Gaming Law 2023

What Next for Gambling Regulation?

Harris Hagan is again pleased to introduce the Chambers Global Practice Guide to Gaming Law. Gaming Law 2023, while not an exhaustive text on gambling law, is a guide to the licensing and regulatory regimes in many of the major global jurisdictions. The authors hope that its geographical coverage and information on the regulatory frameworks globally will be a helpful guide to lawyers, gambling businesses and others.

There is no doubt that gambling has a very long and colourful history in societies and cultures, dating back as far as the history of humanity in ancient China and Rome. But as we reach the end of 2023, what comes next?

Technology and Common Themes

Technology continues to grow rapidly and to touch almost every aspect of our lives in some shape or form. It is changing the way we behave, communicate, live, work, play, learn and gamble, as well as changing the world and our society.

Without a doubt, online gambling has metamorphosed since its infancy, alongside technological change. With people spending a third of their waking time on their mobile phones, the global mobile gambling industry is booming with growing demand.

Gambling has changed enormously over the last 20 years, with smartphones providing opportunities to gamble online almost anywhere and at any time. Today, live studios are commonplace, community-style online gambling products are growing, and metaverse (a world combining the metaphysical with reality) gambling is in its infancy.

The use of artificial intelligence (AI) has been growing exponentially over the last 12 months, and its infiltration into the industry is starting to be seen. AI is a powerful tool which is now being used to support safer gambling through analysing customer data, and through identifying and predicting behaviours indicative of gambling-related harm. From a consumer perspective, AI tools can be used to assist their betting strategies, again due to the predictive capabilities of AI. AI will undoubtedly continue to be a big theme for the year ahead and, as AI software continues to develop and becomes more sophisticated, the industry and its global regulators will need to catch up and ensure it is being used effectively and safely, and not to the detriment of consumers or the industry’s integrity.

Another common theme expected over the next 12 months is cybersecurity, as the gambling industry has been targeted by cyber criminals. In September 2023, MGM Resorts was the victim of a cyber incident, resulting in it shutting down the entirety of its systems (including hotel room key function and slot machines), costing the company USD100 million, and with hackers accessing personal information of MGM’s customers. The following month, Caesars Entertainment became the next victim, with personal data of more than 41,000 customers being stolen.

While not a new concept, environmental, social and governance (ESG) strategies are becoming commonplace globally and across various industries, and something that will continue to be seen in 2024. ESG goes further than the traditional corporate social responsibility (which focuses on internal commitments from businesses), by focusing on wider external requirements and international frameworks, and requiring additional accountability and transparency from businesses.

Regulatory Uncertainty

Over the past 12 months, Brazil and the UK have been in the spotlight following long periods of regulatory uncertainty.

Brazil, which has long been a prohibited gambling market, is reported to be the third in the world for online sports betting, behind only the UK and USA, meaning its black market is thriving! Legislative change has been on the horizon for several years, with political changes over the past 12 months (including Presidential and governmental) causing turmoil. At the time of writing, a draft bill is gaining significant momentum (although being highly contested), and is due to be negotiated in Brazil’s Senate; with the vote being postponed and allowing senators more time to consider the bill. Perhaps, Brazil’s realisation is that this is a once-in-a-lifetime opportunity?

In the UK, 2023 saw the highly anticipated publication of the governmental White Paper, which ended a very long period of uncertainty, following the commencement of the Gambling Review in December 2020. This provided the beginnings of some certainty and much-needed policy direction from the government. The White Paper includes approximately 20 significant policy changes, such as:

• financial risk checks;
• the introduction of a statutory levy and gambling ombudsman;
• default stake limits for online slots;
• additional protections for those aged 18–24; and
• permitting cashless payments for gaming machines.

At the time of writing, many of the cornerstone proposals have been or are subject to government and Gambling Commission consultations, with further consultations expected towards the end of 2023. The proposals will be implemented through a combination of:

• primary legislation;
• secondary legislation;
• changes to the Licence Conditions and Codes of Practice;
• Gambling Commission guidance; and
• voluntary action/self-regulation from the industry.

The government and the Gambling Commission aim to implement most measures by Summer 2024; though given the significant volume of work required, this is highly optimistic.

Increased Enforcement and Regulatory Challenge

Anti-money laundering, responsible/safer gambling and consumer protection continue to be areas of key focus across international gambling sectors, as reflected in high-profile enforcement action; and this is not set to change. This has been coupled with an increased focus on the accountability of individuals within gambling companies (including CEOs), as reflected in various high-profile enforcement cases.

Licence reviews can often take many months (even years), leaving gambling businesses in a prolonged state of uncertainty. The continued escalation in compliance assessments and licence reviews has resulted in significant financial penalty packages. Since the start of 2021, the British Gambling Commission has issued over GBP100 million of penalty packages and suspended ten operating licences, with a record penalty package of GBP19.2 million being issued to the William Hill Group in March 2023.

The UK gambling industry has also witnessed a shift away from negotiated regulatory settlements, with the Gambling Commission instead preferring to impose financial penalties and other sanctions. Licensees are starting to exercise the same preference, given the unpredictability and unreasonableness of the Gambling Commission, which is also leading to some braver entities challenging the regulator by way of judicial review. The Gambling Commission has also begun carrying out thematic work on discrete areas of compliance, including fee categories, regulatory returns and source of funding, and enforcement in these areas is expected over the next 12 months.

Beyond the UK, in March 2023, the Dutch Gaming Authority fined Videoslots EUR9 million (approximately GBP7.8 million) for displaying on its website the logo of the Dutch Gaming Authority, despite not having received a licence from the regulator. In July 2023, the Federal Court of Australia approved a settlement of AUD300 million (approximately GBP157 million) between the country’s intelligence unit and casino operator Crown Resorts over AML failings at its Perth and Melbourne casinos.

M&A Activity

A rapidly evolving gambling industry presents significant opportunities and challenges. While M&A is not a new trend, it has significantly accelerated in the last ten years, driven by the increasing cost of regulation and diminishing profits, along with the liberalisation of gambling laws in some jurisdictions, particularly the USA.

Despite the present uncertainty of the British market, buyers and investors are attracted to the maturity and reputation of the market, which remains the largest regulated online market in the world with GBP14 billion in gross gambling yield (GGY) generated annually. At the end of 2022, the top ten UK operators represented 77% of total B2C gross gambling yield and, at the time of writing, further M&A now means that the top three make up more than 50% marketing share in the UK.

Online operators, suppliers and brands with proven experience and understanding of operating in a regulated market are an attractive prospect for businesses with limited experience thereof. Although consolidation cannot continue endlessly, M&A activity is likely to increase in 2024 and 2025, particularly due to:

• market expansion in the USA;
• changes in the UK industry due to the Gambling Review and White Paper;
• the relatively untapped B2B sector; and
• a reduction in transaction financing costs if interest rates decrease.