Sustainability within the iGaming industry

Affiliate company iGamingnuts looks at how the iGaming industry can embrace environmental, social, and governance (ESG) principles to ensure a sustainable future.

The annual reports are coming in and it was another great year for the iGaming industry. Industry leader Flutter reported a revenue growth 25 per cent to almost 12 billion dollars, and 888 Holdings did even better, growing 38 per cent YoY.

As a whole however, the industry is seeing its CAGR (compound annual growth rate) dip under 10 per cent for the first time in some years. This seems to indicate that the larger companies are effectively attracting players from their competitors.

Numbers this high are of course applauded by the investors, but they also raise some questions about how sustainable such growth is. For example, if we take a better look at Flutter’s annual report, we find that the average number of monthly players has increased less than its revenue, 20 per cent versus 25 per cent. This means that the average revenue per player has increased, and in an industry that deals with demerit goods, that is not necessarily a positive sign.

Increasing expenditure on gambling is often a first indication that a player could be on a path to develop a gambling problem. As regulations dictate that operators have to act on signs of problem gambling, this means such customers are either going to be a liability, or stop playing. Dealing with such matters lies at the core of sustainability in this industry. So let us have a look at sustainability in this industry through the lens of ESG.

For those who are still not familiar with the term, ESG stands for 'Environmental, Social and Governance' and it has become the global standard for sustainability reporting. As with any industry that operates online instead of in the real world, the environmental impacts are different and usually smaller.

Of course there are many hidden impacts, such as commuting, business travel and the energy use of the sizable data centres that are needed. However the impact of their product, or rather service, itself, has a relatively small impact. Playing on their own mobile devices rather than on physical slot or betting machines, saves energy and resources.

Even if we would compare gambling to other forms of entertainment such as Video on Demand, it is often the more sustainable option. Streaming 4K video not only requires a lot more data to be transferred, it is generally consumed on TV screens that use an order of magnitude more power.
Social responsibilities and Governance

The most important ESG pillars in the iGaming industry are therefore ‘Social’ and ‘Governance’, which are heavily intertwined. Governance not only addresses matters that ensure financial performance and stability, compliance with regulators and prevention of money laundering, it also determines the ethical and moral framework of an organisation.

It is hard to underestimate the direct influence ethics has on the Social side of running a gambling organisation. Ethics in iGaming starts where compliance ends. It is where choices are made that directly affect the bottom line as well as their customers.

How to formulate marketing campaigns that attract new players, but at the same time protects vulnerable consumers? What about customer retention without incentivising excessive betting? What is the exact threshold at which players will be contacted to check if they have their game under control? For matters like these the minimum efforts are dictated by regulations, and it is up to the operators to decide if, and how much beyond these minimums they are willing to go.

We made a quick SWOT analysis for sustainability in the iGaming industry in order to give a better perspective on the current situation where everything is to be won or lost.

Strength: the power of data

The biggest strength of the iGaming industry is that it already is high-tech and everything is digital. It can therefore quickly apply and adapt to new developments such as in the field of AI. Operators are already required to log data in order to fulfil their reporting obligations. This data, among which real time player behaviour and the help from AI, can be scanned in real time for patterns and behaviour that might indicate emerging problems.

Players chasing wins, an increase in the amount of time and money spent; if operators address these issues sooner rather than later, there could be many benefits. Not only are they compliant with regards to player protection, thereby avoiding being held liable for losses, they also might prevent losing a player’s revenue completely by allowing them to continue to play with limits in place that cap how much time and money they can spend.

Weakness: Reliance on whales

‘Whales’ in the gaming industry are those players that spend a significant amount of money in a game, usually making them responsible for a majority of the profit. In the gambling industry this is also the case. Different reports from around the world all come to the same conclusion, a small group of 5-10 per cent of the players is responsible for 60-80 per cent of the revenue.

Although there undoubtedly are people in this group that can, and are willing to, afford losses of thousands of euros a month, or even a week, this will not be the case for the majority. Going beyond the regulatory requirements with regards to responsible gambling, means losing, or at least limiting, the revenue created by these players. This will immediately affect the bottom line, meaning a drop in both revenue and profit.

Opportunity: the chance of being the first

Changes with regards to responsible gambling are inevitable. More and more regulators are talking about, or already implementing much stricter rules with regards to real time player analysis and the use of this data to proactively act on it.

At this time no operator has yet implemented player protection as it is intended by the regulators or expected by society. When it comes to boosting your reputation, right now is the chance of a lifetime to become the undisputed industry leader.

More and more investors are favouring ESG focussed companies, so this could, at least partially, offset traditional investors leaving because of the drop in profitability.

Threat: Wait-and-see, business as usual

The biggest threats are indecisiveness, or succumbing to the temptations of greenwashing: either doing nothing, or framing something as a sustainable initiative although it is mere compliance with current rules and regulations.

Although it would be understandable not to want to take any risks, especially those that are not strictly necessary and above all, will directly affect the bottomline, being forced to implement changes at a later moment, could be the worse option. It is always better to be able to make changes at your own pace, rather than to be held to a timeline set by politicians or regulators.

Conclusion: A Sustainable Future for iGaming

The iGaming industry stands at a crossroads. While financial growth has been, and still is, impressive, questions linger about its long-term viability, particularly regarding responsible gambling practices. Here, ESG principles offer a roadmap for a more sustainable future.

The environmental impact of iGaming is relatively low, but the social and governance aspects are crucial. Operators must navigate the ethical minefield of attracting customers whilst carefully avoiding vulnerable groups within society and their customer base.

However, if they would leverage their strengths, mainly with regards to collecting and analysing data, it is feasible that any problematic behaviour can be quickly identified and addressed.

This is where the industry faces a critical choice: continue business as usual for as long as possible, in other words, prioritise short-term profits by relying on high-spending customers, or embrace stricter responsible gambling measures.

The latter will lead to a revenue dip, although being the first will create a unique marketing opportunity to attract new players: “Come play with us, we truly care about and protect our customers”.

On the other side, an operator choosing this path will also attract ESG-focused investors.

Olwyn Alexander, PwC Global Asset & Wealth Management Leader said: “ESG has become perhaps the most powerful driver of growth in asset and wealth management.”

ESG-focused institutional investment is soaring with a CAGR of 12.9 per cent.

The biggest threats are inaction and greenwashing. Proactive implementation of responsible gambling initiatives will not only ensure compliance but also foster trust and loyalty with customers. Possibly it would even attract new players, if they can feel assured that they could safely try this form of entertainment.

By embracing ESG principles, the iGaming industry can ensure a sustainable future where growth goes hand-in-hand with social responsibility.

iGamingnuts is an affiliate company that is currently operating worldwide in 11 different countries, where they enable bettors to choose the best places to bet. By emphasising matters like sustainability in general, and Responsible Gaming specifically, they try to ensure that gambling stays a form of entertainment that can be enjoyed safely and responsibly.