Press & Articles

The IT Implications of the Latest Gambling Legislation

Global gaming expert Steve Donoughue, Senior Associate of E-gamingexperts.com, and Dr Peter Chadha - CEO of DrPete Inc - examine the IT implications of the latest UK gambling legislation.

The UK Gambling (Licensing and Advertising) Bill is well on its way to becoming an Act of law. For Westminster, this has been a not overly controversial 'cleaning up' exercise; moving Britain to a system of national licensing, after the debacle of 2009 addition of Antigua & Barbuda to the White List. However, the implications for the gambling industry, particularly relating to IT management, are significant.

A Law unto Itself

In essence, the Bill is relatively straightforward: An operator will need a license from the Gambling Commission if their gambling facilities are used in Great Britain (even if no equipment is located there). This will make the operator liable for Remote Gambling Duty and they will have to pay 15% of Gross Gaming Revenue on gambling transactions placed in Great Britain.

From a purely operational point of view, the revenue issue is where the controversy starts because Britain’s move to a national licensing regime severely affects the business models of the offshore operators.

Gibraltar is considering seeking Judicial Review as it believes this legislation is purely revenue-raising and not, despite government claims, about increasing consumer protection. The new law would also affect operators based in The Isle of Man, Alderney and Malta. The online industry has lobbied that a 15% tax rate will cause a grey market, but HMRC appears unmoved. Given Westminster's current penchant for clamping-down on tax avoidance, it doesn’t take a gambling pro to recognise a dead cert that the Gambling Bill will become law.

Technological Trials and Tribulations

The new Bill doesn’t just mean additional cost in time and money for operators and obtaining a licence is only the first hurdle. From an IT perspective, it could have a serious impact on delivery of services.

For example, operators will have to inform the Gambling Commission when they move equipment from one location to another and allow enforcement officers access to equipment/premises. They will need to ensure all gambling software is sourced from licensed providers along with further technical amendments being required to poker networks, payments and player accounts.

The over-riding issue is that all gambling software used in the UK will need to abide by UK technical regulations, which may not be the same as those of the jurisdiction in which they are located.

For start-up operators, or those originating in the UK, software compliance may be less challenging. However, for overseas operators, or those that have been part of a merger or acquisition (M&A), these issues will need to be addressed rapidly.

A Mobile Minefield?

In the last year, gaming has continued its worldwide expansion toward billions of gamers as new platforms such as tablets and smartphones have taken off. The traditional gaming companies and major entertainment brands are having to adapt to the digital shift and the barriers between social casino games and real-money online gambling companies are falling.

All of this means rapid development of new, responsive gaming software; larger servers and data storage operations and greater cross-border gambling activity, presenting something of a compliance nightmare for those operating in highly regulated markets such as the UK.

M&As throw up their own particular challenges. For example, William Hill’s acquisition of Sportingbet and JV with Playtech may appear relatively straightforward, given that Hill are UK-based. But, as has been seen so often when one company takes on the infrastructure of another, their IT team is likely to have inherited a legacy that included a host of non-compliant applications lurking behind the firewall.

While IT due diligence is critical before a gambling merger, thorough assessments are required before any IT changes are implemented, even within established, compliant infrastructures.

What Price People?

The sheer scale and growth of the online gambling sector has soaked up significant amounts of human resource. Operators need to build and maintain a strong team to handle fast-moving IT developments, but also include experts that understand the regulatory issues that legislation such as the UK Gambling Bill present. Having an IT specialist as part of a public affairs team could help avoid nasty surprises further down the line.

Value the experience of your existing IT experts – they are a scarce commodity - but also be prepared to draft in additional resources and expertise as required.

Opinion: Should Hills have divorced Playtech? by Peter Marcus - August 2013

Peter Marcus, former chief operating officer for William Hill Online and UK managing director for Betfair, asks whether William Hill was right to buy out Playtech from the joint venture and discusses what the future might hold for both companies.

The most frequent question I get asked is the following: Who won out of Playtech or William Hill in their JV? Should Hills have gone into a JV with Playtech in the first place and should it have left it? Was Playtech the sole reason for Hills’ success and if so, was it madness to finish the deal?

In business one has a specific need at the time and looks for someone to fulfil that specific need. So when the need goes so can – and should – the partnership.

So what were Hills’ needs in 2008? It had just had a massive failure in technology, the new in-house online software had been ditched, the previous CEO had left and the guy who first introduced online to Hills Ralf Topping had taken charge. It had chosen Orbis for the software but Ralf realised that Orbis, Amelco and the new website was only part of the solution. Online marketing was poor, users would start at Hills but once it “got” online betting or gaming, customers would go to other better operators such as bet365, 888 or Paddy Power.

On top of this there was a management issue, Hills’ online was treated like a retail shop with a web front rather than a shop front, and most operational and marketing functions were controlled by retail who just did not understand how the web was different. Finally in their minds Hill’s competition was Ladbrokes, Ladbrokes and Ladbrokes and the real online competition was ignored.

Take the brand name, new sports product and strong will of the CEO at Hills and add to it the marketing skills, software, and sales skills of Playtech, if managed properly you have a formidable company. Add to that the final ingredient of moving the operation out of the UK’s retail hub and into an independent online hub in Gibraltar and suddenly this joint venture no longer needed to look at Ladbrokes and Coral as its competitors but rather bet365, Paddy and bwin.

This was the genius of the deal put together by Ralf Topping and Mor Weizer and as we all know it worked beyond even their expectation. Sure there were issues, you will always have issues when trying to merge such different skills and personalities and of course there was the infamous strike, but in the end of the initial period, William Hill Online was not only worth a lot more than it was three years before but there was and is still no real sign of the company growth slowing.

So with this in mind, should William Hill have bought Playtech out when it did?

For me the resounding answer is ‘yes’ and it goes back for me to the start of the analysis. Hills now owns and manages a quality marketing team in Israel, it has learnt how to best manage VIPs, upsell to its customers and maintains the two customer service centres it acquired as part of the JV. From Playtech’s side it has learnt sports betting, proven it can offer far more than good software and can through their affiliated marketing and operational expertise grow a stagnant UK sportsbook.

The need for the JV is therefore over. Playtech walk away with their heads held high and a significant profit, and Hill’s walk away with the largest, most successful and in my view most sustainable betting business in the industry. So why would they want to continue?

But both sides should be careful moving forwards. William Hill must be very careful not to forget the lessons and skills that it have learnt in the past four years – its old nemesis Ladbrokes fell fowl of that and its challenges while not insurmountable are now significant. My warning to Hills would be now that you do not have Playtech in the boardroom reminding you of how to run direct marketing and VIP management, don’t fall back into the abyss of big company politics. Remember online has very little resemblance to retail so keep them very separate and don’t dilute in time the lessons you have learnt.

Playtech is clearly trying to replicate the same formula with Ladbrokes and to a smaller extent Corals. But its problems and strategy are different, the willingness of management different and the evolutionary time in gaming different. Playtech need to ensure that it creates the right framework and oversight for this new Ladbrokes partnership and not try and copy what worked before in Hills.

If both sides heed these warnings I think we will be seeing the two companies as leaders of our industry for a very long time.

But be warned it’s also too easy for the M&A to be done for the wrong reasons such as increasing the share price multiple or buying revenue rather than longer term sustainable strategic reasons such as obtaining economies of scale, increasing bottom line revenue, entering new markets or buying expertise. Too often I hear the question “Now we have bought the business what do we do with it, how do we operate and what should the integration plan be?” Operators spend months negotiating the finer legal points around an M&A yet spend very little time before the deal is done even contemplating an integration plan.

Having directed two large and complex integration projects I have devised five golden rules that need to be answered before any lawyer even starts to look at a prospective M&A deal.

1. Know what you are buying- sure you have seen the numbers, spread sheets and due diligence but what is the culture like, what brought the company its previous success and can that continue? What’s the history and reputation of the company? Is there more than a database on offer? If you can’t answer don’t buy.
2. How much is the target company really worth – Why do people still look at GGR as a metric? Never accept the answer “we spent a lot of money on branding 18 months ago, we now have a good loyal customers base with great retention so no need to spend at that level moving forwards”. It’s not true the cycle will turn and your metrics will all go the wrong way. In essence does the company’s valuation have any resemblance to future reality?
3. What’s the M&A strategy? - Do you want to grow in a specific market, do you need a product you don’t have, do you need marketing expertise and what's your brand strategy going to be? More importantly can you cut costs and make the company more efficient and increase bottom line revenue if so how? Will buying a company fix your company’s problems or is it more of a quick band aid job?
4. Can you integrate and if so how long will it take? - It all starts with technology, be realistic if, how & when you can merge the IT- then add another year. Staff and process integration is slightly easier but still fraught with problems and can only really start after the technology integration. You must pre plan a staff retention strategy for both sides, if not you lose the good ones first.
5. Don’t try and integrate by yourself bring an expert in - The COO, CTO, CEO or a project manager from the company are not best placed to manage integration, the core revenue will be impacted, they don’t have the time, they don’t have the expertise and they are bias to one side. Use the services of a Gaming Integration Director and team, they have done it before know the issues and are able to independently assess the structure, facilities, employees and brands of the bought and buyer to recommend the best future structure and strategy, then oversee the actual integration.

By following these five rules I believe that the longevity and profitability of our industry can be assured no matter what regulation and taxation is thrown at us.

Peter Marcus was the former Chief Operations Officer for William Hill Online as well as UK Managing Director for Betfair.