A surprise piece of US legislation knocked the UK online gaming sector – and its HR professionals – for six. It has since picked itself up, refocused on home turf and become a recession success story. Joanne Christie reports.
Like many other areas of business, the UK’s online gaming sector has been heavily affected by events in the US. But unlike other industries, it wasn’t the recession that started across the Atlantic that sent it into a tailspin – it was an unanticipated piece of legislation.
On 30 September 2006, the US government passed the Unlawful Internet Gambling Enforcement Act (UIGEA) as a late, and unexpected, addition to unrelated legislation on US ports. The UIGEA stated that the transfer of funds from US financial institutions for gambling purposes was illegal. It was signed into law less than two weeks later by president George W Bush, giving operators little time to decide on a course of action. Most UK gaming companies, particularly those that were publicly-listed, took the new legislation to mean they needed to cease accepting bets from the US immediately.
Kathy Swindley, who had been working in HR in the financial sector, had just been hired as HR director at online gaming company PartyGaming when the UIGEA came into force, wiping out about 75% of the company’s revenues almost overnight.
“The UIGEA legislation was passed on 13 October and I started on 20 October, so it was a baptism of fire,” she recalls. “I had to reorganise the business structure to cope with a very different market. I was handed a pretty out-of-date organisation chart and told we needed to reduce our headcount by 40%.”
The news also took online sports gambling specialist Sportingbet by surprise. “We were just about to launch a leadership programme for all our top people,” says HR director Rachel Richardson.
“People were flying in from all over the world for this leadership conference on the weekend it was passed. All the planning and preparation we had done was turned on its head and instead we had to give training in change management and redundancies.” Sportingbet had about 1,300 employees at the time, but by July 2007, its headcount had fallen to just 360.
But this bombshell in the industry’s early days – online gaming operators only started to spring up in the late 1990s – gave rise to a resilience that many say has helped it survive, and even grow, despite the recession.
Post-UIGEA, many firms turned their attention to markets closer to home. Some European markets are relatively straightforward – in the UK, online gambling is fully regulated. Others, such as Italy, have only recently allowed online gaming firms to operate in their jurisdictions, and France is in the final stages of setting up a regulatory system.
While the sector has not been immune to the recession, many operators have continued to post strong growth figures, and overall the industry is in a strong position. Figures from H2 Gambling Capital, a supplier of gambling industry data and consultancy, put the global value of online gaming at £17.3bn at the end of last year, up from £2.1bn in 1999.
Historically, the sector focused heavily on recruiting insiders, but in recent years many operators have started to recognise the transferable skills of those from other industries, particularly online industries. Most report an increase in applicants from outside the sector, partly due to the recession, and partly because the sector has, to some degree, overthrown the negative perceptions once associated with gambling.
The fact that a number of the big operators are listed companies and subject to stringent regulation is one factor contributing to the image change, and there are several others: increased integration with media partners, sports sponsorships, licensing regimes and even the introduction of the study of online gambling into academic programmes at some universities.
Swindley says government contracts have also helped. “We worked hard to secure a deal recently with Danske Spil, Denmark’s government lottery provider. When you start providing services to government then that does give you extra legitimacy.”
But Lisa Parody, HR manager at online casino and poker website 888, says the recession has had an impact on staff engagement. “With the economic climate as it is, we have to contend with the rising costs of running our business, and the need to cut costs in some areas, such as headcount and budgets. In doing this, employees find themselves having to work harder with reduced resources, which in turn leads to reduced motivation.”
Parody says the drop in the value of the pound has also caused problems. “With the euro rate being so bad at the moment, this poses a problem as people struggle to live off their salary when it is converted to euros. We are paid in pounds in Gibraltar, but most of our employees reside in Spain, so have to exchange their salaries.”
Most of the UK-licensed operators are based offshore, where they pay lower rates of tax than in the UK. Many have headquarters in Gibraltar, but a number are also located in British crown dependencies such as Alderney and Guernsey. HR professionals say it can be difficult to find staff willing to relocate, but the real challenge lies in finding experienced candidates to lead their entry into newly-licensed markets. France, for example, is expected to launch a licensing scheme this year, and operators will need knowledgeable people on the ground.
“Because it is a relatively young industry, it is very difficult to find seasoned executives – people with 10 years’ experience – because they are very few and far between. Particularly when you are going to a new location, you want someone who understands the culture and environment of that particular area,” says Swindley.
As the sector operates in an unclear legal environment in many European jurisdictions, things can change suddenly and employees need to be able to cope with that, says Swindley. “We need people who are resilient. A lot of people will say they are very flexible, but we need people who can change direction instantly. They’ve got to be very agile.”
Richard Mortimer, vice-president of HR at Orbis, a software supplier to the gaming industry, agrees. Unlike the employees of operators, the bulk of Orbis’ recruits do not have industry experience.
“Finding the right people is our biggest HR challenge because the pace of change in this business is so rapid,” he says. “During our interview process, we like to put pressure on candidates. It often weeds out people who can’t cope with change. It surprises me sometimes how people manage to screw up an interview when you put them under a bit of pressure.”
Mortimer says operators can be tough customers. “The demands they put on the customer are much higher than any sector I’ve worked for before. They are less forgiving if you get things wrong.
“Time is money for a bookmaker, particularly an online bookmaker. If their website is down or they are lagging behind the curve then punters won’t bet with them, they’ll go to another site. It takes just seconds to go to another site, so it’s a very customer-orientated industry.”
Because there are so few experienced senior-level gaming experts, staff retention is also an issue. “There is so much competition in the gaming industry within Gibraltar, so we have to work hard to retain our employees,” says Parody.
Matthew Wallace, HR director at Sporting Index, says an appropriate talent management strategy is vital. “We do have a very active talent management strategy to make sure we identify key staff and work with them to provide them with the right training and development and mentoring to retain them.”
Talent management has always been a priority, but proper HR structures to manage it are a fairly recent phenomenon. Richardson says Sportingbet had just the bare bones when she joined five years ago. “Mostly it was just people managing the payroll. They had put in contracts of employment and the basics were in place, but there wasn’t much more than that. I really had to roll up my sleeves and get on with it.”
One of the strategies she came up with to manage retention was a focus on career development and recruitment from within. “A lot of people have been promoted or taken on new projects internally. We are now focusing much more on leadership and development programmes and on recognising people for the good jobs they have done.”