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A prominent industry investor believes the UK can learn lessons from how other European markets have adapted to tighter regulations, as gambling white paper reforms are set to be implemented.

The government announced wide-ranging reform proposals in April, including plans to limit maximum stakes on online slots, as well as consultations for financial vulnerability checks.

Robin Chhabra, the former CEO of US operator Fox Bet, is now the CEO of investment vehicle Tekkorp Capital. He spoke to NEXT.io about the potential impact of the white paper reforms.

Chhabra highlighted how other European markets have managed to recover in recent years in spite of regulation which could have been problematic for investors trying to weigh up the value of companies in the space.

“If you look at ratings pre- and post-pandemic, the overall sector is trading around the 9x (forward EV/EBITDA) on average,” said Chhabra. “It went haywire during the pandemic, but ratings are reverting to the pre-pandemic norm.”

A trend in Europe

Tighter regulations in recent years include gambling marketing restrictions passed in Spain, Belgium, Italy, Sweden and Latvia, as well as Georgia banning under 25s from gambling last year.

“We actually see growth now in those markets,” said Chhabra. “If you aggregate the value in Europe where regulation has been most impactful, growth levels have gone back to roughly where they were pre-pandemic.

“I don’t think regulation has had a big impact on overall growth prospects but has led to a more sustainable industry. Investors value certainty and we have more of that than we had three or four years ago with the white paper finally emerging.

“The UK without doubt is a bellwether, but if you look at Latvia and Georgia for example, or many other smaller markets, they also have tough regulations, so this idea that the UK is at the more extreme end of regulation isn’t true.

“When it comes to value and attractiveness, these types of requirements are permanent fixtures of the market,” he added.

Cohort concerns

One concern shared by industry figures is the prospect that stricter regulation could push players towards the black market, particularly those who would not feel comfortable sharing financial information with operators as part of financial vulnerability checks, which the Gambling Commission maintains will be largely frictionless.  

But Chhabra, who believes that 90% of the uncertainty surrounding the white paper has been removed following its publication, suggests this will mostly apply to high-value customers.  

“A large majority of the profit in the UK comes from 5% of the players,” said Chhabra. “That sounds like a very scary statement, because it suggests the industry is preying on a few vulnerable people.

“Investors value certainty and we have more of that than we had three or four years ago with the white paper finally emerging.”
Tekkorp Capital CEO Robin Chhabra

“But actually, most of those people are well-heeled and can afford to gamble at those levels. In absolute terms, that’s a relatively small number of people.”

Chhabra said those wealthy individuals are likely resistant to checks and could be tempted by the black market, where barriers to entry are lower for VIP-style play.

“The UK is a country with a large variance between the richest and poorest, and the people who bet the most may just say they’re not going to put up with this,” said Chhabra. “That is a concern that some people have, which I share to a certain extent.”

Alternative investment opportunities

While Chhabra believes uncertainty surrounding the white paper has relented, others believe a lack of clarity – with consultations still ongoing – has caused investors to seek opportunities elsewhere.

Speaking to NEXT.io at And More Media’s Reputation Matters conference last week, Simon French, head of investment banking across travel and leisure for Panmure Gordon, said investors had started to focus their efforts on less mature markets such as Latam and Africa.

Chhabra believes there are still investment opportunities to be found in the UK, however, suggesting technologies on the B2B side are currently more lucrative than conventional B2C operators.

“In the UK, we’ve seen a number of investments in AI-driven businesses, focusing on personalisation and optimised user journeys,” he said. “The operators in the UK tend to be more sophisticated and open to those solutions and it is worth remembering the UK is still the number two iGaming market in the world behind the US.

“Even if growth is not what it was, people still expect it to grow 5-6% each year, which is 2x to 4x GDP growth.

“I wouldn’t be backing a new entrant to the UK [in B2C], but in Eastern Europe and Latam, some of the winners are yet to be born. Our B2C funds would more likely go towards those regions,” he added.

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