Tottenham Report: Careful what you wish for

July 19, 2023 11:00 PM
Photo: Shutterstock
  • Andrew Tottenham — Managing Director, Tottenham & Co
July 19, 2023 11:00 PM
  • Andrew Tottenham — Managing Director, Tottenham & Co

France is one of the few countries in Europe yet to legalise online casino games. Online sports betting and poker have been legal since 2010, but the strength of the then-national betting and lottery monopolies (PMU and FDJ) has made it difficult for any non-betting company to gain significant traction. The two monopolies generate about 64% of all gambling revenues in France.  

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Online poker was legalised over 10 years ago and, even in the absence of casino-type games trying to gain sufficient liquidity to make the product attractive, has proved difficult for all but a few. Many operators that entered the market in the aftermath of legalisation have since pulled out. 

In 2022, the total gross gaming revenue from all forms of gambling was approximately €12.9 billion; removing lottery games reduces this figure to €7.4 billion. Online sports betting represents about 16% of non-lottery gambling and online poker about 6%. 

The French land-based casino industry wants to legalise online-casino games, jealously eyeing the size of this market in the UK.  

To push the legalisation debate forward, the industry has made much of the size of the unregulated online-casino market. Estimates vary widely between €0.7 billion, the regulators estimate, and €1 billion the more likely figure put forward by industry figures. To get an idea of the size of the offshore (grey) online- casino market, you only have to search for “online casinos France” and see the number of pages that come back with either direct links to offshore operators or affiliates’ sites. I gave up after 15 pages. 

However, not surprisingly, legal land-based casino operators want to make sure that they obtain the lion’s share of the market. The challenge facing the industry is how to make this come to pass.  

Restricting licences to land-based operators sounds like a reasonable idea on the face of it. But one of the large online-gambling behemoths — Entain, Flutter, or even the larger French online betting companies Winamax or Betclic — could acquire a small French casino in the middle of nowhere for less than it would spend in a month on marketing to French customers. They would then be free to advertise their business across France. 

For a large operator, adding a new jurisdiction or another product to its platform is not a major undertaking; they have the technology, manpower, and the marketing team ready to focus their attention on the new market. Also, head-office costs can be amortised over a greater number of jurisdictions, making them more competitive. 

Land-based casinos entering the market will be at a technical and competitive disadvantage. They may have a database of customers that they can immediately market to, but the operational requirements of a land-based business are significantly different from an online business. 

In the past, only land-based operators that have fully embraced the online proposition, running it as a separate business and putting the online CEO on the main board, for example, have succeeded in developing a significant business.  

Those that run it as part of their retail gambling business rarely succeed. 

I remember being on a panel at a conference in the early days of online gambling. The CEO of a major UK retail betting business, whom I won’t name so as not to embarrass him, was on the panel. I had been explaining the opportunity that the internet represented, especially for betting companies. The product was a natural, given the state of the technology at the time. 

After I finished my presentation, the CEO stood up and said, “We already have an online business and our customers can reach us at any time”. He flashed for mobile phone (this was in the days before smart phones) and announced, “All they have to do is call. We’re open 24/7”!  

Needless to say, it is not surprising that most of the biggest retail betting businesses took some time to achieve success and all have been acquired by companies that started as online-betting businesses, rather than the other way round. 

I digress. French land-based casino companies would be at a competitive disadvantage if large online operators were allowed into the market. A proposition floated by one of the two French casino trade associations was that online casinos should be limited to the same number of simultaneous connections as the total number of the gaming positions available in their casinos. Some thought it a good idea and depending on your expectations, it might be, but it would severely restrict the market and do little to curb the black market. It also found disfavour with the smaller operators that would be limited to 200 or 300 simultaneous players. 

Part of the gaming tax from land-based casinos goes to the local municipality. Mayors in France are politically powerful and heeded by the central government. One of their concerns was that players would be diverted from land-based casinos to online and the municipalities would lose out when all the tax revenue went to the central government. 

A share of online-casino revenue going to the municipalities seemed like a good idea. The difficulty was how to distribute it equitably. Should a municipality like Le Boulou in the heart of the Pyrénées-Orientales with a very small casino get the same share as the municipality of Enghien Les Bains, home to the largest casino in France? 

In order to appease the mayors, a couple of other proposals have surfaced. One is to require potential players to go to their local casino to register. Once registered, the share of the tax due on their revenue will be assigned to the local municipality. Given the complicated formula for determining the amount of gambling tax on land-based revenues, this is not as easy as it sounds. Also, one of the attractions of online gambling is its availability. Requiring a customer to go to the local casino, sometimes more than 30 minutes away, seems like quite an impediment to me. 

Another complication is that some areas have a few casinos only a few kilometres from one another. Imagine you are an operator with six small casinos and in the town next door is one of the big-three operators. When online casinos are legalised, who will advertise more effectively to get people to sign up at their local casino? 

The other proposal is to split the municipalities’ share of the total tax generated according to the proportion of land-based tax that each municipality received in the previous year. This did not find favour with some of the mayors. 

But in trying to make it difficult or impossible for the large online operators to enter the market, the land-based industry does appear to be proposing to shoot itself in the foot. If all of their proposals are adopted, it would mean the size of the prize would hardly be worth the dive. It certainly would not be very profitable. 

A bill before government would, if enacted, allow only “national actors” to operate online casinos and for five years, no other operator would be allowed to enter the market. It is not clear what is meant by “national actors,” nor is it clear what would happen if a “national actor” were acquired by a non-national company. 

Whatever shape the legislation finishes up to be, I can be sure of one thing: Many companies will be disappointed.