From Red to Green: How to Create Sustainability by Getting Ahead of Regulation

Written By:

Paul Foster, Managing Director, Crucial Compliance

The Gambling Industry often reels from regulatory shocks and warnings; the sustainability of both current customers and operating models is consequently brought into question. With listed companies having to react quickest and privately-owned companies realising the need to adapt quickly as well, there is now a need for a clear pathway to get ahead of regulation.

But what are the benefits of getting ahead of regulation? It is obvious to everyone that amber markets are more profitable than green, and that red are the most profitable of all. So, surely any company trying to get ahead of regulation will take a hit to revenue and player numbers without any commercial upside.

At first glance, the statement above looks correct, but if you analyse it in terms of short vs long term value, you will see a different side.

Companies which operate in regulated and to be regulated markets generally see a more sustainable player base with a long-term sustainable business model built on operating compliantly. This may mean short term financial pain, but it will allow longer-term decision making around investment and even M&A activity. Everyone operating with a license is required to maintain compliance with regulations so there is a perceived level playing field which, in effect, will reduce the operational risk to the business and increases shareholder value long term.

But what about operating in the amber and red markets under a similar compliant internal regime without the requirements to do so? This has been regarded as financial craziness by most companies who have considered it. However, there are now companies across the globe forging ahead with a sustainable player model in amber-red markets, and they are seeing positive outcomes.

Getting ahead of regulation and conveying a strong socially responsible image to the market, has been an effective way of generating positive press and open dialogue with regulators and government agencies. The media pays more attention to these companies who are trying to do the right thing and those which are perceived to be doing the wrong thing. Getting the media onside can become instrumental in letting a wider audience know about the company’s “good works” which, for all intents and purposes, is positive and free advertisement.

When done right, compliant responsibility also sets the company apart from its competitors. For instance, effective RG implementation creates a leadership position which forces the competition to at least consider their own stance. And, as a business's reputation is part of its brand, this may be the best way to nurture its good reputation and increase efforts within the industry to improve responsible attitudes. It will also strengthen communication with stakeholders which, in turn, will cement trusting relationships with all of them.

The key benefit from a commercial basis is the expansion and sustainability of the player base through improved retention and acquisition processes. Companies are investing in better understanding their customers to increase customer loyalty; with a responsible approach they can improve the company's reputation within the industry and the wider environment, and most importantly, protect their customers. In turn, this improves customer loyalty which reduces churn and drives sustainability of player values.

So how does this affect regulation? Due to the political nature of most regulation and the industry’s perceived poor reputation in amber and red countries, the public challenge is often one-sided, leading to a lot of legislation being written unilaterally, without full consultation of the industry and its players. Some of these regulatory measures which are implemented, although well intended, can be totally out of sync with reality and ultimately counterproductive to their stated aim. Therefore, it is important to take a leadership position and get ahead of regulation. It is essential to drive the change and not sit behind it.

So that all looks good on paper, but how do companies make it happen? Well, in order to do this, companies need to study the potential effects of regulation upon their customer base, gather enough data, and research and develop internal policies and procedures to address the regulatory concerns in advance of new regulation. In other words, companies need to take control of the narrative, reduce Player Related Harm, review the pathway for AML/Affordability and introduce game fairness and integrity.

When developing the policies and procedures, companies should always use data analytics to create one side of a recommendation and common sense to create the other. If something looks right and feels right, it usually is right and the analysis should back this up. Too many decisions hide behind a poor quality piece of analysis and this holds companies back. Data and analysis should not be adapted, but created from new, aiming to fill a need and deliver guidance. This often means creating new models and stepping away from the traditional view held within a lot of BI teams. It is about creating change within the analytics to deliver the data to drive regulatory early adoption.

It is then important to use the right skill set within the company to drive the change. It is about change management; the need for everyone to be placed into the right regulatory position and to believe in the vision. Whilst senior management will lead the change, it is the operational teams who implement and drive the change. Invest time and effort in the whole team and the change will be simpler and more effective. Always remember, it is the operational teams who have the “customer touch points” and their voices and faces which represent the brand. This is often forgotten, teams try to communicate what they will do and this leads to poor implementation of the requirements. Train and develop customer facing teams first, then look at external communication.

All of this may seem a lot to do when it is not required. It will absorb management effort, thin out the bottom line and create development where it was not needed. This though also means that when regulation comes, there will be no regulatory shock to the bottom line because the regulation changes are already embedded in the P&L. The company won’t need to make any sweeping changes to operations and thus the company simply drives forward. The company that leads will already have a sustainable player base, a long-term market leadership position and the trust of the players and regulators. The rest of the industry will be struggling to adapt and, as a result, they will be spending increased management time in the implementation of regulation. This creates opportunity for the leader to drive their acquisition responsibly and deliver an optimal player experience where fun and entertainment leads. And this is done in a compliant and optimised way which is also the responsible way.

Is this straightforward and easy? Definitely not. Is this the easy choice? Definitely not. Is this the way to maximise short term profit? Definitely not. This is, however, how you take a red market and change it to green, and how the creation of long term player and company sustainability will always be linked to getting ahead of regulation without gambling the house away.


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