Camelot announces more changes to Lotto

Camelot has announced further changes to the structure of the UK’s National Lottery main game, Lotto, from October 2015.

The main structural change is that the game will increase from 49 numbers to 59 numbers, with players still having to select six numbers correctly to win the jackpot.
The result is that the odds of winning the jackpot have lengthened from 1: 14 million to 1: 45 million. 

Lower down the scale, the probability of winning the GB£ 25 prize for matching three numbers has gone from 1:57 under the 6/49 matrix to 1:97 in the new 6/59 matrix. 
Camelot claims that the odds of a player winning any prize have been reduced to 1 in 9 thanks to the proposed introduction of a free Lotto Lucky Dip ticket for matching two numbers.
From October 2015 there will also be no maximum number of rollovers, which Camelot says will lead to “bigger rolling jackpots”.

Ladbrokes and Coral merger – history repeats itself

Ladbrokes’ new Chief Executive Jim Mullen is interested in merging with Coral. This merger was tried before in 1998 but the then Secretary of State for Trade and Industry, Peter Mandelson, vetoed the merger stating that the Ladbrokes’ purchase of Coral “would damage competition and disadvantage punters” by extending its dominant position in the UK betting market. 

At the time I was chairman of the British Betting Office Association (BBOA) and with William Hill the BBOA led a campaign opposing the takeover. “The enemy of my enemy is my friend” – this alliance brought me into close contact with William Hill’s then Chief Executive John Brown. We got on well and from that we were able to work on Will Roseff’s idea of gross profits tax and a gross profits horserace betting levy.
I recall our first meeting at the Office of Fair Trading (OFT). Ladbrokes had obviously sounded out the OFT before announcing the takeover and I suspected the company had been given the green light to proceed. We managed, however, to produce evidence that suggested that a Ladbrokes-Coral combined entity would be able to exercise so much power over the industry and that it would lead to the closure of many small betting shops. Competition would suffer and the punters would be worse off. 
The OFT representatives looked pale. We had caused them to rethink the deal. Later it was announced that the merger would be referred to the Monopolies and Mergers Commission (MMC). 
I am a great believer in corporate sentiment. At the time Ladbrokes did not enjoy a good reputation. Chris Bell had just taken over as Managing Director from the hard businessman Bergis Daver. Peter George was Ladbrokes’ Chief Executive and had been with Ladbrokes all through its expansionary phase. 
Sentiment towards Ladbrokes was low not only within the industry, which was partially explained by ‘sour grapes’ – they provided strident competition and used to “predatory price” against the independents – but also amongst the wider racing industry. They were dominant, flexed their muscles and people were tired of it. 
By the late 1990s I doubt Ladbrokes had recovered from the days of the mercurial Cyril Stein who just went a bit too far when Ladbrokes had casinos. They lost them all through malpractice and once you make such a colossal mistake the PR just runs against you. 
Once the hearing started I always felt we were pushing at an open door. John Nelson and I made the presentation at the MMC and afterwards we felt it had gone well. I heard that Ladbrokes were put through the mill and the result of the hearing seems to have indicated this was the case. 
The MMC was unanimous in its conclusions. The deal would “reduce punters’ choice” and “weaken price competition”, both at national and domestic level. 
Peter Mandelson added that the takeover was anti-competitive for two reasons. Ladbrokes, with around 1,900 shops, was already the largest owner of shops and with Coral this would have increased its market share from 21% to 30% and that would widen the gap from its nearest rival William Hill (then owned by Nomura). Ladbrokes would have controlled one in three bets placed. 
Ladbrokes in its presentation had planned to sell 301 Coral shops to the Tote. A clever move – racing was still wedded to the idea of a Tote monopoly and any boost to the Tote’s finances was grabbed with both hands. But the MMC saw through it and was having none of it. 
One of the key planks to the case was the plight of the independent bookmakers. The five largest bookmakers controlled 70% of the market compared to 65% in 1989. The remaining 30% was scattered amongst the independents that the MMC said could not compete with the bigger bookmakers. 
What made matters worse was the arrival of the National Lottery in 1994. The second mid-week draw had caused the number of bets to decline by ten percent. This had caused a sharp drop in profitability and accelerated the closure of the smaller betting shops.
Ladbrokes’ bid valued Coral at £363 million in 1998. In today’s money that would be £570 million because inflation over the period according to the Bank of England was supposed to be an average of 2.8% per year. 
Ladbrokes sold the business to Morgan Grenfell (Deutsche Bank) for £390 million who sold it in 2002 to Charterhouse Development Capital for £860 million. Why the uplift? Gross profits tax. I was involved in that too. I led the team that persuaded the Treasury that tax on turnover would lead the industry to be uncompetitive in the global world of e-gaming. Today practically all countries have followed the UK and are taxing gross profit and not turnover. 
Let us fast forward to the here and now. For this merger to succeed Ladbrokes and Coral will have to persuade the competition authorities that things have changed since 1998. The reality is that they have changed significantly. The internet has created super efficiencies in betting pricing and in the UK practically everyone has access to the internet. 
Since the original merger proposal the market has concentrated further with the big four bookmakers having 86% of the market up from 70% in 1997. There are fewer small bookmakers to protect and the Internet is providing competition and value the likes of which the punter has never seen in his lifetime. This time Ladbrokes might just succeed and sentiment might be with the company. It will depend what view the authorities take of a single company owning around 40% of UK betting shops.

By Warwick Bartlett

BACTA survey finds support for FOBT stake reduction

A survey commissioned by BACTA, the trade association for the UK amusement sector, has found support for a reduction in the stake for fixed-odds betting terminals (FOBTs, B2 machines) to below GB£ 20.

According to the survey 54% of respondents believed there should be a limit to the amount of money that can be staked on a FOBT.
Simon Storer, Head of Communications for BACTA said: “This research comes at a very crucial time. Not only do we have a new government, but we also have a new Secretary of State at the DCMS – the department responsible for the gaming industry – let’s hope the government can be persuaded by public concern to confront the issue of FOBTs once and for all.”

“There is a clear desire from the public for a change to the current arrangements. At BACTA we have argued for some time that the £100 stake allowed on the machines in LBOs needs to come down substantially. Importantly this also now appears to be the view of the public. We sincerely hope the government will reflect on the research, do the right thing and bring the stake on these machines in line with all other high street gaming machines.” 
The results of the survey are hardly surprising from an organisation that represents high-street gaming centres which have to compete against FOBTs and are often restricted to lower-staking machines.
Part of the survey involved interviews with 5,903 people, of whom just 194 adults (3.2% of the sample) said they had actually played on a FOBT in the previous 12 months. 
By coincidence, the survey coincides with the introduction of a bill to reduce the stake limits on FOBTs. Liberal Democrat Lord Clement- Jones’ Gambling Bill was published at the start of June 2015 and seeks to reduce the stake limit from GB£ 100 to GB£ 2, with some allowance for inflation-based increases. 
Lord Clement-Jones said: “The social disruption left in the wake of FOBTs, and growing level of public concern associated with them, is now such that the status quo is unsustainable. The law needs to change.To this end I am very pleased to have tabled the Gambling (Categorisation and Use of B2 Gaming Machines) Bill.” 
“The reduction of FOBT stakes from £100 to £2 proposed by my Bill will transform FOBTs so that rather than being the source of real suffering and hardship as is the case today, they become instead relatively benign forms of entertainment.”
 
http://services.parliament.uk/bills/2015-16/gamblingcategorisationanduseofb2gamingmachines.html

Global gambler spends just US$ 80 on gambling

The average global gambler spent the equivalent of just US$ 80 on licensed gambling activities in 2013, according to research by GBGC for its 10th edition of the Global Gambling Report.

The average spend per adult varies greatly across different geographical regions. It ranges from a low of just US$ 6 in Africa to US$ 753 in Oceania.

  


GBGC Global Gambling Per Capita GGR 10
The total global gambling market was worth US$ 438 billion in 2013 and the top five jurisdictions of US, Macau, Japan, China and Italy accounted for almost 54% of the global market. 
GBGC Global Gambling Share GGR 10
Asia overtook North America as the largest gambling region in 2010 and Asia continues to hold the top spot, accounting for almost 33% of global gambling revenues.

Global e-gaming: raising the stakes

Interactive gambling has generally enjoyed a good decade between 2004 and 2014. The sector has overcome some dramatic regulatory and economic episodes to see global gross win grow from US$ 12.4 billion in 2004 to US$ 41.4 billion in 2014. But, as things stand, the sector could struggle to replicate that rate of growth between now and the end of the decade, for a variety of reasons across the different i-gaming activities.

Globally, interactive gambling had a 9% share of all global gambling in 2014. This is an increase from the 6% share it had in 2007 but GBGC forecasts that interactive gambling will struggle to break through the 10% mark in the next few years. Indeed, its share of the global gambling market could remain fairly static over this time for a variety of reasons. 

One major reason for interactive gambling’s failure to gain more market share in the last few years has been the strong rate of growth in land-based gambling, which e-gaming has not been able to match. This might seem an unusual phenomenon given that e-gaming is meant to be the new, technology-driven growth sector compared to “mature” land-based gambling. But it should be remembered that over the same decade from 2004 to 2014 Asian casino revenues have grown from US$ 7.7 billion to US$ 56.6 billion, thanks mainly to the rise of Macau as a gaming jurisdiction and new properties in Singapore and the Philippines. 
By default, Macau’s current woes, which look likely to extend into most of 2015, could help interactive gambling boost its market share. But the interactive gambling sector is facing its own challenges in the next five years that could limits it ability to account for a greater share of global gambling. 
Internet poker is a drag on interactive gambling’s ability to take a greater share of the market. The internet poker sector peaked in 2010 and has been in decline since then. GBGC believes this decline will continue in the near future. At the peak in 2010 online poker accounted for nearly 16% of all e-gaming. By 2019 GBGC believes poker’s share could have shrunk as low as 7%. Local licensing in Europe and the requirement to create domestic pools of players has been structurally harmful to the game. On top of this, the conflict between recreational and professional players has meant that global internet poker revenues have fallen. The one thing that could halt this decline is if a major US states passes regulation permitting internet poker. The performance of online poker in Nevada and New Jersey has been mediocre, which is not surprising given the small local populations. Poker operators’ main prize would be for California to finally pass poker legislation, something that has been under discussion for several years in different guises but has yet to materialise. 
Another sector that GBGC forecasts to be in decline is skill gaming. Until recently the sector was very popular with casual gamers and had the advantage of being legal in the US because of the skill element, meaning players could win cash payouts. But the sector has been overtaken by the rise of the “social games” phenomenon on platforms like Facebook. Several of the early leaders in the skill games market like King (MidasPlayer) and GameAccount have switched their attention away from those original skill games to the social games market. GBGC does not currently consider social games in its sizing of the global interactive market because the mechanics of the games do not allow for cash payouts. So far, there is no strong evidence that social games have been successful in converting the casual gamers into players of online casino games or online slots for higher, real-money stakes. 
With two sectors forecast to be in decline, the interactive gambling sector must first replace those lost revenues before it is able to grow the overall total and, therefore, its share of the global gambling market. 
One key reason for e-gaming failing to grow its share of global gambling past 10% is that, in general, state lotteries are not doing enough to make ticket sales via interactive channels. Global lottery revenues are in the region of US$ 138 billion (2014) but GBGC calculates that only 4% of that figure comes from interactive channels. US lotteries in particular have failed to embrace mobile and internet sales in the three years since the US Department of Justice changed its position on the Wire Act, which seemed to enable lotteries to offer their services over the internet. Until US state lotteries make a greater portion of their revenues from the internet, like some of their European counterparts, it will be difficult for interactive gambling to increase substantially its share of the overall market. 
In the early part of 2015 the decision by China’s Welfare and State lotteries to suspend internet lottery sales for an undetermined amount of time will also have an impact because these two lotteries contributed a large portion of global interactive lottery revenues. If the suspension is a lengthy one that extends beyond 2015 the impact will be even greater. 
Sports betting and casinos have proved their popularity and longevity in the land-based sector and have been the main source of growth in the interactive sector too. The 2014 World Cup was a successful one for the online betting operators, it’s just a shame it happens only once every four years. William Hill earned nearly GB£ 25 million (US$ 39 million) in gross win from last summer’s tournament at a good margin of 15.6%, an increase of 142% on the 2010 event. Unibet’s World Cup gross win grew by almost exactly the same percentage (142%) from tournament to tournament, earning GB£ 16.0 million (US$ 25 million) in gross win. Overall, the global internet betting sector grew by 7% in 2014 and accounted for 49% of all global e-gaming. By 2019 GBGC estimates sports betting will account for 53% of e-gaming. 
The on-going regulation of new markets in Europe, such as Germany and the Netherlands, should be a cause for growth in online sports betting, as will the cycle of future international football tournaments. But whilst there will be growth at the gross win level for online betting and casino operators, the level of profitability further down the balance sheet could be less healthy in the near future. The process of regulation of internet gambling has brought with it higher taxes and higher operating costs. At the end of 2014 a point of consumption tax was introduced in the UK at 15%, mirroring tax developments in other European markets, and the early trading updates from operators in 2015 have suggested that they are struggling to mitigate some of the increased costs, which has hurt profitability. Paddy Power’s experience in Ireland encapsulates the tax and regulation headaches facing operators. January 2015 saw the introduction of VAT being applied to e-gaming at a rate of 23%. In March 2015 the Betting Amendment Bill was finally passed and will impose a 1% turnover tax on telephone and internet betting. Based on 2014’s revenues, Paddy Power estimated the former would incur a net cost of €2 million and the latter a gross cost of €8 million. 
Given the regulatory and tax developments in various markets, a greater focus on the profitability of e-gaming operators could be a better indicator of the long-term health of the sector rather than simply looking at the top line revenues.

R Franco plots online gaming assault

Spanish gaming machine specialist the R Franco Group is planning to launch its own internet gaming service in September 2015.

The announcement was made by Alejandro Casanova, head of R Franco’s Digital division at a recent conference organised by law firm Ramon y Cajal – “Apps: a world of opportunities and risks” – in Madrid.
Casanova also said R Franco would be making other steps into the digital sector. He talked of “an open platform to create and distribute games, an incubator, an accelerator and a fund to invest in projects”. Casanova explained that the development and application of new technologies is changing the gaming customer’s profile and there is a need to attract them “with more social games that entertain more people”.
R Franco Group had already become a sponsor of the Conector start-up accelerator in Madrid, with the aim of helping online gaming start-ups become fully-fledged businesses.
Casanova explained R Franco’s involvement with the accelerator: “gaming is an ever-changing business and offline companies like ours need to renew themselves in order to be at the forefront of this industry. The New Business Development area within the R. Franco Group perceived this as a great opportunity to get together and launch Conector’s programme in Madrid, as it is led by Carlos Blanco, one of the references of online social gaming in Europe. This will provide greater strength to our move into the digital industry.”

Forget the election polls, follow the bookmakers

Most politicians say they do not follow the polls, particularly when they are lagging behind! The reality is that they examine them in minute detail. But long before the recent 2015 general election when Prime Minister David Cameron stated that he followed the betting markets more than the polls we can now see why.

The public opinion polls got it so very wrong. The academics conducting the exit polls could not believe their eyes on election night because they had been blindsided by the opinion polls that were far from accurate.
It seems to me that if you are stopped in the street by a pollster, or telephoned, you are unlikely to answer the questions put to you. Respondent have no wish to offend the political beliefs of the interviewer and very often people will tell interviewer what they think they want to hear. Internet based polling should solve that problem except it most probably makes the situation worse. 

There has been a lot of coverage that emails and online correspondence can be extracted and used against someone if the need should arise. In some countries you most definitely would not want someone in authority to know your political beliefs. In the UK we are safe today, but what of the future?
So the exit poll conducted by secret ballot is the safest measure and it reinforces the age old system of election by secret ballot as the best way to run a democracy.
There is another way of predicting the outcome of elections other than the fallible opinion polls – following the money placed by gamblers with bookmakers in the election betting market. 
In a recent presentation at the Society for the Study of Gambling (May 2015) Professor Leighton Vaughan Williams from Nottingham Trent University gave an interesting presentation on the history of election betting and the accuracy of following the betting markets.
Professor Vaughan Williams said that the betting markets incorporate all known and available data into the simplest form – the betting odds. 
The earliest betting on elections dates back to 1868 on the Curb Exchange in New York. Up to US$1 million ($200 million at 2012 prices) was bet on the outcome of the Presidential Election. Between 1869 and 1940 this market failed to predict the winner only once.
In 1985 Ladbrokes made a market in the Brecon and Radnor by-election. 
The famous Mori poll had Labour to win by 18%. Ladbrokes had the Liberals at 4/7 and Labour at 5/4. The Liberals won.
During the US Presidential Election campaign of 2004 the polls were mixed: some had Kerry with a two point lead, others gave Bush a four point lead. In the betting market for individual states, the selection which was favourite won in all 50 states. In the US Senate election of 2006 the betting exchanges were one hundred percent correct on all seats.
In the 2008 US Presidential Election the polls showed different candidates winning at different times. On polling day, President Obama was 1/20 with the betting exchanges. It was a landslide for Obama. 
The polls were again found wanting in the Scottish Referendum 2014 where the vote was a clear yes or no. In the week running up to polling day Panelbase had NO to independence with a 1% lead and YES to independence could be found with a lead at YouGov of 2% and 7% at ICM. The actual result was NO at 10.6%.
But NO was reflected in the betting markets all along. At William Hill a client had staked £900,000 to win £193,000 at an average price of 1/5.
The opinion polls do matter because politicians in London, on seeing the polls in favour of independence, rushed up to Scotland and made rash promises on devolution that will cost the rest of the country. 
The killing conclusion to Professor Vaughan Williams’ presentation is that those who ignore the betting markets will pay for it, as was the case in 2004 and the Bush vs Gore US Presidential Election.
Most of the polls had Florida too close to call. In contrast the betting markets had Bush winning by a big margin. Had the Democrats took note of the betting markets they would have sent their troops to Ohio, where the betting markets showed the race on a knife edge, and not to a lost cause in Florida. Had Gore won Ohio he would have been President. The history of the world would have been very different.
So which betting market is the best at predicting an outcome? I would suggest the UK because of its low transaction cost at 15% Gross Profits Tax so there is less distortion and bias.
The US is in my view easier to predict because it is nearly always a two person race. Yes/No referendums have the same characteristics. The UK has numerous political parties but, even so, the money poured in on the Conservative Party in the last week of the election and the Conservatives carried the day. 
Professor Leighton Vaughan Williams concluded: 
Recent years have witnessed ground-breaking shifts in the way in which betting is taxed, regulated and perceived by economic theorists. 
• This means that betting markets will become more than just a major part of our future. Properly utilized they will be able to tell us what that future is likely to be! 
• We seem therefore to have created, almost by accident, a ‘high-tech’ crystal ball that taps into the accumulated expertise of mankind and makes it available to all. 
• In this brave new world of prediction markets, it seems only sensible to make the most of it. Both to forecast an election, and to win one! 

GBGC is grateful to Professor Leighton Vaughan Williams for providing the text of his presentation.

Amaya Gaming: revenue is vanity, profit is sanity

The first quarter results from Amaya saw revenues rise 2,549 per cent from C$ 12.8 million a year ago to C$ 340 million. Of course, the increase comes following the acquisition of PokerStars, the world’s largest poker website, last year. But, globally, GBGC forecasts that internet poker is a sector in decline, having hit a peak in 2010, and explains Amaya’s desire to diversify into casino and sports betting.

Although the headline revenue figure of C$ 340 million is impressive, net profit before tax comes in at only C$ 23.1 million. One key reason for this conversion rate of 6.8% of revenue to profit is that Amaya paid nearly C$ 65 million in “interest and bank charges” in Q1 2015 (Q1 2014: C$ 1.1 m). Amaya is also spending heavily on marketing and investing in new software for sports and casino with an anticipated full launch and ramp up on marketing for the third quarter of 2015.
Under the previous owners, PokerStars managed to produce profits of US$ 422 million (C$449m) for the year end to 31 December 2013. Online poker does experience seasonal variations, summer (Q3) in particular is not a strong period but winters are better. So it is not unthinkable on a pro rata basis for PokerStars to have produced a quarterly profit equivalent to C$ 112 million in the accounts to 31 December 2013 (i.e. prior to acquisition). If the assumption is correct, Amaya has seen a substantial fall in profits for a business for which it has paid US$4.9 billion.
To be fair, the company is bringing forward substantial investment in online casino and sportsbook. Investment in software, hiring and marketing a new product does not come cheap. Amaya wants to produce a global brand and a one stop shop for the gambler. PokerStars has a huge database of players and lapsed players to farm and reactivate to produce new players for its new services. The sportsbook, casino and 200 slot games will all go live in the third quarter of 2015 with a considerable increase in marketing to go alongside.
Full Tilt has been experimenting with the product mix and, according to CEO David Baazov, has had some success as it has attracted up to 30% of poker players onto other gaming products. Amaya is hoping to replicate this success with PokerStars.
A transitional sport betting site has been launched in Ireland for testing. The site, while basic, is functional and there will be much more to come as it approaches a full launch.
Amaya is now fully committed to legalised gambling jurisdictions where it can licence onshore. No indication was given on the conference call to investors as to how long the process of divesting from “grey” markets would take.

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