KPMG eGaming Summit Isle of Man

November 2015

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A Word from the SponsorWe at Continent 8 are proud to call the Isle of Man our home.With an unrivalled telecommunications network, sympatheticpublic/private sector bond, and an expanding community of topindustry professionals, the Isle of Man’s place as a premierelocation in the world of eGaming grows ever stronger. It isuniquely placed as a market leader in player fund protection andin being home to multiple Tier 3+ data centres.

Our world-class data centre is centrally situated in the Island, just 500 metres from the power station, and constitutes thefootprint for a wealth of resources now servicing London, Dublin, Paris, Gibraltar, Guernsey, Malta, Lisbon, Singapore, NewJersey and Montreal. Here at Continent 8 we feel proud to have become the most recognised brand for consummatesecurity and reliable services to the eGaming industry.

We are committed to enhancing the Island’s position as a pivotal eGaming hub on the world stage. This year’s KPMG Isle ofMan summit was characterised by industry cooperation, a desire to adopt new technologies, and a resolve to embrace thechallenges ahead in 2016. With that in mind, we’re delighted to be the sponsors for this year’s report, and look forward toseeing everyone again at next year’s summit.

Richard EbbutContinent 8 Technologies

Kindly sponsored by

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IntroductionThe introduction of sector specificlegislation back in 2001 cementedthe Isle of Man’s position as aleading eGaming jurisdiction. Sincethen, it has become home to some ofthe industry’s most celebratedbrands, including PokerStars andMicrogaming. Weathering thechanges to its white list status – afterthe UK’s move to a point ofconsumption framework – the Islandhas continued to build its reputationby adhering to a series of coreprinciples which put public & privatesector cooperation, consumerprotection and responsibleinnovation at its heart. Where better,then, for KPMG to hold the 11th in itscelebrated eGaming summit series?

On 10th November 2015, KPMGwelcomed a host of industry expertsand 200+ delegates to the Island forthe 6th Isle of Man event of its KPMGeGaming Summit series. Returningthis year were the acclaimedInternational Masters of GamingLaw, to present three stimulatingMasterclasses, sponsored by SMPPartners. A new and exciting additionfor this summit was the live pollingfeature, where delegates voted on arange of topics using their mobilephones and the Bizzabo app.

Following a breakfast kindly providedby sponsors Manx Telecom,delegates listened to the welcomeaddress delivered by the Minister forthe Department of EconomicDevelopment, Laurence Skelly, MHK.Minister Skelly provided a briefoverview of the Isle of Man’s positionas a world leading jurisdiction in theeGaming sector. Comprising alreadyone fifth of the Island’s economy,eGaming continues to grow year onyear owing to a trio of USPs:effective regulation, a comprehensivesuite of ancillary services, and agovernment policy which promotesdiversification and innovation.

There followed a summit staple, thelocal sector update, presented jointlyby Mark Rutherford of the GamblingSupervision Commission and MarkRobson, Head of eGaming at IOMGovernment. Whilst acknowledgingsome of the difficulties of the past 12months, the DED & GSC outlinedtheir current positive situation andongoing plans and initiatives for the

next year, including news of theproposed ICT university set to open.Delegates then made a choice: tostay in the main room for a panelsession, or to move into the cinemafor the IMGL Masterclass.

In the main room, panellists HelenWalton, Andrew Tottenham andStephen Trimble focussed ontechnology developments in thesector, including the emergingsignificance of mobile first andincreased data storage needs, andwere moderated by Archie Watt,KPMG Isle of Man. The first of theIMGL Masterclasses studied theInternational Legal Viewpoint, withmoderator Dr. Wulf Hambach andpanellists Justin Franssen, Dr. JoergHofmann and Stephen Ketteleytackling issues of cross-borderlegislation.

Delegates then reconvened to enjoya fascinating presentation byeminent industry researcher, Dr.Jonathan Parke of Sophro, on‘Psychosocial Need Satisfaction inGambling’, which examined the linksbetween gambling, leisure andpleasure. Susan Breen of Mishcon deReya chaired the second Masterclasson Financing the ConsolidationBoom. With her panellists LindaMain, Dan Macadam, ChrisTreneman and David Shapton, Ms.Breen analysed the wave of recentM&A activity in eGaming and itscontributing drivers.

A delicious lunch, sponsored byPokerStars, was followed by acaptivating talk on The Multi-Jurisdictional Licensing Process,expertly presented by JenniferHoughton of Annexio. Moderatingthe day’s second panel session,Micky Swindale of KPMG Isle of Mannavigated the tricky waters ofcorporate social responsibilitytogether with industry leaders SueHammett, Janine Woodford Dale, Dr.Jonathan Parke, Mark Reynolds andDavid Schollenberger. Exploring theimpact of international direct &indirect taxes in various eGamingterritories was the topic for the thirdIMGL Masterclass, moderated bySandra Skuszka of KPMG Isle of Man,and featuring Andrew Cotton,Quirino Mancini, Dr. Joerg Hofmannand Tom Lobb on its panel. Our

penultimate presentation of the dayintroduced Bernard Marantelli ofColossus Bets, who delivered ahugely entertaining talk onInnovation and Incubation, and paidparticular attention to the sectortrends therein.

Lastly, providing an upbeat view ofthe year ahead, the panel session‘Looking to 2016’ was moderated byRussell Kelly of KPMG Isle of Man,and included Bill Mummery, StephenKetteley, James Agnew and PaulNovellie on its panel. With manychallenges ahead, includingincreased regulation, greaterconsolidation, a global skills shortageand a fiercer competitive landscape,the panel sought to highlight theopportunities for existing operators,with emerging markets (in regulatedand non-regulated territories), newtechnologies and products, and freshsources of funding. As Russell Kellyremarked, “the industry is stillthriving, in some ways it is still veryyoung… the Isle of Man is extremelywell placed to offer a home forprospective eGaming companies…everyone stands to benefit from theaccrual of expertise that is coming in,combined with initiatives, and thefinancial and regulatory frameworkthat is already in place.”

This report seeks to augment andbuild upon the day’s lively debates,and on the imperative for allstakeholders to work together andshare information at a critical phasein the industry’s maturation. KPMGwould like to take this opportunity toonce again thank the Summit’ssponsors, speakers and attendeeswho together demonstrated that theIsland’s strength lies in its spirit ofopenness and cooperation. We wouldalso like to offer special thanks torepresentatives of the InternationalMasters of Gaming Law forcontributing to a truly internationaland seminal instalment in theeGaming Summit series. We lookforward to seeing you all next year.

KPMG employs a number of eGamingindustry specialists in the Isle of Manand provides expert guidance at everystep, and in every aspect of thisconstantly evolving industry.

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“Moghrey mie, vraane as gheineyseyrey! Failt roish Ellan Vannin.

Good morning ladies and gentlemen,and a special welcome to thosevisiting the Isle of Man. May I first ofall thank Micky Swindale and theKPMG team for this sixth summit,”said Minister Skelly as he opened theday’s presentations.

“This event has really grown inprestige, and it’s very important thatthis industry continues to grow. TheIsle of Man is entering its 30th year,that’s three decades of continuouseconomic growth. We’re extremelyproud of this, but I will tell you it hasnot happened by chance, because theIsle of Man government has a verystrong policy of promotingdiversification and innovation. Veryclearly, eGaming and eBusiness is amajor part of that success.”

“This next year, this industry willcomprise a fifth of our economy, and itcontinues to grow at a very rapid rate.That has happened because we havewell respected and effectiveregulation. Our Gambling SupervisionCommission has adopted a verypragmatic approach. Importantly theyare protecting the consumer,

something we all must take on board.But it is effective because it allowsbusinesses to flourish.”

Minister Skelly continued by citing thedifficulties for the market over the pastyear, most notably the changes in UKlegislation, and its impact. “This lastyear has been a challenging year, adifficult year. The challenges willcontinue, especially as we mature asan industry. But what we do here onthe Isle of Man is that we work veryclosely as a government, and as anindustry, to overcome thosechallenges, and present newopportunities, and we are keen tocontinue to do that. Of course we’veendured a situation, which resulted infewer start-ups and fewer licenseshere. What we’re trying to do isconcentrate on quality, over quantity.But what we are focussing on, when Isay quality, is looking for business thathas real presence here on the Isle ofMan. From a government perspective,that results in real jobs, real taxes anda real benefit.”

“That’s what we will be focussing onin the future. 2016 promises to be anexciting year, I think, a new dynamicyear, there are new hot topics:eSports, Fantasy Sports, codes of

conduct are being developed, and newlicensing. So we will be working withyou, the industry, to see how the Isleof Man can continue to flourish, andcan continue to grow in this area.”

“What are we doing as a government?There are two areas in particular we’rereally focussed in on. One of them isthe skills shortage, a global problemwe recognise. We have now enteredinto a partnership with a private entityfor an ICT educational facility here onthe Isle of Man. And we are workingtowards the first intake to beSeptember of next year. That willprovide an accredited, academicqualification in this industry, but, veryimportantly, it will be an earn-while-

Welcome address

The Hon Laurence David Skelly MHK is Minister for Economic Development in the Isle of Man Government and is aMember of the House of Keys (MHK) for the constituency of Rushen. Prior to being elected to the Island’sParliament, Tynwald, in 2011, Mr. Skelly was Director of Manx Inspirations, a leading local wholesaler, andDestination Isle of Man, an event management company. Previous to that he lived in California for 15 years, wherehe owned and operated a chain of travel agencies and also represented Isle of Man tourism. Maintaining his Manxroots, he joined the North American Manx Association and served as President between 2006 and 2008.

The Hon Laurence David Skelly, MHKMinister for Economic Development Isle of Man Government

“I think, a newdynamic year, thereare new hot topics:eSports, FantasySports, codes ofconduct are beingdeveloped, and newlicensing.”

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you-learn programme, and createemployment opportunities, not just forour young people, and for peoplewishing to make changes in career, butfor people who want to come here, beeducated, and be employed on the Isleof Man.”

“The other point is, funding. Werecognise how difficult this can be,especially for start-ups. Just this lastmonth, the government has supporteda new enterprise developmentscheme, and put 50 million pounds,money in our mouths, and yourmouths, and to promote jobs and real

growth opportunities for the Isle ofMan. But when we talk about smallbusiness start-ups, we areencouraging our young people to getinvolved with innovation, to becomeentrepreneurs.”

Minister Skelly then outlined thedetails of this exciting newgovernment initiative for young peoplewishing to create start-ups:

“We now give them the opportunity tohave R&D funding, up to £25,000, and£5,000 living expenses for a 16 year-old. That’s what we want to promote:entrepreneurship, at the youngest

possible age, because those will bethe business leaders of the future.”

“So sadly both myself and Alf Cannon,who is responsible for eBusinesses,have to leave as we have a House ofKeys sitting this morning. We areleaving you in the very safe hands ofour team: Elissa, Mark and our newlyappointed eBusiness Director,Jonathan Mills. Jonathan has over 30years of eGaming experience and weare expecting great things. With that Iwish you a very successful summit.

Gura mie eu “

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“Well, hopefully the ‘two Marks’won’t turn into the Isle of Man’sequivalent of the two Ronnies,” Sobegan Mark Rutherford as heopened his IOM sector update,presented jointly with Mark Robson.A staple of the KPMG eGamingsummit series, this region specificupdate provides an overview of theprevious 12 months’ activity from aregulatory and a developmentalperspective. It also serves to unveilthe key issues which will concernboth the DED at the IOMgovernment and the IOM GamblingSupervision Commission over thecoming year. The ‘two Marks’ wereon a mission to deliver the newsregarding what they have beendoing, what they are currentlydoing, and what they are going todo in the future.

Referring to a visible slide, MarkRobson provided a snapshot ofrecent activity in the island’seGaming sector. Owing to a simplegraph, delegates could see the steepincrease in actual GDP comparedwith what was forecast. In thefinancial year 2013-2014 growthtopped £168m, which equates to anincrease of 32% compared with the

previous 12 months. This meanseGaming now accounts for 16.7% ofthe Manx economy (an increase of3.2%), making it the single largestbusiness sector, and outstrippingindividual areas of financial services.With such dynamic growth, the GSCand the DED have been kept busyover the past year; as Mr. Robsonsaid, “These results, I’m sure you’llagree, are pretty impressive! Andthey show no sign of abating.”

Mr Robson proceeded to informdelegates of the sector’s keyperformance indicators in the 12-month period October 2014 –September 2015. Of the KPI relatingto jobs, the growth figure cited of+2.6% was down from +10.1% theprevious year. However, Mr. Robsonhad just received news, on themorning of the summit, that thefigure is actually 9.9% when takinginto account the 180+ jobs that arecurrently advertised in the IOMeBusiness. This encompassesopportunities in eGaming too. Mr.Robson acknowledged, “There is anissue with regard to jobs and it’s notjust on the Isle of Man. We arefacing a global skills shortage. We’recreating partnerships with the

private and public sector to ensurethat for any roles that areadvertised, which the companies arehaving difficulty fulfilling, we’ll dowhat we can to assist them to findthe right people to fulfil thosepositions. In addition, planning is inplace for our very own ICTuniversity here in IOM: we have theinfrastructure and the financing.When complete, the college and itssubsequent graduates will help toaddress those skills shortages in theindustry.”

Moving on to license fees adecrease of -8.2% was reported. In2014 the sector saw de-licensing inthe UK which meant that anylicensees in the IOM, which weretargeting the UK now needed a UKlicence. Coming against a growthfigure of +6.3% for the previous 12months the dip in license fees wasunfortunate, “But we’re not toofazed by that. The decrease wasexpected. If the UK was the[licensees’] focus market, then that’swhere they needed to be in terms oflicensing. That decrease alsoemphasises what Minister Skellywas saying in regard to quality, notquantity,” assured Mr. Robson.

Mark RutherfordDeputy Chief Executive, Policy and Legislation, Isle of Man Gambling Supervision Commission

Mark Robson Head of eGaming, Department of Economic Development, Isle of Man Government

Session 1. Sector Update – IOM Specific

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Progressing to gaming duty, the figureof +10.8% demonstrated a significantincrease. Of this increase, Mr. Robsonenthused, “I think that’s the mosttelling barometer of the strength of thesector at the moment. Yes, we saw adecrease in license fees. Weimplemented double duty relief to tryand help out the operators andlicensees. We also added thisconcession for other countriesthroughout the world. So they’restaying here in the IOM, but in spite ofimplementing double duty relief, and inspite of a reduction in license fees,gaming duty increased. And as I say, Ithink that is testimony to the strengthof the sector we have.”

The area which saw continued changein the last year was licensing. In theIsle of Man a total of 14 licenses leftthe jurisdiction, while 9 newapplications came in. The reasons forleaving are varied: Mr. Robson alludedto the White List in the UK as beingone, whilst Mr. Rutherford suggestedthat some go to other jurisdictions,others react to legislative change andin some cases operators simply ceasetrading. When the White List reformwas announced, the DED did animpact assessment. Subsequently,after the White List was actually

reformed, the DED commissioned anew strategy review to find out wherethey should go next. Mr. Rutherfordagain, “If we’re looking at the hottopics that we’re exercising at theregulators it’s the tail end of SocialGaming, and a call for regulation in thatarea. I think it’s fair to say that it’s yetto be sure for anyone at all. In terms ofbinaries, the UK was announcing itsposition as it was going intocontinuation licensing, it looks like it’sgoing to be a financial product in theUK at some stage. As I said, it’s firmlya gambling product in the Isle of Man.So if you’re a binary operator, you’llrequire a license from us.”

Mr. Rutherford touched upon the topicof cryptocurrencies – a hot topic fromthe previous year – simply to say thatthe policies of the GSC and DEDremain unchanged, and that there wasscope for the use of virtual currencywithin the gambling sector, subject todiscussions with the GSC on varioustechnical elements.

In terms of legislation there weresome very minor changes, whichmostly focussed on the terrestrialsector in the island. This includedchange to accommodate gamingmachines as, traditionally, these

machines are moved on and off vans toreplace and provide fresh products.The new law allows them to beserviced from remote servers, and torefresh content, without requiringthem to be physically transportedanywhere. The law was also modifiedto increase the jackpot in saidmachines, and this is primarily to allowoperators in the Isle of Man to acquiremachinery from the UK without havingto alter it.

In addition, an attempt was made toincrease jackpots for fixed odds bettingterminals in licensed betting offices.This move was withdrawn fromTynwald to allow for more informationto be supplied in respect of thechange.

Mr. Rutherford moved on to a verynewsworthy issue: “In terms ofinitiatives, the GSC was heavilyinvolved in something which is quitetopical at the moment: the integrity ofsports betting. We’ve signed a numberof memoranda of agreements withorganisations such as EWS who lookafter FIFA’s integrity, and with theInternational Olympic Committee andtheir integrity programme which was avery successful body of work for us.

I’m glad to report there is a steadystream of enquiries coming into theGSC all the time regarding matches,potential match fixing etc. etc. So weare starting to play an increasinglyimportant part in the internationalstage with integrity issues.”

Mr. Rutherford spoke of his heavyschedule comprising the Isle of Man’sNational Risk Assessment for MoneyLaundering / Terrorist Financing, whichhas kept him extremely busy this year,but was delighted to report that theproject was nearing completion.Another large exercise for the GSC andDED was looking at the issue of playerfund protection. Was it possible to findmore cost effective ways to ensurethat operators can continue to protectplayer funds? Many consultations withlawyers had clarified the position forthe GSC in terms of fund protectionmechanisms and, together with theDED, they were now in a position torecommence work on a number ofinitiatives that arose during this pastyear.

For the final part of his 12-monthupdate, Mr. Rutherford spoke aboutinter-regulatory cooperation, “We havememoranda of understanding andinformation sharing agreements withjurisdictions like Denmark, Estonia, theUK etc., and we were delighted to addJersey and Alderney to that list lastyear. We also received visits from anumber of regulators from around theworld, seeking both the benefit of ourexperience and to share and cooperateon areas of mutual interest. We had acall for assistance from a counterpartin the Indian Ocean, who then came tosee us for a few weeks. They’d beengiven the task of setting up regulationwithin a year flat! So we were able toassist them to understand the basicbuilding blocks of how to make aregulatory regime, from law andregulations, through to supervision andlicensing.”

Mr. Robson then took up the helmwith an update on activity within DED.One important issue for thedepartment last year was to protectcustomer base. As the UK was in theprocess of implementing its ownlicensing regime, the DED in the IOMworked on double duty relief, and wereable to develop and implement asleeker structure. In conjunction withthe UK Gambling Commission, and theIOM GSC, the DED were able tosecure an agreement to state that any

Isle of Man licensees wouldn’t needphysical representation in the UK. Thisis extremely beneficial, and helps IOMlicensees in terms of cost ofownership, and in terms of doingbusiness in the UK. It also displayedthe high level of trust and solid workingrelationship between the DED and theGSC.

Disclosing more upbeat news, Mr.Robson continued, “We also workedwith a number of private sectorcompanies as well as internalgovernment departments with regardsto the building of new corporate officesfor numerous companies as well asdata centres. So we were doing whatwe could, essentially, to ensure ourexisting base is still here. As to agrowing base, we have a number ofinitiatives going through. We still have

these at the moment: one of them ofparticular interest to new businesses isthe initiative that we offer grants of upto 40% for businesses wishing tolocate here. So that certainly is veryattractive for companies wanting tomove here and we are contingent withthat. Last year we also started workingon work permit regulations. Imentioned earlier with regard to skillsshortages, we needed to do whateverwe could to expedite the importationof skills where required. We are alsoworking with software developmenthouses. Now that’s not traditionally alicensed-type business, but there anumber of companies out in Asia, forexample, that want to move closer totheir client base in Europe, so we wereworking very closely with a number of

software development houses in thatarea. As I say it’s unlicensed business,but it’s still business that we like tohave on the Isle of Man, so we wereworking with them to bring themhere.”

With regard to new businesses, Mr.Robson alluded to the Crypto ValleySummit that was held last year. Sincethat time more than 20 companieshave established themselves on theIsle of Man in relation tocryptocurrency and block chainsolutions. This is proof indeed thatstart-ups are relocating to the island toavail themselves of the manyadvantages offered here.

Moving on to a couple of ‘hot topics’,Mr. Robson discussed how, in theIOM, they are ahead of the game withDaily Fantasy Sports (DFS) andeSports. It was only recently that theUS decided to make DFS a gamblingproduct that needed to be licensed.But in the IOM, these companies werealready being licensed last year.

Providing a snapshot of the licensing inthe IOM, Mr. Rutherford of the GSCconfirmed the strong current positionof 46 online licenses, 9 of which arenot yet active. There were alsoindications that two licenses will leavein the short term.

Mr. Rutherford went on to examine theactions undertaken as part of theNational Risk Assessment, “Under thefinancial action task forcerecommendations that were publishedback in February 2012, every countryhas got to make an assessment of itsindustries and its capacity for moneylaunderers and terrorists to abuse thefinancial infrastructure in that country.So the government undertook thatwork, starting last year. While it is stillunderway, the bulk of the work hasbeen done. We were assisted by amodel which the World Bank gave tous and helped us to use. That modelproduced a number ofrecommendations both for jurisdictionsand for various sectors and regulators,and we were no exception. Some ofthe actions that came out of thatnational risk assessment affect usdirectly.” Mr. Rutherford added withmock indignation that the model hadactually indicated that the GSC’ssupervision could be improved butwent to add that the model had indeedidentified deficiencies which were nowbeing corrected.

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“For those of youwho have gotinteraction withlicensees in the Isleof Man, you’ll knowthat we’ve justconducted anexercise over thesummer, to confirmthe figures thatwe’ve put into theNRA.”

“For those of you who have gotinteraction with licensees in the Isle ofMan, you’ll know that we’ve justconducted an exercise over the summer,to confirm the figures that we’ve put intothe NRA. One of the other actions thatcame out was the requirement for us tohave a slightly more proportional tool kit.Now we’re very lucky in the Isle of Manto have licensees who are only too eagerto be compliant, but as far as TheFinancial Task Force is concerned, theregulator in any given regulated sectorshould have a suite of soft and hardpowers, including the ability to fine orbar people from the industry, to requireaction from operators in order to fixproblems as well as to name and shamepersistent or wilfully intransigentlicensees. So that’s another action thatwe’re currently contemplating, but we dorecognise that this is an extremelysensitive area, notwithstanding the factthat it’s an international obligation thatwe now need to meet. The NRA alsohighlighted to us that there are stillissues, although less serious now, on thefiling of suspicious activity or transactionreports for the Financial Crime Unit. Sowe’re working closely with the FCU atthe moment as well as with ourlicensees to regularise and explain whatit is that the FCU is looking for and whatit’s not looking for. As part of that workwe are revising our AML/CFT guidanceso there will be a version of that comingout in a week or two’s time.”

Referring to the slide on display, hecontinued to explain the currentworkload, saying, “The next one onthere is MONEYVAL, for those of youwho don’t know, MONEYVAL is what’sknown as an FSRB (Financial StyleRegional Body). MONEYVAL is ours. Anumber of countries belong toMONEYVAL. They are going to comeand visit us in April 2016. Their job will beto assess the Isle of Man, to look at itsrisk assessment, and look at its controls,the strength of its commitment to anti-money laundering and internationalobligations. MONEYVAL have indicated

to us that they’d like to speak not only tous but also representatives of the sector.So some of our online licensees, andterrestrial licensees might get a visit fromthe assessors to talk about moneylaundering affairs. Another money-laundering hot topic for us is theadoption of a risk-based approach. For2012 onwards the recommendationsrequire that risk be at the heart ofeverything we do, to make sure that weuse limited resources as effectively aspossible to combat crime. The GSC hastraditionally had a rolling programme ofcompliance checking but we’re now inthe process of re-engineering andmoving to a risk-based approach.”

Tackling the final hot topic Mr.Rutherford explained that severallicensees had been keen to get involvedin digital currency. The GSC’s policy oncryptocurrency remained open-mindedand unchanged from the previous year(specifically that crypto as a paymentchannel utilising a cryptocurrencyexchange as a middle man wasunproblematic but that there werechallenges to be addressed in othermodels such as directly acceptingcryptocurrency for gambling). On apositive note, GSC had identified somelegislative tweaks, which would benecessary in order to make crypto workhere from a fund-protection and securityperspective. The predominant modelthat the industry was seeking to use(cryptocurrency coming in to anexchange, and Fiat currency beingforwarded on behalf of the player),actually works fine for IOM at themoment.

There are several ongoing matters foreGaming in the IOM in terms oflegislation. A large miscellaneousprovisions bill is lined up for drafting,likely to be worked and developed byGSC over the course of 2016. In additionto legislative change there will be aconsultation on the sanctions projectthat is necessary to meet FATFexpectations.

Looking now to major initiatives forgambling in the IOM, the GSC hasongoing work with sporting integrity.They are continuing to focus on andestablish their AML/CFT (anti-moneylaundering and combatting the financingof terrorism regime).

In terms or inter-regulatory cooperation,Mr. Rutherford revealed three excitingdevelopments:

“The reason that I’m here and SteveBrennan (Chief Executive of the GSC) isnot, is that Steve is currently in Maltameeting with the board members ofGREF. Steve Brennan will actuallyassume the chairmanship of TheGambling Regulators of Europe Forumnext year and there are tremendousgains to be made from that. I’ve alsobeen appointed to head up theInternational Association of GamblingRegulators Information Sharing Groupon Money Laundering and TerroristFinancing. On that theme, and anotherdemonstration that we are recognisinghow important AML/CFT work is for us,we’ve appointed a dedicated AMLresource in the commission. The deputyhead of AML now is Helen Ault, whojoins us from the Financial SupervisionCommission. We couldn’t be moredelighted to have her.”

Returning to look at activity within theDED, Mr. Robson presented a flexibleside to the department: “Working withthe local industry, continuing to do whatwe’ve been doing, as we’ve been verysuccessful for so far. We will of course,adjust, amend and update anything thatis required, because sometimes youneed to be slightly disruptive to change.We’ll keep on with the grants, we’ll keepon with the initiatives, we’ll keep onsupporting business in the way we’vealways done. The work permit changeswent in on the 1st of October, so fromnow on the issues that we’veexperienced with regards to skillsshortages will be eased, certainly from awork permit perspective.

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“For 2012 onwards the recommendationsrequire that risk be at the heart ofeverything we do, to make sure that weuse limited resources as effectively aspossible to combat crime.”

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As previously mentioned, the DEDhas begun to work with emergingverticals: Daily Fantasy Sports (DFS)and eSports. For over a year therehas been close collaboration with anumber of key players within thesector to come up with some sort ofcode of conduct.

As Mr. Robson elaborated, “Theinevitable consequence of thepopularity of eSports is that peoplewill try to make money from it. Themore traditional side of gambling isvery mature now, in terms of sportsbetting, casino, bingo and poker. SoeSports is coming to the forefront, interms of appeal to both players froma gambling perspective and foroperators from a vertical perspective.What I was keen to do, and whatobviously a number of key players inthe market are keen to do, is toensure that issues do not arise intheir vertical which have plaguedothers. For example, in poker, theless scrupulous software providersbasically put God mode into theirsoftware and players were defraudedas a result. Sadly, if there’s anopportunity for somebody to makemoney by influencing the outcomeof an event, they will try to exploitthat. So what I’m attempting, byworking with a number of players inthe market, is to implement somesort of code of conduct to ensurebest practises are adopted. Thiswould encompass both licensed andunlicensed territories [where peoplewho organise land-basedtournaments are not necessarilylicensed]. It’s key to ensure thatplayers who enter thosetournaments are treated fairly.”

On the topic of emerging verticals,the DED are focussing on expandingtheir profile. Opting not for thetraditional propagation ofmessages, i.e. through marketingand media, their approach is to workit via viral-based marketing. eSportshas grown hugely as a result of viralappeal: in forums, and in chatrooms, people are using morecurrent and vital ways of getting themessage out. Thankfully by theirassociation with theseorganisations, the message of theIOM DED is spreading across manymarkets and different sectors. Thisproduces a wide range of potentialclients, both to the IOM basedoperators and to the customers of

licensees. They’re beginning tounderstand the crucial message:that the Isle of Man crest is one tobe trusted and one to be reliedupon.

Referring to the continuedoptimisation of public and privatesector partnerships, Mr. Robsonmentioned EGSAB (eGamingStrategic Advisory Board). This isjust one of a number of gaminggroups which exist on the Isle ofMan but one which is going througha process of reinvention. The DEDare instrumental to this change, asthey are considering the people whosit on that board and looking atchanging the way business is carriedout on that board. This is, definedMr. Robson, “Just one example ofhow we’re continuing to work withthe private sector here, to helpdevelop it and to improve theoverall environment on the Isle ofMan as a place to do business.”

Looking to the future, Mr. Rutherfordconsidered the regulatory aspect ofembracing emerging technologies.Relatively new verticals, such aseSports and Daily Fantasy, will allcarry a mixture of known issues andpotentially unknown issues forregulators: the key is to exercisecaution. With eSports betting inparticular the GSC have becomeaware that there is a thriving marketin virtual goods and that there aremodels out there which may notexpressly encourage underagebetting, but where underagegambling is occurring nonetheless.This is always going to be a primaryconcern for a regulator. Drawing adistinction between the gamesthemselves and the gambling thatoccurs on the gaming, he reportedthat happily, both eSports bettingand DFS fall very comfortably underlicensing in the Isle of Man, so all ofthe safeguards that one wouldexpect to protect consumers can beattached to those operations. Owingto eSports and DFS being hot topicsfor the Isle of Man, they are beingclosely considered by the GSC inconjunction with existing regulators,to see what can be learnt.

Mr. Rutherford again, “And with mynew AML hat on, of course, I’malways looking at these things tosee if they can be abused by moneylaunderers or terrorist finances andputting the appropriate safeguards

in position. In terms of legislativechange, so I mentioned earlier, thatin understanding cryptocurrencybetter, we’d identified a couple ofelements in our regulations whichhadn’t anticipated the developmentof digital. So there is potentially acouple of tweaks that we need toput into position this year, to allowthe full gamut of digital currency tobe used in Isle of Man gaminglicensees. One of those is a technicalchange to do with our registration ofaccounts. Regulations currentlyrequire that players deposit moneyinto accounts and the Isle of Mancharacterises the currency asproperty, so we need to square thatoff. And the other one is of course,to wrap around crypto the samestandards of protection for player

value as we have for cash.”

Returning to the matter oflegislation, Mr. Rutherford spoke ofthe Miscellaneous Provisions Billonce more. As a hefty bill it willcombine a mixture of terrestrial andonline changes as well as a numberof corrections of items picked up inthe last 5 or 6 years, and a sanctionsregime too. There is a tentativedrafting slot for this large piece ofwork in 2016. Also keeping the GSCbusy is their preparation for theMONEYVAL visit next year. Mr.Rutherford: “As we prepare, we findthat the 2012 recommendationscome with a lot of detail, detail thatnot all of our older laws hadanticipated. So there is almostcertain to be an exercise to make

“The inevitableconsequence of thepopularity ofeSports is thatpeople will try tomake money from it.The more traditionalside of gambling isvery mature now, interms of sportsbetting, casino,bingo and poker.”

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sure that our laws are up to date,and fully FATF compliant.”

Considering key challenges for the nextyear or so, Mr. Rutherford said, “Thereis no doubt that mergers andacquisitions are continuing to occur.The commercial side of that doesn’tgive a regulator anything to worryabout but more broadly of course, ifwe have M&A, particularly withmergers, there is always the questionof where that business is going to be,if it’s going to change its footprint, andwhat the regulatory implications of thatare. We are always interested inexploring cost effective fundprotection. It remains one of the keydefenders of our reputation in the Isleof Man: that a player’s funds areprotected. It’s certainly not ascommonplace or comprehensive inother gambling jurisdictions. As Imentioned earlier, it took a large pieceof work to clarify what we could andcouldn’t do in terms of fund protection.That work has now led on to a secondproject which is to re-open dialoguewith the providers that wanted tooperate alternative models, indeedwe’ve just recently concluded anexercise that lets us use insurance as aplayer protection mechanism. Andobviously, as Mark has mentioned, andthe Minister has mentioned, in respectof skills and staff - this has touched usfor a while as a regulator, becausewe’re having difficulty retaining someof our own staff, who, once trained canmigrate into private sector positionswhere these skill shortages exist.Clearly we’re happy enough that theystay on-Island, but obviously it gives usa constant recruiting overhead.”

Recapping, Mr. Rutherford commentedon the AML theme and identified thebiggest challenge, not just for thegambling regulator or for the industry,

but for the Isle of Man, as theMONEYVAL visit in April 2016.

Mr Robson moved on to consider acritical USP for the Isle of Man: playerfund protection. Praising Mr.Rutherford’s team, Mr. Robsondescribed them as “Unique. They arethe only regulator that hasn’t had anyissues with player funds. That is thenumber one USP that we have.Anywhere else, Google player protection,other jurisdictions, unfortunately they’vehad hiccups. Thankfully they arebecoming fewer and fewer, howeverunique to the Isle of Man, we haven’t hadthat issue. And it’s thanks to MarkRutherford and his hardworking team thatwe are in that situation.”

He continued, “It reinforces theprocess that licensees go through inorder to get approved for a license, onthe Isle of Man. There are strictprocedures in place and they are therefor a reason. The Isle of Man crest on awebsite, it stands for something. Asregards other potential USP’s, thereare some. There are some jurisdictionsthat struggle to keep their power on.We’ve got four power stations on theIsle of Man, and, I don’t know if manyof you know, but we actually exportpower to the UK as well. I’d say thatwas pretty unique in the offshorejurisdictions. We have six Tier 3 orhigher data centres. One of those isalso carbon neutral, something that theother jurisdictions cannot claim tohave. We have five diverse off-islandtelecoms links, some of those areused to create 2 self-healing rings,again, something our competitors can’toffer. So are there any USP’s?Absolutely there are. Coming from aGaming background, moving into thegovernment, I certainly know what theGaming companies are looking for, Iknow what players are looking for, and

yes we have a number of USPs. Wewill keep doing what we can to notonly re-inforce our position as theNumber One jurisdiction, we will dowhat we can to carve out more USPsfor ourselves.”

Mr. Robson then touched upon MIFID2 (a directive from the EU regardingfinancial instruments) and it’s specificimpact on binary options, which arecurrently defined as a a gamblingproduct. MIFID 2, is looking to classifybinary as a financial vehicle, “So we’llneed to keep a close eye on what’sgoing on there. That could potentiallyhave an impact on Isle of Manlicensees, and how we handle that,moving forward. My next point isplayer protection mechanisms, as Markmentioned earlier, so we’ll see whatwe can do to ensure that player fundsare protected, but also give ourlicensees the ability to have a moreflexible approach potentially to howthey handle and what they do toprotect the funds. Briefly, I’d like tomention the sustained emphasis of ourposition at the forefront of theindustry. Unfortunately, being at theforefront of something there is onlyone way you can go if you take yourfoot off the pedal... We’ve got nointention of taking our foot off thepedal, we know what we do right, weknow what we need to do to keepbeing where we are, and we’re goingto keep doing it.”

We will keep doing what we can to notonly re-inforce our position as theNumber One jurisdiction, we will dowhat we can to carve out more USPsfor ourselves.”

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To open, I think the best way to approach a session ontechnology is from the perspective of a summit delegate.What do we want to know, and hear about? Firstly, let’s talkabout cloud computing. Do you think that cloud computingis becoming more acceptable in a regulated gamingenvironment? Stephen, as a hosting provider, moving moreand more into services, what is your take on it?”

To first provide context for the cloud and its role in thegaming sector, Mr. Trimble explained its evolution: “Whatwe need to do is separate it out into cloud, as a technology,and cloud for use for gaming providers. As a technologythree or four years ago, it was absolutely acceptable for testand development, but people still have reservations on itsuse for production systems, and production infrastructure.That’s moved on. The cloud is mainstream, everyone usesit, the whole of the LSE [London Stock Exchange] is built onthe cloud platform. Banks use it in production. The cloud ishere and everyone uses it. So as a technology, it is thereand is acceptable.”

The real concerns about cloud use in the gaming sectorarise when one considers it from a regulatory point of view.Mr Trimble continued, “The challenges that everyone facesare the stipulations from the regulator as to what needs tobe in that jurisdiction, and the challenge is notunderstanding what that is. It’s really about understandingwhere the limits are and what to do in a grey area. There isa portion of that which is very clear, for example RandomNumber Generator, player data, and transactional data,

absolutely has to stay within the jurisdiction. That portioncan sit on a private cloud, within a data centre within thatjurisdiction. Regulators may differ slightly in their viewshere, but generally, that’s the view. So cloud technology isin use today for that.”

The difficulty, explained Mr. Trimble, comes when data getsmoved to the ‘public cloud’. This essentially is where aservice provider makes resources, such as applications andstorage, available to the general public over the Internet.These services are free or offered on a pay-per-usage model.Using the public cloud is attractive to eGaming operators,because at the moment there’s a big drive to be closer toyour players and hence closer to your users. In gaming it’sthe milliseconds that count, after all. In addition, adoptingcloud computing can eliminate capital investment inhardware and facilities as well as reduce operations labour.

“So what people are moving out into public cloud is pureweb content, for example, downloads, images, static webpages etc. However, there is a big grey area in the middle,as to app logic, game play, things that are not necessarilysensitive, but would give regulators cause to worry.”Generally speaking, assured Mr. Trimble, operators arecomfortable with transferring into public cloud gamemechanics and app logic, etc. Although it appears thatcurrently different regulators are taking different stances onthis ‘grey area’, but it is becoming more mainstream,explained Mr. Trimble.

Panel Session:Technology Developmentsin the eGaming sector

Moderator: “I’m delighted to be chairing this session on technology developments in the sector. Let me introducemy panel: Helen Walton of Gamevy, Andrew Tottenham of Tottenham & Co., and Stephen Trimble from Continent 8.

Moderator: Archie Watt Head of eGaming, KPMG Isle of Man & Gibraltar

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Moderator: “Picking up on that statement, so I’m clearand everyone else is clear too, the difference betweenpublic and private: public is the Amazon-type, Googleclouds, that sort of stuff, hosted in locations such as theUS? And private clouds are ones you create yourself, oryour hosting provider creates?”

Stephen Trimble: “The public cloud used to be the wild-west type of thing. Yes, public cloud would beAmazon-type web services; it would be any cloudinfrastructure that is potentially shared with somebodyelse. For example, an ISP [information service provider]based in any offshore jurisdiction could have a publiccloud offering, but the fact is, it will be shared withsomeone else. The key differentiator now is that there issufficient separation between tenants of that public cloudsuch that it can tick a lot of security boxes. People arerunning PCI [payment card industry] compliant platformson public clouds so these things are addressed. But that’sthe difference: private cloud, is in the main your owninfrastructure, in a data centre that you can go and touch,and not shared with someone else.”

Moderator: “Andrew, you appear to agree with Stephen’sremarks. You are dealing with a number of operators oncompliance matters. What are they seeing on cloud? Arethey agreeing with what Stephen is saying?”

Mr. Tottenham pointed to a general lack ofunderstanding in the industry, as to what the cloud is.The common perception is that data is stored literally in“the clouds” and not on Earth. Adopting a simpler viewis key: clients need to understand that the cloud doesconsist of discrete boxes and discrete cables. “There is afear among operators that if I put something in a placewhere I can’t go and touch it, there is a risk that it will betaken from me. So when I talk about player data, yesthere is a regulatory requirement that player data has to

be in a certain place, but actually there is no reason whyplayer data can’t be in Box A, for example, as opposedto that Box B, provided that the security infrastructurearound it is similar.”

Most operators are happy to have their data analysedby CRM software, but happier when it is done so ontheir boxes, in their data centre. They are unaware thatboxes sitting in the CRM providers, or the data analyticproviders, could be just as secure. Andrew Tottenhamagain, “So I think there is a reluctance on the part ofoperators but there is also a reluctance on the part ofthe regulators to allow these things to get out fromunder their control. We are seeing people use AML andKYC services, and CRM, more. And there is a movetowards employing external suppliers, and somebodyelse’s cloud, if you like, but there is still a reluctance.”

Moderator: “Helen, as somebody who operates andprovides games, is this what you are seeing? Are youfeeling welcomed to use cloud?”

Helen Walton: “We find it incredibly frustrating that weare still being asked to point to a physical box. Thisrequirement that you can go and pull the plug on a box,we find extraordinarily outdated frankly. It makes it farmore expensive and it adds a great deal of complexityinto your infrastructure. That may not be so painfulwhen you are a multi-million pound sports bookcompany, but when you are a start-up, it significantlyraises the barriers to entry in a way that is unnecessary.The robustness, the security of the existing tech, as youwere saying, Stephen, does not, we think, support therequirement that exists within the regulators for havingthis kind of obsession with physical boxes in differentplaces and different jurisdictions. So all I can say is thatwe find it one of the big barriers to entry, very difficult,and we find it outdated.”

Panellists:

Helen Walton, Gamevy. Gamevy is a start-up gambling company, which brings TV game show style games online, offering anew genre of gambling.

Andrew Tottenham, Tottenham & Co. Tottenham & Co. are a business consulting firm based out of London with a global client base. Since1996, Tottenham & Co have been involved in internet gambling space, with experience in specificaspects, e.g. data management.

Stephen Trimble, Continent 8. Stephen is Head of Product Management for Continent 8 Technologies. Continent 8 is a data centreand management services company, based in IOM, with 10 global data centres in various locationsaround the world. Stephen has over 15 years’ experience in telecommunications.

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Moderator: Archie Watt continued onthe theme of the security side ofcloud, and made reference to therecent case of the company Talk Talk’sloss of 150,000 customers’ records.“With greater security in the cyberworld being desirable for all, what, ifany, are the new concepts to market?Has anything changed recently?”Archie directed the questions toStephen Trimble.

Stephen Trimble: “Yes, I think we arehearing more about it. The Talk Talk oneis interesting because we’re in anindustry, in gaming, where securitytends to be built in from the groundup, so applications are built completelywith security in mind etc. What actuallyhappened with Talk Talk is, it was avery simple website vulnerability.Literally, some teenagers ran a piece ofcode through Google, and it spat backa list of vulnerable websites, and TalkTalk was one of them. So not only wastheir website vulnerable, but when theboys tried to attack it, they found thatthe database was not encrypted. Thepoint is, that all of these things youwould not tend to find in onlinegaming, but there will be exceptions.Talk Talk was particularly unfortunate,and does fall on to the hacking side ofsecurity. What happens a lot more inthe gaming sectors is the denial ofservice attacks, the big ones beingDistributed Denial of Service (DDoS)attacks. They have always plagued theonline gaming industry and continue todo so. We foresee attacks gettingbigger, and more complex. It is anongoing trend. We’ve now moved froma situation where DDoS protection was

an option, to almost being arequirement. So everyone takes it, aseveryone needs it.”

Moderator: “Andrew, you’re dealingwith not just gaming companies, sowhat sort of things are you seeing inthe wider industry?”

Mr. Tottenham pondered the relativelack of sophistication in the early daysof the internet. He continued, “Now,as you increase your security, whetherthrough the operating system, orthrough the physical security of thesystems that you use, the people onthe other side are trying to find holesin that. It is basically a war. Hackers areusing ever-increasingly sophisticatedattacks. Yet with increasing complexity,you increase risk. By which I mean,companies like Continent 8 are buildingsystems from the ground up sosecurity is built in; what’s happeningnow is there is much more data sittingin concentrated places. Data isvaluable from two perspectives: one,the data itself can be very valuable inmonetary terms, and two, thereputational risk that a company faces,like Talk Talk, when that data or thesecurity is compromised.”

“But I always like to think that thebiggest risk, is us. Consider theinternal stuff as well, that youremployees, or your people in offices,suppliers, people who come in andprovide services, they have access tosensitive information. It doesn’t matterwhat systems or processes you put inplace, because ultimately we becomelazy, and don’t follow those processes.Then somebody gets access to oursystem: whether they can compromiseit to the extent that renders usinoperable or whether they cancompromise it to the extent that theycan steal data. But it’s us guys in thisroom. We’re as big a risk as the guysoutside doing the DDoS.”

Helen Walton: “I agree absolutely.Systems are only ever as good as thepeople operating them. And as therules that you feed into them. I wouldadd that the key point about Talk Talk isthat the CEO is on record as havingsaid that he didn’t think that customerdata needed to be encrypted. That’snot a technical problem: that’s a peopleproblem, a decision making or astrategy problem. But actually thetechnical solutions all exist.”

Ms. Walton then referred to ISO

27001, and how it risks becomingpurely a box-ticking exercise. (ISO27001 is an information securitymanagement system first introducedin 2002, with the latest update beingavailable in 2013. As a formalspecification, it enables its adopters tobe formally audited and certifiedcompliant). An organisation willembrace 27001 in the hopes that itrenders them fully compliant; butmerely bolting on a few certificatesdoes not guarantee protection,“Because if that’s all you ever do,rather than it being baked in to the wayyou run your code, to the way youmake your decisions, to the way youreview things, a change review boardin itself does not protect you. Aprocess management system does notprotect you. It might offer you thechance to go and look back and seewhat happened and what went wrong,but all too often that comes too late.It’s not just gambling companies, it’snot just ordinary data companies, aswe know from Edward Snowden. Itcan happen to the government as well,where they had security systems inplace that were simply not applied, butwere completely bypassed by one oftheir own employees who shouldnever have had the access that he wasable to have. So it really is all of usbeing aware of the way we do ourwork every day: that is security, not aseries of pieces of software orhardware or protocols. It really isn’t,”stressed Ms. Walton.

Moderator: “That’s an interestingpoint you raise about 27001, becauseas everyone here who is an operatorunderstands, to get the UK GamblingCommission license you need to carryout an annual security audit to the levelof 27001. And of course we carried outa number of those for our clients overthe past 9 months also. Are wehearing then that perhaps 27001 is notthe appropriate standard? Is it nolonger reflecting how people use IT, orimplement IT systems?”

Helen Walton: “Some elements of it, Ithink, risk becoming box-ticking. Peoplesay to themselves, well, either I onlyneed to do the minimum, or I just needto do enough to tick that box and then Inever need to think about it again. Infact, all of those standards are written ina way that requires interpretation. Andit’s the interpretation that matters, theway you think about your own security,

“Hackers are usingever-increasinglysophisticatedattacks. Yet withincreasingcomplexity, youincrease risk.

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your own product design from thesoftware, to how your customersinteract with it. It’s the thinking part, theinterpretation part that matters. And I’mpersonally not convinced that anystandard really assists you in doing that.”

Stephen Trimble agreed with Ms.Walton and pointed out that ISO 27001is really just the minimummanagement standard that deals withsecurity, not an entire policy.Consequently, as a risk assessmentbased process, the 27001 certificatemay appease regulators but won’tprovide total peace of mind. Offeringan example, Mr. Trimble cited the caseof Talk Talk, which was 27001compliant, “and those operators thathave been asked to do adopt 27001,they will also have been asked to

comply with PCI, with Sarbanes Oxley.The list is huge. So, you know, it’sinteresting that a regulator specifiesthat as a standard.”

Moderator: “Overall I tend to agreewith that message. However, we aresupposed to apply a standard, andmake sure that everyone meets acertain minimum threshold. It doesalmost require a checklist to becompleted. I have a great deal ofsympathy with start-ups, such as Helenand Gamevy. But equally, from apractitioner’s point of view, I send myguys out to do these audits and I expectthem to come back completed. And Iexpect them also to ensure that theyhave carried them out to a certainstandard. So do we have a solution?Andrew, you seem keen to talk on this.”

Andrew Tottenham warned of thedangers of relying on a standard, andpointed out how the onus is then onthe CE or the CFO as the signatory ofthat standard. Yet the real question is,how much can they realisticallyunderstand? Effectively the company isstill at risk, “The critical aspect here isto ensure that there is a culture ofsecurity in your company, that youaren’t complacent. The biggest risk weall face is complacency. You think toyourself, yes, I’ve ticked this box, I’mfine, and then you open up thenewspaper and find you’ve beenhacked. It’s about instilling a culture ofsecurity.”

Moderator: “So, are we sayingsecurity as being part of the culture,or part of the way of life, or even

“The critical aspect here is to ensure thatthere is a culture of security in yourcompany, that you aren’t complacent. Thebiggest risk we all face is complacency.”

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part of the way of doing business?”

Helen Walton: “Yes. That is one ofthe problems, when you have aparticular role for it, because then itvery easily becomes that person’sresponsibility only. Personally I thinkit is one of the dangers of acompliance officer. So, does thatmean that the rest of us don’t haveto think about compliance? It’s hisjob to spot when I’m doing dubiousthings, but it’s my job to try and getaway with them! Is that how itworks? Because that’s really not howit should be. But that is occasionallywhat we risk, I think, when we over-specialise and when we createnarrow responsibility in our veryorganisational structures.”

Moderator: “You are talking about asilo structure?”

Helen Walton: “I think it’s massivelydangerous, yes.”

Moderator: “Thank you. Stephen,hosting providers are on the frontline of developments and thedelivery of content to customers.You are the ones that are providingthe infrastructure. So what are youseeing? What are the trends? What iscoming up next?”

Stephen Trimble: “One of the biggesttrends we are seeing at the momentis a move to what we call adistributed architecture. I’ll explainthat: 3-4 years ago it was verycommon for operators to have oneprimary data centre with anotherone for Dr. And that was as much asyou got. What we are seeing morenow is the infrastructure platformsbeing spread out. And there are afew key drivers for that. One is M&Aactivity, it would be very rare for you

to merge or acquire a company whois sat in the rack next to you in thesame data centre, in the samejurisdiction. Another one is the driveto be closer to your users. Peopleare putting web content injurisdictions to be very close,particularly with mobile, you knowmilliseconds do count! And that canbe the difference between you andyour competitor. But the main driverreally for these distributed platformsis regulation. As we said earlier,there are stipulations that say acertain amount of technology has tobe here. The other jurisdictions arethe same. It does vary slightly as towhat has to be in the jurisdiction.But for operators who are licensingin a number of jurisdictions, it’s notuncommon to have at least half adozen live data centres. Of coursethe upshot of that is, it’s making itfar more complex for the CIOs, andCTOs to manage. It introducessecurity challenges, datamanagement, data replicationchallenges. It really is the biggestthing that we are seeing at themoment, and it’s not going to stop.”

Moderator: “So are we talking aboutoperators who are trading inGibraltar, Malta, potentially in theFar East and in North America? Whoare in the position of having datacentres across the globe? It is aboutreplicating data across thoseterritories?”

Stephen Trimble: “Absolutely yes. It’snot uncommon to have a presencein at least 6 or 7 jurisdictions. Peopleare replicating data across privatenetworks, between those datacentres. Over and above that, wehave operators who have internal

metrics that say they are driving tobe no more than X millisecondsaway from their clients. Even thehalf dozen data centres are notsufficient for that, so they arepushing content out into contentdelivery networks, which have 80,90, 100 nodes around the world toget them closer to their users.”

Moderator: “Right. From atechnology perspective that soundsgreat, but from an operator’sperspective that must bephenomenally expensive to try tocreate.”

Helen Walton: “Yes, it isphenomenally expensive and verydifficult as well. It goes back to thefirst point when we were talkingabout the need for a physical box.The regulation and the architecturedrives the technology choice, ratherthan what’s the best technologychoice, as being what you arefocussed on. That’s extraordinarilydifficult and frustrating.”

Moderator: “But on the technologyside, when you are developinggames, does that mean that youhave to split things up or pull thingstogether?”

Helen Walton: “Well, we are going viaan operator, so we are a supplier toparticular operators. But that oftenmeans that we need to have kit intheir particular jurisdictions. So thatremains a massive upfront cost.”

Moderator: “So having everything inthe cloud would be a great benefitfor you?”

Helen Walton: “It certainly would,yes.”

In competitive industries, regulation is

“ It’s not uncommon to have a presence inat least 6 or 7 jurisdictions. People arereplicating data across private networks,between those data centres.”

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widely used not just because it iscommon practise, but to inspire trust andacceptability in a company’s businessmodel. This is especially the case ineGaming, as Andrew Tottenham outlined:“Initially a lot of people say ‘I don’t wantto be regulated,’ and then regulationcomes in, and suddenly the regulateddiscover that, actually, this is no badthing. One, there is the reputational side,but two, you increase the cost of entryso that start-ups find it very difficult toget hold. If we look at the land-basedindustry as an analogy, the cost of gettinginto land-based license in North Americais huge. Why is it huge? Because thedominant operators don’t want small,snappy little start-ups coming along andbiting their heels. They don’t want it! Sowhether it’s the suppliers, or theoperators, they are happy with a veryhigh cost of entry. Sadly, regulation drivesup your entry cost.”

Moderator: “So disruptive technology,while it is great in theory, is a threat toincumbent businesses?”

Helen Walton: “I would say so. One ofthe key points about disruption: whenwe talk about technology disruptingestablished industries, we tend to talkabout it occurring most effectively, inplaces where there either isn’tregulation, or where the regulation issomething the company is prepared totake on and challenge, and then theyoften suffer a backlash later. To use anexample, Air BNB are suffering anenormous backlash from people sayingthat they don’t have to meet thestandards that a B&B or a small hotelwould meet, and it’s not fair. Also, asI’m sure you all know, Uber is alsocoming under a great deal of attack,especially in London, from not only taxidrivers but even the Mayor of Londonis attacking Uber for essentially nothaving to meet the same standards ofregulation. And it not being a fair,competitive playing field. What can Isay? We have every plan of disruptingthe gambling industry, but we have todo it within a regulated market.”

Moderator: “Thank you. Moving on tocontent, I remember 2009 as being theyear of the product. Now it’s hard to

believe that we’re still talking aboutproduct as a means of growing foroperators, I mean that’s a given,because how else are they are goingto grow? So Helen, when talking aboutproduct, we keep hearing about‘mobile first’. What does this actuallymean in practise?”

Helen Walton: “Well, at Gamevy wewould regard ourselves as a mobilefirst company. By which we mean wedesign entirely for mobile devices, i.e.phones and tablets. But of course veryearly on, we came across distributionissues, and we found that for ourcustomers, we needed to beproducing things within a format thatsuited desktop and which was thensort of responsive for mobile sites. Soit was very different to the way we’ddeveloped our technology, and we’vehad to adapt to what our customerswant.” Ms. Walton continued byexplaining that the core appeal ofGamevy’s products is the “high fidelityexperience”, which is best accessed ona mobile device. “Our games aremeant to feel as entertaining as a TVgame show. That means we needvideo, a lot of feedback and animation,music and sound is very important, allsorts of things that really push boththe hardware, and the frameworks thatare delivering software to thehardware, far beyond what they arenecessarily comfortable with.Especially given the platform, the kindof HGML (Hyper Graphics Mark-upLanguage) that our customers want.So we’re always looking, whenever weuse a particular framework, to see howmuch further we can push it, and we’realways looking for the next generationof hardware. Although we’re designingfor it to work with what there is now,we’re always very aware of thecapabilities that we know are comingsoon, be it 2, or 6 months, certainlyless than a year away. That kind ofquality of development, that’s what wethink of as mobile first. So it’s reallypushing the existing capabilities furtherto give the best experience that can bedelivered on the mobile.”

Ms. Walton went on to define her

company’s approach to the design sideof things: “On a more product, anduser interface model, I think we’d saythat for us a lot of gambling productsare slightly hidebound by where theycame from. To take one example,scratch cards are really often aboutproducing the paper scratch card on amobile, or on your desktop. But paperis just not a very good medium really.You can do much more exciting thingswith the process of opening boxes,discovering something, being able tocontinuously change things. Online isjust a much better medium. So wereally believe that our scratch cards, forexample, are going to be a much moreentertaining interactive game, thatactually suit the medium that they arebeing delivered in, rather than trying tocopy the paper history of the scratchcard. So that’s how we think of it, indesign and UX (User eXperience)terms, of mobile first.”

Moderator: “Ok, that’s veryinteresting. For things that mobiles aregood at, yes, but perhaps not forthings that they are not as good asthey could be. Things like contentdelivery, the video, the sound, stuff likethat, aren’t they better seen on adesktop? What do you think?”

Helen Walton: “Of the differencebetween desktop and tablet, not really.Again you’ve got to differentiatebetween what the hardware itself iscapable of, which is a lot, and what aresome of the constraints that existbecause of delivering things tocustomers on their platforms. And theycan create constraints, that mean that

“On a more product,and user interfacemodel, I think we’dsay that for us a lotof gambling productsare slightlyhidebound by wherethey came from.”

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you can’t deliver something that the hardware is actuallycapable of. So it’s about always making trade-offs betweenthose things, to deliver the highest fidelity experience that wecan.”

Andrew Tottenham: “Obviously mobile is increasinglyimportant as a method of access. You’ve only got to walkaround, spend time on the Tube in London for example, andeverybody is bent over their phone. Even watching TV! It’sno longer about watching something on a wall, or a laptop,it’s all on the mobile phone. So in terms of delivery,obviously mobile is incredibly important. But what frustratesme is the idea that you can just port from one particulardelivery system to another. I think the gaming industry hasto innovate. And I’m not talking about innovate to attract themillennials, I’m talking about innovate to attract the peoplein their 30s, 40s and 50s, to keep them interested.”

Mr. Tottenham described his recent experience at G2E, andthe slot machines showcased there: “The stands areincredible, and the machines, but you can’t distinguish onemachine from another. They all look the same, and play thesame. The only difference is they might have Batman or theRolling Stones or the Beatles or some kind of license, as alicensed product. But there is no innovation, they’re prettymuch the same stuff. So what’s happening is people aretaking that, and porting it to a desktop environment orporting it to a mobile environment. Instead they should besaying, ok, what have I got sitting in my hand? What is goingto work on this? What can I do to create some content thatactually works on this particular device, as opposed to, I’llgrab something from over here which seems to work. Andreally, the only reason it works, is the price. The bigmanufacturers are competing, and hard, for your custom. Ofcourse operators are seduced by the best price, as opposedto, this is something that is a product for my customer, thatmy customer is going to like, or I’m going to attract orsatisfy new customers. It’s the challenge that the industryfaces.”

Helen Walton: “You see, that’s what I mean by thinkingabout the medium. The whole point of a mobile phone isthat it is up close and you are touching it, and moving thingsabout, and all your games need to be designed to work likethat. If you’re just pressing one button at the bottom, thingsthat might have been perfect when you were clicking amouse or a symbol, feel just dull when you’re on a mobilephone or tablet. Also the game has to be much moreinteractive, much more physical.”

Stephen Trimble acknowledged the stretch – andopportunities – this creates for ISPs: “In terms of deliveringthat, the challenge is getting bigger and bigger. A few yearsago, you would have actually quite a big tolerance as towhat would be acceptable in terms of sending a messageand receiving a reply back, whereas now everyone is on4GLTE handsets, or on superfast broadband at home. Theyexpect their game, their app, to be delivered really quickly,far faster than 2-3 years ago. And in fact the speed ofdelivery is often the thing that gives people the edge overtheir competitors. And so they come to us, and say, ok, intothis jurisdiction, how quickly can I deliver my app? Then theycan tune it around that. We are absolutely seeing more of it.For a number of the operators that we deal with, in the last2-3 years, the balance between mobile revenues againsttraditional desktop revenues has tipped. It’s now firmly on

the mobile side: that is a strong area of growth. So in termsof delivering those things, you know, you’ve got to beeverywhere, as close to the users as possible.”

Moderator: “Speaking from my own experience, whenvisiting a client earlier this year, they demonstrated to methe way of creating a sports betting slip. The old style iswhere you select the sport you want to play on, then theleague, then the team, and whether you are betting to win,draw or to lose. But with his app, he was just dragging stuffaround on screen. I thought, this is magic! Why haven’t wedone this before? Because this is how we operate onsmartphones all the time.”

Moderator: “Moving on to other industries, gaming hasbeen out there for almost 20 years now, and it hasdeveloped and matured very quickly. With the recent M&Aboom, gaming is unique; in other industries this would takeover 50 years. We are looking to consolidate down to 4 or 5key players already. So my next question is, what can thegaming industry learn from other industries? Helen, whatabout app development? Are there tips and techniques fromother sectors, that you can use in gaming development?”

Helen Walton: “I think there are 2 sides to this really. Thefirst is what can we all learn in design, and borrow fromother sectors in terms of a technology sense. There is lotsof really exciting stuff being done in social gaming, and in allsorts of other forms of entertainment, that we can borrowfrom and learn from. The second side to this, is the problem:it’s very hard to do it in gambling. This is because of thedifficulties imposed, sometimes necessarily imposed, byregulatory issues, and by problems of distribution that areinter-connected with regulation. They can inhibit the ability toadopt new technologies and new ideas. So it’s not that thetechnology doesn’t exist, or that they are not sufficientlyrobust; it’s that it’s very hard to integrate them. But ofcourse that is also the big opportunity. So I would say thatwe’re constantly looking to other forms of entertainment.And wondering how we can make those a form ofentertainment in which you can win real money.”

“Indeed, we think that is a major theme in general for thefuture, that more and more of our entertainment will beinteractive, and that we’ll have us at the centre of it, ratherthan entertainment that you are a consumer or passiveviewer of,” enthused Ms. Walton. But, she warned, thereare big challenges in adopting the technologies; it’s not assimple as merely copying ideas from other industries.

“We think that is a major themein general for the future, thatmore and more of ourentertainment will beinteractive, and that we’ll haveus at the centre of it, rather thanentertainment that you are aconsumer or passive viewer of.”

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Moderator: “Andrew, with yourinvolvement in banking, is there afrustration that bank reconciliationsare still a problem, even after 20years? In your experience, are otherindustries doing this better?”

Andrew Tottenham: “The shortanswer is yes. Parallels existbetween online gaming and thebanking industry, and mobile devicesplay a part here too. Take, forexample, the banking industry:you’ve got a high volume of lowvalue transactions, it is regulated.Security is a concern, as is protectionof client monies, especially withregulators. And yet, banking hasseen and solved the problems ofperforming reconciliations: theyhave to reconcile millions oftransactions a month. Mobile phonecompanies have to do it too. Theyalso have been through pressurefrom regulators, to the point wherethey’ve actually been forced to stepup their reconciliation process.Frankly, I’m still staggered to see thateGaming companies port theirtransactions to excel spreadsheetsand actually try and match them.They can’t, because of the differentpayment cycles and thecommissions and the different FXrates and so on. It becomes anightmare! I had one FD tell me that20% of their reconciliations neverreconciled. How can you know theactual financial position of ourcompany? How can you know whatyour exposure is to your customers?What are your client funds? Is themoney that you are putting aside in asegregated account, is that enough?Is it too much? When things go pear-shaped, is everyone going to gettheir money back? Do you have therecords to be able to say ‘Joe gets Xmoney and Mary gets X money’?”

“So, in the gambling sphere, manycompanies are unable to do that, andyet regulators accept it. Which isextraordinary.” Mr. Tottenham thenreferred to the procedures when acompany does collapse, and as aconsequence, their customers’ fundshave been at risk. “Now when thathappened in the financial servicesindustries, the regulators came in andsaid ok, you need to get control ofthis, and they did. So you no longerhad a situation where clients’ fundsare at risk, but on the eGaming side,they may be or they may not be.”

Mr. Tottenham continued, “The otheraspect to mention is audit. How doyou get an audit trail for areconciliation when somebody issending spreadsheets sometimes toIndia, for somebody to manuallyreconcile and then come back andsay, yes it’s done? Then the financialdirector of the company is signingoff at the end of a month on aregulatory return? In my view, it’sunacceptable.”

Stephen Trimble moved on to a finalitem on the panel agenda, whichmarks a potential big change forinfrastructure. “Relating also toother sectors, as well as eGaming, isthe use of a rapid adoption ofapplication containerisation. I’ll tryto explain that. So when cloud, orvirtualisation came along, there wasthis concept that you could havemultiple virtual servers running onone physical server. Applicationcontainerisation is where you canhave multiple contained isolatedapps running on the one virtualmachine. It’s really kind of like thenext quantum leap! It just enablesapps to run: if you’ve got 10 webservers, for instance, you don’t have10 operating systems to patch, 10management overheads, 10 things

that have to be in sync all the time.You only have to have one bigoperating system.”

This is big news, assured Mr.Trimble. Drawing on an analogy ofthe way people historically loadedboats, Mr. Trimble compare theprocess of applicationcontainerisation. The extremedifficulty in placing various goods invarious parts of a boat, meant that,by the time the ship sailed, half thegoods had rotted. Shippingcontainers revolutionised boatloading; as a shipping container isits own environment, and is fullystackable. “So this is exactly whatour containerisation is. Where it willmake a real difference is in terms ofuse of the Cloud. So your app, in itscontainer, can run on your privatecloud, on the public cloud, on anyinfrastructure as long as it is in itscontainer. This is what makes it quitespecial. And in terms of gaming,we’ve been doing this for 18 monthsto 2 years now. Companies are ableto release games far faster becauseof containerisation. Other industries,for example financial services, arealso starting to adoptcontainerisation now.”

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Dr. Jonathan Parke is the Founderand Principal of the consumerresearch hub ‘Sophro’. He is also avisiting lecturer at the University ofBangor. Dr. Parke has served asprincipal investigator on a variety ofgovernment, industry and researchcouncil sponsored research projects,most of which focus on gamblingbehaviour. At present, Dr. Parke isexploring harm minimisation ingambling, qualitative methods inunderstanding real worldquantitative data, and consumermotivation in leisure. An innovativeresearcher in gambling studies, hehas published numerous academicarticles, books and technical reportson gambling behaviour. Dr. Parkeengages in research that influencesthe field through thought leadershipand the examination of emergingissues in gambling studies includingsocial media and gambling, gamedesign, harm identification andminimisation, and need satisfactionin gambling.

The KPMG eGaming Summit wasprivileged to receive a fascinatingpresentation by Dr. Parke on thesubject of “Psychosocial NeedSatisfaction in Gambling”.

Dr. Parke’s presentation outlined thefindings of a recent study he hasundertaken in collaboration with Dr.Robert Williams of the University ofLethbridge, Canada. The study wassponsored by Unibet Group PLC ofMalta.

He explained why the research hadbeen undertaken: “The vast majorityof studies which have been donefocus on the negative impacts ofgambling, and rightly so.Understanding and preventing thenegative impacts of gambling areimportant goals. However, ourresearch tried to redress the researchimbalance that currently exists, whenyou have 2-3% of players whoexperience a gambling problem; yet99% of the research focusses on thatminority. It’s important to get acomplete picture of gambling as a

behaviour, otherwise ourunderstanding is going to be limited,and this in turns limits the potential forfair and effective policy andregulation.”

Dr. Parke highlighted a report entitled“Fair Game”, which, he said was verycritical of gambling researchers takingmoney from the industry. MichaelDaube, a well-respected professor ofpublic health in Australia, was recentlyquoted as saying: “Researchers whoaccept funding from the gamblingindustry are knowingly contributing tothat industry’s strategy.” Dr. Parkedisagrees. He explained that heconsiders any position that seeks torestrict the research agenda to benaïve, and implies that researchers arenot capable of acting independentlyunder stakeholder pressures. Whatmatters most is that the research isobjective. To restrict objective researchbecause it may or may not suit thegambling industry (i.e., ideologicalreasons) is not science but advocacy.

Dr. Jonathan Parke, Sophro

Presentation:Gambling, Leisure & Pleasure: Exploring Psychosocial Need Satisfaction in Gambling

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Dr. Parke proceeded to provide furtherdetail surrounding his research. Hesaid that their starting point wasleisure motivation, and the needs thatpeople satisfy from their leisureactivities. He said: “The key findingfrom the literature review was that wehave certain psychological needs, andthat leisure is an opportunity to partiallyreshape our environment to meetpsychological needs, that are notcurrently available.”

Dr. Parke explained that we areinclined to seek out opportunities forus to demonstrate mastery and controlover our environment. It has anevolutionary basis, in that our drivesare argued to revolve around the needto survive or ‘master’ our environment.Research in the area of ‘flow’ over thelast few decades suggests that thereward provided by leisure activitieswas the experience of a state of deepabsorption, which Csíkszentmihályilabelled as a ‘flow experience’whereby the task difficulty was NOTtoo easy (which would result inboredom) and NOT too difficult(resulting in stress or anxiety). Thecritical component of leisure is our

ability to define the parameters of theactivity; and this seldom happens in awork environment, even for those ofus lucky enough to do a job that welove. The fact is, timing in a workplaceis often beyond our control, e.g.unwelcome distractions, taskdeadlines etc. In leisure we can controlthe parameters often without pressureand judgement.

Identity is also a key aspect of ourleisure needs. Dr. Parke said that formost of us, “there is some gapbetween our ideal self and our currentself. The argument goes that if that gapgets too wide, it has negativeimplications for our general levels ofhappiness and our well-being. E.g.Alan in accounts, may, in hisdowntime, like to be known asexciting, masterful, a winner… somaybe he is drawn to play poker in hisleisure time.

Social needs and companionship mayalso be important: they are anessential part of survival, thousands ofyears ago and still now.Companionship is important fordeveloping functional allegiances and

has been shown to mediate stress.Quite often one of the keydeterminants of stress is not havingenough control over a certain situation.In terms of leisure, it empowers anindividual to have autonomy over whatthey do and how they do it.”

Dr. Parke explained that the studyinvestigates psychosocial benefits. Heexplained that they did not examinefinancial benefits because the linkbetween money and gambling,particularly from a motivational point ofview, is a very complex one. Earningincome and playing with money areoften not the same thing.

Dr. Parke expanded on this saying:“Players mostly realise that they arepaying for a leisure experience. Theyare not expecting to be paid, except fora small minority, who are going to earnan income as a professional gambler.Money is a secondary reinforcement.In other words, you need money tostimulate excitement rather thanplaying for free. You need money tomake games, for example poker, agame of skill-based arbitrage. Whenyou take out money, it loses a lot of its

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meaning, and the experience changes. While you know thatyou won’t be earning an income from gambling, or gamingor betting, you might be more motivated in terms of winningmoney simply to extend or to engage in better aspects ofgame play when you pay a higher price. In addition, moneyis sometimes the metric for measuring success. From aproblem gambling perspective, one thing that I will say isthat quite often the motivation can change from some of thevarious leisure needs that I’ve identified in the last 10minutes, to a financial reparation, in other words, chasingand trying to get money back. When a player chases losses,money then becomes important as a primary motive. But Ijust wanted to outline that, because the focus of our studywas primarily on the psychosocial benefits.”

He said that the study wanted to explore psychosocialbenefits, but also wanted to understand what kind ofbenefits accrue and how they relate to the player, how theyrelate to the product, and to the marketing segment.

The research followed conventional lines: an email was sentout to Unibet players, inviting them to participate. It was aself-selected sample, but when they looked at the data,those who were responding were surprisingly similar tothose who didn’t respond. There were roughly 1500participants in the survey.

So what was measured? The study measured theresponding players’ preferences, what games they played,how frequently they played them. It also posed some briefquestions in terms of motivation, health and well-being. Intotal, there were 70 items included.

Dr. Parke said that the study was very much exploratory. Theaim was to find some initial directions that are worthexploring in more detail, in future studies. Some of themeasures were very brief, one or two items in terms ofhappiness, stress, and of course a few demographicvariables.

Importantly, they wanted to measure needs satisfaction. Dr.Parke explained that they initially had a list of around 200needs that people get from leisure. They compared it towhat was already known about gambling motivation,discussed it with other experts, and thereby narrowed itdown to 26 items.

Dr. Parke shared with the audience some detailed raw datafrom the study. The next step, he said, was to look at thisraw data and try to break it down into more meaningfulchunks. He explained that they did a factor analysis fromwhich 6 core factors [reasons for gambling] were identified:

1. Challenge & Mastery

2. Autonomy

3. Relaxation & Escape

4. Self-affirmation

5. Affiliation

6. Excitement

0.6

0.4

0.2

0

-0.2

Mean Factor Scores

Challenges & Mastery Autonomy Relaxation & Escape Self-affirmation Excitement Affiliation

Results (3)...Needs according toproduct preferences

RacingSports Slots Poker Casino TableGames

-0.4

-0.6

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Dr. Parke explained that the above slide shows how thedifferent core factors scored, when analysed withrespect to different games: “So essentially in terms ofsports, the first surprise for us, was that it wasnegatively associated with challenge and mastery. Nowwe think that probably reflects the different types ofsports that are out there and that the increase intechnology and increased access may augment itsposition as a fast-paced, live action game. In terms ofslots, the most associated need was relaxation andescape. But it was also associated with autonomy. Inother words, some people just liking playing slotsbecause there was some hedonistic element to it. Asyou’d expect, slots were negatively associated withmastery and challenge. Poker was strongly andpositively associated with mastery and challenge, butalso with affiliation and self-affirmation. I think whatreally comes out here is the competitive aspect: eventhough poker players might not be chums and chattingabout TV using the chat function, there are certainlysocial elements that drive it in terms of competition.Poker, relative to other games, was something thatpeople were proud to be associated with. Casino tablegames were associated with autonomy,relaxation/escape, and excitement.”

Dr. Parke then sought to draw some conclusions, statingthat the current study makes a number of significantcontributions to the study of gambling:

1. First it provides initial support for considering gambling as a legitimate leisure activity, and suggests that engagement in gambling activities, for the majority of participants, may yield specific and tangible psychosocial benefits. In this research, 6 different types were identified. Prof. David Forrest, an economist, in his assessment of the costs and benefits associated with gambling participation, suggests that “gambling benefits very many people, each by a little, and hurts a rather smaller number of people, but each by a lot”. This research represents an important first step in understanding the potential psychosocial mechanisms that may underpin such benefits.

2. Secondly, not all gambling games are created equal in terms of the needs they satisfy. Consider poker, for example, a game of arbitrage involving an element of skill and involving multiple players; it is not particularly surprising that it was reported to satisfy needs related to competition, social interaction and mastery [i.e., problem-solving and skill development]. However, in contrast, an unanticipated finding was that sports betting was not associated with the need for mastery or challenge but primarily with the need for excitement. This was a somewhat surprising finding since betting has typically been seen as more of a skill-based form of gambling relative to say slots or table games. However, it may be that the individuals in this study were not motivated to partake in sports betting as a form of challenge, but rather to enhance the entertainment value of the sport itself by betting on its outcome. Satisfying the need for ‘excitement’ by betting on sports therefore seems logical when viewed in this context.

3. Understanding what drives different gambling preferences is essential for working with all aspects of gambling behaviour - both pleasures and pains. For example, there may even be clinical implications for problem gamblers, by helping treatment professionals to better understand motives, and identify more adaptive leisure substitutes providing the same needs satisfaction.

In his closing remarks, Dr. Parke mentioned a findingthat they found particularly perplexing: when asked avery basic question, “Do you derive leisure benefitsfrom your gambling?” half of respondents said “No.”This is clearly something that warrants furtherexploration, “My view is that there is a problem withhow that question is actually worded. For example, ifyou asked an English rugby fan during the recent worldcup, ‘do you derive benefits from attending Englandrugby games?’The answer is probably going to be no.Frustration and disappointment, are central themes ingambling, it is part of the experience. It is also likely thataddiction, problem gambling and the absence offinancial benefits also influence how people respond tothis over-simplified question.”

The bottom line is, understanding how leisure needs aresatisfied through gambling is not a simple task, and thisresearch is only one step in that direction. In futureresearch, we will examine how need satisfaction mayvary across different gambling formats and alsocompare it between consumers who gamble as a leisurechoice and those who struggle to control their gamblingbecause of addiction. We hope that trying to answersuch questions will take us one step closer tounderstanding how to achieve what is considered to bethe ‘Holy Grail’ in enhancing the consumer gamblingexperience – ‘maximising the benefits, while minimisingthe harms’.

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The moderator for this session was Susan Breen,Partner and Head of Gaming at Mishcon de Reya. Susanwas joined on the panel by industry experts Linda Main,Head of UK Capital Markets, KPMG UK; DanielMacadam, Managing Editor (Europe), GamblingCompliance; David Shapton, Partner, Akur Capital Ltd.,and Chris Treneman, Managing Director, InvestecInvestment Banking UK.

Moderator: “Welcome everyone. This morning our panelwill concentrate on what we have described as‘Financing the Consolidation Boom’. We’re going to lookat several aspects of the M&A activity and some of thedrivers for that. There are a significant number of megamergers that do not achieve investors’ ambitions, andthat is true of all aspects of industry, not just ofeGaming. Some would argue that as soon as you see apair of CEOs approaching a podium, investors shouldrun and sell stock! How true is that, of the current waveof M&A activity? Let’s first look at some of the

regulatory aspects that might be driving current activity.Dan, what are you seeing right across the spectrum, interms of some of the key drivers?”

Daniel Macadam: “One way of looking at it was to saythat 2014 was the year of major US M&A in thegambling space. US companies IGT (International GameTechnology) paired with GTECH, and Scientific Gameswith Bally; the reasons there being slowing growth andtrying to tap into a crossover with lottery and slotmachines. But US financing also played a part: you hadmajor backing from Blackstone for the Amaya takeoverof PokerStars. If 2014 was the year of US M&A, 2015 iscertainly the year of major UK M&A. There are about £12billion pounds’ worth of UK-linked deals in the last 12months. There are also some links back to that US M&A,from last year. There is still a significant amount ofmoney in US private equity, and Canadian privateequity that’s looking for a home. There is real inertianow around online gambling in the US: in New Jersey,

Panel Session:IMGL Master Class: Financing the Consolidation Boom

For its second consecutive year, the KPMG eGaming summit hosted three world-class IMGL Masterclasses. Thesecond Masterclass of the day focussed on “Financing the Consolidation Boom” and provided a fascinating look atmany aspects of recent M&A activity in the sector. These included the drivers behind the mega mergers, and howthose deals are actually playing out; the impact of regulation at all levels; different verticals and market share; andthe importance of technology. Providing a positive and insightful outlook for the sector over the next 12 months,the panel moved on to discuss likely investment sources, such as private equity and debt-funding; potential mid-market activity; expansion into new markets; technology developments, especially the move to mobile; valuations;and exciting new products, such as eSports.

Moderator: Susan BreenPartner, Head of Betting & Gaming, Mishcon de Reya LLP

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Panellists: Linda Main, Head of UK Capital Markets, KPMG UK

Daniel Macadam, Managing Editor (Europe), Gambling Compliance

David Shapton, Partner, Akur Capital

Chris Treneman, Managing Director, Investec Investment Banking UK

Nevada, and Delaware; and it’s veryunlikely for any other states to open upin the next 12 months. So on the onehand you have most of the likely dealsdone in the US, and on the other, youhave this US private equity moneylooking for a home. This is one factorwhy we are seeing a boom in the UK.The other factor which Susan alludedto is the regulatory and tax changewhich we’ve already heard abouttoday: the point of consumption taxregime, which started at the end oflast year. You know it’s putting pressureon operators’ margins, it’s slowinggrowth, and making operators takedifficult decisions about their marketingbudgets. That’s a key regulatory driverthat we are seeing in the UK. It’s thatcombination of cheap debt, money inprivate equity firms, and regulationchange, that is making operators thinkharder about where their growth isgoing to come from, but at the sametime is probably making investors whohadn’t previously looked at onlinegambling, think again. Because now itis a clearly regulated space, definitelyin the UK, and in many other countriesacross Europe.”

Moderator: “Thank you Dan. Beforecoming onto the financing side, Linda,you are involved in a couple of verylarge transactions at the moment onthe Stock Exchange. Are you seeing the

same trends in terms of cheaper debt,drive because of the regulatory burden,and extra cost? Because if these dealsdon’t work at the mega level, it’s not soeasy to hide the failures on the balancesheet; you can’t amortize the bill in thesame way as you could before. So whatare the big boys looking at when theydecide to do deals?”

Linda Main: “You are right: you can’thide anything on a company publicbalance sheet. What people are goingto look at very closely is how are theyable to drive out cost savings, marketshare improvements, marginalimprovements from these big deals. Imean they are obviously largely paperdeals and so to some extent that isslightly less of an issue. What we areactually looking at here is the potentialoperational benefits of thetransactions, and that’s what the bigplayers are really interested in, and isequally relevant to a smaller companyas well. Any M&A who can’t see clearoperational or market share benefitsfrom doing it, will need to questionvery carefully why they are doing it inthe first place.”

Moderator: “Chris, we’ve been in thetrenches on one of the very bigmergers, Party and Bwin, some yearsback. Picking up on Linda’s pointsabout operational benefit, strategic

value, synergies and costs, are currentdeals getting it right, in terms of therationale for merging and combining?”

Chris Treneman: “It may be too earlyto tell with some of them. But I agreewith Linda, there is no hiding place forthese big deals. A lot of peopleassume the synergies and dealbenefits are much quicker and easier todeliver than they actually prove to be;the evidence of the history is, theyoften take longer and cost more. So Iwould put those caveats out there. Butit’s undoubtedly the case, the Worldhas become a lot more competitivewith these bigger players, and thenature of the industry has changedquite a bit over the last 7 years. Forexample, you’ve seen the move tomobile: that has been hugelyimportant. People who have beenbehind on that, need to address it insome way, which is one significantfactor. If you look at the UK deals, theyall have a slightly different motivation;you can probably get no two moredifferent deals than Coral/Ladbrokesand Betfair/Paddy Power tie up. WhilstI recognise the regulatory and point ofconsumption pressures in the industry,I also think there are specificmotivations for some of the biggerdeals that are being done which it’simportant not to lose sight of.”

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Moderator: “Thank you. David, aresome of those motivations value-driven, defensive?”

David Shapton explained thedifferences between the current 3mega deals: “Firstly, in each case, theyare being financed differently. If youlook at GVC’s acquisition of Bwin.party,there has been pressure on Bwin’sboard from activist shareholders for

some time to do something with thatbusiness. This culminated in thecompetition between GVC and 888 totake over the whole business which,the board concluded, was the neatestway to move Bwin.party forward. GVCwere able to finance that deal primarilythrough debt-funding, from a syndicateof US hedge-funds and private debtinvestors. As to the motivation, GVC ispredominantly a grey-market operatorand has been for a long period of time,but there was an opportunity toincrease the scale significantly fromwhere it was. A lot of industryobservers believe GVC will reverseBwin.party’s move a few years back toclose down some of the unregulatedmarkets, in the belief at the time thatthat would increase their valuation.What’s been interesting since then isthat the difference in P/E multiplesbetween the likes of GVC, which had alow single digit multiple, and thosewith very clean records, like a PaddyPower, have converged significantly,such that the public markets are muchmore understanding or accepting ofhaving a proportion of your businesscoming from unregulated territories. Inthe case of Ladbrokes and Gala Coral,

Ladbrokes, like Bwin.party, has beenone of the major underperforminggaming stocks for several years. GalaCoral has been through various privateequity ownership, and as we know,private equity always needs a neat exitwithin a reasonable period of time, beit 3, 4 or 5 years.

Both those considerations lead to thatdeal making sense, and Ladbrokes isdoing or has done a significant equityplacing for cash to ensure that thecombined business carries a level ofdebt that public markets arecomfortable with. Finally, with thePaddy Power & Betfair deal: there isn’ttoo much overlap in those 2businesses but one of the mostimportant factors is that the BetfairCEO is the former CEO of PaddyPower, the management teams knoweach other quite well, the culture fitsquite neatly, and there’s not been aneed to bring in outside capital. It’s apure, share-for-share merger. So whileregulation has some influence, in eachof those cases there are probablylarger factors in my view which havedriven those deals.”

Ms Breen theorised as to whether the

“So while regulationhas some influence,in each of thosecases there areprobably largerfactors in my viewwhich have driventhose deals.”

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determining factors for big deals werelargely economic, and Mr. Shaptonresponded that, while cost,competition, and market dominance allbring greater shareholder value, thereare often additional reasons whycertain mergers occur. It can be aquestion of a cultural fit, or otherindividual or funding factors.

Moderator: “Moving away from themega deals to the mid-market, do yousee the trends continuing? Are thereopportunities for the smaller and mid-size businesses, or are they going tocome increasingly under threat?”

David Shapton again: “In my view wewill see a considerable amount of mid-market M&A, predominantly tradedeals, where operators can look to pickup mid-size players in markets or inverticals where they are not currentlystrong. If you look across Europe,there are very few brands that have astrong presence across multiplemarkets, be they regulated orunregulated. So there is considerablescope for that to happen. There is alsothe possibility for buy & build, for mid-size companies. With increasedregulation, what we’ve seen is more

and more private equity housesbecoming comfortable with thepossibility of investing in pure onlinegaming businesses, which is notsomething we’d have seen 4 or 5 yearsago.”

Moderator: “On the topic of biggerdeals, will they themselves createopportunities for smaller, mid-marketactivity? How about divestments ofnon-core, extraneous, unregulated vs.regulated or yet-to-be regulatedbusinesses? Linda, I’ll put thatquestion to you.”

Linda Main: “There will always beparts of any merger that end up beingnon-core or duplicated so yes, there’sgoing to be opportunities for M&Atransactions around the edges of anymajor deal, and these big ones in themarket at the moment are noexception to that. With the currentmega mergers, there will certainly beoccasion for the middle market playersto play, as it were, on the backs of thebig deals.”

Moderator: “There seems to be aplace in the market for the large,dominant operators and the smallniche operators. How about the mid-

market? Chris, if we pick up on Davidand Linda’s points about verticals,products, and territories, how wouldyou advise a mid-market operator tolook at its growth plans now?”

Mr. Treneman suggested that while itwill depend on the circumstances ofindividual companies, the next 12months may be a testing time formany in the UK “For mid-marketoperators, there will be opportunities ifthey focus on their core skill set, to tryand build those out, and link up withother mid-size operators where it’sappropriate. Remember as anemployee stuck in the middle of amerger of two bigger operators, that isan uncomfortable place to be, until thedeal plays out. In those circumstancesboth bigger businesses can lose focusand direction and it’s quite possiblethat innovation and imagination mightgo out of the businesses. If that provesto be the case, it is probably not all badnews for the mid-market operators andmay provide an opportunity. Clearly ifthese big deals go well, you willcertainly see these larger companiesbecoming more aggressive in themarket once the dust has settled .However if they go less well, that short

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term opportunity may become a longer term one or at leastuntil they get themselves back on track. Therefore I thinkthere is a bit of time now for mid-market operators to comeup with something different. And, from a merger andacquisition perspective, there will be things that may wellcome free from these bigger deals, for example there hasbeen speculation around whether GVC will makedivestments. Whether they eventually decide to pursuedivestments or not, one has got to think that’s a realisticpossibility at this moment.”

Daniel Macadam: “I believe there’s more room for smallerand medium sized players in the online casino and bingosector than there is in online sports betting. This is goodnews for the Isle of Man, with its many online casino andbingo licensees here. Looking at some of our estimates forthe online UK market share, you can see that in UK onlinesports betting, the top 5 operators made up 75% of themarket last year. If Paddy Power & Betfair, and Coral &Ladbrokes goes through, the new look top 5 will have 85%of the market. That is real domination from the top 5!However, if you look at UK online gaming which is casino,bingo and poker, if you roll those 3 products together, thetop 5 operators have less than 50% of the market, in thefirst half of this year. (Of course poker on its own is anexception because of PokerStars’ dominance). So you cansee how it’s a much more fragmented, crowdedmarketplace than sports betting. There are certainly fewerbarriers to entry in casino and bingo than there are in sportsbetting, where you need to have your trading teams, andyou need to advertise during sports events, which is anexpensive advertising slot.”

Mr. Treneman added that the earlier presentation by Dr. Parkewas a suitable reminder of the motivation for the players in allthe different gaming verticals, “and in some of the bigbusinesses which may be more sports-based betting culturally,they can lose sight of what the customers in other verticals areall really about, whether it be slots, bingo, casino.”

Moderator: “Looking behind the scenes at platforms,technology, mobile, these create a huge impact on all ofthese businesses, both at the big and mid-size levels. Areany of you seeing in your day to day jobs, drivers aroundtechnology platforms and mobile which are of themselvesdriving a particular combination of businesses, whether it isacross verticals or markets?”

Chris Treneman: “In terms of M&A, if you are all workingon a common platform, it makes life much easier asultimately, you are talking about trying to port customersfrom one platform to another as it’s quite difficult to runplatforms in parallel. That is where a lot of the synergies,cost-savings, and redundancies lie. Frankly people thinkpretty hard about that, before they start meddling with it.Look no further than William Hill, spending a huge amountof time and effort right now, working on their ProjectTrafalgar, to achieve a platform they are comfortable with totake the business forward for the next few years. It’s allabout being able to have a platform which will enable themto bring products to market much more quickly.”

Ms. Main agreed with Mr. Treneman and suggested thatthe primary motivation for these big deals is not thetechnology, but as the technology is there, it represents animportant part of the achievement of synergies beingreached by the big players through these deals.

David Shapton: “The reality is there is just far too muchdifficulty in the migration of players, in trying to run twoplatforms. In the case of Ladbrokes & Gala Coral, the factthat they are both on the same platform now, is animportant factor in making that deal work.”

Moderator: “Coming back to the structure of negotiations,they say there is upwards of $400 - $500 billion of privateequity money around to do deals. How many deals arebeing driven by the appetite of the private equity houses tofind another form of investment, as opposed to the CEOsthemselves, wanting to do those deals? Linda, can you giveus any insight into a typical big deal? Looking at some of theaspects of their structuring, are we talking about shares,with a combination of cash on the balance sheet, orsomething else?”

Linda Main: “We’re seeing quite a variety of structuresbeing put in place but the motivations and the incentives aregoing to be different in each case. Clearly private equity atthe moment does have a lot of money, is keen to do deals,and as we’ve said is increasingly comfortable in this space.But having done deals, it then needs to do the next one, itneeds to always get out, and obviously at the moment weare seeing a number of deals in the listed company space,involving shares. Currently one of the bigger challenges thatwe are seeing, and these have been largely UK deals, is thecross-border aspect. This is proving to be quite challengingfor some players; actually executing cross-border deals is acomplex thing to do. We’ve seen less success, perhaps,with overseas players seeking to make these transactionshere.”

Moderator: “So is this debt too expensive, in terms of theprice to be paid for funding this sort of mega-merger? Chrisand David?”

Chris Treneman: “A new company who is looking to takeon some of the alternative bank debt, which is out there andbeing provided, needs to think quite hard about how theyare going to pay that down, because it can eat away atequity returns very quickly. If you consider the cases ofAmaya and of GVC, it may well suit them both just to keepwith it for the moment. I’m not involved in either of thosedeals but I am sure that they will certainly have thoughtabout ways of paying it down. But as an equity investor, Iwould be quite concerned to see that expensive debt paiddown, or at least a way to paying it down quite quickly. Let’snot forget that private equity money is not known for beingcheap money.”

David Shapton: “I agree and would add that you wouldonly, as an acquirer, take on debt to make an acquisition ifthat was really cheaper than equity, certainly as a publiccompany. As a private acquire, then the question is howhighly do you value your own equity if you are an owner/manager, such that you’d be happy to take on that level ofdebt? Or in the case of private equity, you would often seethat private equity usually builds its minimum return into itspreferred structure whether it’s via debt or equity. Generally,the management stake is always having to clear a hurdle. Soas well as being clear on whether you are able to pay thatdebt down, through cash flow, one should also considerwhether equity on a risk-reward basis is more or lessexpensive than the debt that is being offered to you.”

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Moderator: “Returning to a point that Chris made aboutstifling innovation: even if the maths doesn’t work soeasily to begin with, one of the objectives of a merger,big or small, is to access and promote novelty andattract new customers. Now this is not an end in itself,but the beginning of something bigger with a merger.Will this drive or stifle further consolidation plays? Howare you going to be able to do that as owners ofbusinesses, with increased marketing costs, increasedtaxes, and the burden of regulation which is only goingto get worse and not better? In the short term, is that notgoing to put some pressure on the underlyingfundamentals of the businesses to deliver and grow andbecome more creative?”

David Shapton shared his view that mergers inthemselves are not necessarily the start of furtherconsolidation. One purpose they do fulfil however, is topublicly indicate that, “this is the size of company thatwe need to be, to take things forward for the next fewyears. Larger companies have always struggled withinnovation because of the needs of public shareholders,to retain cash to meet quarterly earnings targets and paydividends. So I don’t think that situation changes

significantly. There is always room to add some morebolt on acquisitions to these larger businesses. But whatthese mergers need to provide is an organic growthbase, and an increased profitability from the costs thatwould be saved by putting those two businessestogether. And as has been pointed out, the increasedcosts of regulation are best offset through scale.”

Daniel Macadam: “I would completely agree with that. Iwas especially struck, while you were talking just nowabout increased regulation and other increased costs foroperators, at how we’re seeing a greater curiosity fromour private equity subscribers in markets that previouslywouldn’t have attracted interest, before this M&A wave.There is interest in Russia, particularly because ofAmaya and PokerStars, and the potential $550 millionpay-out Amaya will have to pay if regulation changesfavourably there. But also in Italy and former Sovietstates. You mentioned greater regulation: this comesfrom countries’ licensing, online gambling and otherforms of gambling, it also comes from regulation inadjacent sectors. We heard earlier about the excruciatingcosts, particularly for smaller companies, around ITsecurity and data storage; there is also AML, and testinglabs. So you’ve got all those regulatory costs, you havecountries adding regulation, and you have private equitytaking a greater interest in what’s going on in all ofthose areas.”

Linda Main cautioned on this critical point: “the onething a private equity owner is not going to do is sit backand let you take a casual approach to any of the above.Because once you’ve got private equity anywhere nearyour business, they are going to look very tightly and

very closely at regulation control and the way thebusiness is operated: they don’t want any value to leakaway through problems in any of those kind ofhousekeeping areas.”

Moderator: “Linda, is any part of this driven byvaluations per se in the market, when you are looking atlisted companies? Or is that just a by-product of the factthat there is a business rationale to be dominant in aparticular sector? Can you say anything about howvaluations will pan out over the next year or so? Thatmay be a difficult question..”

Linda Main: “It is a difficult question! If I could see howvaluations were going to pan out over the next 12months, I suspect we wouldn’t all be sitting here on thispanel. [laugh] Well, clearly valuation is a driver, there isa definite perception at the moment that there are moredeals to be done, that it is a good time to be doingdeals. But in terms of how that is going to move overthe next few months, I would defer to my equity marketscolleagues on my left.”

Chris Treneman acknowledged the trickiness of theissue, “There is a huge divergence in ratings between

Paddy Power-Betfair, and the others at the moment. Onehas got to think that should normalise over a longperiod. I can see why valuations are far apart, but in anincreasingly competitive UK market in particular, quite alot of growth is required to justify the top end of thoseratings. My own sense is that, if you look at the UK andIreland writ large, if I was over-invested in thosemarkets, I would worry about political and regulatoryrisk, and the headwinds to growth that might bring withit. I would like to think that the big UK operators willcome up with a way of finding new markets abroad, todiversify that risk.”

David Shapton: “I wouldn’t forecast which wayvaluations as a whole would go. Typically, withacquisitions of private companies, valuations have beenin the 6-8 times trailing EBIT or EBITDA range, and Idon’t see that shifting considerably. Unregulatedbusinesses tend to be below that, and regulated and fastgrowing businesses can attract a higher multiple. Butgiven the multiples that public market businesses tradeat, which is generally higher, there can be somesignificant earnings enhancing transactions to be done,at that kind of level. We see that continuing, not onlyamongst operators buying into new markets and newproducts, but amongst B2B providers as well.”

Moderator: “Thank you. Now let’s talk a little about Asia.Would regulation make M&A more likely, Dan, there?”

Daniel Macadam confessed his surprise at the lack ofany Asian-facing operators, in all the recent M&Aactivity. Citing reasons for this, he continued, “theregulatory landscape in Asia is grey, to dark grey, to

“I believe there’s more room for smaller and medium sizedplayers in the online casino and bingo sector than there is inonline sports betting.”

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black. That is probably a factor that’sholding back significant funding goinginto M&A deals in that sector. Ifanything, the momentum now istowards more prohibition of onlinegambling. You have Singapore inFebruary, banning it for all but the 2state-run companies; you also haveKorea, in the last couple of weeks,announcing prison sentences for onlinegamblers, and a 100-day crackdown onany affiliates that are linked to onlinegambling operators there. To me, thearguments that we have in Europe,where governments are beingpersuaded to license online gamblingfor extra tax revenue, are compelling.The debate in Asia is far more aroundintegrated resorts and the financialbenefits that governments can get fromthose, which dwarfs any income thatyou would get from online gamblinglicenses. It means that online gamblingis either not on the radar or it is there assomething to be prohibited.”

The moderator then moved on to askMr. Macadam about new territories.Were there particular factors inemerging states that could pointtowards the ability to grow into, andadd significant scale to, the largemerged entities? How likely was a largeSouth American or African market, inwhich to play for? Were there keyregulatory shifts or developments underway in those regions?

Daniel Macadam: “One model thatseems to be particularly popular at themoment in Africa, and attractinginterest from small to medium sizeoperators from Europe, is a kind ofomni-channel approach, where you havea betting shop that connects directly upto a website. You see a lot of it in Italy,that Stanley Bet pioneered. That modelis currently working and being rolled outin Nigeria and Kenya and some otherlarge African countries. I don’t know ofany major operators who are doing thatyet, perhaps because of regulatoryuncertainty about whether it iscompletely legal, and whether it islicensed, but at the moment there aresmaller companies that are veryinterested in it, and seem to be doingwell.”

Moderator: “As to outlook for thecoming year, we are seeing lots of newproducts, such as Daily Fantasy Sports;we heard comments from thegovernment this morning aboutlicensing, the position in the States,

and mobile. How do we see theseseparate businesses, or the potentialfor social, daily fantasy, mainstream,sports betting, poker, casino, to growtogether? Will there be geographic andproduct differences maintained withinthe market? Have you, David, seenmovements to consolidate on a muchwider product at a geographic level?”

David Shapton: “Looking at each ofthose in turn, Daily Fantasy is huge inthe US, and has run into someregulatory difficulties of late. The twolargest players in DFS are looking tolaunch into the UK and other territories.I can’t see how they would achieve asimilar market share and growth thatthey had in the US, when they’d haveto compete for marketing space withsports betting businesses, whichthey’ve never had to do in the US. Youwill typically have businesses andbrands that are strong in one particularvertical versus the others. I don’t see itall converging into one, although ofcourse once some of these largermergers are complete, where else doyou look for growth other than toswallow up some complementaryproducts or verticals?”

“One area that hasn’t been mentionedthat is very interesting is eSports. Itbrings in a type of gamer or gamblerthat would not normally have comeclose to our industry. Video gamerstend not to be typical sports fans orsports bettors, being more focussedon their Xbox, or particular games. Sothere are already some businessesaround, and some M&A here, which ismaking good progress in establishingeSports, not just as a huge spectatorsport from a land base and event pointof view, but also in establishing poolsbased betting, fantasy sports or evensimple bookmaking on eSports. Sothose areas are the most interesting,and eventually, I think we could seesome convergence here.

Moderator: “That is interesting. Wouldyou say then that the Intertain modelof focussing on bingo, and beingdominant in a particular product andacross many territories, is still asensible way to go for operators? Interms of strength in an offering, asopposed to dilution across territoriesand product offerings, if you don’t havethe band width or the technologicalskills to do that?”

Chris Treneman tackled the question,“If you are an operator and looking to

extend your customer base, you’ve gotto be wholly sure you know how youare going to go about it. Therefore, takebingo, or eSports or Fantasy sports forexample, each of which potentiallybrings you a completely different set ofcustomers, with different levels ofmotivation, you need to know what youare doing. Remember too, each ofthose products have some prettypowerful competitors who know whatthey are doing. Therefore I think you’llprobably want a business with a degreeof ballast to it already, andunderstanding, and momentum,because I think you would worry aboutyour own ability to nurture and drivethat business forward under yourumbrella immediately.”

Moderator: “How about whetherthere is enough appetite to do IPOs?This is really the big boys all gettingtogether. There are some obviousomissions. But in terms of the mid-sector, what’s your best guess for theoutlook for the next year?”

Linda Main: “I think there is appetitefor IPOs. Clearly, all transactions thatwe are seeing at the moment arerunning a dual track: IPO and sellprocess, because the PE houses we’vediscussed are very interested in thespace and are increasingly prepared toinvest. To get the best value you’vealways got to have a flexible approachto any transaction. But there isdefinitely appetite and interest amongthe small to medium size categoryplayers, towards looking to an IPO. Wework with a huge number ofcompanies that think they are going toIPO and then end up doing somethingelse. Interest and excitement in an IPOdoesn’t necessarily mean that’s theultimate outcome of the transaction,but there certainly is enthusiasm.”

Chris Treneman: “From myperspective, I would commend an IPOto anybody who thinks they can offer aunique market position and opportunityfor growth, going forward. That’s whatUK investors are looking for. They haveloved the online model over the manyyears, because of its cash-generouspolicies, and ability to pay dividends. Inthe long term, it is worthwhile, if youmeet those criteria.”

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After lunch delegates enjoyed apresentation by Jennifer Houghton,Managing Director of AnnexioLimited. Annexio are an Isle of Manbased, regulated online gamingcompany. Established in 2010,Annexio specialise in the secondarylottery market and own the websitesPlayLottery.com andWorldLotteryClub.com. Ms. Houghtonhas a background in internationalaudit, banking and insurance, withindustry giants AXA and Deloittemaking appearances on her CV.Having lived and worked in severalcountries, including the US, Sweden,Luxembourg and the Isle of Man, Ms.Houghton is ideally placed tounderstand the stresses and benefitsof running a company in possessionof a multi-jurisdictional license.

Ms. Houghton’s approach to multi-jurisdictional licensing was to presentthe subject from the perspective of anoperator who had been trading on theIsle of Man for the last four years. Sheindicated that, in the case of Annexio,the firm chose to base itself in the Isleof Man due to the following:

• Licensing worldwide was changing.

• White listing in the UK was a short-term position.

• The EU would, and still will, evolve further.

• The position with regard to the US would remain challenging and any solution would probably continue to lock them out anyway.

In particular, Annexio felt that, in theIsle of Man, new businesses areespecially well supported, as theycontinue to evolve.

Ms Houghton explained, if you examinethe market trends from the perspectiveof an operator, it is best to break itdown into seven areas: competition;cross border; regulated markets;customer protection; fiscal andtaxation; know your customer; and theneed to regulate. These, she explained,are the current trends in lotteryworldwide which deserve attention.

Jennifer Houghton, Annexio Limited

Multi-Jurisdictional licensing

Presentation:The Multi-JurisdictionalLicensing Process

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Commenting on competition, Ms.Houghton observed: “Quite simply,we need to see where the futurebusiness for ourselves will come fromand where those who went into themarket after us have thrived. It’simportant to our survival that weknow who to shoot and who to avoidbeing shot by!”

As an issue that affects every industry,and as a building block of the freemarket, competition benefitscustomers and companies alike. Thatbeing said, there are lessons to belearnt from competitors abroad.“Accepting the EU as our biggestmarket”, Ms. Houghton continued,“Changes in the EU have meant thatthe competition for cross-borderproviders such as ours have changedcompletely. The need to consider thecompetition of home regulation andalso competitors operating in the home

markets of the EU is critical to be moreahead of the game. We see changingpositions in the UK, Spain, Italy andGermany. Therefore any cross-bordermodel in the future needs to takeaccount of the European position and ofthe very many directives and tax andVAT rules that apply.”

Like most operators, Annexio are alsolooking further afield, to the US andSouth America. In spite of the UStraditionally being a “no-go” area,companies should examine the changesthat are taking place with the terrestrialgaming companies and also individualstates, as these are the days of shiftingsands. As Ms. Houghton remarked,

“That there will be one solution that fitsall states, to my mind, is highly unlikely.However, if one wants to break into thishighly attractive market, then one of thethings to keep an eye on is the viabilityof state by state licensing.

As for South America the market hasalways been very complex and to beable to operate efficiently in that part ofthe world one needs a local basedoperation, particularly call support staffand then, of course, you becomeembroiled in the regulatory position andalso that of different approach betweendifferent countries on the continent.”

Ms. Houghton touched upon the FarEast as a market, citing the hugerewards for companies breaking intothis area as being worth any“substantial barriers to entry, in termsof language and customs, as well asthe current volatility of the regulatoryclimate”. It would be an expense and achallenge to obtain the necessaryresource to break into the market ofthe Far East.

Competition

Moving on to cross border issues, Ms.Houghton underlined the extremedifficulty of operating in the Europeanmarket while being outside the EEAand without any presence. With thatin mind, Annexio applied for, and weregranted, a UK license to operate theirUK based business and also to act asa beachhead for the rest of Europe.

As Ms. Houghton outlined, “It is clearthat the ability to operate in Europe isnot simply based upon white listing orindeed passporting. There is a complexalgorithm of compliance, taxation andVAT questions that every companymust answer for themselves.”

Annexio regard an Isle of Man licenseas the perfect tool that combinescustomer protection and excellentstandard of regulation, but also givesthem the confidence to expand intoother markets. As those marketschange Annexio will change with them,and has faith that the Isle of Man

government will do the same. Annexiobelieve that the future lies in a blendedsolution that centres around a base ofoperations in the Isle of Man.

Elaborating on the perils of being across-border player, Ms. Houghtoncontinued, “One must always cope withthe difference of a level playing fieldbetween locally based companies andthose operating internationally. The useof legal opinion and also on the groundresource is critical to be able to obtainthe current market position and also ofcourse the future market movements. Itwould be incredibly frustrating to makean investment in a new country only tobe blocked out from that country a fewmonths later. It sounds unlikely, but thisis something that we have had to dealwith in the past.

Operating across borders is increasinglygoing to be an issue for the sector. Therate at which the problems increase willdepend on the continent. One only

needs to examine the situation in theUK with white listing to see a vision ofthe future where governments decideto change the rules in an attempt tobolster either local based companies oralternately and more importantly localbased tax revenues.”

In order to obtain market access, onemust also consider the rules that existfor cross-border players into othercountries. This may seem obvious, butthe rules are far from clear dependingon what type of game you offer, whattype of product that you offer and alsothe situation in the home state withregards to foreign entrance.

Those who are familiar with the UKmay also be aware that there is arequirement to ensure that whenturnover in a specific market exceeds3%, then the company is required tohold the necessary legal advice whichconfirms the manner in which they areproviding services to that country.

Cross-border issues

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Ms. Houghton pondered on a future for Annexio:

“Whilst we do not know the timescales we feel that themove to compliant based business, depending on the localmarket, will be an irresistible force in the future: we havealready begun to organise our model to take advantage ofthese future market changes, and when the market changesagain, so will we. Of course the future is never certain butone must have in mind the operating model that they believewill cope with future positions. For Annexio, we believe thatthe hub and spoke model, with the Isle of Man at the centreof the wheel, aligns with our current model.

But dealing with the unregulated, internationally regulated,and with European markets differently, depending upon localneeds and also the appetite of the regulator and the riskappetite of the company, is highly challenging.”

The future for a multi-jurisdictional operator

“Whilst we do not know thetimescales we feel that themove to compliant basedbusiness, depending on thelocal market, will be anirresistible force in the future...”

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One issue which affecting operators across the industry ishow to deliver payment solutions. This is becomingincreasingly difficult, as Ms. Houghton described:

“We see this problem at the heart of the move tocompliant based business as the changing risk attitude ofbanks, and also to payment solution providers, will meanthat their ability to process business in the grey market orindeed business that is not clearly regulated will beincreasingly limited in the future.

I recognise that this is a challenging statement and runscontrary to the thoughts of a number of other operatingbusinesses. However, one only needs to look at thecurrent High Street banking model and also the movesinternationally to see the challenges ahead.

I know that some businesses are looking to solutionssuch as cryptocurrencies or other payment methods. Weare broadminded and of course will look at futuresolutions as they become available. However, we mustbear in mind that the core of our business lies in currencytransactions, and any solution that we introduce must beconvenient for both our players and also ourselves. Wewill not put at risk our own banking relationships, orindeed of future payment solutions.”

However, like many other companies, Annexio haslooked into the case of cryptocurrency, and whilst theproposition is extremely attractive, the company remainscautious to ensure that the deployment of acryptocurrency solution does not affect their players,their banking or the industry more generally.

As Ms. Houghton continued:

“We are looking to regulators to give a clear indication oftheir position with regards to cryptocurrency and alsofrom the clearing banks to ensure that, should we usethis method of payment in the future, there will not beany unexpected consequences. We are keeping a closeeye on the position with regard to the UK and also furtherafield, where the attempt to understand, and most likelyto regulate cryptocurrency in the future, are on theagenda. When this comes to pass we see that the abilityto use alternative payment methods, such ascryptocurrency, is an extremely attractive option. Whilstmany do not consider customer wellbeing as part of theircore marketing proposition we believe this isfundamental. It remains optional for now but the futureof regulation and the nature of free markets will see thisbecome a necessity. Fiscal and taxation is of courseimportant too as the desire by governments to improvethe tax take will inevitably impact upon the profit marginsof the gaming companies.”

Payment solutions and cryptocurrency

“The segregation of playersfunds from that of the companyis not just good practice, but alsoa sure winner when it comes todescribing the situation topotential customers.”

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Why regulate? There are obviously numerous other issuesaffecting the eGaming sector and therefore the need forregulation, but from a multi-jurisdictional perspective Ithink some are the more relevant in an ever changingclimate, than others. Number one, the increasingsophistication of regulated markets and the two waylearning between markets by regulators will causeproblems for some gaming companies as rules andcomplexities become more apparent.

Number two, It is important to recognise that with multipleregulations, diverse markets, and evolving regulations, it ispossible, even likely, that you will eventually breach rulessomewhere. The regulators recognise this, however thekey is how you respond to the breach. You have to actquickly and decisively, to give the regulators confidence inyour ability and maintain relationship with them. I’m pleasedto say, Annexio has never had this problem.

So, when dealing with regulated markets, if you are going tobe a regulated player then there are rules that must befollowed and the rules that we would identify are as follows:

The rules on VAT are changing particularly in the UK and otherparts of Europe. So one must be very careful not to build upan unrealised liability to VAT simply by attempting to structure

the business in such a fashion as to avoid the VAT. Theintroduction of consumption tax was the start of thecampaign. We believe is just the tip of the iceberg in terms ofensuring that everybody pays their fair share of both duty andalso associated taxes.

When working with the regulators one also must be sure thatthey understand the differences between varying regulatoryregimes. We have started on this journey quite recently, andalready we see the challenges in working with multipleregulators. Not least that compliance departments, and thestaff that they employ, need to be familiar with the rules of ourhome state (the IOM) and also that of the other country.

It is very easy to assume that the rules in a foreign countryare the same as the home rules but often this is not the case.Annexio applaud the efforts of the GSC to work with otherregulators to ensure that there is an understanding and alsoacceptance of the Isle of Man as a recognised well-regulatedjurisdiction. Their work makes everyone’s lives much easier.

Regulated Markets

Annexio consider one of the key strengths of the Isle ofMan to be its approach to customer protection. This iscritical for multi-jurisdictional operators, such as Annexio,as Ms. Houghton outlined:

“The segregation of players funds from that of the companyis not just good practice, but also a sure winner when itcomes to describing the situation to potential customers. Ascases over recent years have demonstrated, the fragility ofplayer trust must never be underestimated. The ability todemonstrate that the care taken with players’ funds is equalto that of a financial institution is one of the things that willbring consistency and also acceptance to the industry moregenerally. Operators must also ensure that they are familiarwith the rules of customer protection in that country, andalso vis-a-vis the competition more generally.”

When considering customer protection, one must alsoconsider very carefully how the payment solutions that onedeploys in the country match up with ability to paycustomers if there were any difficulties. Annexio areattempting to use multiple payment solutions to ensure thatour customers are best served depending upon thelocation, the rules of the jurisdiction, and also of course thecost of the payment solution itself.

A very important aspect when considering regulatedmarkets is the tax position, especially in conjunction withthe regulated position. If you're familiar with the term‘principal place of establishment’, you will also be awarethat there is a very fine line when creating a PPE and alsocomplying with the necessary rules of the country to whichyou wish to establish.

When working in a regulated market one also mustconsider the terms of business that are both available to theplayer and also displayed on the customer website.

Often it is found that the terms of business betweendifferent countries need to be adjusted to ensure that theyare compliant with the home state and also that of thetarget state. This alone consumes large amounts ofresources as well as costly legal advice.

Annexio recommend paying close attention to this areabecause, if something were to go wrong, then the liabilitycould be eye-watering.

Customer Protection

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Scanning the horizon for anyupcoming fiscal issues, Annexiorecommend that operators watchthe taxation position with regard tothe UK and the EU, very closely. Thecurrent focus on OECD Base ErosionProfit Shifting and the introductionof Diverted Profits Tax means that,depending upon turnover, thesituation with regard to taxationand to that of players may changedrastically.

Ms. Houghton, “Again, this plays to thestance that we are deploying of huband spoke. If one is to challenge for

market share in other countries, thenyou cannot have an Achilles heel athome. With the acquisition of our UKlicense, and possibly others in the nearfuture, we hope that no matter whatposition arises, we will be in at least acompliant position. Of course it isattractive to seek to operate in differentways to ensure that you mitigatetaxation as far as possible, not leastbecause of the impact on profitabilitymargins in many of our individualsectors, but what would be damagingis the exclusion from the market totallyor penal tax charges due to lack ofcompliance in the past.”

Annexio are examining the structure oftheir corporate entities very closely toensure that they can maximise the useof their hub in the Isle of Man and thatof local deployment to provide goodcustomer service, a compliant marketoffering, and the minimisation of taxesand duties in foreign countries. They areconfident that they can operate in allour target markets in a fashion thatmakes everybody happy, includingshareholders.

Fiscal and Taxation

With AML, the logical thing would beto assume that one size fits all withregard to this type of compliance.

However, one would be wrong. Whilstthere is an international standard ofcompliance under Financial Action TaskForce principles the deployment inindividual countries appears to besometimes random at best.

It is easy to understand why the largeclearing banks with multinationaloperations are defaulting to a riskadverse process: it is very easy to getthe application of local rules wrong. Andof course this could have devastatingresults. We even see differencesbetween the UK position and that of

the Isle of Man which sometimes isextremely difficult to explain to acustomer base.

The way that Annexio has dealt withthis is to ensure that the systems whichwe deploy in the Isle of Man are fit forpurpose to apply to customers recruitedfrom other locations and make surethat our staff are well trained and alsofamiliar with the necessary rules. Whilstthis may seem expensive overhead, ifone is to operate in a trusted and alsorespected industry then one needs tofollow the international rules. Annexiohas introduced electronic verification,transaction checking, and also of coursethe profiling of customers.

Ms. Houghton continued: “The dangersof poor systems are not only dangerousto the company itself but we also see awider responsibility to that of the Isle ofMan. With the impending MONEYVALvisit, we recognise that the internationalinstitution will be looking forweaknesses and we must ensure thatit is not ourselves. We owe this to ourregulators and of course to the rest ofthe industry here on the Isle of Man.”

AML / KYC

“We intend to operate in this industry formany years to come, which means thatwe need longevity not just in our productbut also in the trust and acceptability ofour business model.”

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Ms. Houghton came to her final topic of the day:regulation.

“So why do we need regulation? We often come acrosscompetitors that are not regulated. It is sometimesfrustrating that, as a business, we have overheads andresponsibilities that others seem to be blissfully unawareof, or unconcerned about. Whilst we can understandthese businesses wish to maximise their profit marginsand therefore share value in the very short term, in thelong term we know an unregulated approach is unlikelyto pay dividends.

We intend to operate in this industry for many years tocome, which means that we need longevity not just inour product but also in the trust and acceptability of ourbusiness model. We feel this comes with operating withina regulated environment which in turn generates anincrease in customer confidence.

We need to ensure that when that time comes, or whenwe are approached by an appropriate party, for trade saleor IPO, then we are not just fit for purpose but also anattractive partner for our future owners. We have beenasked to look at other businesses for acquisition and alsomerger but often these businesses have no regulatorystanding and some of the practices, frankly, are quiteworrying within them.

We need to ensure that when the same thing happens toourselves, we are in a position of strength to negotiatewith any third party. However, we have no plans forexiting at this moment in time, thank you very much.

Everything that I've talked about today is related to goodpractice in a regulated environment. I know it is not themost interesting subject in the world for customers, butfor shareholders, for our bankers, and for regulators I canassure you the subject is fascinating.”

Why Regulate?

As Ms. Houghton concluded her presentation, shesummed up her experience of creating and operating aneGaming business on the Isle of Man with the following: -

“The process of building Annexio reminds me of myjourney climbing Kilimanjaro. It was a challenging, albeitvery rewarding, process.

When I first set up Annexio I did so without the help of aCSP, or a lawyer, I did so by understanding the detailedregulatory requirements, which was a significantinvestment of time. There was certainly a lot of fine printto read, and many, many, forms to fill out, but it was aprocess that has helped give me insight into theimportance of regulation.

Customers are more likely to trust a product if you canshow your company is rigorous in its application ofregulatory law. Investors, who are concerned with returnon their capital investment, are more likely to trust acompany that can prove, without a shadow of a doubt,that it is compliant.

For our industry to thrive, we have to think on a globalscale, and not just consider the pros and cons of a singlejurisdiction.

When seeking to move abroad, and operate acrossmultiple jurisdictions, the process is much the same.

You begin with hard work, then the foundations youestablish and the routes you choose will put you in goodstead when you finally reach the summit.”

Conclusion

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“Another driver for this session is the recent changes tosocial responsibility regulation in the UK. Not just the UKGambling Commission’s technical standards, which cameinto effect in October, but also the Industry Group forResponsible Gaming’s Guidelines for TV advertising thatcame out back in August. We are fortunate to have todaythree individuals on the panel who are very involved inthe broader question of CSR. Indeed, looking at thatwider debate, in Gibraltar recently I hosted KPMG’sGlobal Head of Citizenship, Lord Michael Hastings. Hewas visiting to speak at the Barclay’s Future LeadersDevelopment Programme, which KPMG have beensupporting, and he spoke about the wider area ofcitizenship. I know that Barclays were interested because,like many in the financial services world, they have been

exploring the importance of CSR in a market wherepublic trust has been eroded. In fact, one of the debatesthat the panel looked at in the run up to this, was aBarclays’ hosted debate, entitled “Is CSR Dead?” You’d beinterested to know that their conclusion was that it isn’tdead, but actually that traditional CSR programmes in thefinancial services sector are no longer fit for purpose. Toillustrate the point, they used an analogy from Wiredmagazine, (a magazine which always rates newtechnologies as ‘wired, tired or expired’) and they ratedCSR as certainly tired, and in need of re-wiring. But Isuspect these companies on our panel bring somethingthat’s far from tired, in terms of their approach to CSR.Panel, please introduce yourselves.”

Panel Session:Social Responsibility in Gaming

Moderator: “Allow me set the scene for this panel about social responsibility. Last April at our eGaming summit inGibraltar, we had a panel session which included the Head of the Gibraltar Betting & Gaming Association,Gibraltarian Ministers, the Chair of the Senet Group, a Data Analytics expert, and an UK independent gamblingconsultant, Steve Donahue. The panel debated the whole area of corporate social responsibility, with an emphasison gaming companies. They focused largely on traditional CSR, in particular its role in shaping perceptions ofeGaming operators, as a force for good, and to oppose any negative views held by the wider public. They talkedabout the impact of TV advertising; questionable marketing campaigns run by one or two high profile operators;and increasing morals in markets across the globe, which we’ve certainly seen from a tax point of view here in theoffshore world. Considering their impact on the wider public view of gaming, the conclusion in that debate wasthat CSR was not just morally right for gaming companies, but, specifically in this sector, a strategic and a financialnecessity. So that was one of the drivers behind wanting to debate this today,” said Micky Swindale of KPMG Isleof Man, opening what became a very stimulating panel session, on the sometimes sensitive topic of corporatesocial responsibility in eGaming.

Moderator: Micky SwindaleHead of Advisory, KPMG Isle of Man & Gibraltar

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Panellists: Sue Hammett, Head of Corporate Giving, PokerStars

Janine Woodford-Dale,Head of Marketing, Events & PR, Microgaming

David Schollenberger, Partner, Head of Gaming, Healys LLP

Mark Reynolds, Director, Newfield

Dr. Jonathan Parke, Founder and Principal, Sophro

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David Schollenberger: “I’m DavidSchollenberger, a Partner and Head ofthe gaming team at Healy’s Solicitorsin London. We advise operators,suppliers, governments and interestedparties, in gambling regulation.”

Sue Hammett: “I’m Sue Hammett,I’m Head of Corporate Giving forPokerStars Full Tilt, part of the AmayaGaming company. I’ve worked in CSRfor 15 years, specialising in communityinvestment, and have previouslyworked for Orange UK. I’ve been hereon the Isle of Man for three years.”

Janine Woodford-Dale: “I’m JanineWoodford-Dale, Head of Marketing,Events and PR for Microgaming.”

Jonathan Parke: “I’m Jonathan Parke,a psychologist looking at the consumerpsychology of gambling. I have workedat two of the UK’s main research unitsfor gambling, then I was Director ofCommissioning for the ResponsibleGambling Trust. I have recently set upon my own doing research and training,for my consultancy firm, Sophro.”

Mark Reynolds: “I’m Mark Reynolds,a Director at Newfield Limited, whichis a proprietary para mutual andexchange sports trading companybased in the Isle of Man. I’m achartered secretary by training andworked within the CSP industry forover ten years. I moved into thegaming industry three years ago.”

Moderator: “Given the wider backdrop,we’ll start with our CSR reps first, andask you in turn, to describe yourcompany’s CSR approach and activities.”

Mark Reynolds: “We are a relativelynew company on the Isle of Man, inoperation for just over three yearsfollowing a decision to base theheadquarters of a larger group withinthe Island. One key function forNewfield, set from the beginning, wasto invest locally in the Isle of Man. Avital part of that was to recruit IOMworkers, and develop them, with theobjective of building our staff basepurely from local talent. From February2012, we grew from having two peopleto 12 by the end of the year. We’vedoubled year on year; now we employup to 95 people (some on a part-timeor contract basis). In fact, more than85% of them are IOM workers, sowe’re very proud to have achieved oneof our key ideals.”

“When we started, we didn’t really

have a focus in terms of our CSRpolicy. It was something which we hadto develop over time. My view, with aCSR policy, is to look at where you are,how you are going to enter into thelocal community, to become the ‘goodlocal corporate citizen’. Then you lookat things on a more regional basis;then when you reach that level youconsider things on an internationalbasis. We have just now implementednew policies where we are looking atcharitable donations and sponsorship.We’re really looking to help re-invest inthe island. As a new company, over thelast two years we have focused firstlyon our own staff, and looked at ways tohelp them develop. For example, wehave a number of staff who are IOMrepresentatives in sport. On twooccasions we financed them to attendthe Island Games. We’ve started tomove into actual team sports, the Isleof Man TT, and most recently havelooked at developing youth, with thehope to link that back into our missionstatement. We’ve financed the Isle ofMan Sport Aid Academy which aims to

move young elite athletes into aposition where they learn key skills andcharacteristics which will help themfrom a sporting perspective, and alsopotentially in future careers. We’vedoubled our charity budget year onyear. We let our staff vote on whichcharities they would like to support: wewant to engage staff in how we runthat side of our business. We also runraffles at our staff events each year,and match what is raised, to give as acharitable donation.”

Moderator: “So very much early daysfor Newfield. Microgaming andPokerStars, this is a longer establishedarea for you. Janine, please tell us alittle bit about Microgaming’sapproach.”

Janine Woodford-Dale: “Microgaminghas an extensive CSR programme called‘Microgaming Play It Forward’. Wedonate to a number of causes, both onand off the island, in three key areas.One is sport, the second is health and

the third is education. We’ve been doingit for an awfully long time. Weestablished the Microgaming Health andCare Trust back in 2002. Since thenwe’ve been involved in a number ofcauses, from sponsoring elite sportsambassadors on the Isle of Man who’vegot the potential to go all the way, rightthrough to sponsoring CastletownBowling club. So there is a real mixtureof things that we do from a sportingperspective.”

“The Health and Care Trust has beeninvolved in multiple projects in theisland, from Red Cross through to Menin Sheds, to Hospice, and equipmentat Nobles Hospital. We’ve introducededucational bursaries to help risingstars who don’t have the financialsupport to make it through touniversity, to get there. From our pointof view, we’re incredibly proud of thework that we do on the island, but it’snot just a fiscal contribution. We feelquite strongly that it’s also important togive time, and to offer ideas, and tohelp develop these charities andcauses that need it most. It’s at the

root of everything that we do as acompany. Our ethos is very muchabout work hard, play hard, but alsoplay it forward. By giving to charities,and supporting these causes, we hopethat we generate a cycle of generosityand kindness, that will go from thatpoint onwards, and benefit others.”

Moderator: “Sue, I think you will haveheard a lot there that ties in with manyof your views. But please, talk usthough PokerStars’ view on this area.”

Sue Hammett: “At PokerStars, wehave over 80 million customers aroundthe world. Our corporate givingprogramme reflects that fact: it’s moreof a global giving programme. We havea separate Gaming Responsibledepartment that is in place to ensurecomplete player protection. Mydepartment is responsible not just forlocal corporate giving but also ourglobal giving. This is split into two keyareas: the focus on what our staff want

“By giving to charities, and supporting thesecauses, we hope that we generate a cycle ofgenerosity and kindness, that will go fromthat point onwards, and benefit others.”

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to do, and the focus on ourcommunities. Specifically, within ourcommunities, we have our onlinecommunity which is massive, our liveplayer community, and our globalcommunity. Within those differentareas we focus on key things. Ourthemes for our global giving are verysimilar to Microgaming, in that wefocus on sport and on health.”

“We also focus on technology,particularly technology that enablessocial change. Through that particularfield we create staff involvement. Arecent example is from 2014, when wefunded a mobile phone game calledPlay to Cure: Genes in Space, inconjunction with Cancer Research. Itwasn’t just about funding that game,because our staff were physicallyinvolved in the development of it. Inthat case, our funding obviously came

forward, but so too did our staff skillsset. For PokerStars it’s not just aboutthrowing money at a charity project.We want to ensure we make a tangibledifference, as a business more thananything.”

“With that in mind, we embracedisaster relief as well. I mean, pokerplayers can be very generous people!We’ve got a long history of giving backat times of international disaster. Forexample, when the Asian tsunami hit,back in 2004, the problem we facedwas that charities didn’t want to takeour money. That is the issue still facingus, because of the nature of ourbusiness: they don’t trust us. So inrecent years, we’ve partnered with acharity called Care International. Theyhave become our nominated disasterrelief partner, so that in times ofinternational emergency we can put

out an appeal within 48 hours. Earlierthis year, with the Nepal EarthquakeAppeal, we raised US$260,000 in twoweeks, via our players, which we thenmatched. So really, in terms of whatwe’ve got to offer, it’s not just from afunding perspective, it’s our playerswho want to give back, and us as abusiness using our key skills, to giveback as well.”

Moderator: “Thank you Sue. That ideathat a charity might be reluctant towork with a gaming operator, will bringus nicely later to talking about whetherthis is an imperative for the industry asa whole. But before we do that, I’d liketo move now to some of the otherareas. Jonathan if I may start with you,why is responsible gamblingimportant?

Jonathan Parke: “I think there arequite a few reasons. To start with anobvious one: regulatory compliance.However, it is important to considerwhat would motivate corporationsto exceed basic compliancerequirements. This brings us swiftlyto the second less obvious issue:consumer trust. Observing theindustry from the outside as aresearcher, it seems that a lot of thebattleground around marketing isconnected to product, cost, andtechnology. From what I hear themargins on costs are becomingincreasingly competitive. But trust isa very important aspect, andbasically a new frontier to developthe brand. What does trust mean?When we did a large scale survey onremote gambling with almost 11,000respondents from over 80 countries,we asked a question ‘Do you thinkthe operator has a switch they canflick on or off, making you win orlose?’ and around 50% said yes.Here, you have ‘soft hurdles’, forexample, when a player tries to takemoney out of the account, it says,‘Are you sure?’ and if you proceed,you may lose your bonus. Those arethings that cause players to think,well, I want my money back. Clearly

I intended to click, ‘Yes, withdraw’,so why are they putting up thesehurdles? These are subtle devicesthat need further consideration. Icould be wrong here, and theindustry may well have this undercontrol, with such cases beingisolated.”

“But if we’re talking about whyresponsible gambling is soimportant, this leads nicely to a thirdpoint, and that is timing. Fromwhere I’ve been observing over thelast 15 years, one of the challengesis working in the short-term ratherthan in the long-term. In largercompanies especially, executiveshave significant responsibility in theboardroom, to shareholders, and forthe company’s performance. If youwant to be truly responsible, anddon’t want problem gamblers onyour books, then implementing aneffective policy regarding playerwelfare, may have a negative short-term impact but a long-term positiveone. But really, how do you achievethis? It’s a problem, because of‘diffusion of responsibility’.Everyone is just trying to do theirjob and is ultimately concernedabout how they will be appraised fortheir specific job performance. It’s

very easy for somebody working for,say, an anti-gambling lobby, to havestrong views – that will be a primarycomponent of their job specification.But in reality, for those working inthe gambling industry, it’s not asstraightforward as that. Clear goalsneed to be linked to employeeperformance and to the overallmission statement. The regulatoralso has a role here in appropriatelyincentivising businesses to haveimpactful harm minimisationstrategies.

“There’s not an industry like it [thegambling industry] where mud flies,and sticks as hard. In some cases, itis warranted. There is misbehaviour,whether it’s bonuses or lack oftransparency, although transparencyhas improved a lot in recent years.There is however paranoia out therethat is unjust (e.g., consider the 50%of people thinking there is an on/offswitch for winning and losing!).Surely there must be a way totighten up that reputation, withrespect to the players. I thinkimpactful responsible gamblingstrategies, that aim to maximisepleasure and minimise harm, areone way to do that.”

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At this point in the proceedings, delegates picked up their mobile phones to voteon the following question, via the Bizzabo app:

Are sports betting operators overdoing iton TV?

The poll results revealed:

62% said YES31% said NO5% said DON’T KNOW

Moderator: “Thank you. That leads usnicely to one of the points we wereplanning to look at. Before I move toDavid to talk about social responsibilityregulation more widely, I’d just like toread a quote from the chair of TheSenet Group, who took part in thedebate we had in Gibraltar. Becauseshe was talking about TV advertisingand perhaps making a point aboutunintended consequences, or theimpact on the wider public view of thegaming sector. When she was asked,‘Has the industry done a good job on

dealing with sensitivities aroundadvertising?’, she said, ‘The shortanswer is no, they haven’t. As soon ascompanies were allowed to advertisethey were like kids at Christmas.Marketing ideas need to have somelongevity, and I think what happenedwas that a whole series of companieswho hadn’t been able to advertise on TVand didn’t have experience, weresuddenly able to. The result, it has to besaid, is that some of the adverts wereunbelievably crude, unbelievably basicand without context. The problem was

that all of the ads were shouting ‘Freebets! Free bets!’ and the consumerwho wasn’t used to seeing thissuddenly thought gambling was all overthe place, and a problem. It’s somethingpeople aren’t used to and it isn’tcompletely socially acceptable. Theseads are also highly targeted aroundsports: football, cricket, boxing and soon. So it’s even more concentrated, andperceived as such.’ So before we moveon to talk about social responsibilityregulation as a whole, we might just doour first poll.”

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Moderator: “So 31% of you said NO.That would suggest there hasdefinitely been a move on this sinceGibraltar; however over 62% of youthink YES. David will be able to discusssome of the guidelines that have comein around TV advertising as well as theUK Gambling Commission’s socialresponsibility regulation. But if I canstart with a more general question foryou, David, is there enough regulationon social responsibility?”

David Schollenberger: “I will speakfrom the perspective of the UKbecause that is where I’m practising.My view is that the UK has done apretty reasonable job in getting thebalance right with the Gambling Act of2005. Also the licensing conditions andcodes of practice has recently updatedthis year, which I’ll talk about a little bitlater. In the balance betweenprotecting the public and allowingpeople to enjoy recreational gambling,there are jurisdictions such asSingapore where I think they havegone too far. There, for example,friends and family can put you on anexclusion list without your consent. Inthe US, on the land-based sector,maybe not enough has been done forproblem gamblers. But the vastmajority of gamblers do so responsibly,betting limited amounts over areasonable period of time. So therehas to be a balance that doesn’t ruinthe enjoyment of those who gambleresponsibly, as well as protectingthose who don’t. In my view, self-regulation and industry groups, such asThe Senet Group, and the IndustryGroup for Responsible Gambling are ina better position than a governmentagency to regulate what should bedone with respect to social gaming.And I think in the UK they’ve done agood job to date in that respect. InAugust a new Gambling Industry codefor socially responsible gambling wasreleased, and has been embraced bythe Senet Group and operators assomething that they’re prepared to do.One of the key features of that newcode will preclude sports bettingoperators from advertising promotionsto get new customers, such as freebonuses, before 9 o’clock. It will alsorequire notices in their advertisementsabout gambling awareness that isprominently displayed into a period of

time. So I think the industry is in abetter position to regulate itself thanthe government would be, and I thinkthey have done so fairly responsibly todate. They have a lot of incentive withthe history that was mentioned, of thereputation of the industry, to makesure that they appear to the public tobe doing the right things at all times. Itis in their self-interest to do so and Ithink they want to do it anyway.”

Moderator: “Thanks David. If we canreturn now to the wider area ofcorporate social responsibility, each ofyou has described your company’scorporate social responsibility approachand activities and how they havedeveloped over time. Could you expandon which element of the impact of yourCSR programmes is most important toyou? Be it inspiring your staff, or PR forpotential recruits and customers, orcreating shared value of the bodies thatyou work with. Or indeed othermotivations altogether? May we startwith Janine please?”

Janine Woodford-Dale: “I would sayall of those factors are relevant toMicrogaming. Without a shadow of adoubt, the principal driving factor for ushaving a CSR programme is to giveback to the community. We’re nicepeople at Microgaming, we’re a goodbunch, and we actually care about theIsle of Man, and other issues aroundthe world. We’re not a brass plateManx company, claiming to be basedon the IOM and not actually having apresence. We have a lot of staff overhere and we are building a new office.We are committed to the island, andwe feel passionately about giving backto it. It’s the heart-warming stories ofthe impact that we make on and offthe island that make the biggestdifference to us. To give you anexample, about 18 months ago amember of our staff came in and said“I’ve just had the most incredibleexperience at Nobles Hospital. My sonwas very ill and had to have an IV dripput in. His previous experience of thatwas incredibly stressful, to the pointwhere they couldn’t get the drip intohis hand so they’d had to put it into hishead. He became really distressed.This time around the doctor said,‘You’ll be fine this time, we’ve got anew piece of equipment called a vein

viewer.’ They took my boy’s hand andput it on the machine, and the dripwent in effortlessly. It was incredible!”Our staff member also explained thatwhen she thanked the doctor, he toldher the equipment had been funded byMicrogaming, by the Health and CareTrust. Here at Microgaming we supportover a hundred different causes, bothon and off the island. It’s those littlestories have the biggest impact, andmake us feel proud of what we do.”

“I do believe that there is a hugebenefit to businesses everywhere, inhaving a CSR programme. We knowfrom research that consumers aresavvy, and want to buy fromcompanies that have an environmentalawareness, a sustainability awareness,and do give back. When we go throughan RFP process, operators will cometo us and say, you’ve got a greatproduct, but do you have morals andvalues? A good example is one of ouroperators, PAF, who give 100% of theirprofits back to charity. So I think thedriving factor for us is, we want to giveback. In my opinion, It’s important forall organisations across every industry,to give back and have a CSRprogramme. But also the fact that thestakeholders, mainly customers, butstaff too, and the millennials who arecoming through are saying that 50%want to work for organisations thathave a greater purpose, and contributeto a greater purpose.”

“Finally, we’ve just gone through astaff engagement process, where allour staff completed a survey. Over90% of them have said that they areincredibly proud of what we do from acorporate and social responsibilityperspective. This idea feeds itself too:staff start to look for ways to engagewith CSR themselves, for example, itwas Microgaming staff who went outand rebuilt the garden at the MSPCA.Another example of staff engagementis the following: Microgaming kindlygive us lunch for free every day. Weasked our staff if they’d be willing togive up one free lunch every month fora period of time. The money savedfrom that was donated to ChangeHeroes which enabled 2 schools to bebuilt: one in Kenya and one in China.So for us it’s a combination of all ofthose factors.”

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Moderator: “Sue, where do PokerStars sit on the questionof what your priority is?”

Sue Hammett: I would say it’s very similar to what Janinesaid, although what it isn’t, is PR driven. When people ask,‘Why do you do what you do? Is it because you wantcolumn inches?’ I say, absolutely not. For PokerStars hasphilanthropic origins: Its founders wanted to give back tolocal communities in Costa Rica, where the company firstbegan. That ethos has remained throughout the company.We give back because it’s the right thing to do. We are aprofitable company; we have an obligation to give back. Westill have a service and support office in Costa Rica, so it’sright to give back there; also via our customers online. We’rereally passionate about it, and hopefully that will neverchange. Speaking of the Isle of Man, we work very closelywith the local community here. We have an active charitycommittee which is inundated with requests on a regularbasis. We also have five other committees around the world,one in each of our office locations. Each faces differentchallenges: what’s relevant in the Isle of Man isn’tnecessarily what’s relevant in Costa Rica. A large part of ourbudget goes towards supporting those local communities.Then on a global scale, we’re working with some fantasticcharities and seeing real differences made. It’s allhappening, but quietly. We don’t need to get PR from it.”

“Where PR does come in valuable for us is where we’retrying to raise money. So most recently we partnered withProstate Cancer UK on a brand new annual fundraising,called Lads Night In. This actually promotes poker as a forcefor good. It’s about encouraging guys to get together, playpoker, and raise money in the process. A recent fundraisersmashed it out of the park. The idea is for guys to gettogether for poker but also to talk about health problems.We’ve got an obligation towards our players, to raiseawareness of these issues, and use them as a greater forcefor good. We are particularly proud of where we’ve comewith fundraising. Since 2013 we’ve raised over US$7maround the world. That’s not a trivial amount. That’s making areal difference. But as I say, we don’t need PR to talk aboutit.”

Moderator: “Mark, what about Newfield, are you interestedin the PR side?”

Mark Reynolds: “Yes, and whether you want it or not, there isalways a PR link into what you do with your CSR policy. Wetried to come at it as a way to entice people to want to comeand work for us. We want to be seen as the type of companyreaching out and investing into our local community, we wantto be seen as an employer who helps develop staff and offersthem the best platform to reach the next level, whether that bein their career or in their hobbies. Clearly Microgaming andPokerStars, are the pinnacles of what everyone should beaspiring to. It’s indeed inspiring that Microgaming have set upan independent trust side, and taken the focus away from theirbusiness. This suggests more of an outside perspective andkey focus on what they want to invest in, and donate to.PokerStars also supports some very worthwhile causes; andas we heard, they’ve even found innovative ways to fundraise.”

“For licensed operators, I think there is very much a focus onprotecting your reputation. It’s about trying to safeguard yourbrand, and taking the spotlight away from the stereotype ofthe industry. By really encouraging the focus of everyorganisation towards a sustainable and coherent CSR policy,we can counteract this view of the industry that everything isblack, and nothing is clean or transparent. If you check thebusiness news on a daily basis, you can see more and morecompanies taking a much keener focus on CSR.”

Moderator: “Yes, and that would certainly marry up withsome of the views expressed in the Gibraltar summit earlierin the year, and particularly by Steve Donaghue, who in thisquote said, “I would like to see every CEO of everygambling company personally take £200,000 out of theirpocket, put it in a big pile and spend it on a home forpuppies, or something similar. You are here [gesture] andyou are trying to be there [gesture]. It’s no good trying to doit incrementally, because of regulatory creep working in theopposite direction. Each new regulator, each newjurisdiction, each new academic, just makes the argumenttougher and more obscure. What you need to do is make amassive leap.” The panel in Gibraltar felt that PR is a veryimportant element of that. So before we go back to thequestion of responsible gaming, and the regulation aroundit, let’s just do a poll to see what your views on CSR are, asdelegates. Here is question number 2:

What is your view of corporatesocial responsibility activities?

A. Equally important for all companies B. Particularly important for companies in the gaming sector C. Nice to have but not a need to have D. Not a good use of time/ money E. I don’t know.

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Moderator: “So that’s very interesting. This idea that it’sparticularly important for companies in the gaming sector,it’s significant but not the dominant view. The overridingview is very much that it’s a moral imperative for allcompanies, which I suspect is a position that three of ourpanel members feel very comfortable with. I’ll be keen toknow at the end of the session what the number of votersin the room are.(1) But returning to the question ofresponsible gambling, and protection of players. Jonathanyou talked to us about why responsible gambling wasimportant. I’m interested to understand, as an area thatyou’ve been looking at for a long time, how has theindustry’s approach changed over the last decade?”

The poll results revealed:

A. 65%

B. 28%

C. 0%

D. 5%

E. 0%

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Jonathan Parke: “I think the industry as a whole, and eGamingin particular, has moved on a lot in the past decade. If you lookback at 2004 for example, there was research that suggestedthat only one out of every 30 operators offered self-exclusion.Research also recorded examples that when a player lost,they might receive an email to entice them to try to win theirmoney back. Nowadays, if you did a matrix and looked at thevarious different responsible gambling tools and policies, suchas limits and activity statements, there would be ticks byalmost all of the regulated operators. But here I think there isa real need for specificity and consistency. So to give you anexample, let’s consider players provision of an activitystatement. This would result in a tick in a box for almost allregulated operators. But not all activity statements are createdequal. For operator A, it may remain difficult to ascertain howmuch a player has actually spent, whereas with Operator B,the overall net expenditure may be crystal clear.”

“The second thing to mention is the idea of identifying yourproblem gamblers and being able to effectively intervene.Over the last 10 years, there has been some encouragingdevelopment using data analysis, but I think on-going workneeds to go into how you can increase the accuracy. This isspecifically important for the operator, because they don’twant to target individuals who don’t actually have a problem.Then once you’ve identified a problem gambler, what do youdo? I think the first step is communication: messaging withthe player who might have an issue. So what does a goodmessage look like? Let’s remember that the pathologicalgambler will have impulse control problems. Telling them thatgambling will be bad for their financial health may not helpthat individual. What you need to do is make sure that themessage is simple, dynamic, personally relevant and promptspersonal reflection. Avoid using disclaimer language, like ‘Thissuperman costume will not make you fly’ but use simple,purposeful language to get the players to assess theappropriateness and consequences of their behaviour.

“For me the biggest take-away message is having evidenceabout impact. Actions may speak louder than words, but interms of harm minimisation impact is what counts. It’s areal shame when you see operators adopt an approachusing guesswork. It costs a lot of money and takes a lot oftime. If unsuccessful, they get left with a PR mess at theend after it’s failed, even if they thought it would work.However, if an appropriate impact evaluation is built into thetrial, then a failed attempt is just part of the learning takingeveryone one step closer to more effective harmminimisation. It’s not straightforward because you arepushing sometimes against politics, and needing to satisfyregulators who need action now. For responsible gamblingstrategies to do what they’re supposed to do, our collectiveunderstanding about what is the best approach needs toimprove quickly. For me personally, small-scale trialling is the

best way to achieve this, sharing the outcomes with otherstakeholders as you go. It’s lower risk, and you are going tobe much more efficient at dealing with players you do wantto deal with. You may even be seen to be a thought leader inthe area.

Moderator: “What was interesting in Gibraltar, possiblybecause we had a data analytics expert on the panel, washow good the industry has been at sharing data aroundproblem gambling, with one another. I know that one of theareas that KPMG in the UK have worked on with operatorslike PokerStars, is the ability to be able to spot when a firsttime player comes to a site. If they appear to be playing in avery inexperienced fashion, the site is able to direct them toFree Money Play. So I suppose as data analysis gets muchmore powerful, the ability to look at player behaviour andreact accordingly will get much better. Given, Jonathan, thatone of the things you highlighted in your presentation thismorning was that the aim of both operators and regulatorsshould be to maximise the pleasure, and minimise the pain,it’s interesting to consider whether regulators are gettingthat balance right. Actually one of the questions to yourpresentation implied that the French regulator possibly isn’tgetting it right, that they are much more focused on limitingthe ability to gamble. But David, I think you feel that the UKGambling Commission probably are getting that balanceright?”

David Schollenberger: “Yes, and I think that it’s a difficultjob because they are not on the coal face like the operators.They have to try to figure things out, and some things workand some things don’t. I’ll give you an example of a few ofthem. In 2014, the Gambling Commission did a review of itsSocial Responsibility Licensing Conditions, for the first timesince the 2005 act was enacted. They also amended theLCCP (licensing codes and conditions of practice) in 2015,following our consultation for one year with operators, andwith some contemplative changes. The changes that theyhave enacted apply with respect to auto play. At themoment a system must stop auto play, when the loss limitis reached. Each time the customer uses the auto play, itmust select the stake, the number of auto plays and theloss limit. With respect to loss limits, where a customersets the loss limit, it can only be increased after a 24 hourcooling off period. After the new LCCP, with respect toreality checks, customers must now be able to set thefrequency of reality checks depending on what they feel isnecessary in their own particular situation. The reality checkmust give the customer the instructions on how to exit it ifthey want to. And none of these changes were reallyobjected to, too strenuously by the operators in aconsultation period. So I think the balance that they havestruck in trying to increase player protection without goingover the top is fairly reasonable at this point.”

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Moderator: “Ok, which leads us very nicely to our finalpolling question of the session.

What is your opinion regardingsocial responsibilityregulation?

A. Unnecessary – operators should self-regulateB. The regulators are getting it about rightC. More regulation is neededD. Don’t’ know

The poll results revealed:

A. 29%

B. 38%

C. 23%

D. 8%

(1) The total number of voters in the room was 65.

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Mr Marantelli opened hispresentation by explaining that,having established Colossus Betsthree years ago, they have chosen topartly base their operation on the Isleof Man and partly in the UK. He saidthat Colossus has found the Isle ofMan to be a good place for anincubator business.

Referring to a slide showing thesaturation rates for variousinnovations over the last hundredyears, Mr Marantelli commented: “Asyou can see these types ofsaturations get predominantlyquicker, the adaptation of innovationis faster”.

Mr Marantelli highlighted the clearmismatch between where industriesspend their advertising budgets andwhere people spend their time: “If youare looking at innovation, there is aparticular mismatch there, and it is

around internet and particularly mobileadvertising, and mobile time spent byhumans. And it’s definitelymisbalanced in the other directionagainst print media”.

UK gambling growth is being driven byOnline. He referred to the strong timingelement to innovation, saying: “peoplemight not look at Bet365 and say theyare an innovative company but I think in2002 when they basically sold theirshops and said “we’re going to go all inon sports betting online”, I think thatwas an innovative step, particularlywhen sports betting online was really inits infancy”. Mr Marantelli reviewed forthe Summit various recent high profilesuccesses and failures and the factorsthat led to their success or failure,saying: “I tried to look at what factorscounted the most for success andfailure across all these companies. Andthe results really surprised me. The

number one thing, was timing. Timingaccounted for 42% of the differencebetween success and failure.”

In Mr Marantelli’s opinion: “theindustry is starting to prize innovation,or recognise it as a stream ofdevelopment, rather than a change inmarketing or a slight tweak in product.We see a lot of industry awards now…. I think people have seen in themedia: William Hill now run a lab inShoreditch in London. Matchbook haveannounced Matchbook labs, and evenATG, the behemoth of Sweden, thatmany people would say would be thelast company to innovate, have a smallincubator within their firm as well.”

“Innovation really can drive things”, hesaid – commenting on Betfair’s latestfinancial release. “They introduced aproduct called price rush which wasbasically if you wanted to bet on theirsports book, but the exchange had a

Bernard Marantelli, Colossus Bets Bernard Marantelli is CEO and Founder of Colossus Bets. Colossus Bets goes beyond offering theworld’s biggest guaranteed pools; with unique patented technology, that allows clients to cash-in allor part of their multi-leg bets at virtually any stage of a game, through it’s Partial-Cash-Outtechnology. This enables clients to extract value from the game as their selections are proved correct,without having to correctly predict the entire set of matches.

Presentation:Innovation & Incubation:Exploring the Sector Trends

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better price, they would migrate yourbet across to the exchange in aseamless transaction that you didn’trealise, and say, you wanted to take 6-1, we’ve given you 6.6-1. And they’vefound that straightaway, that added10% to the bets that their clients wereplacing in an average play, per day.”

Mr Marantelli identified a number ofbusinesses that he considers to be realinnovators in gambling: BuaBook, FanDuel, i-Pools, Wikibetting, Favourit,Draft Kings, Mondo Goal, Betfect, TheSports Predictor, Casumo.

Mr Marantelli turned then to thecommon causes of failure: “Somepeople are trying to solve problemswhich don’t really exist. They get verygranular in some element of gamingthat they are looking at …. They think,“I personally think this X should bedifferent” but what they don’t consideris, is there really enough of thepopulation that thinks it should bedifferent?” He also mentioned thatmany of them run out of capital beforethey get anywhere: “If you look quicklyat the journey from an idea in the pubto being a successful company, itbasically goes like this: “Drunk in pub,got an idea, go home, put togetherslide deck, go and raise $50,000 at a$300,000 valuation, put together someBETA, raise $300,000 at a $millionvaluation after a year, have some sortof secondary BETA but still no liveproduct at the end of Year 1 (when yougot the $300k funding) and you’rebasically going back trying to justify tothe street that they should fund you 2or 3 or 4 million dollars. You don’t havea clear partner map, you don’t haveletters of intent, you don’t have liveproduct and it’s at that sticky stagethat we’ve seen a number of start-upsand innovators really struggle to getthrough that step. Where the foundingteam or some of the funders just say“Hey! We haven’t got traction in twoyears, it’s game over for me, I’m goingto move on”. Both from the personnelperspective saying, well I’m not goingto put another two years of my life intothis and sweat equity, and from thefunding perspective as well. And Ithink, and it’s not a critique of theincumbent firms, but the incumbentfirms are quite happy for that journeyto be difficult and not have little bratscome up in the industry and try andtake some of their lunch off the table.So they are quite happy to almostdeliberately string them along, happy

for the process to be slow enough, andnot have new entrants in the market.”

Looking at some of the fatalities, MrMarantelli commented: “Even wellsupported companies like Takai, whichwas betting tournaments and [it failed],even with the support and backing ofBetfair. So it does go to the point ofhow much is about timing. Bet Butlerwas about a problem that existed butcouldn’t be solved. If you are a winningpunter, William Hill and 365 and Coraldon’t want to accept your bets. So BetButler said, well you tell us what yourbets are, we’ll get all these otherstudents to run around and bet for you.And eventually that doesn’t work as amodel either because they all getclosed down. “

“These are success stories that I thinkwere timed to perfection. Bet365 went

all in on internet gaming just as it startedto be prevalent. Betfair really workedbecause when they launched the bettingtax where you had to pay 9 or 10% onyour bet or on your collects, wasessentially scrapped in Betfair’s year anda half of operation, which essentiallymade the economic model of a personto person exchange work. … Airbnb,where people like Craig’s list failed,Airbnb just got to the stage where theyhad some traction around 2008-2009,where people went from “I got loads ofmoney, I’m never going to let a personstay in my house when I go on my twoweek holiday” to, “I’m actually a little bitbroke, I am going to let them stay in myhouse.”” He made the point that Airbnbwere very clever in that the onecomplaint about the site surrounded thepictures of the houses where you couldstay: “They were taken by mums anddads with basic cameras and poor

lighting, so they hired a photographerand went ‘round all their properties inNYC and photographed them allprofessionally at no cost to the peoplerenting out the houses. And bookingrates just in NYC, went through the roof,and a month later they hired 20professional photographers and sentthem around all of their properties allaround America. The timing of the crisis,and the timing of this introduction, madea massive difference to Airbnb, whereother people were trying similar things.”

Mr Marantelli went on to compareincubators in big firms vs. start-ups:“the one thing that doesn’t muchcome out in literature, and one thing Ithink really drives the distinction hereis that start-ups don’t have money, bigfirms do. But the big firms also havelayers of bureaucracy. Start-ups can trynew things; big firms work oncommittee so they can’t. I think the realissue here and the real driving force isthe risk profile of the individuals makingthose decisions. If you go toPokerStars, or Unibet, or Ladbrokes, forexample, the mid-to-senior-management who are there, have got awife, kids, and a standard of living thatgoes with whatever salary they get, andin some respects they need to maintainthat for five or ten years more.Someone might come to theminternally (or externally with an idea) andsay, what do you think about this? Wellthe real risk profile for that individual isif he says, yes, I like that innovativeidea, let’s put money behind it, launch it,and see if it works - if it fails, he’ll getthe sack or a rap over the knuckles - ifhe does nothing, except tweak theacceptable products that are aroundhim, and change his income 5% up ordown, he’s not really likely to get anybinary outcome on his remuneration (asin bonus) or binary outcome as in youdid badly, you’re getting fired. So I thinka lot of the driver is the risk profile ofthe individual people.”

He explained further: “I think then yougo into a room where there are fivemid-managers who have to make acollective decision to say, we’ll takesomething innovative in, from outsideor develop something innovativeinternally, you now not only have to getthe risk profile of one of them, youhave to get six of them to agree,because the standard process, if youdon’t have a unanimous decision, is it’snot going to go forward. But a start-up’s hand is more forced. 85% of the

“the one thing thatdoesn’t much comeout in literature, andone thing I thinkreally drives thedistinction here isthat start-ups don’thave money, bigfirms do.”

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UK market, with the new mergers, is controlled by 5% ofcompanies, or what would be seven companies nowmerging into five. So if you are scrapping around in thatbottom 15%, and you want to become a ME 2 operator,you’re going to get your head handed back to you on a plate,in a war of attrition, mostly around marketing, and smalltweaks to products. And we see a lot of firms which havelarge capital behind them, really struggling. A small number offirms own the clients and it’s hard to get them to moveacross for a ME 2 product.”

“So if you want to innovate, what do you need to do?”asked Mr Marantelli rhetorically. “You have to attack in anarea where there is a lack of innovation, or get a product andproperly change it, rather than just marginally change it, orperhaps pioneer a feature of something new, but againeverybody is going to steal and copy or borrow from you orwhatever. What we did in Colossus (to talk briefly about myown experience) is we looked at some of these products,like football pools, and we thought, they haven’t reallychanged since many people in this room were five or sixyears old, and they probably ran their Dad’s coupon downthe pub. We looked at lottery, which you know, has a greatomni presence that everyone knows about. So you know,we were looking at areas like that, and thought, we caninnovate here, we were particularly innovative in saying thatwe wanted to build lotto-sized prices on sports. We said, wethink that, as a person progresses through a multi-leg eventof any description, where their value becomes higher andhigher, they should be able to cash out their accumulator ortheir pool or their lottery or their slot or their bingo or their

Keno. So we came forward and invented that release in2013 and since then it’s kind of become industry standardwith a few people replicating it.”

Mr Marantelli said that Colossus is also introducing thesocial media element of betting: “Paddy Power have over500,000 followers on Twitter. Now I know a lot of those willbe passive, but it is essentially a free communicationchannel, and it’s a very instant communication channel.”

Another area of interest is the UK facing fantasy predictorgame: “We heard earlier that Fan Duel and Draft Kings areboth expecting to launch UK games, DK are much moreadvanced, they were going be live in September, thenOctober. They’ve got all their data feeds ready for soccer, soI think the fantasy space in the UK will have a mini bubble ofactivity although I personally think it’s not going to be asuccessful innovative area.”

A member of the audience asked Mr Marantelli for his viewson eSports. He responded: “I would venture to say that it’sslightly a niche. I struggle to see it ever being competitive inthe public psyche with soccer or football on a global level. Ithink people in that area will make money, but I just can’t seea world where the retail public, the 18-50 year olds who arethe predominant sports betters, become lunatics abouteSports and watch it like Man U and bet it on it like that. It’s ahot topic because the industry four years ago was like,Social! Social! Social! And a lot of people re-inventedthemselves about Social and that kind of died a death... Ithink it will remain reasonably niche on a global level.”

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Panel Session:Looking to 2016 and Beyond

“The focus for the next hour is looking forward to 2016, seeing what the industry has in prospect for next year. Withthat in mind, our panel is a wide variety of operators and advisors to the sector,” Thus Mr. Kelly introduced the finalpanel session of the Summit.

Moderator: Russell KellyHead of Audit, KPMG, Isle of Man and Gibraltar

Panellists: Bill Mummery, Chief Executive of Celton Manx (SBOBet), Isle of Man

Stephen Ketteley, Partner, DLA Piper, London

James Agnew, Director, KPMG UK

Paul Novellie, Partner, Novellie, Verardi & Mitchell, Isle of Man

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He went on to outline some of thecurrent issues raised during thecourse of the day: topics such asinnovation, the social drivers ofeGaming, and changes in thepipeline for the Isle of Man, as theprincipal jurisdiction in question. Mr.Kelly then addressed his panel togauge their perspective on whatwould be the main trends of 2016.Turning to Mr. Agnew, he asked:

“James, what are your views on this?Will there be a continuation of M&Aactivity, big deal consolidations,smaller deals, or bespoke one-offdeals where people pick out targetsto strengthen their positions?”

Mr. Agnew inferred that he broadlyagreed with those who’d contributedto earlier panels, regarding M&Aactivity in the sector. Citing one keydriver as recent consolidation inNorth America, (notably the dealbetween Amaya and PokerStars),Mr. Agnew explained how this hadcaptured the attention of the UKindustry. The other driver, accordingto Mr. Agnew, was the pressure onprofit for UK companies, “That isprobably the single biggest driver,and is something that is not goingaway. The investors are certainlyfocussed on this now, and the ratingagencies have also commented onthat quite recently. That pressure hasled to a need for people to gettogether, to have larger platforms onwhich they can spread both theirinvestment in technology, and theirinvestment in acquiring newcustomers. So I think that pressureis very much going to remain inplace as we go into next year.”

Mr. Agnew provided an idea of whatto expect in 2016 regarding mergersin the UK, “The other thing to note isthat the competitive landscape isgoing to change somewhat. Again,

people focus on William Hill. Hill’s,on their last results call, wereobviously very keen to point out thatthey are a large company andtherefore under no pressure to dodeals. Some commentators havenoted that their position in digital inthe UK will have gone from being inthe Top 3 to probably being 4 or 5.And I think that the last speakercommented on the heavyconcentration at the top end. So thisyear it felt in the UK a bit like buses:you wait for a long time andsuddenly three come along atonce…I don’t think we arenecessarily going to see a repetitionof that, as we go into 2016, but I’d bevery surprised if we didn’t seeanother wave of consolidation.”

Mr. Kelly then asked Bill Mummeryfor his perspective. While Mr.Mummery was broadly inagreement with Mr. Agnew, hesuggested that in 2016, M&A wouldnot be rushed: “I think the driver forthis last year was a reflection, in fact,of the significant increase in taxationburdens and cost of regulation. Mysense is that, next year will, in part,be one of catching one’s breath,looking at how other external factorsto markets progress, and thenanother round of M&A.”

On the advisory side, panellistStephen Ketteley, Partner at DLAPiper, explained how hisinvolvement in large deals has alsosupplied an indicator to likelyactivity at mid-market level.

Stephen Ketteley: “What you call themega-mergers…do happen fordifferent reasons, operators orsuppliers have different needs interms of product type or jurisdictionexposure. You can’t necessarilyextrapolate right across an entireindustry, the reasons for deals.

However, one of the things that we asadvisors are seeing is an invigoratedinterest in the market for privateequity particularly, both in Europeand in the US. There are some verygood businesses out there in the mid-market who either have fantastictechnology that they own and theycontrol the road map of, and/or arevery good at the marketing side ofthings. So I do foresee more dealsbeing done at the mid-market level.And I don’t see them just being donebetween trade. There will be somefresh ‘financial blood’ coming to themarket as they begin to get excitedabout the industry again, as they did10 years ago.”

Mr. Kelly remarked how this wasencouraging news to all those whoact on the advisory side oftransaction services. Consideringsome of the drivers behind recentM&A in the Gaming industry, heproposed that one was certainlyregulatory taxation. Suggesting thatanother could be the scale oftechnology investment required, Mr.Kelly invited Paul Novellie to speakon the subject of technological paceof change, within the Gaming sector.

Paul Novellie is the Senior Partner atNovellie, Verardi and Mitchell, in theIsle of Man, and chief advisor togaming software giants,Microgaming. “Well I think it’s goingto carry on apace, and if anything it’sgoing to increase. All of thecompanies are out there innovating,as hard and fast as they can. And Ithink it’s going to get faster and morecompetitive. I think we are going tosee a significant increase inresources to keep that pace up. We’realready facing skills shortages acrossthe jurisdiction and in the industryand I don’t see that slacking off.”

“There will be some fresh ‘financial blood’coming to the market as they begin to getexcited about the industry again, as theydid 10 years ago.”

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Mr. Kelly went on to explain the effectof regulation on not just the gamingcompanies but on the suppliers for theeGaming companies as well. Turning toPaul Novellie, he queried the impact ofthis, and whether it caused a wideningat all, of the regulatory net.

Paul Novellie again: “I certainly thinkit’s going to impact suppliers, perhapswith a little more tail than with thefrontline operators. As the regulatoryimpact is absorbed by suppliers, theyinevitably see themselves cycling inthe second wave. There will be somereflection I am sure as to how they fitin to regulatory regimes and how thatties in with how they deal with thosesorts of regimes. Ultimately, it’s all inone basket, if you look at the M&Aquestions that have been asked. A lotof the smaller deals that have gonedown in 2014, and 2015 now, theydon’t get much headline because theyare not big. But people are buyingmarket access to regulated markets.And they are buying access not onlythrough operators, they are buying itthrough their supply chains, theirsuppliers. And suppliers are going tohave to fit in with that. The increasingdemand of the regulated markets ontechnical supply has meant that all ofthe supply side has to meet a widevariety of different demands.Unfortunately, all regulated marketsthink they can do it differently andbetter than others. This multiplies therequirements of the softwaredevelopment quite significantly.“

The panel then considered thequestion of gambling regulation, notjust as a catalyst to further M&Aactivity, but in terms of territoryapplication. With so much regulatoryactivity in the European environment inrecent years, is it viable to expect thisto spread globally? Which markets areembracing regulation? Mr. Kelly putthis question to Stephen Ketteley.

Stephen Ketteley: “The two regionsthat we are seeing the most interestfor legal advice in at the moment areEastern Europe and Latin America.Latin America has some populistjurisdictions which are at an advancedstage of regulating online, for example,Colombia, and Mexico, to someextent. Chile’s also got draft legislationout there. Brazil seems to vacillate:one week it is regulating, the next it isprohibiting, so I’m not quite surewhere that will end up! But needlessto say, you do have two or three largeLatin American jurisdictions that areregulating, and a number of Europeanoperators and suppliers are engagingin that process. Colombia has 48million people in it, it’s a huge countryand presents a very good market forpeople who want to adopt a regulatedmarket strategy in that part of theworld. Eastern Europe is a challenge, Ithink, for many people, who areentering those markets from aregulatory perspective. There are somevery strong local brands, with localpresence, and local connections.However, anybody who is payingattention to what’s going on in theRomanian market in particular, will bequite aghast that a regulator in theEuropean community can behave insuch a way, as the Romanian presswould have you believe. I’d like to thinkthat there will be some developmentsthere that will help the WesternEuropean operators enter the EasternEuropean market in the right way. Butthere is some way to go, I think,before that happens.”

Mr. Kelly thanked Mr. Ketteley for thisinsight into new markets, beforeapproaching Bill Mummery for hisopinion on Asia.

Moderator: “We saw a little foray intoprohibition in Singapore during recenttimes. Do you see any furtherregulation coming across Asia?”

Mr. Mummery expressed his hopes tosee progress in some of these majormarkets. “Of the stance that we take,using Singapore as an example, first ofall I would say that the fairly draconianaction of closing out Singapore was apolitical response to pressure arisingnot out of remote gambling, but out ofthe excess success of the two land-based casinos developments. They feltthey had to do something. It certainlydecimated their national toteoperation, The Turf Club, for example.But you have to deal with these things,and taking the example of Singaporeagain, at the end of the exercise, I gota really pleasant note from theSingapore government, thanking us forthe manner in which we’d managedthe process.”

The optimum solution with potentialmarkets is to keep open the lines ofcommunication, even when the goinggets tough, as Mr. Mummeryexplained: “You can only act in thatway and then say in the medium term,maintain the dialogue, and hope tobuild the relationship where you areactually seen as a credible, safe pair ofhands that can be part of the processof moving it towards regulation, whenthe climate has changed. I think that isprobably a general principle, not topush back at it but to try and engagewith it.”

Moderator responded, “Yes, and Ithink that would be pretty key for theIsle of Man, given the level ofpresence we have here from Asianfacing sports books. It would beinteresting if there’s anything, whenwe talk a little later on, that the Isle ofMan needs to do to, to deal withregulators in other parts of the world.”

“The increasing demand of the regulatedmarkets on technical supply has meantthat all of the supply side has to meet awide variety of different demands.”

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Having touched on Asia and LatinAmerica, the panel went on toconsider where they might see thenext true market developments. Couldit be South America? Or even Africa?And, in the event that these marketswere to open, what sort of productcould suit those jurisdictions.

Mr. Mummery tackled the questionfrom a Sports betting point of view: “Ifeel fairly strongly that it’s likely to becertain regions within Africa. Themodel will probably be a hybrid model,whereby you have an arrangementwith a substantial local operator, andthat it will have a mix of physicaloutlets, which themselves then feedthe bets into a large liability bookonline. Of course you have got to lookat how you collect monies and howyou repatriate them. Kenya might bean interesting testbed for this, as theydo have the mobile phone system,which is ideal for micro payments. It’sprobably the only place in the worldwhere, certainly a sports company,could look at working with mobilephone systems. This is because it’s noaccident that they’re really only strongin things like ring tones, being a veryhigh margin product with a very lowcost of sales. The commission that themobile operators want is entirelyprohibitive for a sports book, but thatmodel in Kenya could be attractive insaying, ‘We will use this as a testbed,’in effect.”

Mr. Kelly then invited Stephen Ketteleyto join the conversation on Africa,“Stephen, do you see Africa as apromising jurisdiction? Are you gettinga lot of enquiries from there on thelegal side?”

Mr. Ketteley drew on his experience asan advisor in the industry to state:“One thing with these emergingjurisdictions, they have localincumbents in one guise or anotherthat will often be involved in some

European operator’s entry into thatmarket, even if it’s a mobile operator,for example, as Bill said.”

He then mentioned the parallel withMexico, where the strength of themobile operators means they arealready, and will be going forward,involved in the market in some way oranother. Returning to Africa, Mr.Ketteley continued, “In a number ofAfrican jurisdictions, it’s actually thelocal lotteries upon which any onlinegaming will be built. There are peoplenow who are building relationshipswith those lotteries, either through thesuppliers, or as advisors, to try andexplain to them how they can taketheir lotteries online, and how they canoperate different product types acrossthat market as they look to grow therevenue for the state treasuries. So theidea of going into these marketswithout some kind of local partnerseems very, very difficult.”

But in the case of uncharted markets,the matter of licensing is key. Mr. Kellyput the following question to the panel:“So would you think that it would bedone by licensing in a jurisdiction suchas the Isle of Man or Gibraltar, or doyou think it would be a local licensingoperation? Or, could they licensesomewhere like here, and then try andgo into local markets afterwards?”

For those who wish to startapproaching the expansion of theirproduct types in Africa, and in LatinAmerica, Mr. Ketteley pointed out onepossible benefit: “These territorieswould, in my experience, seem quiteopen to fairly flexible supply chains, inso far as they wouldn’t necessarily saywhat some of the European regulatorshave tried to say, that everything has tobe within the jurisdiction. They seem tobe more amenable to technicalflexibility. But you would almostcertainly need to piggy back off the locallicensee and act as a supply to it, ratherthan as a supplier in your own right.”

Mr. Kelly thanked the panel for theirinput on potential markets and steeredthe discussion toward innovation, inparticular the hot topic of eSports andFantasy Sports.

Moderator: “Considering innovation ingame type, or play type, we saw someof the analysis this morning from thepolling as to what drives people to playdifferent types of games, be it casino,

slots, poker or sports. Do the panelsee innovation coming in the next yearin the direction of eSports and DailyFantasy Sports? We’ve talked a littleabout it, and had the view fromBernard Marantelli of Colossus Betsearlier today. I wonder if Bill, you mighthave anything to say on this?”

Mr. Mummery offered the followingobservation: “It seems to me theorigins of eSports and DFS wereoriginally in South Korea, then itmigrated to the US, and very shortlythereafter it gained the attention of theauthorities there. So that’s going to putthe brakes on it for a little while. Butit’s now on the radar and people willlook at it as a model. I would questionwhether there is a fit for thedemographics of people that are reallyinto the eSports. In terms of sportsbetting, we’ve seen some interestingdevelopments these twelve months. Inparticular, there are two things that canbe built upon next year: one is theability to cash out, on multiple bets,that companies like Betfair haveexecuted so well. This will grow.Indeed, Betfair gave an interview a fewdays ago where they indicated that inthe last twelve months, in their soccer,75% of their revenue came from ‘inplay’. You only have to go back twoyears to see, that those brands thatpublish figures, such as Hill’s andLadbrokes, were being quitecongratulatory that they’d hit about47%. I would identify with the Bet365figures, and in enhancements toproducts, things like Cash Out. But Ithink there is still a lot of mileage inconcepts, such as smart phone usage,and from ‘in play’.”

Continuing the dialogue on newproducts and enhancements, StephenKetteley was keen to identify how thisraises the very important question ofintegrity in the industry:

“There is a crossover between eSportsand gambling which I think has onlyemerged in the last year or so.Probably really as a result of the factthat there are only a handful of bookiesoffering books on eSports. So thegambling regulators have begun to paya bit of attention to it, because theydon’t really understand it. It generallyprobably does raise some integrityissues. Obviously eSports is notregulated like normal sports betting, sothere are integrity issues around it. But

“In a number ofAfrican jurisdictions,it’s actually the locallotteries upon whichany online gamingwill be built. “

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what that has led to is an additionalanalysis by the gambling regulators ofeSports, in itself. So some of thegambling regulators are beginning toshow curiosity around that in the sameway they did around social gaming 3-4years ago. I can tell you, because I’vebeen advising some big gamesproviders. These providers have beenaware of this potential crossover for anumber of years, and have taken quitea lot of steps to ensure that theirgames, and their products, and thetournaments around their games, arenot gambling products where they areoffered. So the regulators are a bitbehind on all of this, and I think it maywell end up being a bit of a storm in ateacup in the way that the socialgaming thing was. What I would say,however, is that, like social gaming,consumer regulation may begin to bitea bit more, on eSports, in the way that

it did on mobile games. At the momentI don’t think consumer regulationshave quite caught up with eSports.”

Following on from product innovation,the panel turned its attention to thesubject of financial services, andfinancial services regulation, and thecrossover between this and onlinegaming. Mr. Kelly sought thecomments of James Agnew, on thisarea of potential development:

“James, are there some products outthere that may be getting caught insome financial services regulation?”

Mr. Agnew: “It really is a new andfascinating area. One interesting thingthat I’ve watched is Playtech’s moves.What they are doing is takingadvantage that some of their systemsare applicable in the financial servicesarea. It seems to me that this has

always been something of a grey area.Where exactly do you draw the linebetween spread betting, and when youmove into activity in derivatives of onekind or another. I think the regulatorsare very aware of this already.Obviously large amounts of moneyflow around the globe in the gamingindustry and they are alert to theimplications of that at a time whenthey are all over the financial servicesindustry. So I don’t see that changing,and I think in regulation the direction oftravel is all one way. People are goingto get carried along by that. For thatreason, I think the companies whichhave good systems and which arefocussed hard on doing things right willbe well positioned and it will standthem in good stead. I think investorsare acutely aware of this. One of theearlier comments referred to theinvestors’ greater appetite to look at

“There is a crossoverbetween eSports andgambling which Ithink has onlyemerged in the lastyear or so.”

companies, with exposure to unregulated markets. That is afact, it is something which has increased over the last fiveyears. Part of what they are doing is looking ahead tounregulated markets, which are going to come into theregulated net and therefore, companies who have built upbusinesses and who are well positioned there, may beattractive when they are able to make that transition. I think itis also a reflection of the fact that there haven’t been anyparticular public, major blow-ups at least among the listedcompanies, partly because most of them have beenfocussed on the regulated markets. So it wouldn’t take verymuch to remind them of some of the risk which still sits outthere. But I do think that the crossover with financialservices is something which is going to get more focussedas we go forward.”

Mr. Kelly thanked Mr. Agnew for his views before moving tohis final question for the panel. Taking all of the key themesinto account, he urged panellists to consider our ownjurisdiction, and how best the Isle of Man can prepare fornew markets, innovation, regulatory changes, and so on. Heput the query to Isle of Man based advisor, Paul Novellie:“Returning now to the to the Isle of Man, Paul, what do weneed to do, and what can we look forward to in 2016 as agaming jurisdiction?”

Paul Novellie: “In a way the Isle of Man is no worse off

than any of the other licensing jurisdictions. In common withall of them, they have some kind of a USP, in that theyoffered specialist access to some territory or another. TheIsle of Man was whitelisted for the UK; Malta & Gibraltaroffered the hope of free movement of services through theEU and so on; and all of that has gone by the way. Thejurisdictions and the Isle of Man are left competing, with nospecific USP to fight for them. So the Isle of Man ultimatelyhas to make itself an attractive place to come and live, andwork. As we heard in earlier sessions today, BEPS are allcoming to get you. In a perverse way, BEPS ultimately mayturn out to be very good for the island. Because if you dohave to place your higher value components of yourbusiness in a jurisdiction because that is where the value isgoing to be assessed and taxed, it is going to pay you to putit in a low tax jurisdiction. And if that means serious jobsand high level people, and HQ have to be placed in thosejurisdictions, that means it is jobs, and high value jobs, andexpenditure on the Isle of Man. So that is the potential, howdoes the IOM meet it? The IOM has to really grasp that it iscompeting, but not as in the old days when the mind-setwas, it was competing against the UK. The IOM iscompeting internationally, and the government, andeverybody needs to understand that that is who you arecompeting against in order to get the new wave of peoplecoming in. This business is an international business, with

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people coming in at high levels, and they are looking foran international jurisdiction, in which they can educatetheir children, and house themselves, and have medicalservices, and, especially in this industry as it’sinternational, be able to get on and off the island quicklyand easily. Those are the sort of things that peoplecoming here in the new wave of investment andbusiness are going to be looking for. The island needs tobe working very hard to meet those aspirations.”

Whilst broadly agreeing with Mr. Novellie, Mr.Mummery was, however, keen to underline theoutstanding benefit of the Isle of Man as a gamingjurisdiction:

“I do think that we still have some key notabledifferences: the quality of our regulation, includingplayer protection, is better than anything that is outthere. In the last twelve months there have been lots ofexamples of some dire disasters in a couple of otherjurisdictions, in terms of infrastructure, be it power, ornetworks. We simply haven’t had those issues. Inaddition, I think that for all of us, ICT skills will be amajor challenge going forward, as it is in the UK andEurope. Admittedly, whilst it’s in a fairly embryonicstage, we should take heart from the fact that thispublic/private sector achievement has been reached, ofdelivering, as it will now, the Nunnery as an ICT collegeinitially, moving towards a university. That, apart fromthe practical benefit it will derive for the island, also aidsthe standing of the island. For me those problems willget worse because the UK government has made somefairly draconian statements over immigration from nextyear, out with the EU, and one of the benchmarks wassimply, if you are not earning $35k pa, you won’t comein. Well, that doesn’t affect our industry, but I hate tothink what it’s going to do to their NHS, and indirectly, tous. Clearly we are not operating in those salary levels,but it is a strong statement that we have identified theissue, we’ve grasped it, and taken a fairly imaginativeapproach to the Nunnery which is to be congratulatedand supported.”

Moderator: “Yes, I agree with that. Stephen, you areadvising people globally on where to place theirbusiness, and what the future prospects are in terms ofregulation. What do you think, from an outsider’s pointof view looking in at the IOM, does the island have orneed to do in order to prosper in 2016?”

Mr. Ketteley thanked Russell for a nice light question tofinish on! He suggested a need to go back to basics, andlook at the four main European licensing hubs: “TakeMalta, Gibraltar, Alderney and IOM: what were they for?What was the original purpose of them? It was toprovide a home for businesses that couldn’t besomewhere else, and give them a regulatory base fromwhich they could flourish. That criterion doesn’tnecessarily need to be served by the offshore hubs anymore. I think the idea of having a B to C operatorbusiness located in the Isle of Man is still attractive tosome, but it may not be as attractive as it was 10 yearsago. The island needs to look at what are its strengths interms of personnel, technology, infrastructure. As Billsaid, some other jurisdictions have had problems withinfrastructure, which the IOM hasn’t had, and youshould play to those strengths. Other jurisdictions likeMalta and Gibraltar are themselves revamping theirregulations at the moment, trying to work out how theyneed to reposition themselves for the next howevermany years, in the face of point of consumption regimesaround Europe, and how they interact with those. I thinkit requires quite a bit of naval gazing from thejurisdiction to think, what are we trying to provide here,and what is it that the industry actually wants from us?”

“The IOM is competinginternationally, and thegovernment, and everybodyneeds to understand that that iswho you are competing againstin order to get the new wave ofpeople coming in.”

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Mr. Kelly closed the day’s proceedings with a word ofthanks:

“Thank you to everyone for coming along today, and thankyou very much to our speakers.

We’ve heard and seen some very interesting themes andtrends developing and likely continuing into 2016.Personally, I do think the Isle of Man is in a very good placefrom an eGaming perspective: the industry is still thriving,and hopefully some of our recent initiatives, such as the ICTuniversity, will be a positive move for us here on the IOM.I’d also like to thank our sponsors; without whom it wouldbe impossible to run today. So to Continent 8, Derivco,IMGL, Manx Telecom, NedBank, PokerStars, SMP Partners,W2 Global Data: thank you for your support, and yourcontinued support over the years. I’d especially like to thankIMGL for bringing their Masterclasses here to the IoM,we’re very proud to have the association with IMGL duringthe course of our recent summits. It really does providesome expert input in to the sessions, both here and in theSI group, where they’ve also been taking some of thoseMasterclasses.

Thank you also to our media partners: Gambling Insider,iGaming Business, and the World Casino Directory, whosupport our summits through publicising them. And on themedia side, thank you to Ashgrove, who put today togetherfor us, and worked very hard to make it the event that it is.

Next year, we are running our summit in Gibraltar, on 21April, and again here in the Isle of Man, a little earlier thanusual, on 8 September.

Here at KPMG, our IOM-based eGaming team continues togrow in numbers and experience; 5 of our leadership teamare now predominantly focused on the sector, supported byaround 10 of our management group, and countless staff.There has been similar growth in our UK eGaming team,and I’d like to thank the five experts from KPMG UK whojoined us for today’s event”

Russell Kelly, Head of Audit, KPMG Isle of Man and GibraltarRussell joined KPMG Isle of Man in 1993 and has also worked for KPMG in London and Jersey. He isHead of Audit for KPMG Isle of Man and Gibraltar. His client experience encompasses financial services,telecommunications and eGaming. Russell also undertakes transaction services and ISAE3402 work;including advising on flotations on the LSE, AIM, Luxembourg and New York Stock Exchanges.

Closing Words

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