Mission146
Posted by Mission146
Jul 08, 2016

What Were the Short and Long-Term Effects?

As everyone who has not spent the last several weeks living under a rock knows, the UK has officially voted (publicly) to withdraw from the European Union.  While this will undoubtedly have a myriad of effects both for them and for the financial industry worldwide, we are here today to talk about some of the effects that this action may have with respect to Online Gambling.  Brexit will actually have a far-reaching impact on the industry that shall not be limited to mere currency valuations or exchanges or the extreme change in the value of the pound.  

The most immediate impact this had with respect to Online Gambling is that the books actually made a ton of money as a result of Brexit!  What was once a popular opinion that the United Kingdom would vote to, ‘Stay,’ in the European Union, with an Implied Probability as high as 90% amongst some bookmakers, proved to be wrong as the United Kingdom voted to leave by 52% to 48% in favor of staying.

The first thing that something along these lines might cause is for some to wonder, ‘Where did the bookmakers go wrong?’  The answer to that question is simple: They didn’t.  The thing about bookmaking is that far longer shots (according to the bookmakers) have come in, so it is not by any means an exact science.  If we take a look at the fight between Holly Holm and Ronda Rousey a few months ago, at no point did the Implied Probability favor, ‘Stay,’ as much as the Implied Probability that Ronda Rousey was going to win that fight...Rousey got knocked out.

With respect to bookmaking, it is really not meant to be predictive, in and of itself, in any real sense.  Granted, the bookmakers tend to be somewhat close with the opening lines of sporting events compared to the closing lines simply because there is a great deal of Statistical information that is available to them to utilize in determining the opening lines.  In other words, while an individual sporting event may not have necessarily happened before, many sporting events like that one have.  Furthermore, it is also important to adjust for the fact that when someone is looking at something such as the Point Spread of a game, or the Over/Under, the final result of the game often tends to stray far from those supposedly, ‘Predictive,’ numbers aside from the fact that the team expected to win (pursuant to the Point Spread) prevails more often than not.

In other words, bookmakers do the best that they can in opening with a Line that is going to get equal action on both sides, because then, the bookmaker is guaranteed to make money.  However, that is much more difficult to do with a vote such as the one on Brexit simply because there are very few events that this vote could even reasonably be compared to.  This vote was an unprecedented occasion that was very difficult to predict ahead of time, and in fact, most people who attempted to predict it got their predictions very wrong.

For example, FiveThirtyEight.com, who are absolute predictive Gods when it comes to Political events did not take Donald Trump nearly as seriously as they should have in the early goings of the Republican Nomination race.  The reason for that is simply because there was no standard by which many (if any) previous candidates could be compared.  Even when early polling numbers saw him rising, he was dismissed due to many factors based on pure opinion and speculation, but he was also dismissed because early polling is simply not usually reliable.  In fact, it took them a month or so more than other sources to begin taking his campaign very seriously at all.

It is true that the bookmakers try to generate an opening line that is going to result in balanced action on both sides of the line resulting in a profit no matter what, but for a one-time event such as this that is completely unprecedented, they would be delusional to believe that the line was not going to shift very much in either direction...and shift it did.  The Gambling Portal, for example:

http://www.gpwa.org/article/brexit-vote-causes-chaos-in-the-betting-markets-218009

Found that 168 million dollars (U.S.) in total wagers were made (or traded) which beat the recent record breaking Super Bowl by a little over 35 million.  In other words, this was a very popular event to bet upon.  

Furthermore, another finding was that, up until the last several hours of the action, the money was coming in heavy on, ‘Remain.’  At the end of it all, it was found that over 2/3rds of the action came in on, ‘Remain,’ while 2/3rds of the actual bettors were betting on, ‘Leave.’  In fact, in addition to the unprecedented betting numbers, furthermore, the amounts of money that were bet tended to skew high.  In an interview in the above-cited Article, it was stated that one site takes an average bet of about ten pounds for a sporting event, but when it came to this event, the average bet on, ‘Leave,’ was 77 and the average bet for, ‘Remain,’ was 408.

Even more interesting is how the betting was in line with the actual voting.  In fact, it was the incomparably high voting percentages (one of the few events where every vote counted equally, and unlike voting a politician into office, the result of the vote would be the people deciding the result) that eventually led to Brexit being passed.  What was interesting about that is the fact that the people were influencing the result in a nearly parallel way with the betting markets.  In fact, the betting markets did not shift to favor, ‘Leave,’ until long after the votes had started to come in.  Furthermore, it was a case of the, ‘Popular Bet,’ if I may, going in line with the popular vote in the sense that more of the bets came in on the, ‘Leave,’ side by nearly a two-to-one margin even though the betting dollars, on most sites, came in at a two-to-one margin in favor of, ‘Remain.’

This trend was also such among the people who actually voted one way or another with the lesser income individuals trending, ‘Leave,’ while the more opulent citizens of the United Kingdom largely opted for, ‘Remain.’  This trend also went against analyst projections in terms of the actual voting because they figured, the higher the turnout, the better the Odds that the vote would go, ‘Remain,’ would be.  Again, this is based on nothing more than a predictive misconception as to what increased turnout numbers would mean.

The bottom line is that the predictive process in not only not necessarily always exact, but also on the fact that the Sportsbooks can only be loosely described as trying to, ‘Predict,’ anything.  Furthermore, line movements in Sports Books are also not based on popular opinion at all, they are based on the opinion of the money.  If a million dollar single bet (for any book crazy enough to take it) comes in on one side of a Proposition, then the Sportsbook has to try to get money in on the other side of the Proposition, which requires making the other side of the Proposition more attractive to potential bettors.  

That, in essence, is what the Sports Books do more successfully than predicting, they move their Lines in accordance with what is going on.  If the action comes in heavy on one side in dollar terms, then they have to balance that out on the other side, even if that means a greater number of people making smaller bets.

With respect to Brexit, the Sports Books did not react quickly enough in this regard and simply did not realize what was going to happen.  As greater amounts of money came in on, ‘Remain,’ somehow regardless of what the, ‘Popular bet,’ was suggesting, the Books were simply so imbalanced that they could not get enough money in on the, ‘Leave,’ side.  In essence, so much money was bet on, ‘Remain,’ that regardless of the movement of the Odds, the Books would have taken an absolute pounding if the vote would have went that way.  As we know, the voting went the other way and, as a result, the Books made a ton of money...but you’d better believe (regardless of the bookies individual opinions on Brexit) that they were pulling for, ‘Leave,’ with respect to their books’ numbers.

With respect to Online Gambling, however, there might be longer-term consequences as a result of the decision of Great Britain to leave the European Union other than the short-term impacts of currency valuation changes.  For one thing, many Online Casinos are licensed through Gibraltar with, which its small population, Online Gambling actually represents about 20% of the GDP of Gibraltar.  Many of these employees come from Spain freely as both Spain and Great Britain (Gibraltar is a Britain overseas Territory) were part of the European Union.  When Britain ceases to be part of the European Union, however, many of these employees will not be able to travel so freely as the two countries (Spain and Great Britain) will not have anything to do with one another economically.

Furthermore, this could also result in licensing difficulties on the other end of the equation.  If Gibraltar opts to remain in the European Union and falls under the control of Spain, then many of these Online Gambling sites may effectively no longer be licensed to operate in Great Britain, which is obviously a substantial segment of their market.  In fact, many of these companies are more closely associated with Great Britain than they are with anywhere else.  

When we discuss the impact of these companies, it also has to be taken into consideration that many of them do not just operate Online.  Just for two examples, William Hill and Grosvenor are both situated in Gibraltar.  If Gibraltar chooses to leave the European Union, along with Great Britain, then Spain might restrict the travel of Gibraltar employees which will force the companies to move, and perhaps, even be licensed elsewhere.  Further, in order to continue to do business in Great Britain, in the event that Gibraltar were to remain in the European Union and fall under the control of Spain, then one unknown is what the licensing process in Great Britain will be or whether separate licensure will even be necessary.

Many of the larger gambling companies will be in somewhat fine shape because they already hold dual licenses with Great Britain as well as some jurisdiction of the European Union.  For the smaller operators, though, they may only hold licenses in one jurisdiction or the other and will have to plan to either leave the locations in which they can no longer legally operate, or alternatively, have to somehow get licensed in such locations in order to continue to operate within those jurisdictions.

The reason is because, prior to Brexit, regardless of whether or not an Online Gambling company was licensed elsewhere in the European Union or not, they had to be licensed specifically in Great Britain in order to have access to that market.  Some people may ask, ‘Well, why wouldn’t some of them just operate there as is done in the United States though the United States is not regulated?’  It is not as simple as that in this case because Great Britain has much tighter control on Online Gambling than the United States does as Great Britain licensing and regulation results in the payment of taxes, so it can be said that Great Britain has a greater incentive to make sure that any Online Gambling that takes place is with companies that report to them whereas, in the United States, the U.S. is not really losing anything in terms of taxes because there are no national regulations with respect to Online Gambling.  

Furthermore, there is increased uncertainty with respect to the tax rates that Online Gambling companies will have to pay Great Britain because Great Britain will now have the ability to unilaterally change those and other Regulations with respect to the industry.  Furthermore, Great Britain will also lose desirability as a place for those other than resident companies to be headquartered because it remains unknown what requirements would be in place as it would pertain to doing business outside of Great Britain.  

Another issue that can potentially come into play is uncertainty with respect to payment processing.  As anyone who has played Online that lives in the United States knows, payment processing from Online Sites is very much a multi-level process in the sense that United States banks are not permitted to deal with Online Gambling sites.  As a result, it can often be difficult to set up secure deposits into the accounts of United States customers, which by necessity, can make the prospect of gambling Online less attractive for U.S. citizens.

This may soon become the case not only for Great Britain customers, but also for customers in other countries who deal with gambling companies that operate out of Great Britain.  The banks (on one side or the other) may be directed to set up safeguards to prevent any monies from being processed between one country and another unless a specific gambling company has dual licensing.  Even then, though, Great Britain could theoretically pass a measure that Online Gambling companies licensed in Great Britain may ONLY operate in Great Britain.

Admittedly, that last bit is a bit of an extreme, although it is theoretically possible.  As with all other areas, there is simply no way to reliably know ahead of time what is going to happen, so the Online Gambling companies will have to plan for every possible event and contingency as, undoubtedly, they have already begun to do.  

However, there is no planning for the unknown and it is that unknown that is perhaps the scariest not just for the Online Gambling industry, but for all other industries with the potential to be impacted by Brexit.  Furthermore, Great Britain may not be the last to leave the European Union as other countries may decide to do the same thing.  At that point, there will then be the question of whether or not certain licenses will be accepted in order for gambling companies to operate with the stricter borders.  Is there a chance that the Online Gambling companies will have to be licensed in each individual country and that they will, as a result, be subject to the individual regulations of each country?

Again, it seems somewhat unlikely that it would come to that, but it remains possible.  Additionally, the problem of currency exchanges and multi-country bank transactions could remain an issue.  Furthermore, some of the countries that become, ‘Free,’ of the European Union may simply opt to outlaw Online Gambling completely.  

Unfortunately, there is no way for these companies to know exactly what is going to happen or where it is going to happen at.  However, these companies have weathered some tough storms before and the most successful of them will make adjustments quickly and accordingly just as they have always done.  For one thing, there was a time when they could do business in the United States openly and with impunity as well as deal directly with United States based banks and Credit Card companies.  With the passage of the UIGEA that became much more difficult to accomplish easily, but the largest and most successful companies found ways to work around that.  

One thing that is true is that time and resources will have to be spent in order to prepare for any possibility that might unfold before these companies can return entirely to the business of gambling.  Lawyers will end up getting involved and trying to figure out exactly what it is that can be done with whatever new Rules and Regulations come into play.  Finance teams are going to have to be put together to determine the implications of dealing in many different currencies and trying to figure out ways to transact with their customers in the event that the normal means become impossible.

The overall situation for the Online Gambling industry, however, is going to be completely unpredictable.  Just like the bookmakers and the money did not expect Brexit to result in GReat Britain leaving the European Union, nor did the Online Gambling industry.  For those who were making predictions one way or the other, the predictions, much as the money, tended to favor Britain remaining in the European Union, but the popular betting as well as the populous of Great Britain had something entirely different to say about that.  What is strange is that, in many sporting events and Proposition Bets, if you have a ton of money coming in from only a few players on one side while a plethora of people are making long odds bets on the other side, usually the side laying the money is the, ‘Smart money,’ side.  

There are some exceptions to that, but a good example of that Rule is when it comes to Super Bowl Proposition bets.  In many cases, such as, ‘No Safety,’ the side that is laying the money will have the best of it.  Of course, it cannot be reiterated enough that there are exceptions to this Rule, for one thing, there have certainly been safeties in Super Bowls and the Smart Money lost on those bets!  Furthermore, Super Bowl Propositions bets are also largely based on the result of previous games, not just Super Bowls, but also based on the statistics of other games as well.  

Once again, for something like this, there is very little in terms of previous comparable events to base any predictions upon.  In other words, it was very difficult to definitively know going into a bet what was a, ‘Good line,’ as opposed to what was a, ‘Bad line.’  There was not a huge sampling of Great Britain making previous votes to leave the European Union, so there was really nobody out there that had any absolute predictive capacity.

Just like there is no way to predict the future of Online Gambling in those countries still in the European Union nor in Great Britain.  

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