Regulation and the market

Hats off to the online and mobile operators who gave evidence  to the DCMS Select Committee today in connection with their enquiry into the Gambling Act. I thought they did a good job, sounding authoritative throughout, with some nice touches of light and shade.

Right at the end, the Chairman, John Whittingdale, asked a question about how people know which gambling sites are licensed and which are not. The reply given was that consumers care less about licensing than they do about whether they consistently get paid out, which is of course absolutely true; but I’m not sure that it actually answers what is a favourite question among politicians, so I thought I would throw in an additional thought for what it’s worth.

In my view, the short answer is that the market does the work as far as the consumer knowing who he is betting with is concerned. Most gamblers know a handful of names of gambling brands, and they go straight to it, while those who are new to gambling go directly to the sites that they see advertised. This is why the policy of some governments to restrict licensing to too low a number to allow the big, well-known, brand names all to get in is damaging to the overall take (for which read, ‘beneficial to the black market’); and why any government with a licensing regime which blocks big, acknowledged brand names is asking for serious trouble. Regular readers of this blog will obviously know that I take the view that the French legislation, which is so poor that many of the biggest names in the gambling world have eschewed the “opportunity” to take a licence, is madness. Neither Ladbrokes nor Betfair operates there, so one of the biggest names in each of the off- and online markets isn’t part of their national picture.

The fear of unlicensed sites attracting business in a jurisdiction with decent regulation is largely misplaced, because licensed operators are able to promote themselves in the country where they are licensed, and consumers automatically go to the websites that they have heard of. Only in a regime where a reputable operator cannot promote its product is the consumer forced to Google a term such as ‘gambling site’, whereupon the concern implied by the Chairman’s question absolutely stands: there is a danger that the consumer needs to build up his own level of trust in the website’s consistency of paying out, and he might be lucky and he might not.

If every brand and website that appears on a Google search is as unknown as every other, then the consumer has no idea what the credentials of the site are, and even if it has kitemarks and flags, it will make little difference. I accept that, with guerilla advertising, e-mail contact, and cross-border sponsorship through football shirts or similar mechanisms, the issue is not 100% clear-cut; but on the whole, traditional advertising works. There is a reason that people in the UK know Bet365 and Paddy Power, and that it is that they spend a lot of money to advertise on the telly (£30m a year, in one case). So it is key, as was mentioned by the operators giving evidence earlier in their session, that licensed sites can advertise and offer promotions, while unlicensed ones cannot. And it is key for governments who wish to remain in control of gambling product in their country that they don’t try to be cute with regulation in a way which keeps well-known, well-run operators out.