The brakes on innovation

I was in Sweden recently to talk to the regulators there about how the gambling industry has evolved over the last decade. They were starting a two-day conference looking at the future, and they asked me if I would give them some context to set them off.

So off I went, to Stockholm, having spent a couple of days reminding myself of some of my stranger experiences in the industry – accusations that I was a front for Al-Qaeda to launder money, visits from Federal policemen tipped off that I was running an illegal gambling den; that sort of thing – and spent an hour talking through the last ten years’ developments. And odd though it is to admit it, I realised for the first time quite how big an impact regulation had had on the shape of the market.

I know that on the face of it, it’s obvious: it’s hardly revelatory to explain that today’s operators need 28 licences to offer their wares across Europe (assuming Member States agreed to grant them), where a decade ago (and until much more recently) the prevailing wisdom had been that European law required them to have only one.

But that isn’t what I meant. What struck me was that at a deeper level, regulation had had a far greater on product.  Although it’s undeniable that there is a lot more choice for the gambling consumer today than there used to be, it’s also true that the core product is much closer to what it always was than it would be if regulation hadn’t hindered progress.

You’re skeptical? Well consider this: almost exactly ten years ago, people on all sides of the gambling industry were locked in an existential battle over betting exchanges. Why was it existential? Because Betfair felt that it was going to be legislated out of business, and the bookies thought they were history unless they (Betfair) were. There was a genuine belief that, although it might take a generation, every chance existed that one day, anyone who punted on sport would be betting peer-to-peer.

Today, there’s more chance of Ed Balls defecting to the Tories than there is of that, and the reason is wrapped up as much in regulation as it is in any failure to simplify the product or to sell it more effectively to a wider audience.

Quite simply, all over Europe (and further afield), attempts to prevent licensing of the exchange made it difficult to achieve international growth; as a result, when take-up of the product in the UK started to slow down, the company reacted in the only way it could in order to maintain the trajectory it had established: it broadened its product offering along conventional lines. Or, put differently, it started to become more like everyone else.

In other words, regulation acted as a brake on innovation, which might in specific instances (such as this one) please some individuals, but in general terms is rarely, if ever, a good thing.  Product which is not driven by customer demand – the market’s evolution by means of consumer selection, as Darwin might have had it – is far superior than one dictated by statute.

Or, indeed, by tax. It is hard to miss the fact that most innovation in the gambling industry has been the result of the larger players being driven onwards by small, not to say start-up, companies based (with exceptions you can count on one hand) away from onerous gambling tax – a position that is, of course, about to change.  In ten years, we will doubtless look back and see what impact that had.

The article above appears in the latest edition of Gaming Intelligence Quarterly as the content of my “And another thing…” column.