Entain’s announcement did not come as a surprise. The company warned that it would withdraw from grey markets in November 2020, when it announced that it would only operate in regulated markets by the end of 2023.
Since then, Entain has withdrawn from a number of unregulated areas, placing pressure on those same markets to regulate or lose potential business from heavy-hitters like Entain.
This new effort would see Entain exit markets such as Brazil sooner rather than later. While support for sports betting there has been rife, there have been no successful attempts at legalising online gaming in the country.
Whether purposefully or not, this decision to withdraw from markets that are steeped in the often arduous process of regulating could see other operators be persuaded to cut their losses.
Under the influence
Operating in grey markets is a calculated risk. From this viewpoint, Entain’s decision to withdraw is a logical one.
For one, authorities in many grey markets are cracking down on unregulated and unlicensed operations, with dire financial and reputational consequences for operators. In November 2022, the Dutch government announced that eight operators were under tax investigation pertaining to activities in the country before the regulated market opened.
Also last year, in Norway, Kindred and the country’s regulator were trapped in a bitter back-and-forth as Kindred was issued fines for allegedly operating there, even though it doesn’t have a licence.
It is important to note that Entain said it would exit unregulated markets “where it no longer sees a path to domestic regulation”. When taking into account the perilousness of grey market, this is reasonable.
But whether Entain means to become an outlier, or wishes to be the leaders of a movement, remains to be seen. What is undeniable is the influence this will have on the rest of the industry – for better or for worse.
Moneymaker
Whether the industry chooses to address it or not, operators can make a considerable profit in grey markets, even considering the potential sanctions. Many find it fruitless to exit them for this very reason.
Often, the amount of profit and exposure grey markets can offer operators – whether morally or legally right – outweighs any potential punishments like fines.
The recent example of the Netherlands provides a look into the potential outcome of exiting a grey market. Operators were forced to withdraw from the market for a time in late 2021, as the country regulated and mandated that all operators must have a licence to conduct business in its market.
The forced exit delivered a blow to some of the biggest companies in igaming. Flutter estimated that the withdrawal would cost £50m, while the exit contributed largely to Kindred’s 30% revenue drop in Q1 2022.
Trendsetters
Meanwhile, in the markets Entain will remain in, it has been making an increasing effort to solidify its presence.
In November 2022, in Croatia, it acquired sportsbook operator SuperSport Group. Meanwhile, in December, it relaunched its esports betting brand Unikrn with the aim of focusing on fully regulated markets.
These moves ring true to Entain’s success in regulated countries, and why it is aiming to slim down its reach. After all, in 2021, Entain reported that 99% of its revenue came from regulated markets.
But for a company as large as Entain, it is possible that this move could encourage others to follow in their footsteps. Whether this could speed up the regulation process in some markets, or discourage them from continuing down that path, remains to be seen.
On the other hand, Entain could simply be viewing a gap in the market. It is exceedingly rare that other operators would announce their departure from unregulated markets, let alone set a three-year long timer into motion to make it happen.
Whether this slimdown of its market presence is a practical move on Entain’s part, or an attempt to be ahead of the posse, the decision is set to push grey markets to the forefront of the industry’s mind.
Original article: https://igamingbusiness.com/legal-compliance/legal/risky-business-can-entain-pull-off-its-grey-market-exit/
