The Government’s recent call for evidence for its review of Gaming Machines and Social Responsibility Measures offers the UK betting industry an important opportunity to improve its image. Although the review relates primarily to gaming machines – it also considers the industry as a whole, particularly concerning social responsibility measures to minimise the risk of gambling related harm (including advertising restrictions).

The very fact that the Government needs to carry out this review indicates that the betting industry has an image problem. And there appears to be an increasingly forthright anti-gambling rhetoric emerging from UK media. This all contributes to a pervading view that gambling is a nefarious activity likely to cause social harm.

Is this reputation deserved? The industry doesn’t do much to help itself. For Fixed Odds Betting Terminals (FOBTs), or indeed any form of gambling where the bookie controls the likelihood of winning (including on-line casinos), there is a high risk of detriment – you will always lose over the long term. It’s perhaps disappointing that the whole of the industry is lumped together with FBOTs in the Government’s review, but FBOTs usually coexist with other forms of gambling in the betting shop, so it’s difficult to distinguish them in the eyes of the public.

Yet true bookmaking – laying bets for uncertain events (such as sports or politics) – is very different to FBOTs, and the industry could do so much more to promote the positive aspects. The usual response when the industry is faced with restrictive regulation is to point to tax proceeds generated and jobs at stake – but this is a negative defence. It’s far better the focus on the positive areas, and there are many, such as:

a. Highly competitive and efficient market – delivering value to customers.

There can be few markets as competitive and efficient as the betting market. The move to predominantly online transactions means full price transparency that generates fierce competition and thin margins. If customers pick the best market price (which is simply available from many online comparison sites) it’s usually a close reflection of an event’s true likelihood. Compare this with the betting market 20 years ago, dominated by a few high street chains able to operate with hefty margins, on top of which customers also had to pay 6% tax.  The punter was always the loser.

Today’s market generates exceptional customer value. Also, not only is the price transparent, but so is the manufacturer’s margin (which is the “over-round” above 100% when the implied likelihood of all outcomes is added together).

Competition and value is a real positive feature of the industry, but I suspect that diminishing margins are driving some more questionable practices by Betting Companies (more of this later).

b. Education and increasing understanding of risk.

The UK General Election, EU referendum and forthcoming US election have offered the betting industry the opportunity to inform debate – with betting odds often used by the media as the best indication of an event’s likelihood (rather than discredited opinion polls).

This is an area that the industry should build on. Increased public understanding of the trade-off between risk and reward is key to improving the industry’s image. Some betting firms already do this (particularly Pinnacle, with regular articles explaining the mechanics of risk) – but I suspect that these only reach a limited (and already well informed) audience.

There is concern that children’s exposure to betting advertising during live matches could lead to gambling being seen as a “normal” activity. However, this isn’t necessarily a bad thing because gambling is widespread – what’s more important is properly understanding the risks of gambling together with expected return (rather than deny its existence).

The public’s lack of understanding of risk and return is exploited in areas outside the betting industry; for example the National Lottery (where advertising is less restrictive) and game shows.  As an example, Deal or no Deal is a game-show designed solely to exploit individuals’ inability to quickly work-out the expected utility of uncertain outcomes.

Financial Education is (rightly) being encouraged in schools. Savings and Investment is an area where risk is shunned by the public – preferring to hold money in cash over the long-term, rather than riskier assets such as shares, which historically deliver higher long-term returns. So there could be genuine social benefit achieved by building a practical understanding of risk and reward at schools, and the betting industry is in a great position to support this (although it may be seen as a step too far).

c. Development of customer friendly technology

The Betting Industry was one of the first adopters of digital as the predominant interface with customers and has a great record of innovation. This started with Betfair transforming the industry with exchange technology. And today most Bookies have easy-to-use Apps and interfaces that other industries could learn from.

Where is the Betting Industry going wrong?

As mentioned, the betting industry doesn’t help itself.  And, probably because of the competitiveness and thin margins of true bookmaking, there appears a desire to steer customers towards activities with higher margin and more stable cash-flow – particularly FBOTs and on-line casinos. But these are inevitably activities that lead potential social harm and exploitation.

Take Betfair as an example. Their initial exchange model transformed the industry – creating a true market price (set by demand and supply) for each event, whilst charging a transparent price for access to the market. But their actions in recent years (presumably due to lack of income growth for exchanges) have generally been to the detriment of customers. These include: implementing a “premium charge” which is a way of ensuring that no-one does too well from the market (imagine if the Stock Exchange did this!); introducing online casino and fixed odds gaming (profitable, but nothing to do with an exchange model); and finally, introducing a “sportsbook” i.e. operating like a traditional Bookie – using traditional rather than decimal odds format.

Also, consider gambling advertising – most of it appears to be focused on steering customers to poorer value (more profitable) propositions. Examples include the heavy promotions of accumulators (or Accas using advertisers’ matey vernacular). This ensures that Punters keep all their bets with one bookie, and so not benefit by selecting the best price for each individual event. The ability to cash-out is also heavily promoted. Cashing-out is an industry innovation, but I suspect it’s generally to steer punters to poor value in-play odds (where it’s much more difficult to compare prices and assess value).

The demographic segment appearing in adverts is also interesting. Bettors are always male, usually late 20s or early 30s – i.e. young enough to be aspirational, but old enough not to be under age. The betting industry knows its market.

So, it seems that the ideal customer journey for many betting firms is to lure punters with free bets or artificially enhanced odds, steer them to accas and in play bets – then entice them to the profitable (for the bookie) world of on-line casinos [or FBOTs for those companies with betting shops]

Regulation

So, what should be an appropriate Government response to the consultation? I’ll start first with Tax. Increased tax is often suggested as a tool to punish industries seen as socially disreputable. But tax increases are actually harmful for customers in the betting industry – either resulting directly in poor value prices, or firms withdrawing from UK (which leads indirectly to poorer value). Both of these will increase harm to vulnerable customers.

However, it does seem reasonable to look at advertising regulation – specifically promotion of activities designed to steer customers to poorer value products. But generally, as discussed, it’s far preferable to concentrate on better education and understanding of risk, rather than ban advertising altogether.

I’m writing this as an industry outsider, that enjoys sports betting – and has seen the industry’s customer offering improve enormously over the last 15 years.  However, in recent years (probably due to commercial pressures) it seems to be regressing. Ideally I’d like to see a  regulatory split between true bookmaking, and manufactured fixed odds activities such as FBOT’s and online casinos. The latter should be regulated heavily to prevent social harm. But for both, better education is essential.