Italy Vote To End All Gambling Advertising Will Be Counter-Productive

Italy’s Senate has voted in favor of the “Dignity Decree” which includes provisions to ban all gambling advertising absolutely.

In the short term, the impact is likely to be:

  • a reduction in the percentage of players choosing to play at nationally regulated poker rooms;
  • an increase in customers choosing black market sites;
  • a reduction in revenues for both government and industry,
  • and potentially an increase in problem gambling.

In other words, the new laws are likely to have exactly the opposite effect to that which is intended.

A new populist government is in power

The government is a coalition of the nationalist and euro-sceptic “Lega Nord,” Northern League, run by Matteo Salvini, and the anti-establishment “Movimento 5 Stelle,” 5 Star Movement run by Luigi Di Maio.

Their coalition is considered to be part of a populist movement spreading throughout Europe. The Italian Prime Minister, law professor Giuseppe Conte was appointed as a figure head after 88 days of negotiations between the two parties.

Deputy Prime Minister Luigi Di Maio commented on the vote:

“After decades, we have the first decree that was not written by economic lobbyists and vested interests. Today Italy sets a record in Europe: The first country to have abolished gambling advertising.”

Italian gambling advertising was well regulated until now

Italy has had nationally regulated online poker open to international companies since 2010, with tournament poker first to be permitted, followed by cash game poker a year later.

The market was heavily taxed initially, but taxes have now been equalized at 20 percent of Gross Gaming Revenue for all forms of online gambling, and restrictive lists of permissible sports matches for betting have now been all but eradicated.

There has always been a vocal opposition to gambling advertising, but the laws governing advertising were strengthened in 2012 with the Balduzzi Decree and again in 2016 when responsibility for enforcing the regulations switched from the gambling regulator AAMS to advertising regulator AGCOM.

The black market will be the first beneficiaries

One of the difficulties in a nationally segregated market like Italy is encouraging players to switch from unlicensed sites to the state regulated poker rooms.

This is exacerbated in Italy by the gambling law provisions which make winnings liable to income taxes with the operators required to cooperate with the Italian tax authorities in disclosing information on player data.

The fact that the market is segregated also means that larger tournament guarantees are often available at the black market sites. Italy is considering joining the shared liquidity pool established by Spain, France and Portugal, but it has not yet done so.

Add all the factors and a large proportion of the Italian market does not play at regulated poker rooms. Advertising was the main tool that officially authorized operators such as PokerStars.IT could use to attract this market.

Now that that tool is unavailable, it is inevitable that fewer players will be able to tell the difference between what sites are and are not regulated.

And Italy has a problem with organised crime involvement in online gambling. In July 2015 the price seized €2 billion ($2.3 billion) in raids targeting gambling operations run by the ‘Ndrangheta mafia organization.

The scope of the problem can be seen in the range of police targets: 1,500 betting shops, 82 gambling websites, 45 Italian companies and 11 foreign firms, as well as “innumerable” property assets.

Tax revenues will take a dive

Paddy Power Betfair published their half year results on August 8, and during the earnings call CEO Peter Jackson was asked about the prospects for growth in the Italian market. The ban on advertising was clearly at the front of his mind when he replied without hesitation:

“It’s tough to grow when you can’t advertise.”

If state regulated and taxed online poker operators see revenues falling, then it follows that government tax receipts will fall too.

According to a report by Poker Industry PRO (paywall) the impact is already visible:

“Unlicensed and unauthorized offshore sites have started appearing at the top of the search results, while Italian-licensed sites have dropped down below.”

Reducing gambling doesn’t necessarily mean reducing problem gambling

The government’s aim is simple. It wants to reduce the harm done by gambling by reducing the amount of gambling. They are prepared to take a revenue drop if that’s the price to be paid.

And their aims are laudable. A government report released in October 2015 indicated that around 1.3 million people in Italy are gambling addicts or presenting behaviors associated with problem gambling.

However, the international experience is indisputable.

The best way to reduce problem gambling is to bring players into a regulated environment where problems can be identified early and interventions can be mandated. Players at risk of problem gambling can then be encouraged to seek help within a locally responsive system.

Italy has gone the wrong way in addressing the problem and will probably exacerbate rather than reduce it.

Industry association LOGiCO, whose members include The Stars Group, Bwin, Bet365, William Hill, and the Kindred Group , and the European Betting and Gaming Association (EGBA) have immediately announced their opposition to the ban. In a letter to Italian ministers they state:

“While fully sharing the concerns of the institutions with regard to problem gambling, LOGiCO does not believe that this ban can produce positive effects in terms of player protection or reduce—and certainly not eliminate—the risks derived from an uncontrolled practice of the games themselves.

But while a total blanket ban on advertising may seem like an obvious measure, it is not a “silver bullet” and will actually have a counterproductive effect.”

The EU may intervene but don’t hold your breath

In the EU, all government legislation must be notified to the EU Commission before it can be enacted. In the case of this advertising ban, the Italian government has failed to follow the rules.

This failure could lead to intervention by the EU Commission that might at least delay the new laws. Similarly there is some scope for a challenge based on the rights businesses have to operate fairly, but this is stretching the treaties probably further than they can go.

There may be some hope of legal challenge, but the harsh reality is that the industry will probably just have to put up with the restrictions for the foreseeable future.