Originally published on Gambling Insider.
Claudio Overend, head of legal at Singular, assesses whether the increased regulation added on top of the already present financial risks burdened upon white label providers could push white labels out of the market.
THE POPULARITY OF WHITE LABELS IN THE EARLY DAYS
During the emergence of the online gambling industry, the term ‘white label’ gained significant traction in the industry. In essence, a white label solution provided an opportunity for entrepreneurs who were willing to penetrate the online gambling market, however, did not have the necessary resources to implement an organisation and a gaming platform compliant with regulatory standards. In essence, a white label solution provided the opportunity for interested parties to launch a gambling website on a budget. Today, there are many examples on the market of white label operators that evolved and flourished into massive operations even obtaining a gambling license and hence, moving away from a white label solution.
NOT A FAIR GAME FOR WHITE LABEL PROVIDERS
The white label operator’s role was mainly related to marketing and first-line customer support. On the other hand, the white label provider’s obligations were endless given that it was vested with the gaming license and hence, liable towards regulators for any breaches related to the website brand which in reality, is largely managed by the operator.
In addition, the white label provider also has contractual obligations towards gaming and payment vendors since the aforementioned parties only contract with the gaming license holder. Therefore, should a white-label operator fail to honour its payment obligations towards the white label provider, the payment and gaming vendors will still pursue a legal claim against the white label provider. This financial and legal risk can cause, amongst other issues, liquidity problems for white label providers and would explain the seemingly current decline of white label solutions being offered on the market.
Furthermore, white label providers are also liable for the players. Therefore, any legal dispute would be filed against the license holder that is, the white label provider. Despite the majority of profits being retained by the white label operator, the white label provider seemed to retain a smaller percentage of the profits but retained all the legal and financial risk. Therefore, with increased regulation, it was easily ascertainable that such a business model would be in the decline. In fact, there are various cases whereby players win large sums of money and the white label operator ends the operation without paying the white label provider.
THE PRESSURE OF MORE STRICT REGULATIONS
However, recently regulators started to clamp down and increase regulation concerning online gambling in general. In essence, many white label operators were not in the line of fire when it comes to regulators, and therefore, one can imagine that compliance on the part of the white label operator was not at the forefront of its objectives. In essence, revenues and profit were the main focus of the white label operator. This lack of regulatory risk inevitably led to multiple player cases of abuse especially related to responsible gambling which was diminishing the reputation of the industry. As a result, online gambling regulators clamped down on such practices especially with the United Kingdom entering the sphere of regulation of online gambling which strongly focuses on responsible gambling and player protection.
As a result of increased regulation added on top of the already present financial risks burdened upon the white label provider, there have been a number of white label operators closing shop because platform fees have been raised. Furthermore, many white label solutions seem to be moving away from that business model and are adopting a pure B2B approach supplying solutions to licensed operators.
THE FUTURE: FLEXIBLE B2B ONLINE GAMING PLATFORMS
Ultimately, there is not much financial incentive for white label providers to provide such services as it poses large financial and regulatory risks. Besides, the recent purge related to white labels on the part of the Gambling Commission is a clear indication that the flexibility provided to white label operators is now a thing of the past. Therefore, current operators which are under a white label solution should be aware of the risk that such solutions may become discontinued in the future.
Those white label operators with good revenues should prioritise obtaining a license and moving away from white label solutions to a more flexible gaming platform. The need for a flexible gaming platform is even more important if such operators are looking into multiple emerging markets which require flexible and agile solutions to be compliant with technical regulatory standards. Focusing on emerging markets is clearly advantageous and therefore, B2C operators need to partner up with platform providers that cater for such flexibility, especially from a technical point of view.