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Friday, August 5, 2011

How The Weakening Of The European Union Negatively Impacts Internet Gambling Businesses

We hear a lot about European unemployment, challenges faced by the European banks, individual countries in the Euro zone struggling with their budgets, etc. There is even the questioning of the Euro currency and the viability of the Union as a governing body. In the case of online gambling businesses the weakening of the European Union and a return to each country in the Union deciding how and who does business in their country has had a distinctly negative impact on European focused Internet gambling companies.

The current trend for individual countries to ignore the European Union's mandate to allow free trade within the Euro zone has a peculiar impact on online gambling operators that depend on cross border commerce to sustain  healthy businesses.   I have first hand knowledge of this having worked with a number of European operators during this difficult economic crisis.

Currently, many of the countries are requiring special licences to operate and run gambling operations within their borders. The goal of this legislative approach is to increase tax revenue for the individual countries through gambling licences and potentially to tax  player transaction volume.

The obvious impact on the gambling operators is that more licences per country means more money is taken from the bottom line of their businesses. Complying with these licences also becomes an economic challenge because some countries have extreme compliance rules that require online gambling companies to make substantial investment in infrastructure to comply with the new rules.

A more insidious and damaging government practice is to prohibit online gambling operators from operating in a country because the country itself is in the land based or online gambling business. We see this in Italy, German, etc. This battle has been waged for a number of years. However, the current economic crisis has intensified the efforts of individual countries to block IP addresses and in some cases to go directly after an operator that is hosting its services outside a particular country.

A less well understood consequence of limiting access to players across country boundaries is the impact on games that require high volumes of players to make a game interesting, fun and profitable. These games are typically social games such as poker and bingo. However, sports wagering also requires a large pool of players competing to make the wagering interesting and to provide the statistical leveraging required to decrease the risk for online sportsbooks operators and to increase the ability for the operator to properly manage the punter community for the benefit of the punters and the operator.

There are two  ironic outcomes of each country controlling the gambling operators within their own borders and the players that play either government operated or licenced online gambling businesses.

 Some countries simply do not have  enough players to make the regulatory overhead worth the effort of maintaining or complying with the regulations.  

The other less well understood consequence is the emergence of social gaming, especially social games like poker, bingo, fantasy sports, etc. that have become proxies for online gambling games. There are no restrictions on these games, no taxes and no regulation, no age restrictions, etc. Social game operators have the  ability to create large worldwide communities of gamers buying and wagering purchased virtual currency. Although the individual transaction amount is relatively low for social gaming the shear numbers of players make up the difference between conventional online gambling and social gambling. Essentially, social game operators are directly benefiting from the the emergence of individual country gambling law.

Clearly, the survival instinct reaction of individual Euro countries struggling with budget and revenue shortfalls naturally makes them want to find revenue wherever they can. However, regulations that exclude players from participating and  raise the cost of doing business to a point where operators have to walk away from a country, does a disservice to the countries and the online gambling operators, defeating the original purpose of the regulatory practice.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes extensively about online games and their impact and integration into iGaming and E-commerce environments. Kevin is a frequent speaker at online game events and conferences in Asia, Europe and the US. Kevin and his Gameinlane team are currently working with online gambling, social gaming and e-commerce companies integrating social gaming with online gaming operations and integrate game mechanics into e-commerce applications.

1 comment:

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