FOREWORD
Welcome to this Deloitte report on the changing landscape of the British remote betting and gaming industry.
Adoption of and engagement with digital technology have fundamentally changed the structure of consumer markets over the last ten years. The betting and gaming industry has been transformed, first with online and more recently, mobile driving growth. These changes have challenged national governments in Europe and elsewhere to identify efficient and appropriate ways of regulating and taxing the growing remote betting and gaming industry. The current UK regulatory and taxation framework, which has come under some criticism for failing to adapt to the evolution of the industry, will change significantly in the next year.
We believe that in the medium term, the industry is likely to experience market share consolidation as taxation and the related compliance costs put pressure on operators' margins. As competition intensifies further and the take up of mobile betting and gaming grows exponentially, the ability to provide high quality mobile propositions becomes a key determinant of success.
The Future of the British remote betting and gaming industry identifies issues the industry may face in the next five years and how it might respond to those challenges. It is based on interviews Deloitte LLP carried out with 16 industry leaders and observers from betting and gaming companies, the regulator, a trade association as well as other organisations with specialist knowledge in the industry.
We hope this report gives you the insight you need to enhance your understanding of the changing landscape for the British remote betting and gaming industry, and we welcome your feedback.
EXECUTIVE SUMMARY
The British remote betting and gaming industry is likely to experience substantial change in the next five years, due to growth in mobile betting and gaming, and current Government plans to introduce a new approach to taxation and industry regulation.
Industry leaders and observers agree that the introduction of a 'place of consumption' (POC) tax combined with changes in the regulatory environment will increase the cost of operating in the British market. While larger operators may have the necessary financial flexibility to cope with this, smaller operators with tighter margins and less operational scale could struggle. Consequently, there is likely to be market share consolidation.
Operators are unlikely to pass on the full cost of the tax directly to consumers, if any. Some operators may try to compensate for increasing operational costs by reducing discretionary expenditures such as marketing and player promotions. Others might look for greater synergies between their British and offshore operations.
Industry leaders are still unsure to what extent illegal, unlicensed operators will try to enter the British market. Experience in other markets shows that the emergence of unlicensed competitors is likely to be determined by consumer perceptions of the value they are offered and the extent to which the new regulations are actively enforced.
Mobile betting and gaming will continue to be a significant growth area for the industry, with many seeing the growth to date as just the beginning. Therefore, the quality of mobile propositions for both smartphones and tablets will become a key driver of success in the next five years, if not the main driver.
Operators that continue to invest in product development will be in a better position to compete against possible new entrants that are attracted by the growth potential in the British mobile betting and gaming market. They could be new operators that, either on their own or with partners, develop mobile propositions that are very attractive to consumers and overcome the functionality and customer interface issues that encumber many current products.
The next six to 12 months will see increased levels of marketing spending as operators prepare for the introduction of the POC tax. After that, marketing spending is expected to reduce as smaller operators cannot sustain it and bigger brands benefit from significant critical mass and economies of scale in relation to marketing.
Retail outlets continue to be important in the betting and gaming sector. They increase brand awareness among consumers and play a key role in the development of the multichannel model. With betting in the retail environment unlikely to see much growth in the next five years, mobile betting is expected to be increasingly integrated into the betting shop experience.
As mobile propositions develop, consumers are likely to start choosing their favourites and gravitate towards fewer operators. In addition to creating attractive and user friendly propositions, operators need to prepare strategies to encourage loyalty. Because of the pressure on reducing discretionary spending, operators have to become more strategic in targeting their player promotions so they not only lead to greater customer retention, but also increase spending per active player.
Many industry leaders believe that in the medium term operators will need to become more strategic about their partnerships. They are also likely to require their suppliers to share the competitive pressures they face, including demanding higher quality, faster development and lower costs.
To prepare for the future, operators should explore how they can get their social media channels to generate continuous revenue. While real money gambling on social media might not take off on a large scale in the next five years, operators should look to develop capability in this area and prepare strategies for the longer term.
The success of operators in the future depends largely on their ability to offer high quality, innovative mobile propositions, which, by driving customer acquisition, retention and loyalty, will help operators cope with increasing pressure on margins.
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