Licensing issues - holding up growth

Licensing setbacks hold up operators' development and growth plans and can have significant impacts on both business and investment in early-stage markets.

The recent decisions by regulators in Arizona and Virginia to not grant licences to Pointsbet and BlueBet respectively was a jarring reminder of the licensing setbacks operators can encounter in the US.

During Pointsbet’s recent FY earnings call CEO Sam Swanell said the prognosis wasn’t looking good for Arizona, although with just 18 out of 20 licenses handed out, there was still “room for future licenses.”

Despite being approved in Iowa in mid-July, Bluebet has also been unsuccessful in obtaining a licence in Arizona and most recently said it was withdrawing from the licensing process in Virginia.

Stephen Crystal is an experienced licensing attorney and his firm SCCG Management acts as the licensing and regulatory agent for Betfred Sports in the US. He says there are many potential reasons for the states’ refusals to issue licences.

Disclosure levels

“The US relies on a heavy dose of self-disclosure and where operators might find licensing straightforward in Colorado or Iowa, every state has different requirements and issues that they care about,” Crystal says.

In Arizona “it’s very much around disclosure, even if it’s not 100% relevant the disclosure requirements are extensive. Ignorance or thinking the information is not material is not a defence.”

European or Australian companies (in the case of Pointsbet and Bluebet) might not be used to such levels of disclosure and in their home markets “they wait for the state or authorities to investigate any issues, whereas the opposite applies in the US,” Crystal says.

The licence refusals might be related to “technical issues or a statement of qualification, and while some states may take notice of the refusals, equally it’s not a given that one setback will affect licensing in another state.”

Impact points

This is because each state has specific and individual licensing requirements. Nonetheless, the impact on small and medium-size brands such as Pointsbet and Bluebet can be significant from both business and investment perspectives.

The loss of activity from newly-regulated states will hit the bottom line, but just as important, the story operators working hard to carve out a space in this highly competitive market can tell investors after being refused licences will be considerably impacted by these licensing setbacks.

As Deutsche Bank said in early August in reference to licensing in New York state, but which applies to other states, “should smaller operators make their way into consortiums and if their consortiums are chosen, we believe entrance into New York could provide a halo for the sports betting story for the stock. Alternatively, for those on the outside looking in, telling a sports betting story, without the crown jewel state, regardless of the cost of entry, will be challenging.”

It should also be pointed out that it isn't just operators that are affected by license refusals as affiliates and suppliers must also be approved by each state they want to operate in.

Home advantage

US firms meanwhile have a clear advantage in that they have the experience and knowledge of navigating these waters and have “invested in the licensing infrastructure,” says Stephen Crystal.

Asked what the regulatory landscape might look like in the next few years, Crystal says the current market share “free for all” won’t last and soon enough regulation will move from licensing to operations and will increasingly mirror what is happening in Europe.

Currently many of the issues are around “licensing, but if operators abuse anti-money laundering rules, produce false or misleading advertising or don’t respect regulations related to the types of bets or content they can promote, the US will look more like Europe over time."

This could be compounded by a potential backlash against sports betting advertising, along with the broad media presence of betting brands in the US.

Crystal says operators and many people generally think of the US as providing more freedom to operate as they wish, but “licensing is tough and at the moment much of the US igaming sector is about self-regulation. But with online it will lean more and more towards the EU model of more intrusive regulations.”