Babatunde Ibidapo-Obe, Partner, Akin Ibidapo-Obe & Co
In assessing what the “new normal” will look like post COVID-19 in Nigeria, I have decided to look at the landscape from the lens of the challenges and opportunities that will exist in the sector.
Post COVID-19, operators in the Nigerian gaming industry will face an increasingly stringent regulatory environment. This will largely be driven by the need for the government to increase revenue generation in what is already turning out to be one of the most lucrative sectors in Nigeria. The fall in the price of oil and reduced demand for oil globally has already hampered the revenue of the Nigerian government, and the government has charged its agencies in different sectors to look for ways to increase their internally generated revenue.
In Nigeria, like a number of other countries, regulators or public bodies raise revenue in three broad ways – licensing, taxes/dues, and fines. The first two – licensing and taxes/dues are the costs which every operator bears in order to be able to operate in that sector, they are the costs to play. The third however, is the cost operators have to bear when they do not follow the rules – and in some cases these could be very expensive.
We have steadily seen an increase in rhetoric clamouring for more oversight of the industry and more regulatory control. This is to be expected considering the nature of the sector and not only the lucrativeness of the sector but also the risks that come with the sector. Therefore, in the immediate aftermath of the pandemic, defence will have to be the best form of offence for gaming operators. “Defence” in the sense that they are operating with appropriate compliance frameworks in place. It is incumbent upon every operator to think more about defence post COVID-19 so as to avoid running afoul of the rules of the game in the sector in Nigeria. This is more important because there are many regulators whose ambit touch on the operations of the average operator. Some include the Corporate Affairs Commission, the Federal Inland Revenue Service, the Anti-Money Laundering Agencies, the National and State Lottery Commissions etc.
The most important thing each operator should therefore do, is to conduct a comprehensive compliance audit to see which regulators have oversight over their activities, and then create a compliance framework to address the relevant regulations. Operators need to be proactive in this and not wait for a notice of violation before they begin to think about how best to respond.
i. Potential Reduced Taxation - Due to the coronavirus pandemic, a number of operators have already suffered huge revenue declines, especially sports betting operators as sporting events were cancelled around the world for months. In Nigeria, the gaming regulator recognised this and is currently considering a number of proposals to help the industry stay afloat, including things like tax cuts and tax holidays. Such proposals if accepted would give operators in the sector a lot of financial room to manoeuvre and properly restructure their businesses post COVID-19.
ii. Acquisition of companies and talent - The biggest opportunity that exists is for operators who have cash flow and are able to acquire smaller operators who are struggling, or able to hire talented individuals from struggling companies. With respect to the acquisition of companies, Nigeria passed a law last year which overhauled the mergers and acquisitions process, and so it is important that any such deals be in line with the new law and also be in compliance with the procedures as set out by the relevant regulators. For acquisition of talent, Nigeria operates a free market and therefore employees are by and large able to move from one company to another to offer their services, subject to the terms of their employment contracts and clauses such as non-competes etc. In frontier gaming industries like Nigeria, experienced talent in the business most times trumps deeper pockets and therefore operators should explore those sorts of growth opportunities as well.
Operators who are in a good financial shape are therefore able to gain market share in a quicker and potentially cheaper manner than actually having to compete with certain operators in the market.
iii. Online Adoption - It should also be mentioned that gaming in Nigeria has always been offline heavy with a strong reliance on shops as an outlet for placing bets. However as the world is yet to find a cure for the coronavirus, and there will be anticipated reluctance to fully embrace betting shops while the risk of the virus still exists, operators who have strong online capacity will start to leverage on that capacity to not only serve existing client base, but to reach out to new clients who may be looking to gaming as a fun and exciting way to potentially supplement earnings. Therein lies the opportunity for operators with strong online capacity.
iv. Fintech Explosion – The Financial Technology (FinTech) space in Nigeria has seen a lot of investment in the last few years and a few strong players have come onboard to make online payment and settlements more seamless. This trend is set to continue with the creation of a FinTech regulatory sandbox by the Central Bank of Nigeria. Players in the space see this as a game changer by the apex regulator and any successes in that space will definitely have an effect on the gaming sector as it will open up more payment channels for operators to transact with punters.
While challenges exist from a compliance perspective for operators in the gaming sector in Nigeria, this should not be a worry for operators who have implemented the right systems to be able to understand the regulatory landscape and their responsibilities.
There are exciting growth opportunities which exist for operators to expand – not only by company acquisitions, but by acquiring experienced talent and by reaching more customers online.
I hope you have found this information helpful. Please note that this information is provided for general informational purposes only and is not intended to be legal advice. No lawyer-client relationship is formed nor should any such relationship be implied. It is not intended to substitute for the advice of a qualified lawyer. If you require legal advice, please consult with a qualified lawyer.