FOCUS

Kicking sports betting regulation over the finish line

With two major events on the doorstep in the sports betting world, we take the chance in the focus section of this edition of Asia Gaming Briefings to examine some key trends in this growing gaming sphere.

The 2018 FIFA World Cup will kick off in Russia next month and is expected to fuel a surge in gambling worldwide, both through legal and illegal channels. Within Russia itself, bookmakers are expecting monthly volumes to be 80-138 percent higher than usual.

Though as we discuss in this focus series, Russia’s bookmakers fear they will lose out during the tournament, with bureaucratic red tape likely to deter punters. Although some changes to the law are in the works, the industry fears they will not be passed in time to capture the World Cup traffic.

Despite the excitement of the tournament, there’s another date in the calendar that industry participants are waiting for that will have far wider repercussions. The U.S. Supreme Court is scheduled to rule before the end of June in a case that could result in sports betting being legalized for the first time in the U.S. The American Gaming Association estimates that the current illegal market there is worth some $150 billion.

Some leading industry figures have postured that the legalization of sports betting in the U.S. will trigger a domino effect, with Asian countries likely to grind into action with their own regulation. Our first article in this series studies the likely spin off effect on Asia’s massive and booming market to examine whether these hopes are founded.

We also look at the world of horse racing and how Asia’s key racing jurisdictions, Hong Kong, Korea and Japan, are moving to make their product more relevant to the younger generation. The HKJC is one of the most successful clubs in the world and has been introducing new technology and club-style lounges to increase its appeal. However, even here, the club faces challenges from rising illegal online gambling.

And lastly we go to India, where a recent sports betting seminar discussed the possibility of potential legalisation of the giant untapped market. Illegal gambling there has been rife, coupled with highprofile match-fixing scandals among its revered cricket players.

Proponents are arguing that a properly regulated and legal gambling industry would help generate revenue for the government and help to prevent further scandals.

Will U.S. Supreme Court’s sports betting decision affect gambling in Asia?

When in 2016 the U.S. Supreme Court accepted to hear the appeal in the Christie v. National Collegiate Athletic Association case (later renamed Murphy v. National Collegiate Athletic Association) no one expected New Jersey ever to be allowed to offer sports betting to its residents.

For years New Jersey had sought to challenge Nevada’s monopoly on legal sports betting, eventually passing legislation allowing the Garden State’s casinos and racetracks to accept bets on sports events played outside the state and not involving state’s college teams.

It was a decision that caused professional sports leagues NFL, NBA, MLB and NHL as well as college sports association NCAA to sue under Professional Amateur Sports Protection Act (PASPA) to prevent sports betting in the State.

In court hearings, New Jersey admitted that its proposed sports betting regulations violated PASPA, a federal law passed in 1992 permanently outlawing sports betting in all but four states: Nevada, Montana, Delaware and Oregon.

In its defence, New Jersey argued that PASPA was against the Tenth Amendment, preventing the federal government from forcing states to enforce federal laws.

Along the way, New Jersey’s received the support of several other US states, many of which started working on their own set of regulations to allow for legal sports betting in case of a favorable Supreme Court ruling.

A possibility no longer remote after the presentation of the oral arguments to the SCOTUS last December reportedly went in favor of New Jersey and against the sports leagues.

After arguing for years that prohibiting sports betting was essential to preserve the integrity of their games, the sports leagues first embraced fantasy sports and then completed a 180° turn when they started lobbying state legislatures with their preferred forms of sports betting regulations.

Now if the Supreme Court overturns PASPA, as many as 32 US states are expected to legalize sports betting within the next five years. But the ramifications of such a groundbreaking decision would extend well beyond the US borders, with industry observers believing the radical decision is likely to trigger a domino effect with far-reaching consequences.

Will Asia follow suit?

Speaking to Forbes earlier last month, David Leppo of FootballBet.com, stated: “If sports betting in the U.S. is legalized, others will fall in line.” Several other industry commentators have spoken publicly in recent weeks claiming that Asian countries would follow suit, legalizing and regulating sports betting in the coming years.

That, however, is not as practical as indicated by the wishful thinking of industry stakeholders.

In mainland China, where sports lotteries have the monopoly on all sports betting activities, the illegal market is understood to be many times larger than the regulated market.

For a system built around betting on credit through agent sites, the primary challenge will not be new sports betting laws, but the introduction of readily available payment solutions and a significant shift in the cultural approach. Changes necessary to the creation of a new system where players place bets directly with regulated bookmakers.

“Asians are not as worried about regulation as operators are in Europe,” said one executive at a major sportsbook software provider who did not wish to be named. “All you need to operate a sportsbook in Asia is a PAGCOR license,” he added.

State-owned Philippine Amusement and Gaming Corporation (PAGCOR) and the Cagayan Economic Zone Authority license 100s of offshore Asian-facing online bookmakers. PAGCOR also serves and licenses local operators that accept betting on horse racing, jai alai, cock-fighting and basketball, making the Philippines Asia’s primary igaming jurisdiction and fastestgrowing regulated sports betting market.

“Even if you introduce regulations, what is going to stop players from placing their bets with black market operators offering better odds on the few selected sports that bettors care about. (soccer in South East Asia and cricket in India),” another industry participant said.

“Only way to stop that would be a law like the one passed in Singapore. Making bettors liable to jail time if they bet on illegal sites,” he said.

However in Singapore the state-owned tote operator, Singapore Pools, has been operating since the late sixties and all it did in recent years was to extend its offering to include online sports betting.

Nevertheless, the experience of the citystate is very telling: despite having the ability to place bets at one of many betting outlets or via phone or online, Singaporeans continue to turn en masse to the black market for their sports bets. Not a week goes by without a report of arrests for illegal sports betting in the city-state

Macau, the other candidate to lead an eventual sports betting revolution in Asia, is in a similar situation, with a monopoly in the hands of Macau SLOT.

Asians are not as worried about regulation as operators are in Europe,

The Sociedade de Lotarias e Apostas Mutuas de Macau currently accepts bets on football and basketball at a handful of locations as well as via phone and through a somewhat old website from players that are within the city limits.

Having overtakenLas Vegas as the casino capital of the world, Macau has shown little interest in sports betting. Only when it has experienced a slowdown in casino revenue growth, there has been speculation around the opening up of the sports betting market as a way to raise additional revenues.

Many local industry operators have for years tipped the addition of Vegas-style sportsbook lounges at land- based casinos in Macau as a way to complement casino gambling and to target new demographics.

Very similarly the Hong Kong Jockey Club has a monopoly on horse racing and football betting in the Special Administrative Region.

Despite the availability of a regulated betting offering, sports bettors in Hong Kong gravitate towards illegal and offshore bookmakers in high numbers, proving, that the opportunity to bet on credit on a more substantial number of events and at more competitive odds is a powerful motivator.

Elsewhere, Islamic law governs Indonesia and Malaysia, strictly prohibiting most types of gambling, although the local governments are not necessarily putting many efforts into stopping residents from accessing offshore betting sites.

In a similar situation are bettors in Buddhist Thailand, where all forms of sports betting are prohibited, except for betting on horse racing.

While there is no doubt that a repeal of PASPA will change the US sports betting market forever, industry observers say that it will have a limited effect on sports betting in Asia.

“For 10 years, Pierluigi ran operations at BookmakersReview.com, the site he founded in 2003 and where he regularly wrote about the igaming industry. More recently, he managed gambling domains marketplace GamblingInvest. com and served as Editor at BookmakerList.com.

Red tape kicks World Cup prospects

Russian bookmakers are hoping for a bonanza from the FIFA World Cup, which will be held in the country less than two months from now, but many fear regulatory hurdles and slow-moving legislation will mean that legal operators will lose out.

According to Rosturism, the Russian tourism agency, about 1.5 million tourists will flood into the country during the tournament, with many of them likely to seek a flutter. However the current laws do not facilitate bets and may even prove a deterrent. This was one of the concerns voiced at the Betting Trends Forum in Moscow in early April.

Amid the ongoing crackdown on illegal online bookmakers, with hundreds if not thousands of websites being blocked on a weekly basis, potential punters have little choice to either go to a physical betting shop or to play with legal online bookmakers.

However, to do this punters need to go through a complex identification process that is likely to be particularly daunting to foreign players.

As a result it may mean that their money goes to well recognized foreign brands, which mostly do not have any official presence in Russia.

Gambling expert Araik Tonyan, who heads the Bookmakers Rating analytical website, estimated the annual turnover of the Russian bookmaking market at 700 billion roubles ($11.4 billion) and the number of players at 2.5 million. According to special research presented by the website in December 2017, the volume of bets during the World Cup will be 80-115 percent more than the average volume of bets on football a month, but it did not give precise figures.

Speaking at the conference, he pointed out at several major problems facing Russia’s bookmakers, starting with the size of the illegal market, which he said makes up about 65 percent of the total volume of bets. He also pointed to the complex identification procedure for players and a lack of a clear state strategy for regulating the industry.

Under the current system to make a bet, double registration is required, both with the actual bookmaker and with an e-bet processing centre, known as a TSUPIS. Currently, there are two TSUPISes run by two rival bookmaker self-regulating organizations.

Tonyan welcomed a law banning money transfers to illegal bookmakers that will come into force just ahead of the World Cup, but also called for foreigners to be exempt from the requirement for offline identification.

According to gambling lawyer Maria Lepeshchikova, the government has shown little enthusiasm for promoting regulation to benefit the industry. “It’s is obvious that in the current political background the state doesn’t want the bookmaking business to develop” and “no liberalization could be expected,” she said.

She pointed out at several inconsistencies in the law, which are working against Russian bookmakers.

For example, under Russia’s anti-money laundering law a player only needs to be identified if they bet more than than RUB15,000 ($243). However, in reality, that person needs to physically present a passport in a bookmaker’s shop before being able to make a bet.

This makes it impossible for Russian bookmakers to operate online only, because they need to set up centres where client identification can take place.

Participants at the Betting Trends Forum said lifting of the double identification process and replacing it with single identification with a TSUPIS only was key obstacle to growth. There is a bill tabled in the Russian parliament that aims to address the issue, but it will only be considered in June, so is unlikely to be in place before the World Cup kicks off on June 14th.

But there are also some initiatives which may help Russian bookmakers if they are properly implemented.

For example, a law which forbids banks and paying agents to process and transfer money to illegal bookmakers - both Russian and foreign - is expected to come into force just before the World Cup in late May.

Lepeshchikova pointed out that this law may be bypassed by using a third-party websites, however this would increase the price of a transaction.

Russia’s recent decision to double taxes on bookmakers is also having an impact on bookmakers in the country, whose numbers had been expected to rise ahead of the soccer tournament. In January there was a 1.5 percent year-on-year increase to almost 7,000 betting shops, however that slid to 6,349 in March as regions around the country began actively enforcing the tax increases.

Currently, there are five active gambling zones in Russia: Primorye situated 50 kilometres from Vladivostok, Azov-City in Krasnodar Territory, Yantarnaya (Amber) in Kaliningrad Region, Siberian Coin in Altai Region and a zone in Sochi. The one in Crimea currently exists only on paper, with local authorities constantly delaying its opening and changing its potential location.

Out of all Russian gambling zones, the ones near Sochi, Rostov-on-Don and Kaliningrad – all situated in western Russia – are likely to benefit from the tournament as they are situated relatively close to the stadiums where games will be held. The zones in the east – Primorye and Siberian Coin – will likely be below the radar of punters as no games will be held there throughout the World Cup.

Before the start of the World Cup, it was reported that the Russian oldest gambling zone Azov-City in Krasnodar Region proved to be less popular than its younger competitor, Krasnaya Polyana in Sochi, at the ratio 50,589 vs 39,722 visitors.

Yantarnaya is just 30 minutes away from Kaliningrad, where four games will be played. It is said to have attracted 15,000 punters monthly as of the end of 2017.

The zone in Sochi has demonstrated steady growth despite initial pessimistic forecasts, having received 340,000 clients in 2017, and deputy manager of its only casino Dmitry Anfinogenov expecting this figure to rise by 25 percent in the coming years.

None of the zones observed appears to be offering special events dedicated to the World Cup.

Racing to win the millennials

Attracting younger demographics has long been the challenge for horse racing and Asian racing clubs are leading the way when it comes to ensuring they corner the hard-to-catch, but much sought after millennial market.

Baby Boomers, those born from 1946 to the mid-1960s, grew up in an era when horse racing was at the forefront of public consciousness and on the back page – or even front page – of newspapers. It was the sport of kings and jockeys, trainers and horses were household names and crowds crammed into racetracks to watch their heroes and, of course, bet.

Then began a sharp decline in popularity for the sport – at least in the west – with different gambling and entertainment options attracting the attention of Generation X (children born in the late sixties and through to the seventies).

Asian racing, with its gambling monopolies and structured administration, has been spared much of the damage done in the west but the challenges are still mounting as the internet facilitates the growth of sports betting and other online gaming options.

There is a sense that the generation born between 1982 and 2004, known as millennials – or generation Y – would rather bet on football or even eSports.

At least one expert believes that almost all of horse racing’s marketing resources should be focused on attracting millennials, a demographic that by 2025 will represent three-quarters of the global workforce.

“Racing missed generation X, so I think we have to just forget about them, that was an opportunity lost, and make sure we don’t miss the millennials,” said Singaporebased South African Gareth Pepper, a global racing expert and director of Pepper Equine Management.

Part of Pepper’s mission is to bring millennials to the racetrack and have them enjoy the whole experience – and he believes it is more than just beer and music that is required.

“Those entertainment options are fine to get them to the track, but what about getting them to come back? Unless people feel like they have a connection with the sport and some understanding of what is happening then they aren’t going to want to participate, either through placing a bet or horse ownership,” he said.

Of course the “beer and music” model has worked successfully in Hong Kong, where the Happy Wednesday promotion has brought punters back to the track in droves.

It helps that the iconic Happy Valley Racecourse is situated minutes from downtown Causeway Bay, one of the most heavily populated commercial districts in the world.

Happy Valley is now heaving with fans, live bands, cheap beer and a festival atmosphere. It has ensured that the “Beer Garden” is now packed every week, but it wasn’t always that way.

Getting the kids to the track is one thing but the Hong Kong Jockey Club has attempted to parlay the presence of youthful faces into betting turnover in a range of ways.

Themed nights have included “digital night” where punters were able to experience racing through the eyes of a jockey through a simulator that included a mechanical horse and virtual reality headset.

The Jockey Club also employs “racing experts” – many of them attractive young women – who can explain how to place bets and just as importantly, explain what is happening on the track.

“If people can’t understand the sport, or develop a passion for it it, then why would they want to keep betting? Without that understanding, they are just as likely to play a casino game or bet on sport, something they have an emotional attachment to,” Pepper said.

As such, the Jockey Club has strived to improve the racetrack experience at both Happy Valley and Sha Tin, with its “customer segmentation” marketing strategies creating restaurants and whole sections aimed at younger fans.

This season the Jockey Club launched “Jump”, a cafe featuring upmarket decor, plus touch-screens and tablets that enable fast access to racing information on betting accounts.

Similarly, Sha Tin’s “Digital Zone” is a space designed for younger, tech-savvy fans to enjoy the sport in spacepoor Hong Kong, a town where cramped apartment living means watching at home might not be an option.

The Korean Racing Authority is restricted in how it can promote the sport, among other serious obstacles, in a country where anti-gambling lobbyists hold considerable sway.

At Seoul Racecourse the KRA has not only organized regular appearances from leading K-Pop groups and thrown the gates open for free at times, but provides a space for young couples to enjoy the races away from the smoke-filled public section.

Seoul’s salubrious NOL Lounge, with padded sofas, desserts bars and spacious surrounds feels more like an upmarket shopping mall than a racetrack.

Customers are kept connected with super-fast wi-fi and tablets that are available to rent for free and provide information on the sport.

In fact the only way to bet in the NOL Lounge is through an app, there are no cash windows, adding to the modern “non traditional racetrack” atmosphere.

For those just starting out, the NOL Lounge also features 200 seat auditorium that holds “how to bet” lectures before each race, with each seat fitted with a tablet and betting apps.

In Japan, the Japan Racing Association has not only targeted younger customers, but made a special effort to attract female fans.

The JRA’s UMAJO promotion which features female-only sections of the racetrack brought more than one million girls to the track in 2016.

The JRA is also big on educating inexperienced racegoers through the Umabi promotion and social media platforms, which provide detailed explanations of how racing works, but without an overt emphasis on gambling.

Asian racing expert Adam Lux from Asia Racing Hub says the JRA provides a familycentric atmosphere that is unrivaled in the region.

“The JRA caters for each member of the family,” Lux said. “Dads can place their bets, moms can participate in UMAJO events while the kids are kept entertained at on-course amusement parks.”

Of Asia’s “big four” racing jurisdictions, Singapore Turf Club may face the biggest challenges when it comes to promoting the sport millennials – or any age group for that matter.

Severe restrictions on signage and advertising mean getting the message out to the general public to raise the profile of the sport is almost impossible.

That’s where Pepper’s group have stepped in, working on a platform that aims to bring the sport to the masses.

“We can talk about and promote the sport in a way the club can’t,” Pepper said. “We are also trying to create pathways to ownership for young people and when we bring them to the track it’s about educating and helping people feel involved.”

Regulatory uncertainty continues to cloud prospects

In late February, gaming industry stakeholders converged in Goa at one of India’s first gaming specific conferences: Sports Betting & Gaming India (SBGI). The event, led by Eventus International at the Park Hyatt Goa Resort and Spa, was well attended considering the gaming market is largely in its infancy.

Over 150 attendees discussed several Indiaspecific topics, including the market’s value and potential from an online, lottery, sports betting, and land-based perspective, as well as the regulatory and legislative hurdles involved to expand the market. These types of events have become a necessary first step for stakeholders to understand an emerging market’s value and provide guidelines on how to participate.

As Japan and Brazil have taken the mainstage and much of the attention at other industry events, this India specific event allowed participants to educate themselves about the existing and potential gaming opportunity in the market. The conference also provided attendees with one of the first opportunities to hear from various experts focused on recent market developments in India. While the conference’s attendance was dwarfed by other recent industry events in Macau, London, and Las Vegas, the intimate setting allowed for meaningful discussion and a summary of the uncertain future in one of the world’s largest remaining untapped gaming markets.

Online, skill-based cash games, including rummy and poker, are currently allowed in several states in India. The legality of these games is primarily due to ambiguous regulatory environments. However, certain states have taken steps to define regulations. In Telangana, no online, skill based games are allowed. In Maharashtra, the Bombay High Court recently declared that poker is not a game of skill, effectively outlawing online poker in the state.

In addition to that ruling, Maharashtra’s Minister of State for Home, Dr. Ranjit Patil, recently stated that the government is planning to introduce new legislation to further address online gaming in the state. In other states, like West Bengal and Karnataka, poker has been included as a game of skill and operators are vying for the wagers of patrons in those markets today.

Sports betting remains illegal in every state, but several stakeholders are working to change that. In an attempt to capitalize on the market, a few state agencies have been evaluating legalization since 2008. Nationally, the Law Commission of India has spent the last year and a half reviewing the potential impact of nationwide legalization of betting and gaming in an effort to provide a recommendation to the government. The Law Commission’s initial thoughts on the subject were positive, but recent findings have indicated that the Law Commission is mainly considering legalization in a highly restricted and controlled environment.

As a recommendation has still not been made, the Law Commission recently received a Right to Information (RTI) query. In response, the Law Commission stated that it has no timeline for the issuance of a recommendation, but some experts expect a response could come this June or July. Even so, stakeholders are wary that a recommendation, let alone a positive one, will actually occur. If a positive recommendation is made, pundits fear that it will come with too many restrictions, limiting the market’s potential.

Regardless, a positive recommendation would still need to be approved and accepted by the government.

In Goa, the government has committed to moving the market’s offshore casinos on to land. This move onshore would allow for the first large scale, land-based casinos in India and could provide operators with an opportunity to develop a more attractive product with non-gaming amenities that appeal to the casual gamer and non-gaming patrons. The policy is still awaiting the approval of the cabinet and legislative assembly.

With political uncertainty in the state, it is still unknown as to if and when the casinos will be allowed to relocate onshore. Meanwhile, all of Goa’s casinos will soon face a hike in licensing fees, with costs expected to jump 2.5 to 4.5 times in comparison to current levels.

In Daman, Delta Corp. Ltd. is still working to garner a gaming license for the 176-room resort it recently opened. It is still unclear whether Delta Corp. Ltd. will eventually receive it. Several other states are currently contemplating the land-based gaming opportunity and are taking preliminary steps to discuss the 1867 Public Gaming Act and alternatives, but have not made significant progress.

While the market in India still seems far from presenting large opportunities to major industry stakeholders, existing market movements in India, as well as in other markets like Japan, have created some momentum in the marketplace. Stakeholders have taken hold of that momentum and have begun to implement strategies to mobilize public opinion. As market developments continue to occur, stakeholder interest will grow due to the immense market opportunity. However, with a cloud of uncertainty covering the market, stakeholders will need to continue to rally at events like SBGI before India finds a place on the gaming industry’s mainstage.

*Kit Szybala is a Partner and the Executive Director of Operations at Global Market Advisors. He can be reached at kszybala@ globalmarketadvisors.com.