labour front-bench, announced this week.

A quick scan of parliamentary records shows that only one member of the shadow cabinet (on one occasion) voted in favour of positive regulatory change on gambling between 2010 and 2015. Of course, this pattern was entirely consistent with the party line on these votes – but it is worth noting that Corbyn has never voted in favour of deregulation, even when Labour was in government.

More telling perhaps is the number of shadow ministers – 13 out of 26 - who have used their positions as MPs over the course of the last five years to express concern on matters gambling (via Parliamentary Questions and contributions to debates in the Commons); and nine of these related specifically to betting shops (across the intertwined issues of FOBTs, clustering and single-staffing).

Quite aside from the numbers game, this list includes some fairly vocal MPs.

Just last year, the now Shadow Secretary of State for International Development, Diane Abbott warned about the “betting shop scourge” in her constituency borough of Hackney; while the Leader of the House of Commons, Chris Bryant has in the past confessed to being “puritanical about gambling”. Of more immediate concern for the betting industry is the fact that the deputy leader of the Labour Party, Tom Watson counts the Campaign for Fairer Gambling’s Derek Webb amongst his supporters (Webb donated £5,500 to Watson’s office in October 2014). Watson did however vote in favour of increases to stakes and prizes on casino B1 slot machines back in 2013, suggesting that his animus is directed at the FOBTs rather than gambling in general.

Of interest to the gambling industry at large will be Luciana Berger’s focus on the issue of gambling addiction. The shadow minister for mental health is believed to be interested in shifting the onus of problem gambling from charitable organisations to the National Health Service – and that way may lie tighter regulation and tax hypothecation.

Outside of Parliament, Sadiq Khan’s run for Mayor of London is likely to keep gambling regulation – and FOBTs in particular – in the headlines. Khan has already made use of the FOBT issue to win his party’s nomination (with Tessa Jowell unable to shake her ‘pro-gambling’ tag a decade on from the Act) and is likely to continue to do so. This is against a backdrop of incipient devolution of gambling regulation, where the granting of limited FOBT licensing powers in Scotland may well prove to be the thin end of the regulatory wedge (see http://regulusp.blogspot.co.uk/2015/05/patriot-games-scottish-nationalism-and.html) .

Industry will take comfort in the fact that Labour remains the party of Opposition and that Corbyn is perceived to be ‘unelectable’ as Prime Minister. It is a view that ignores the facts that the improbable happens in politics more often than is acknowledged (and that ‘Corbynism’ appears to be in the vein of of a wider global political movement) and that policy formation tends not to be the exclusive preserve of the majority party.

Corbyn’s own record in Parliament suggests that he does not perceive gambling to be an issue of national importance but that does not mean that he and his team are not prepared to exploit it as a means to embarrass both the Government and the rump of ‘Blairites’ on the back-benches. The issue of FOBTs in particular is one where Labour should be able to make common cause with the SNP in order to put pressure on Cameron's slender majority.

We simply don’t know whether Jeremy Corbyn’s leadership of the Labour Party proves to be a seminal moment in British politics or simply a colourful interlude. We can only deal with the facts as they stand; and in the changed political environment, the barometer of regulatory risk in gambling may just have swung again. 

Achtung Paddyfair!

By Paul Leyland, Founding Partner

“Actions speak louder than words. In the days to come the Goddess of Victory will bestow her laurels only on those who are prepared to act with daring.” Heinz Guderian

It is axiomatic that most armies prepare to fight the last war, just with more resources. Those armies tend to lose. For nearly a decade, scale and operational efficiency (alongside regulatory risk) has tended to decide the winners and losers in remote gambling: the game has got bigger, but (outside the regulatory landscape) it hasn’t really changed. However, it may be about to…

The potential merger announced between Betfair and Paddy Power initially surprised everyone. 

However, it only takes a few seconds of reflection to see this as one of the most ‘obvious’ and compelling deals available in gambling. The positives were already well rehearsed within minutes of the announcement, and at least partly reflected in the share price reactions: highly complementary product and brands (sophistication through to entertainment); complementary culture (bright, tough, hard-working and data-driven); stronger technology and trading capabilities; significant revenue and cost synergy potential. If there is a defensive element to the deal it is that double-digit growth is becoming increasingly hard to come by in maturing markets: but that is what M&A is for.

Over and above the (very important) points listed above, there are three further reasons why I believe this deal is so compelling.

First, the genuine ubiquity of product and customer reach. Pretty much all sports betting customers sit somewhere on an axis of price-sensitive sophistication to offer / fun-driven entertainment. Betfair owns one end of the spectrum, Paddy Power is the strongest player seeking to dominate the other (with increasing competition from Sky Bet). It was always going to be difficult to turn Betfair into a mass-market brand without diluting it: that was a strategic growth problem for Betfair that has been brilliantly solved. Equally, Paddy Power’s opportunities for genuine differentiation were always going to be constrained by sitting on the same ubiquitous technology stack as everybody else: that problem may too be solved. 

Moreover, since most customers move about within the price-entertainment spectrum according to product etc, the opportunities for cross-sell and highly sophisticated insights-driven marketing are huge. So the combination of Paddy Power and Betfair dominates the sports product and brand spectrum while also increasing flexibility to adapt. For a sector with a relatively rigid structure that struggles with containing CPA and struggles even more with retaining customers, this new flexibility from a major competitor could be a huge headache.

Second, the merger creates the scale to really innovate. Pre-synergies, combined revenue will be c. £1bn, EBITDA c. £320m and a technology spend of over £100m. Moreover, this scale is combined with a culture of low regulatory risk, strong work ethic and data-driven brain-power. That is a recipe for productivity-driven growth, rather than the sector default strategy of buying market share with marketing money or bolt-ons. In other words, the combination has the scale and skills not just to be a leader of the pack, but to redefine the pack; as Apple did to Nokia/Microsoft/RIM or Google did to Yahoo! The competitive problem with this is while the leader is focussed on growing the segment (as industry leaders should but so rarely do in gambling), it takes market share directly as well as relatively, almost effortlessly.  The requirements to turn this potential into reality should not be under-estimated. However, nor should the ramifications for the sector if the combination gets it right.

Third, timing, they say, is everything. 

We have seen the Ladbrokes – Coral merger maths work because Coral is on its way up about as fast as Ladbrokes is on its way down. The danger here is that this is the sort of ‘convergence criteria’ that might have put Britain in the Euro where it not for wiser heads. Similarly, the run-rate EBITDA of both Betfair and Paddy Power is now very similar (c. £160m), while so is the market-cap. A year ago, before Betfair CEO Breon Corcoran’s textbook operational turnaround, market valuations were very different; three years ago profitability was even more starkly different. Only six months ago, the impact of POCT was still relatively uncertain. Now, and really only now, the stars have aligned to allow this deal to happen in such a compelling way. It is a sign of superlative leadership to strike with full force as soon as the opportunity presents itself.

Veterans of Paddy Power will remember with amusement that a certain senior industry exec once said of his company’s move into Ireland: “Watch out Paddy Power, we’ve parked a tank on your lawn”. That company has since ignominiously retreated from the republic faster than a Char B on the Meuse. Similarly, Betfair’s coffin-wielding reports of the demise of the bookmaker was very much exaggerated: this now really is a case of if you can’t beat them… In contrast to previous empty sabre rattling, I think the Paddy Power – Betfair combination really will be a game changer for the sector.

'Millennials’ gamble on Alternatives – an inflection point in the market?

By Michael Ellen, Partner, Regulus Partners

The footfall in the big US casinos is now driven more by food and beverage, pool parties and star DJs than by table games and slots; this is the prospect being addressed across the United States generally and it’s already true in Las Vegas. MGM’s proposed 5,000 seat theatre development at the Monte Carlo casino, for example, recognises in dollars and concrete the influence of “Millennials” (broadly those born in the 1980s onward) on their future revenue prospects.

The same generational disengagement (with the previous generation’s staple entertainment products) is visible in the UK where bingo clubs and arcades have been under pressure for some time. According to the latest Gambling Commission data, revenue from these sectors has shrunk by 4% and 19% respectively since 2009. Put in the negative, the land-based industry has clear evidence of the prospective market decline of traditional casino products, which appeal adequately to the post-war baby-boomers’ generations; but not so much to the succeeding ones.

Nevada’s Senate Bill 9 (SB9) gives clear evidence of the alignment of suppliers, politicians and regulators in searching out an alternative gambling vertical that will draw in the younger generations that are driving this change (even the Nevada Gaming Commission refers to “Millennials”), sustaining casino revenues within an evolving regulatory best practice.

It is interesting to note Nevada’s regulatory onus on market development. In other jurisdictions the regulator’s main mission objective is somewhat different: to capture black market activity within the regulated sector (as in Netherlands, for instance); or to link permissible gambling activity to social responsibility (as in UK, for instance). However what drives the weather, in gambling industry terms, is the reality of player demand.

Millennials across the globe already play eSports in unbelievably large numbers, bet on eSports in increasingly material volumes, as well as play and bet on Fantasy. These markets exist either within, alongside or outside the gambling sector and its regulatory parameters, with the position by jurisdiction often different (and sometimes vague).

In summary, businesses and products will always appear to fill customer needs. The challenge for the regulated gambling industry is to supply product that meets evolving customer needs while observing regulatory boundaries; the challenge for the regulator is to ascertain whether the product is gambling and then to ensure that it is not abusive. This evolutionary process works best when the industry and regulator share a constructive dialogue, common purpose and mutual understanding, as evidenced by what is currently going on in Nevada.

In the case of Nevada’s SB9 the industry has joined together, involving the regulator to build a gambling product that will attempt to capture one millennial market. The alternative vertical in question is skill-based gaming. ‘Hybrid’ slots – on which a player can risk the (win) outcome of a standard random slot game on a second-round skill-based game - will appear soon on the floor of Nevada casinos if the Governor’s weather-vane is indeed pointing in the right direction.

Moreover, the development of Hybrid slots is not limited to Nevada. It is likely that a series of gaming states in USA and Canada will follow closely behind the current urgent development effort being put in behind closed doors in Nevada. Leading European regulators are also monitoring the subject closely. The challenges in this case, affecting all of them but not necessarily similarly, will be in the revision of their technical standards and in ensuring that players, and operators, are correctly informed on their chances of success – theoretical RTP does not combine easily with a skill element.

eSports betting is another Alternative vertical changing the face of the gambling world. Pinnacle Sports has already recorded it as a bigger market than golf, enjoying geometric rates of annual growth. Betting on (unregulated) stock car races was once thought to be really exciting because it was rather naively believed to be genuinely random. eSports betting will need to differentiate its product from this position somehow and clearly demonstrate its probity if it is to enter the regulated gambling mainstream.  This vertical has huge cross-border markets, including major grey markets; a dearth of trade associations; no systemic protection of the vulnerable; and no coordinated public assurance of software integrity; not to mention AML compliance.

Fantasy provides some similar characteristics and challenges – such as significant public interest, cross-border markets some of which are also ‘dark grey’ and others of which are likely to become so. Whilst the UIGEA carve-out of the original Fantasy activity – basically prolonged statistical extrapolations for real individual performances in fantasy team – might have made sense, it is much harder to justify the daily variety (DFS) which may well be re-categorised soon as a form of betting in some US states.

Millennial gambling activities, so far, are more inclined to the remote sector than to land-based. Legitimate revenue growth, or even footfall retention, may require some significant changes in approach by the major land-based operators and their suppliers. There may be some empty deck chairs on the beach this summer, as the industry gauges its ability to catch the strength and direction of millennial market demand whilst maintaining high standards of compliance.

This article was first published in the September issue of EGR

Getting Smarter?

By Scott Longley, Partner, Regulus Partners

“The Web as I envisaged it, we have not seen it yet. The future is still so much bigger than the past.” Tim Berners-Lee

The latest figures for smartphone usage in the UK from communications regulator Ofcom feature a smattering of numbers and figures that are sure to find their way into presentations at upcoming gambling conferences and presentations, supporting remote positioning and an ‘omni-channel’ future.

A headline finding proclaiming the UK was now a “smartphone society” is likely a signal moment. The Communications Market 2015 report found that 33% of people say their phone is their most important device for accessing the internet compared with 30% that prefer their laptop.

When another 19% that opt for tablets is taken into account, it is clear that a sea-change has taken place. The combined smartphone and tablet percentage has risen from 23% in 2013 to 52% in 2015 while the laptop and desktop share has fallen from 74% to 44% over the same period.

At the same time, UK 4G subscriptions have leapt from 2.7 million to 23.6 million. Ofcom found that, as of May 2015, 55% of these 4G users shop online with their phone; 55% bank online; 57% watch TV and video clips; 49% use their phone to send videos and photos via services like Snapchat; and 63% use instant messaging services such as WhatsApp. Ie, transacting and being entertained through a mobile device is now a mainstream activity that the majority of adults engage in. The participation figures are also sufficiently large to suggest that socio-economic divides are being (or have been) eroded.

According to the report: “Developments in technology, and improvements in availability and affordability have made it easier for people to go online whenever they wish. These enhancements also have the potential to make the online experience more enjoyable for consumers, as internet connection speeds improve, particularly while on the move as the 4G network becomes more widespread.”

This channel switch has already been hailed by many in the gambling industry who have even gone so far as to predict the ‘death of the desktop’. Now that the scale of change has taken on apparently structural proportions, the clamour to proclaim the new gambling world order will likely increase in proportion to the statistics.

But the rise of the smartphone comes with its own pressures, not least for those operators that are struggling to keep up with the pace when it comes to digital innovation. This isn’t just about former land-based operators which are in danger of being left behind by technological leaps and changing consumer behaviour; some original online pioneers have also been caught out by the swift rise to prominence of the mobile gambler.

The figures from Ofcom show how channel shift is likely to pick up pace. The figures for 4G take-up in the UK in the past five quarters give an indication of just how fast subscription levels for that service are growing. (See chart 1)

Source: Ofcom Communications Market Report 2015

This degree of change appears structural and is likely to pile more pressure on operators scared of missing out to ‘do something’, whether that is to embark upon ambitious innovation programmes, or alternatively seek to cut costs, or to rely even more heavily on aggressive marketing and their supply chains.

The pressure will be all the more intense because of what the smartphone offers in terms of the relationship with the consumer. Having an app installed on a customer’s main communication device gives an operator an ‘always on’ ubiquity which is far more intimate and constant than the gambling experience enjoyed via a laptop or desktop, let alone taking the trouble to go to a licensed venue.

At the same time, the possibilities being opened up on the data front are giving an enhanced picture of each individual customer, and in particular their preferences, opening up the opportunity to offer a more personalised gaming experience.

The more forward-thinking operators are exploring what this channel shift means and where the device and data developments are pointing. Others will be playing catch up, not least with the consumer themselves.

But each should be wary of believing this channel shift to be an unalloyed positive. Buried within the report are some other statistics which should give pause. The first is that the average number of apps that smartphone users have downloaded onto their phones is 17. Space for even a couple of gambling apps here is at a premium, so getting onto this privileged list will be an expensive process; dislodging an incumbent will be even trickier. In both cases it will demand ever higher levels of marketing and advertising spend to persuade consumers that your app is deserving of selection. It will also put an increasing premium on product innovation, data-mining and CRM activity if market share is to be maintained.

One further stat from the Ofcom report also offers a clear warning of what ubiquity can mean: based on a scale of one to 10, the report found that 48% of smartphone users gave a score of seven or above to describe how hooked they were on their mobile phones. In the 16-24 age group that rose to 61%. The report notes that this appears to be part of a continuing trend of increased dependency on the device, up from 41% in 2012, and 37% in 2011. As much as that is enticing to the operations side, it should also act as social responsibility flag. 

UK Point of Consumption Tax referral: the Heart of Justice?

By Paul Leyland, Founding Partner, Regulus Partners

“Knowledge without Justice ought to be called cunning rather than wisdom.” Plato

The British High Court has ruled that UK Point of Consumption Tax law was sufficiently controversial with regard to EU law that it needed to be referred to the Court of Justice of the European Union (CJEU) for an ultimate decision as to its legality.

According to Olswang, the law firm representing the Gibraltar Betting and Gaming Association (GBGA), there were three key points that the Judge had issue with:

1.       Whether a restriction on the provision of services from Gibraltar to the United Kingdom engages the right to free movement protected by Article 56 TFEU. Mr Justice Charles held that this was an issue of constitutional importance.

2.       Whether the taxes payable under the new tax regime constitute restrictions on the right to the free movement of services for the purposes of Article 56 TFEU. HMRC had argued that in order for a tax measure to be a restriction for the purposes of Article 56 TFEU it is necessary for it to be discriminatory. Mr Justice Charles held that in this regard HMRC had relied on a principle of law which has no clear precedent in European law.

3.       Whether the aims relied on by the UK Government to justify the new tax regime are legitimate. The reasons given by the UK Government for the new tax regime included addressing a perceived competitive advantage for overseas operators and increasing UK tax revenue.

Each of these was cogently argued on behalf of the plaintiff and each clearly makes logical sense.

The CJEU must now find the time to consider then decide whether this part of the 2014 Finance Act is indeed lawful, needs minor tweaks or sends UK government back to the drawing board. In the latter case the proceeds of the current tax will need to be refunded.

This process is likely to take several months for the CJEU to find the time and several more months to consider evidence and deliberate. In the meantime operators must continue to pay the tax.

So far so good for the off-shore remote gambling industry?

I’m not so sure.

Mr Justice Charles, has in my (thoroughly lay) opinion (safely) stuck to points of law and ‘kicked the problem upstairs’ from a constitutional / policy perspective. This is not the same as a judgement that the tax is unlawful and the decision should not be taken as that. Moreover, the track record of the CJEU in gambling and in other fields is that it is quite happy to consider law within the context of wider policy (especially where free trade ‘needs’ to be qualified, with gambling a fairly uncontroversial case in point): indeed as the highest court in the EU it has to.

Looking through the lens of wider policy, is it likely that a vital organ of the EU state is going to find in favour of tax havens and offshore commercial businesses over the tax raising powers of its larger Member States? I think not (certainly not without plenty of get-out clauses in the judgement for which the court is famous). Equally, even if the CJEU does rule in favour of GBGA, is it likely that EU and Member State governments will meekly acquiesce to such a decision and accept the new world order? Of course not… Instead they will be forced back to the drawing board to achieve their ends through different means (possibly with added anti-sector sentiment and belligerence). From a UK-specific perspective, the EU treaty negotiations provide a further mechanism for the EU to ‘help’ UK with a relatively marginal concession in the scheme of things.

So here is the conundrum…

In my view, the best thing the offshore gambling industry can now hope for is that the CJEU finds for HMRC. Otherwise, Member States, including the UK, will have to think up new gambling laws from first principles in order to ensure an ‘adequate’ level of tax and regulatory oversight (according to their own criteria). Opening up that can of worms is not likely to end with the benign, gently regulated and low-tax regime that the UK currently enjoys.

This is a fight the more aggressive elements of the offshore industry may regret ‘winning’…      

Scratching the three year itch...

© Janvdb95 | Dreamstime.com - Forever Marilyn In Chicago Photo

By Dan Waugh, Partner, Regulus Partners

“Everything should be made as simple as possible, but not simpler.” Albert Einstein

It is a feature of gambling regulation that, while the issues are often complex, public discourse on the subject struggles to rise above the simplistic. Debates tend to be polarised and ‘good stories’ told by both the pro-gambling and anti-gambling lobbies rarely admit inconvenient facts – especially where the matter of gambling-related harm is concerned. Despite the best endeavours of the regulator, evidence tends to be chosen selectively and often manipulated to accord with predetermined theories.

That last year’s Responsible Gambling Trust research into B2 machines gave succour to both the Association of British Bookmakers and the Campaign for Fairer Gambling provides the perfect illustration. The verdict that addressing stake size in isolation was unlikely to fully resolve issues of problem gambling should not have been a surprise to anyone connected with the industry. Previous studies and basic common sense had told us this some time ago. We perhaps should not have been surprised either that both sides would seek vindication in this finding.

In the Gambling Commission’s 2009 ‘Qualitative Survey of Machine Gamblers’, Professor Mark Griffiths set out three dimensions influencing customer behaviour on machines – situational (characteristics of the environment), personal (characteristics of the player) and structural (characteristics of the machine). His study suggested that all three were important in understanding play and problematic play.

So if we can accept that the issue of machines and behaviour is complex and multi-faceted, perhaps now is time to recognise that within our only formal and (at least in theory) regularised review of regulations – the Triennial Review (which is scheduled to return next year).

An expanded review of what types of slot machine are made available in Britain and how (rather than one that limits itself to questions on stakes and prizes), underpinned by a rolling programme of research has much to recommend it. It would contextualise policy discussions on machine regulation by considering factors such as sociability, environment, marketing, access and supervision alongside structural characteristics; it would help the Gambling Commission to deal with new issues (such as current hot topics of skill-based hybrid slots and the proliferation of digital content in-venue) as they emerge; it would put other issues (such as the casino industry’s long-running and so far frustrated efforts to gain an increase in machines) into a formal decision-making process; and it would create a more stable environment for industry investment and innovation.

Anchoring the process with a sustained programme of independent, collaborative and sequential research seems infinitely preferable to the knee-jerk rounds of partisan ‘evidence-gathering’ that has been the hallmark of previous reviews (the fact that the 2013 review resulted in more than 9,000 identical submissions from the betting sector is telling). The Government and Commission are heading in the right direction by insisting that all future submissions should be grounded in evidence – but doubt will persist as to the integrity of studies undertaken by interested parties. An ongoing programme of independent research seems desirable.

It may all sound like hard (and possibly expensive) work but who’s to say it wouldn’t be more efficient and less painful than the current pattern of lobbying and counter-lobbying that characterises the slots debate today? If a portion of the time, effort and lobbyist fees that are currently expended on debating these questions (creating much noise but little in the way of signal) was diverted towards a review such as this, everyone might benefit. The government and regulator would have a better mechanism for dealing with gambling headaches, industry would be able to focus on moving forward rather than defending the status quo and concern groups could shift from a mode of agitation to one of constructive engagement.

Whether it’s too late already to achieve an expansion of the 2016 review remains to be seen; but if we are to gravitate away from our unhelpful obsession with stakes and prizes, we need to start planning today.

R&D in the gambling sector: Retrenchment and Deals?

© Slangford3035 | Dreamstime.com - Albert Einstein, Physicist Photo

By Paul Leyland, Founding Partner, Regulus Partners

“If I knew what it was that we were doing, it would not be called research...” Albert Einstein

The gambling industry is becoming an increasingly complex and expensive one in which to operate. In land-based sectors, software and service-culture is replacing hardware and transactions. In remote, the pace of regulatory and technological change has never been faster. Customers are expecting more, while suppliers are being squeezed in an effort to share the burden and maximise returns. Across sectors and jurisdictions, all operators keep a wary eye on politicians, the regulator and the tax man.

There is an obvious (and sometimes effective) response to these trends: consolidation. Bwin joined with Party; Scientific Games bought WMS and Bally; GTECH acquired IGT; Amaya and Intertain have been highly acquisitive; and, now Ladbrokes is looking to merge with Coral.  Between them these deals represent c. US$22bn (£14bn) of assets (potentially) changing hands.

With the Canadian-listed businesses the exception, a (the?) key reason for these deals is the capacity to deliver operating synergies. The list is common to all M&A: consolidating to one set of head office costs; combining central functions; stream-lining operations; increasing buying-power; cutting waste.

All of these things are good for the bottom-line and, if well executed (a big if), can also be good for the company and its customers. But cost synergies are a one-off and they often cost money to achieve (deal costs, finance costs, redundancies, contract renegotiations etc). They buy larger pre-exceptional profit, which markets like, and they buy time to adapt to changing situations, if used wisely (another big if).

I would flag two issues which concerns me about this direction of travel.

First, no-one likes to be a synergy. Deals cause huge disruption to businesses: from management time, to operating structures, to changing loyalties and motivations, to grass-roots morale. This disruption is often poorly understood by markets (it is hard to model in a spreadsheet) and often de-prioritized from a human perspective by senior management, which suddenly have a lot more ‘tangible’ issues to deal with. Given these pressures, M&A requires extremely high calibre management with a thoroughly thought through and well communicated plan, along with a competent and loyal core team.  Otherwise, all the cost cutting and reorganisation will simply undermine long-term productivity and growth, leaving the whole worse off than the historical parts.

Second, cutting costs does not grow markets. Competition can grow markets. Innovation can grow markets. The two tend to be linked. Increasingly, customers have a wide choice of “brands”, but with a highly homogenised offer underneath (land-based and remote). Equally, operators have a very narrow range of large suppliers to choose from in each major product set. This is good for the short-term profits of the sector, but it is not good for growth. And in an environment where underlying costs are only going one way (tax, technology, regulation, upskilling), what is not good for growth is not good for long-term profitability.

To be a healthy sector, supporting growth and favourable regulation, the gambling sector needs to innovate. To do that successfully it must do six things that it has been historically poor at:

• Be prepared to spend money without the certainty of a return (or it isn’t real R&D)
•  Be prepared to try things that may disrupt the status quo (even in a controlled way)
• Create proper test conditions and plan to learn (science, not hope and politics)
• Accept that the cumulative impact of small change can be just as powerful (if not more so) than searching for a silver bullet.
• Do not be afraid of failure: in the longer run failure is a lot more instructive to strategy than success (luck runs out far faster than relevant experience)
• Ensure the regulator and wider public is as behind the growth potential as possible (communicating, demonstrably acting responsibly)

All of these things are hard to do in a tough trading environment and within an ‘operator’ culture. However, such an environment simply makes growth and productivity more important. It is also much harder to do when the teams being relied upon are in constant fear of ‘big change’: equity markets might be motivated by synergies, people are not…