BREXIT(British Exit From European Union) Impact On European Online Gambling Business

The news that  Britain voted  to leave  the EU (BREXIT) certainly has many people, businesses  and organizations scrambling to determine the impact of the vote  on themselves, organizations and their businesses. One of the business sectors  that is especially interested in the impact is the online "gambling" industry. Great Britain is somewhat unique on a worldwide scale because they have embraced online gambling as a legal activity under the  UK Gambling Act of 2005.  In 2015 The online gambling industry generated 3 billion pounds for the UK(including Scotland and Ireland)! Clearly this amount is non-trivial?

 Great Britain's online gambling business sector  is  somewhat complicated as many online gambling business have moved their business to British ("protectorate") jurisdiction such as Alderney, Gibraltar,  Malta and Island Of Man to avoid the standard UK business taxation regime.  These "protectorates"  are subject to British law and protection. However, their tax structures differ and their unique political status provides business in these jurisdictions to access markets they may not be able to access if they where domiciled in the UK itself.

There is currently much chatter about what happens to these "offshore" gambling business under BREXIT  and are they better off then their English counterparts(especially the sportsbook operators)?  One of the overriding points of interest is the unique status of these "Protectorates" in relationship to European EU law as opposed to UK law.   The protectorates are considered part of the EU and therefore can access Euro markets proving they adhere to EU gaming  laws of a specific country. 

Another interesting situation has been created as Northern Ireland and Scotland are actually independent countries under and part of "Great Britain". It appears they want to stay in the EU. This could also create a situation where these countries in-fact chose to host online gambling for themselves for the purpose of raising tax revenue. If they side with the EU there may be an opportunity for them to behave is a way similar to Alderney, Malta, Gibraltar and Isle Of Man. 

It is clear that the British protectorates(Alderney, Gibraltar, Malta and Isle of Man ) may come out of BREXIT as the ultimate winners in the battle for the hearts minds and wallets of European citizens if the EU clearly acknowledges these principalities as "member" states.

Kevin Flood is the CEO of Gameinlane, Inc. Gameinlane  has developed, launched and operated Internet gambling sites in Europe,  social casino,   freemium and subscription gaming in the US.   The company engages with land based casino  operators, online gambling operators, social casino operator and game developers to assist them in determining their strategy and implementation  of game content in an online context.   Kevin has worked for and with US land based casino operators helping them evaluate social casino and iGaming platforms for the purpose of joint ventures and acquisitions in addition to launching online gambling operations in Europe. Gameinlane is also startup "friendly" understanding the unique value new gaming companies bring to the marketplace.  Kevin frequently speaks at gaming conferences around the world providing him with a unique perspective on this very interesting business sector. Kevin can be reached at kflood@gameinlane.com  and or twitter  at @kflow1776.

What US Regulators Can Learn From European Internet Gambling Regulations

In anticipation and preparation for legalized Internet gambling in the US, US state and federal online gambling regulators, legislators and government advocates are closely studying  enacted European  Internet gambling law. There is certainly much to be learned from how European nations have enacted Internet gambling legislation and how the EU officials in Brussels have overseen the evolution of  country by country gambling law.   However, enacting European legislation verbatim without looking at the consequences of the  European Internet gambling regulatory models could result in a less then  optimum  Internet gambling experience for US consumers,  states and the federal government. A better approach is to evaluate European gambling law as a precursor to US gambling law understanding that the two do have their differences as well as similarities. Also, it is a great opportunity to study the first mover in any business/regulatory space and objectively determine what is working and what could be done differently. 

The most controversial part of EU Internet gambling legislation is the abandonment of a pan European Internet gambling model. Under extreme pressure resulting from the deep European recession many of the EU countries decided to enact their own gambling law independent of any  pan EU gambling legislation. The goal, of course, is and was for these countries(Spain, Italy, France, etc.) to directly capture tax revenue and regulatory fees from the control of Internet gambling within their borders. 

The fact that individual countries in the EU have enacted their own online gambling legislation does not mean that a pan European Internet gambling regime will not emerge. The existence  of a "legal" Internet gaming framework has great advantages for countries like the US that are moving ahead with their own legislation and debating the same topics that Europe has addressed. The following are important experiences and outcomes of the years of legal and not so legal  Internet gambling in Europe that the US and, for that matter, any country grappling with this issue can learn from.

 Country By Country/ State By State Model? -  The fundamental question in anticipation of legalized Internet gambling in the US is should it or will it be regulated at the  state or   federal level.  Europe has temporarily abandoned a federated Internet gambling model because individual countries in the EU perceived  that their was a greater opportunity for them to generate revenue from a country model as opposed to a federated model.  European countries where also frustrated by the lack of substantive  gambling legislative actions on the part of Brussels during the worst recession Europe has seen in decades. They were and still are looking for other revenue stream for their governments. Regulated Internet gambling is an attractive  source for that revenue.

Country By Country Revenue/Expense Model - Spain, France and Italy are certainly generating revenue from Internet gambling licenses and transaction fees. However, it is unclear  what it is  "costing" these governments to regulate the gambling industry and if that cost/revenue balance works for the each country? The experience in France, Spain and Italy has prompted many other countries in Europe such as Denmark and Norway to move ahead with the country model assuming that there will be upside for their countries. In the US,  Nevada and New Jersey are moving ahead with a similar model. However, do these states  really understand the economics of this and are their projections for Internet gambling revenue correct?   Have they really studied what is  happening in Spain, Italy and France?

Creation Of Gambling Monopolies - The high cost of complying with the country by country model in Europe is leading to a consolidation of the industry with licenses only being granted to the organizations that have  funds to obtain and maintain a license. This is leading to fewer legitimate gambling operators in the online European gambling sector. There are also additional consequences including,  limited gambling content for consumers and the propensity for the monopolies to consolidate their positions in other countries as quickly as possible. This is very similar to the way land based lotteries are operated in the US  and could be a model that the US indirectly creates through a state by state Internet gambling model.

Growth Of Gray Market And Illegal Gambling - The limited amount of certified legal gambling operators in each country  is leading to the creation of a robust alternate "gray" and illegal  gambling market. Essentially, consumers want options and the freedom to make online content choices.  If the legal choices are so limited then alternatives will emerge. This is already happening in Europe.

Potential  End Of Liquidity Dependent Gambling - In the US poker has been and will be a significant source for online gambling and online gambling revenue provided there are enough simultaneous players accessing poker rooms. In a state by  state model it is difficult to envision a robust and healthy poker market outside of California.  European poker operators have been licensed in the individual European countries. Yes, they are operating profitability. However, the number of surviving poker rooms is dwindling and the enthusiasm for poker in Europe is dwindling. It could be argued that poker is not as popular in Europe as it is in the US. However,  this is debatable and the lack of popularity is more likely related to decreasing liquidity. Bingo, if managed properly can also be  true multi player experience and is subject to the same dynamics as poker.

Interstate Gambling Pacts - To my  knowledge there is no active inter-country Internet gambling pacts in Europe. However, the US has already realized that for liquidity dependent games, and in the case of  states with small populations that want to attract enough players to their Internet gambling  venues, interstate gambling pacts are essential to support a robust Internet gambling economy. This is a good sign, preemptive in nature and important to make America's game of poker a success in the absence of a federal solution.

Social Casino - The success of the "social casino" has come as a surprise to European gambling operators and regulators. The initial though was that it's low revenue per player, no pay-out and fun factor would not make it a rival or option for "real" gambling. However, the social casino business model has proven to be much more resilient then originally thought.  Almost every European Internet gambling operator has a social casino alternative! This phenomena will need to be addressed in any US online gambling environment. The issues with social casino  go well  beyond age and access and cross the line into what is actually valuable in cyberspace. Are virtual currency and virtual goods valueless or is their some value subscribed to them? Should they be regulated?

Social Casino To Real Gambling -  Facebook and big named social casino and European gambling operators are now working out the conversion mechanisms form social networks/games and "real" gambling venues. Social network adoption rate is very high in the US and almost a given for every online consumer. How will America deal with this and what if any regulation will be enacted to harness this form of gambling player acquisition?

The years of experience in Europe regulating and managing Internet gambling has tremendous value for US regulators pondering how best to regulate the industry in the US. However, some of the programs  implemented in Europe and the member countries should be scrutinized before enacting them in the US.   The US should also not verbatim enact the European country by country legislative model. It is important to have competition and innovation in any business sector and the current European country operating model appears to be undermining this form of free enterprise resulting in  rapid consolidation of gambling operators and the disappearance of options for consumers.  Important liquidity dependent games such as poker will force the US to seriously consider interstate regulation or a federal solution. Poker can not be ignored in the US.  In the current environment illegal US Internet gambling is alive and well jeopardizing consumers and lost revenue for state and federal governments. Europe's illegal gambling is growing as a result of constrained access to "legal" Internet gambling content. In the absence of US laws governing Internet gambling social casino entrepreneurs have filled the gap for consumers seeking to play gambling games over the Internet. This sector is not going to disappear if Internet gambling law is enacted in the US.

Kevin Flood is the CEO of Gameinlane, Inc. Gameinlane works with companies in the social, Internet gambling and land based casino sectors developing game content and online gaming strategies. Kevin is a frequent speaker at social game, Internet gambling and casino events and conferences in Asia, Europe and the US. Kevin is currently working with organizations to determine their acquisition and merger strategy as it relates to the growing interdependence of the various game content and delivery platforms.

US Internet Gambling - Should You Prepare For State or Federal Enactment?

No one really knows exactly how and when the US will legalize Internet gambling. Both Federal and State legislation is grinding through the political process. This is causing businesses, individuals, investors and politicians to speculate on what legislation will be enacted first. In the case of State legislation; what State(s) will legalize Internet gambling first and what type of gaming will be legalized? In the Federal scenario what type of  gaming will be legalized and what will be the relationship  between a State mandated law and a Federal law?

There appears to be a high level of certainty that the States or Federal government will pass legislation soon(soon meaning withing the next year).  However, the exact nature of this imminent legislation is unknown.

Many businesses are moving ahead with plans to launch Internet gambling operations in the US assuming one scenario or another. The consequences of  building,  partnering and  or launching, etc. an Internet gambling operations based on the correct  assumption could be very important providing a company with first mover advantage, allowing a company to build brand and liquidity faster then the companies that waited for the absolute legislative outcome. On the other hand, if a company invests heavily assuming an outcome that does not happen that business could potentially diminish the overall value of that investment or not be ready for the gambling proposition that is legalized. A wrong decision or strategy could be devastating to a business. It may even set a business back forcing them to start all over again with another strategy.

So how do you address such an unknown legislative outcome and still come out on top in the competition for the hearts, minds and wallets of US Internet gamblers no matter what the legislative outcome?

Unfortunately, there is no easy and absolute way to completely mitigate your risk without taking no risk at all and not doing anything until it is clear what the legislation will be.  Doing nothing until legislation unfolds is in and of itself a very high risk decision.  However, there are some tactics a company can engage in to move them closer to a competitive first mover status and at the same time create expertise and asset value that can be leveraged no matter what the outcome of legislation. 

Understand How To Run An Internet Business - This has very little to do with State versus Federal gambling legislation because it applies in both scenarios. No matter what the outcome of legislation a company that wants to be successful in the online gambling space has to understand how to successfully run an Internet gambling property. Learning on the fly or waiting for the exact day for either a state or federal law to pass is already too late. Other companies know how to acquire customers, understand  player behavior, have sophisticated analytics system, marketing staff, etc. and understand Internet gaming or gambling. They will be ready to go no matter what. You should be as well. If you have not run a full-on Internet business before it is a steep learning curve and requires staffing changes, infrastructure, business model modifications, etc. Get all of this behind you before the gun goes off at the starting line.

The Freemium Option - We are all witnessing the meteoric rise of  free gambling games in Facebook, web and mobile environments.  Many companies in the gambling and outside the gambling space have launched free gambling style Internet gambling properties. No you cannot take real wagers. However, the game mechanics are very similar and launching within these environments is almost identical from an operations and marketing perspective. Get into these environments now. Learn how to survive and thrive here.  When gambling becomes legal these first freemium movers will already have a portion of the real gambling players in their databases. Granted there are differences in the freemium and real gambling experience. However, in the absence of real gambling in the US. Potential US gamblers are playing in these environments.

European Internet Gambling - Companies in Europe have been running legitimate gambling operations for decades. They are now being pushed by legislation in the EU to go from a .com open gambling environment to a country by country model. Learn from them. Do not make the same mistakes European gambling operators made. They were no  prepared for country by country(equivalent to state by state) legislation. They are currently determining how they are going to survive in both a pseudo .com and country by country model. Many of them will not survive. Some of them are launching real gambling games in iPhone, Ipad, Android etc. They are also launching  freemium game in Facebook and in mobile environments. Why?

Certification And Hosting - No matter which way legislation goes your gaming property and game hosting environment  will have to be certified by a third party auditor. Do this now even if it is in a specific state such as Nevada or New Jersey. Other states will adopt this model and the Feds will follow. Get this behind you and demonstrate a leadership position by being proactive.

 Casino And Poker - No one knows what gaming proposition will be legalized first on either a federal or state level. Could be casino style games could be Poker and Bingo? Assume any scenario and have an answer for all the scenarios.

 Management Team - Build a management team  that really understands all aspects of Internet gambling. The skills you need are as follow; legal, financial, technical, marketing and strategic planning specific to this sector.  Educate your team  on Federal versus State implementations and a need for a balanced strategy that anticipates  either or both outcomes. Staff with people that understand the "traditional" Internet gambling business, the freemium business model, mobile, Facebook and web development  deployment environments.

Budgeting - Develop an Internet gambling budget that anticipates either a Federal or State legalization outcome and the real possibility of both. Do not underestimate the cost of being a first mover and staying there. Your marketing budget alone will be a surprise.

Strategic Planning - At the very highest level in your organization make it clear that your operation has to be prepared for either outcome and perhaps both. Make sure your executive team gets it and if you have investors make sure they get it as well. Breakdown the costs of a strategy that anticipates either outcome individually and a combined outcome. Also, create a budget scenario for a state by state only and federal only and a combined outcome. You do not want to find yourself in a situation where you bet on one outcome and another one unfolds. Going back to the board will not be fun if you have to reverse your strategy and at the same time ask for more money to execute it.

Cultural Shift - Unfortunately  for many companies interested in gaining a foothold in the US Internet gambling space a tectonic company culture shift will have to be undertaken to encourage an agile and responsive reaction to any number of potential outcomes. Speed to market will be incredibly  important with little time for debate. Retreat may be required from one position and an advance in another.  Reaction time will have to be quick. If you have a business culture that is not currently agile you will have to make changes.

The above strategy may seem obvious. However, many companies are making all of their bets on one outcome or the other. Clearly, this is a dangerous approach. That approach is easier to make although potentially more expensive in the end if you have to completely shift gears. I would take on more expensive up front creating a directional approach allowing me to be more flexible in delivering a minimum viable product in either scenario. In the end the cost of the decision may be more then a bet on one outcome. However, I would incur the extra up front cost  just in case.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes  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. 

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.