Activist Gaming Investor on UK Regulation


A threatened regulatory crackdown on the UK online gaming market has made some investors take fright. With a $100 million-plus stake in gaming software giant Playtech through his investment management firm, SpringOwl Asset Management, independent sponsor Jason Ader has been watching the proceedings closely from New York. And the man credited with driving bwin into the hands of GVC in a $1.7 billion deal believes the UK government could be about to make a costly error.

Jason Ader

Jason Ader believes that overregulation in the UK will hurt the consumer more than people realize. (Image: Mike Segar/Reuters) What’s your take on the regulatory landscape in the UK at the moment?

Ader: There has been a pretty significant media and government crackdown on the gaming industry. I want to see every protection put in place to prevent underage gaming, and I want every protection in place to prevent problem or compulsive gambling.

Those two classes of player — there’s a lot of technology to weed them out, and I think the government and the industry should work to bring their number down to zero. There should be no kids and no problem gamblers in the regulated industry.

But this is a leisure activity. This is a differentiated product from tobacco and alcohol, in my view. This is a leisure activity that makes games more interesting in terms of fan engagement and team-level engagement.

This summer, when England is playing Germany in the Euros, pretty much every England fan is going to have some sort of wager on that game, and if there’s an extreme limit put on the ability to wager online, those that have Bet365 or William Hill or Ladbrokes accounts — they’ll go offshore, right? And if they go offshore, there are plenty of betting sites in Costa Rica and other parts of the world.

Then the UK government completely loses control of that and there’s no way to protect the integrity of the game.

They’re concerned about the underage gaming and the problem gaming, but I think everybody in the industry feels that way, and there’s a way to work together. What are the consequences of overregulation?

Ader: The consequences of overregulation are that the consumer will be able to wager, but it will be in a completely unregulated manner, with no controls, and to the detriment of everyone — UK-based jobs, the teams that benefit from the sponsorship, the advertising, and, of course, the consumer.

Who knows who’s really operating these offshore locations? And sometimes they might even just shut down and disappear with your money, which is not something that could happen with William Hill, or Bet365, or Ladbrokes, or SkyBet.

I think we’re dangerously close — listening to some of the rhetoric from the UK politicians and regulators — to pushing the UK into a black market. That would be catastrophic, eventually.” UK pols are looking at the £2 cap on fixed-odds betting terminals and think they can do the same for online slots. But it’s a false comparison because there’s no black market in FOBTs, isn’t it?

Ader: For sure. And it’s very easy to go offshore — from any country. The US is now moving forward with legalized sports betting, but offshore sites have been taking black-market bets for years. In the UK, you have that equivalent.

It’s very easy to cross over and use various payment methods to wager £100 on the outcome of the Euro Cup or the EPL or Formula One or darts or Wimbledon. I think cooler heads need to prevail here, and the effect of overregulation online could hurt the consumer more than people realize. And we’re getting dangerously close to that scenario. Was the UK too liberally regulated? Is that why we’re now seeing a push back in the other direction? What can the US learn from that?

Ader: I think if you look at best practices, the best companies — Skybet, Bet365, 888, GVC, William Hill — those top companies have pretty rock-solid, know-your-customer background checks and age verification. There are systems like Playtech’s BetBuddy, which uses predictive behaviour. There’s chatting with players to slow down the betting if there’s behavior that appears problematic.

But I think at the bottom — companies at the bottom, who may have now left the market — the controls have been lower. But the biggest companies that are trying to move into the US are operating at the platinum standard. And I think when you look at SkyBet — and we know SkyBet very well because of our longstanding stake in Stars Group — SkyBet is really the platinum standard.

The US should really look at SkyBet and say, “We want all our companies to be like that.” And the UK should, too. It’s very intertwined with the media industry, and they went far beyond what they needed to do in terms of age verification and irresponsible wagering across all forms of betting. That should be the model.

I think the US can learn not so much from the UK market, but how the best companies have operated in the market.” Could the US face a similar backlash 15 years down the line?

Ader: I think it’s too early to say. A lot of the UK regulations were put in place before a lot of the technology developments that constitute the online gaming business. So, when you think about it, the technology has grown — as it has done in many other sectors, by the way, like the financial services industry — but it has grown faster than the regulators could have imagined. The US regulators are looking at 2020 technology and adapting the regulations accordingly.

There’s a logical catch-up that UK regulators may want to consider. But because of the long period in which the US has not operated online, and how new it all is, that’s an advantage. It’s like building a building in 1990 and building it today, you’re just not going to construct it the same way.

I think the Ontario Lottery has done an amazing job with online gaming. It’s the largest regulated internet market in North America. They have used technology to monitor and solve these issues. They’re using BetBuddy and predictive AI to monitor players, and it’s completely transparent to the regulator.

These solutions exist and if we’re really going to adapt to 2020 and look forward to the next decade, the answer isn’t something so rudimentary as “let’s cut all the limits so nobody wagers.”

That’s not what’s going to happen. People will still wager — it’s just the UK government will lose control of it. Are people already abandoning the regulated markets?

Ader: The £2 cap on slots that’s been proposed – I think that would be the catalyst, and I think right now we’re on the edge.

Currently, players have their accounts and they’re comfortable. There’s nothing I can see in money flows that would give me the ability to give you that definitive conclusion, but there could be a significant change from here. This is a predictive thought. Talking of predictions, some hedge funds, such as Citadel, are shorting gambling stock. Are they betting that the £2 slots cap will happen?

Jason Ader

“There should be no kids and no problem gamblers in the regulated industry,” says Ader. (Image: SpringOwl Asset Management)

Ader: I saw Citadel’s position. It’s hard to know what they own, to the extent that they’re shorting GVC. They have a very well-known large position in Flutter. And I suspect if you look at what they own in the space — firms like Citadel tend to like the dollars they’ve invested long offset by dollars they’ve invested short, and they like to participate in the growth of one company to the detriment of another.

But you can never really look at one short position and really know what’s going on in the wider picture. Unless you talked to someone at Citadel, you’d just be guessing. There’s also been a backlash surrounding advertising, particularly soccer sponsorship.

Ader: I think the legitimate UK companies don’t want that. They don’t want these bidding wars. I remember when we were a shareholder of bwin and bwin was sponsoring Real Madrid. We spent a fortune! We sent a high proportion of profits to Real Madrid. There are other ways to reach customers that are far more efficient, using Google and Facebook, and I would strongly recommend that in terms of customer acquisition versus customer retention. You made some interesting points about online gambling regulation and Macau recently.

Ader: We do have some window into the business operations of online gaming in the Philippines. Of course, in the Philippines it’s a regulated online market and there is a fair amount of volume throughout Asia going through those Philippine servers. Since the coronavirus, travel has been constrained in Macau and throughout the region, and there’s been a significant surge in online play on those servers.

Obviously, Macau has been hurt by all the casinos being closed, but had there been an opportunity for the licensees to offer online betting, they could capture at least some of the revenues that have been lost and continue to talk to their customers — and also promote the venue while it’s closed. Right now, that cross-marketing potential doesn’t exist, and I do think it should be a bit of a wake-up call.


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