Gambling Advertising – better off with an outright ban?
In the April 2010 edition of GBGC’ Interactive Gambling Report we drew attention to the escalating cost of online advertising. Lorien Pilling, GBGC’ Director of Research, describes the current situation as an arms race where companies are locked in a battle to maintain liquidity and market share.
The UK’s Budd Report in 2001 said that competition would be the best mechanism to provide the gambling customer with the protection he needed from poor value. The Budd Report also recognised that competition is of little use unless companies are allowed to freely advertise the value they are prepared to offer.
The UK Government in September 2007 decided to lift gambling advertising restrictions on television and the arms race began.
Politicians and academics concerned about the potential for an increase in problem gambling have expressed their dissatisfaction over advertising during football matches and the soap operas that the British viewers love. Hardly an ad break passes without yet another bingo commercial.
Gambling companies are anxious to maintain their new found freedom, but are they right to do so?
Let us now look at another highly taxed and regulated industry and make a comparison.
Matthew Vincent of the
Financial Times produces an interesting case study in which Imperial Tobacco’ sales topped a mouth-watering £150bn in 1965 but declined to just £80bn in 1995.
In the past 35 years, the number of people coughing to an early grave has also halved. The prevalence of smoking in the UK and most of Europe is roughly 20% of adults.
The irony is that during this period profits soared. Can you think of any other consumer business that can boost profits while being so unpopular (except maybe Ryanair?), and while demand is falling?
Total returns to shareholders investing in Tobacco over 25 years according to Neil Woodford of INVESCO Perpetual are 9,000 percent.
How can this be?
There is another reason – the advertising ban on cigarettes. Do you remember all those clever, artistic ads on TV and in the press, all the snooker tournaments sponsored by tobacco firms (and players smoking in the arena), and all those Formula One cars painted like cigarette boxes? All banned and the savings on advertising and marketing expense has gone straight to improve the bottom line.
There was also another added value. The advertising ban created a significant barrier to entry. No company could launch a new brand, and no new company could enter the market. As a result the existing tobacco companies were saved the cost of developing new products.
If revenues continue to come under pressure the academics may find the industry agreeing with them but for an entirely different reason.