How H2 Gambling Capital’s Data and Research Underpins the Sustainable Betting and Gaming Economy. Everywhere…
David Henwood, Director, H2 Gambling Capital
Welcome to EI Industry News – please could you tell us about your background and experience in the industry?
I recently heard it said that those in the gambling industry tend to have followed one of two routes: rising through the ranks, from time on the shop floor, or, from time spent observing and commentating on the sector. I’m definitely in the latter group as my early career was rooted in sport, and I was involved in lobbying Westminster (seat of the UK Government) for the introduction of the UK National Lottery in the early 1990s.
When the Lottery eventually launched in 1994, I worked to ensure the regular flow of lottery funds to both the Olympics and professional sports. The impact of gambling sector cash on sport opened crossover research and consulting opportunities to analyse that interesting space between both industries.
One of my first assignments was a comparative review of the financial contribution the gambling industry makes to grassroots sport across the EU – an assessment that led to me moderate a debate on the interdependence of both industries in the European Parliament. At about this time, Simon Holliday – the other “H”, alongside myself, in H2 - was setting up what would become H2 Gambling Capital. We knew each other and had worked together 10 years previously and from that experience and opportunity, I slowly started to move away from sport and helped grow our vision to establish H2 as the leading authority commentating on the betting and gaming sector.
Today, I lead our H2 Premium service, the company’s “deeper dive” advisory service, supporting many of the sector’s leading brands, market regulators and industry investors on bespoke project work all over the world. The work is broad and can cover detailed analysis across areas such as new market entry, competitor share, regulatory change, impact assessments, channelisation, offshore market analysis, transactions and payment processing, due diligence, tax scenario modelling and, more recently, the impact of responsible gaming and betting integrity upon the business and sector.
How have you found the COVID-19 period, so far, and how is it affecting the business in core regions under H2’s focus?
We’ve actually been busier than ever as we started a real-time impact tracker in the run up to ICE London (when Macau locked down) and it’s been unbelievably busy ever since.
Our proprietary industry model covers over 150 jurisdictions and some 2m cells of data. We basically had to unpick every one and revise our forecasts to track the decline over what was effectively a 12 to 16 week period.
Toplines now are that the sector globally has dropped 24.4% (38.8% in retail, 7.1% in online) effectively taking it back to 2011/12 GGR levels.
The upside, however, is the relative acceleration of online as a percentage of total gambling - up from 13.2% to 18.2% in the year. It’s worth noting with that statistic that it took five years to move the last 5% - from 8% to 13% (2014-19) - and a further ten years before that to shift from 3% to 8% (2004-14). The fast rate of change we’ve seen across COVID is a real indicator of what we’ve been through.
What have been the key trends from the data since the pandemic began?
There are two above all: the move online, and tough regulation.
Understandably, most eyes have been on Asia and retail as the benchmark because it’s where the virus began. Macau grabbed the headlines: the 82% decline in the world’s largest casino destination market with no sign to date of material recovery is understandable, at least, until the Chinese Government reinstates the Individual Visit Scheme (non-group tourist visas).
Singapore, where only loyalty card-holders are permitted to enter the casinos, and South Korea, where Kangwon Land is only able to service less than 10% of the customers it would normally expect, tell a similar story of tough curfew-enforced restrictions. Indeed, Asia’s exposure to land-based gaming (only 11.4% of gross win took place online in 2019, compared to 26.0% in Europe) has made the region particularly vulnerable. But, this theme of regulators getting tougher has not just been confined to Asia.
Complete market closures offline and online in Europe during the pandemic, such as in Latvia, and advertising, bonusing and deposit limit restrictions to varying degrees across the likes of Belgium, Denmark, Italy, UK, Spain and Sweden have all led to a tightening of the regulatory grip on the sector. If anything, the squeeze has been increasing, not decreasing, since COVID began.
In North America however, it’s been a different story. After our peak 2020 downgrade reached in excess of 21% (39% on the Las Vegas Strip), we are now back within 20% overall, as local casino markets, lotteries and US sports betting have all performed better than expected in the past month or so. In the casino markets, in particular, we believe this surge is a result of pent-up demand and an inability to travel further afield for most consumers.
In the case of sports betting globally, the rearranged calendar and the substitution into less well-known events and eSports has again shown how innovative the sector can be – particularly online – and bear in mind we now have a bumper 2021 of postponed major sports events awaiting! The rapid acceleration of online gambling is where we now expect most advancement. Indeed, over the 15 years from 2010 to 2025, H2 is now estimating global online gambling will grow by 300% (9.6% CAGR) compared to only 30% in retail (1.8% CAGR).
How have you handled the impact of the new normal upon the team?
Aside from the web going down, we’ve been pretty fortunate in that we’re already flexible in our day-to-day work practices. The core H2 analyst team is UK-based and all set up remotely, and our H2 associate network – our eyes and ears all over the world – is made up of senior industry executives in local markets, all of whom are self-sufficient in their own right. That said, we have looked at ways that we can be more visible digitally, including the launch of Right To The Source, our first-ever H2 podcast presented by “The Horse” himself, H2 Lead Analyst, Ed Birkin, all in conjunction with H2’s media partners, Clarion Gaming/iGaming Business.
What one thing drove success for your business goals during the crisis, so far?
It comes down to a “real-time” focus. The sector moves so fast in any case, but with COVID the impact has been on a daily, and sometimes hourly, basis. We had to prioritise the development of a pandemic tracker that would give everyone the data they needed as it happened. We think H2 is unique in being the only gambling analyst company that genuinely works in this style and has this ability. In short, when you take out an H2 Subscription you’re effectively plugging into an organic, living databank that continually evolves. With the addition of H2 Premium, our clients can not only access the data but also have the H2 team work on it with them, helping to solve more detailed, operational requirements.
H2 is involved in all gambling marketplaces. What broad similarities and differences do you see from the data between the USA and Europe in particular?
We’re known for saying no two markets are the same. It’s a patchwork reality all over Europe and we’re seeing the same in the US too. I think the big development most people felt would take longest to unfold is the shift to online adoption within the only recently regulated US sports betting market. From each State legalisation, we’ve seen a rate of migration to online that is truly staggering.
Of the 19 legal states so far, only 4 have not allowed online/mobile betting and one of those - New York - has since accepted that was a mistake and should have been permitted.
When PASPA was repealed in 2018, many were suggesting US sportsbooks would be facilitated through land-based casinos, with mobile following very much as a future phase, but it’s actually been straight out the gate in favour of mobile.
Between America and Europe there are three significant differences overall:
-The first is live in-play betting and the increased sophistication of the sports betting offer in Europe. Most operators in Europe can now offer in the region of 250-300 different markets per game for any Champions League soccer fixture. In the US, the points spread is king and still the “bread & butter” of American sportsbooks. It will take time for that culture to change. That said, the US has the backing of the big media companies, and the sports leagues - much more so than Europe did, and which should definitely open paths for innovation.
-The second is iGaming and the slow pace at which it is regulating in the US. The reality we all know at this point is that sports betting and iGaming work best when offered together. Regulated US sports betting is a “piggyback” opportunity for US iGaming – America is a sports-mad country, certainly, but deep down it’s a gaming-led nation. It can’t come quickly enough.
-The third is the illegal market. It’s underplayed in our view. Before the repeal of PASPA by SCOTUS (Supreme Court of the US), in 2017, H2 calculated that $196bn left the US in illegal (black and grey) market sports betting turnover. This is a similar amount to Apple’s global revenues at the time. Very few other markets have started with such a large or entrenched illegal presence. While the logic is law enforcement should now have something to protect, the overall increase in exposure for sports betting, generally, will also grow that illegal market. The solution lies in state regulators, operators and the sports leagues – currently all with slightly different priorities - working together to focus on safe, responsible gambling within the regulated market. At the current rate of conversion, we estimate it will take well over a decade for it to catch up, and that’s too long for the negative impact the black market will have upon state tax revenues and a jurisdiction’s ability to protect players.
What is the most important challenge facing your mission over this year?
I think my last points regarding the black market lead in perfectly here. Basically, it’s a truism that real success for the sector depends on channelling that offshore market back onshore. There’s been some progress - from a 41% regulated “white” market overall in global gambling at the start of the last decade to a 64% one today. H2 is best known as lead analysts and commentators on the sector, but in recent years we’ve started to position our operation towards supporting and informing industry progress and maturation – and in proactively utilising the more than 20 years’ worth of intelligence and market data the company holds. Central to this is our belief that the most mature onshore gambling markets are those that can balance government tax revenues and player protection with operator freedom in order to achieve optimal market equilibrium. Increasingly, we want to work in this space and to offer up data and intelligence to regulators, operators and suppliers from our independent perspective.
What has been the most satisfying achievement for your team and yourself over this year?
Adapting to change. There’s really no other way. I recall hearing the CEO of a leading bank back in March state that 2020 was all about survival - if you had a successful business in 2019, chances are that you will have one in 2021.
But, I’m not so sure. You have to stay current and be customer-led. As analysts, we spend most of our thinking time preoccupied with the future, and we always try to give H2 clients the data, market intelligence and value they need - never has this been as important as during this year.
Over your career, you’ve navigated challenge and reached success. What advice would you offer those just starting out in the industry?
My mum and dad brought me up to be polite and to respect other peoples’ opinions – learnings I am always grateful for since they have stood me in such good stead. I’m also a qualified business coach specialising in emotional intelligence and enhancing perspective. It’s really important to deliver and be dependable, and if you can take the time out to see the bigger picture, you might just identify a number of opportunities opening up to you.
There are many stakeholders in betting & gaming: government, regulator, industry, media, gambling education and harm-prevention bodies, players and customers. What one thing would you highlight as important for improving the conversation among all these stakeholders?
That’s such a great question. One of the main business-coaching models I fall back on is I’m OK, You’re OK (Harris, 1967). Part of it goes back to that parental advice to respect differing viewpoints. Finding common ground is the obvious end game, but you never truly understand a person until you sincerely consider things from their point of view. Until you imagine yourself in their skin and situation and adapt to it. It’s not easy, but by doing that, perhaps your toughest critics can become your closest allies. The UN Secretary-General stated earlier this year that we are all in this together – for me, that isn’t just about COVID-19. Shifting one’s own reality to adapt and learn, in life and business, has to be worth the try, at least.