Wednesday, 24 November 2010

Using Complexity Theory to Help Navigate the Future of iGaming Regulation

The online gaming industry regulatory debate has received significant media attention recently following the German court ruling between bwin and Westlotto, with bwin CEO Norbet Teufelberger calling for “modern regulations for online gaming” to ensure “suitable standards of gambler protection”. From a player protection perspective much debate has centred around whether more open regulated markets offer players greater protection compared with either monopolistic or unregulated markets.

But what exactly are “modern regulations” and how can they be applied to the online gaming industry to ensure players are suitably protected? Because of the increasingly complex operating and regulatory environment in online gaming answering this question is not straightforward. I attempt to frame an approach as to how the industry can best embrace “modern regulations” to protect players using the concept of Complexity Theory, which has been used to help large organisations, which are inherently complex, to produce effective results from complex interactions.

Today’s regulated markets (highlighted in green in the diagram below) offer a range of player protection requirements, approaches and codes of conducts developed either by regulators or by industry bodies (e.g. eCOGRA). Such codes of conduct have broad agreement across the industry and are relatively easily implementable and enforceable. These are necessary, and even strict regulations, as long as they are aligned to player needs, should be encouraged. Debate continues regarding the justification of monopolies on the grounds of player protection, with accusations from the commercial operators that this is being used a political weapon to justify the maintenance of state monopolies (a debate that I won’t get into in this blog). Either way, whilst necessary, key draw-backs of today’s regulated markets are i) regulations remain static for too long, ii) whilst responsible gaming standards can be met on paper, the players’ experience can differ widely, and iii) international operators are having to provide different levels of player protection due to a player’s nationality because of differing national requirements.

At the other end of the complexity theory paradigm is where I place the current unregulated markets (highlighted in red). Whilst some argue over-regulation can lead to less sustainable practices in that regulations can create the opposite of the intended outcome as organisations look to find ways around the rules (e.g. banking), the vast majority of regulators, academics and operators believe that leaving player protection in the sole hands of market forces is wrong. I agree.

So where does this leave us? Well, how about complexity, ambiguity, uncertainty and turbulence? Without doubt there is no ‘silver bullet’ approach as to how to address the limitations of today’s current regulated markets. It’s also quite clear that nobody really knows where we are heading as change is constant and unpredictable and technological innovation is explosive and on a steep gradient. However, at the heart of this chaos, complexity and uncertainty lies an enormous opportunity to build more safe, informative and fun experiences for online gamblers. Grasping this opportunity however requires vigorous debate, innovation, research, experimentation and collaboration (this is highlighted in blue). Whilst we won’t always be right first time, we will be heading in the right direction. And we are now seeing evidence of the industry increasingly taking the lead in this space.

“Modern regulations to suitably protect players” in online gambling therefore requires not just an adaptation of existing regulations, but a new approach that in parallel encourages industry self-regulation, collaboration and innovation. It’s not a straightforward answer but it’s not a straightforward problem to solve. Despite the challenges, I’m encouraged to see continuing innovation within the industry and believe we will find the right direction, as in the words of Dimitri Kondratiev, the economist, “progress is an irreversible trend”.