FeatureThe Affordability Files

'By the time our punters get to the third race on the opening day of the Cheltenham Festival, we'll be asking them for their P60s'

We examine the reality behind the white paper's claim that only three per cent of bettors will face affordability checks

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Lee MottersheadSenior writer

This article is part one in a series looking at key aspects of the government and Gambling Commission's proposals for affordability checks. Read part two here and part three here. 

Writing in the Racing Post in April to mark the launch of the government's long-awaited white paper, gambling minister Stuart Andrew sought to reassure racing bettors that the most radical proposals it espoused would affect only a tiny minority.

"Eight out of ten players will face no checks at all. And only about three per cent of the highest spending accounts will have more detailed checks," he wrote, citing an estimate that first appeared in the white paper itself.

Since then, the three per cent claim – which relates to the proportion of gamblers expected to be subject to the most intrusive affordability checks – has been regularly repeated by those seeking to reassure bettors concerned about the checks' impact.

Unsurprisingly, it has been the subject of much discussion and scrutiny. It goes to the very core of the debate around affordability checks: are these reasonably limited checks that will spare all but the biggest spenders, or will they in fact catch a significant proportion of regular bettors in their net?

In one sense, the three per cent figure is academic, because affordability checks already exist and have been applied by bookmakers for more than two years now. The number and proportion of bettors affected is unknown, although a Racing Post survey of more than 9,000 punters conducted early this year revealed 16.6 per cent had been confronted with affordability checks.

The road to where we are now began before the tenure of current chief executive Andrew Rhodes, with the Gambling Commission's 2019-2020 enforcement report revealing the regulator's belief that intrusive intervention in many punters' finances was necessary. The report informed operators: "Customers wishing to spend more than the national average should be asked to provide information to support a higher affordability trigger such as three months' payslips, P60s, tax returns or bank statements."

No definition of what the "national average" would represent was given but the message to bookmakers and their customers was unambiguous and ominous. The regulator subsequently dropped an explicit requirement to conduct affordability checks, while retaining vaguely worded requirements to interact with customers and intervene to prevent harm that inevitably lead to checks being conducted. A sequence of huge fines to bookmakers who failed to conduct satisfactory checks reinforced the message.

Culture secretary Lucy Frazer: "x
Secretary of state for Digital, Culture, Media and Sport Lucy Frazer introduced the gambling white paper to parliament in AprilCredit: Anadolu Agency

The gambling white paper presented to the UK parliament by secretary of state Lucy Frazer in April formally adopted affordability checks as government policy, outlining two types of check. The first was described as "background checks at moderate levels of spend" and would take place when a punter records a net loss of £125 within a month or £500 inside a year. The second tier of checks, which would consider bettors' financial circumstances, would be activated by a £1,000 net loss within 24 hours or £2,000 in the space of 90 days.

The white paper went on to state that "these enhanced checks are narrowly targeted" and offered for the first time the estimate that just three per cent of accounts would be affected. Given its importance to the topic, and how often it has been repeated by those seeking to minimise the impact of affordability checks, how the figure was arrived at merits close scrutiny.

The white paper explains the three per cent figure is based on data requested by the Gambling Commission from bookmakers. This data set, which was published on the commission's website, looked at the spending of 5,867,022 "active accounts", representing approximately 19 per cent of all accounts betting in the period from May 2020 to April 2021.

This data shows that during the monitored period 3.2 per cent of accounts hit the £2,000 in 90 days threshold, while 2 per cent spent £1,000 in 24 hours. Extended to the entire market, this would represent at least 1,000,000 accounts getting hit by checks in the first year.

So how did we end up with the three per cent figure, if the data set showed 3.2 per cent and 2 per cent hitting two different thresholds? In aggregate, the group totals 5.2 per cent, but as there is bound to be crossover between those two groups – people hitting both the £1,000 in 24 hours threshold and the higher £2,000 trigger – the numbers should not simply be combined.

Equally, the reverse must be true – some of those who spent £1,000 in 24 hours would not also have reached £2,000 in 90 days. But how many? What is the crossover between the two groups, which would give us the true total figure hitting either threshold? We do not know, and neither does the Gambling Commission or government, because as the consultation explains, it "collected information about the number of accounts that would reach the threshold levels separately".

It is also understood that the government adjusted the estimate to reflect what it felt was the likely impact of restaking winnings, which would be discounted from the net loss figure. However, the Gambling Commission subsequently outlined controversial proposals for the treatment of winnings, suggesting they should be treated as net losses after as little as seven days (for those hitting the £1,000 threshold).

As such, the famous three per cent figure can only be reached by deploying two assumptions. The first is that almost everyone who spends £1,000 in 24 hours also spends £2,000 over 90 days. The second applies an adjustment made to reflect restaked winnings, where the Gambling Commission subsequently moved the goal posts.

Responding to questions about how the three per cent figure was calculated, a DCMS spokesperson said: "Financial risk checks will be implemented to protect those most at risk of harm. We estimate only about three per cent of the highest spending accounts will have more detailed financial risk checks for signs of gambling harm, similar to those done when people buy clothes or other products on credit.

"This estimate is calculated from the data of nearly six million online gambling accounts. We took into consideration the likely overlap between accounts that hit both the £1,000 in 24 hours financial risk check threshold, and the £2,000 in 90 days threshold."

Also worth noting is the interpretation of an "active" account. According to the commission's regulatory returns guidance, an active account is one used by a customer to gamble within the last 12 months. Therefore the figure encompasses those who bet irregularly or even just once a year, perhaps on the Grand National or at the start of the Premier League season. If the data set had been restricted to users who were weekly or monthly bettors, the proportion subject to checks would inevitably be higher.

Offering his analysis, David Zeffman, head of gambling and sport at law firm CMS, also argues that the use of data relating to accounts, rather than individual customers, means forecasts for the percentage of punters who will be troubled by enhanced checks are bound to be too low.

"Many players – and, one can assume, the most active players – will have multiple accounts," says Zeffman. "It follows that the percentage of active customers who will be affected is likely to be far greater than that suggested by the Gambling Commission."

The reality is that gambling operators are the only ones who know how many punters will face enhanced checks and, more specifically, what percentage of regular racing punters will have their finances analysed. However, none of the major bookies approached by the Racing Post was willing to share that data, even anonymously.

In fact, only one bookmaker of any size was happy to address the question. In many ways, Fitzdares are well placed to enter the debate, given their own client base is packed with the sort of big-stakes racing punters whose spending would leave them vulnerable to the white paper plans.

Fitzdares chief executive William Woodhams believes 80 per cent of his customers will face affordability checks
Fitzdares chief executive William Woodhams believes 80 per cent of his customers will face affordability checksCredit: Astrid Templier

"My estimate is that 80 per cent of Fitzdares customers will trigger checks," says the company's chief executive William Woodhams. "The reality, of course, is that we are already asking customers to undergo checks. We have found that 50 per cent of new customers don't return documents when requested. Most serious punters are now used to it. They have either gone along with the checks or closed their accounts.

"Across the industry as a whole, I believe the percentage of regular racing punters who will be asked to undergo checks will be in the 20 to 40 per cent range at least. For our punters, the reality is that by the time they get to the third race on the opening day of the Cheltenham Festival, we'll be asking them for their P60."

Woodhams adds: "For the finances of racing, it isn't so much the percentage of regular punters set to be affected that is most important. It's all about who those punters are – and the answer is they are the punters who bet £50 or over.

"These people are the absolute lifeblood of racing's current funding model. They are the ones who provide the biggest contribution, including 90 per cent of media rights income. Outside of the Grand National, £5 punters add little real value, unlike in football, which attracts two million £5 accumulators every weekend. Racing cannot exist on £5 punters, unless you find three million young people who want a bet. It is that 20 per cent of punters who fund 90 per cent of racing who will be seriously affected."

The outcome is a perfect storm, a pain to punters and painful to racing. The three per cent figure, central to the government's claim that checks are proportionate, is not only questionably calculated, it is basically irrelevant to racing and its most enthusiastic punters.

"I was recently at a conference in Barcelona where the boss of a leading firm said the biggest operators are the only show in town in highly regulated markets," adds Woodhams. "For them, it's about volume and casino. Being a big operator, your model doesn't work with high-staking short-priced punters. What that means is the new regulations – and how the industry is already interpreting them – is killing small-to-medium operators and the ability of punters to have a proper punt.

"The truth is that when you bring together the impact of affordability checks and the inability of punters to get bets on at their desired stake, racing is basically toast."

To complete the Gambling Commission's consultation on affordability checks, visit racingpost.com/consultation and follow the instructions.

The Racing Post also wants to hear from you: What has been your experience of affordability checks since the white paper was published at the end of April, and what do you think of the government's proposals? Have affordability checks affected your betting behaviour?

It's a chance for your voice to be heard. Email the Racing Post at editor@racingpost.com with the subject 'Affordability checks' to share your experiences, your thoughts about the government's proposals, and your contact details.

The Affordability Files:

Part two: 'The elephant in the room' - are frictionless affordability checks a flight of fantasy? 

Part three: how the white paper miscalculated the impact of affordability checks on racing 

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