Microgame: Italian operators must change their mindset if they are to survive

By | July 1, 2021

Italy’s hard-nosed gambling leadership has become adjusted to navigating the tribulations of a marketplace in constant state of flux, facing the year-on-year curveballs of increased taxes, blanket bans on advertising and tougher all-round compliance controls.

Yet market leaders are in no-doubt that they are in the midst of a true paradigm shift. Following 2020’s unprecedented pandemic, Italian society is now beginning to accept its digitised future – a new challenge that must be confronted by all business sectors. 

Acknowledging a generational shift,  Marco Castaldo – CEO of Microgame – stated that gambling operators must face a ‘change in mindset’ across the industry if it is to remain relevant for bettors.

Speaking to SBC News, Castaldo explained that one of the key developments that has become quite evident in the last 12 months is a substantial growth in the online space.

He noted that with the closure of land-based gaming premises, there has been a dramatic shift in consumer behaviour. Castaldo said: “In the last few months, the effects of the pandemic have dominated the scene. This has helped the online market to grow significantly, however the land-based gaming premises have been effectively shut down for months. 

“This shift towards online is definitely accelerating. If we look at 2020, year-to-year growth was 46% in casino games, and 24% in sports betting. But for the first five months of 2021, that yearly growth jumped to 70% for casinos and 150% for sports betting – so there’s a pretty dramatic shift in consumer behaviour.

“The pandemic has definitely marked a drastic acceleration of the shift towards online gaming.   The number of players with online accounts has increased by a step change. 

“What we have seen is that many betting shop customers who haven’t ever gambled on a PC or smartphone are now registered for accounts online. Looking to the future, I do think that the majority of these customers will continue to enjoy betting and playing casino, bingo or poker online.”

Alongside changes in consumer behaviour, the Microgame CEO shared that there have also been considerable developments on the regulatory front across Italy. Many operators, both within the online space as well as retail, are now facing the reality of having to renew their licences at a time which remains very uncertain, and Castaldo believes that the overall framework must be reset.

“With betting and gaming halls having reopened across Italy, we can see that the industry is still reeling from heavy losses,” he continued. “Many of these companies are also faced with the reality that they’re having to renew their license at a time which still remains very uncertain.

“Betting shop licences expire at the end of June, and while the regulator (ADM) has informed operators of an extension through to October, the tender for new licences is nowhere in sight.  

“With a myriad of local and regional regulations effectively expelling operators from many of the existing venues, the overall legal framework needs to be reset in order for operators to be able to bid for licences with the necessary assurance that they will be able to implement the shops and recover the investment.”

Recent proposals made by the government have called for the number of gambling licences to be capped at 40 – a considerable drop from the 95 licences currently. But following backlash from the gambling industry, it is expected that these proposals will be reconsidered.

Castaldo added: “We are continuing to serve our land-based customers’ betting shops as they reopen and as their licences are extended. We expect it will take time, perhaps a couple of years before the regulatory contradictions between central and local legislation will be resolved. 

“The shape of the next tender will probably be redefined as part of this process, so it’s too early to say what the future will bring, especially in terms of industry consolidation.”

Discussing how these measures will affect Microgame, the CEO expressed his belief that the cap on the number of licences should be lifted in order to allow the renewal of existing licences. 

He said: “There is a substantial portion of the land-based gaming industry which is looking to enter the online market – many of whom have realised that a multi-channel strategy is now essential if they want to secure a future in this business.  

“Should the tender go ahead in its current format, we know that some of our current customers won’t make the cut but there are various contingency plans. As the leading service provider in Italy serving over 50 licensed operators, we will do everything we can to ensure business continuity for everyone.”

Discussions soon turned towards the necessity of a reduction in the number of licences – a decision which Castaldo branded ‘arbitrary, unnecessary and harmful’. 

Many in the gambling industry have criticised the government’s proposals, highlighting that a reduction in the supply of gambling products and brands will solely result in an influx of bettors gambling via the black market – trends seen in countries such as Sweden.

“Not only is this reduction arbitrary and unnecessary, it is harmful for the industry and for the public interest,” Castaldo said “I agree with the view that the reduction will result in a resurgence of illegal operators.  

“Many of the small and medium-sized licencees across Italy recruit their players through land-based affiliation networks and that is where a lot of the growth potential resides today. These land-based affiliate networks are integral to the fight against the illegal market.

“Putting the operators who drive these affiliation networks out of business will hand many of them back to the .com market. It’s crazy to want to turn back the clock and wipe out all the progress that has been made in improving channelisation over the last ten years.”

In addition to driving traffic towards unlicensed sites, the Microgame CEO explained that a reduction in the number of licences available removes any incentive for betting operators within the online space to innovate. 

He continued: “It will reduce the competitive advantage that licensees have over illegal operators. We all know that licenced operators need that advantage because playing with no rules provides obvious advantages.  

“In this kind of game, there is a limit to the effectiveness of innovation on the part of a licensed operator, without substantial regulatory liberalisation. But the political trend is in the opposite direction so this is pretty unlikely. 

“We must also keep in mind that advertising for gambling brands is banned in Italy. This, as you can imagine, gives another advantage to offshore operators. 

“Also, the cost of a license would increase by a factor that can range from 10 to over 20%, depending on how bidding goes. I strongly believe that this isn’t a good starting point for a war against the black market.”

With these regulatory developments, Castaldo shared his thoughts on the heightened interest in the Italian market, highlighting that growth expectations within the online sector are ‘rightfully’ high. 

He said: “In a healthy regulatory scenario, with no arbitrary limits, I believe the industry would evolve over time where it finds itself in a state of equilibrium. On one side, there would be a few giants, and on the other, many medium-sized operators with sustainable, segmented market positions.  

“The bottom 25% of today’s list probably won’t survive in their current form, however this does not mean that new operators – from both within Italy and overseas – won’t replace them. It’s ironic, but we’ve not seen such a high level of interest in the Italian online gaming industry for many, many years. Growth expectations are quite high, rightfully so I believe.”

Rounding off the discussions, Castaldo advised land-based operators to change their mindset and embrace omnichannel strategies where possible.

The Microgame CEO concluded: “Early evidence from betting shop re-openings doesn’t support the idea of a massive return to the shops. It’s too soon to draw conclusions before the football championship restarts, but I don’t believe we will return to the old normal.   

“The value proposition will have to change drastically for shops to remain relevant for bettors in the next decade. What’s the answer?  The starting point is to embrace multi-channel strategies in their various forms. This means new technology of course, but what is needed more than anything for most operators is a change in mindset.”

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