What can we expect from Europe's next biggest iGaming market? The impact of the regulation of the Spanish market for operators and affiliates.

Regulation in a nutshell?

As most people know, Spain is Europe's most recent territory to go through the regulation process. So far, fixed odds sportsbetting, poker, roulette, blackjack and bingo have been included, however, slots, the mdustry's biggest revenue driver, and betting exchange products have yet to be included.

The exclusion of slots is a major problem as they generate approximately 60 percent of all operator revenues in Spain. Therefore, to justify paying 20-25 percent tax on the net revenue without slots and side games could put the small to medium operators out of business. This would leave more market share for blue chip operators who have deep pockets and a long-term strategy for the Spanish market.

The speculation is that slots will be included in the next wave of regulation and the initial delay is designed to give the government monopoly, LAE (Loterias у Apuestas Del Estado), a head start in the regulated market. It is also a question of timing. The Spanish government has bitten off more than it can chew by setting itself an unrealistic goal to have regulation decided and operational before December 31, 2011. It simply didn't realise the complexity- of the challenge. The current government's objective is to have the regulation completed before the May 2012 elections. If the elections are brought forward which, considering the state of the current Spanish economy is perfectly viable, this could mean the inclusion of slots and betting exchange products are delayed even further, if included at all.

What does regulation mean for operators?

A regulated Spanish market is only for operators who are looking to attack the Spanish market aggressively. For them, regulation is a positive step, as the acceptance of TV advertising will make products such as bingo mainstream and create national awareness for online gambling. The number of operators who are prepared to make the investment for a license (€1.2 - €1.5 million with €2 -€2.5 million in escrow) and go through the short-term pains will be rewarded with a bigger slice of the pie. The Spanish regulators have also decided that all rooms must have Spanish IP liquidity only. This is especially problematic for poker and bingo operators who depend on networked prizes and international liquidity. This simply means operators will have to commit to bigger marketing budgets.

For medium to small operators, Spanish regulation will be a determining factor for their European strategy. Changing strategy to concentrate on unregulated Spanish speaking territories like Latin America is one option and with companies such as LatamBilling, which offers chargeback-free solutions for Mexico, Argentina, Chile as well as Portugal and Brazil, it makes a quick strategy change feasible.

What will happen to the affiliate market?

The affiliate panorama, in my opinion, is not looking favourable. Currently, affiliates are not promoting new brands that are not likely to buy licenses. As soon as the regulation is in place, there will be less competition to choose from. At the moment, quality Spanish traffic is highly sought after, however, if only 15 operators obtain licenses, which is looking likely, then affiliates will be dictated to and have to take what they are given. The licensees will also be spending bigger budgets in more channels which will increase volumes for affiliates pushing down revenue shares, CPAs and fixed fees. Google PPC, which to date has been officially illegal, will be allowed and natural search will favour operators over affiliates. The obvious step for affiliates would be to secure an exclusive partnership with one operator.

How will regulation affect the media owners?

Regarding promotions and advertising in the general media, there will be limitations on promotional messages and product positioning as in any regulated market; however, there will be many more channels open to promoting gambling. Although gambling has previously been accepted by most media channels, some have not allowed gambling advertising. Post-regulation, TV will now allow bingo and casino and the poker rooms and sportsbooks that have been able to advertise with restrictions can be much more creative. Regulation will also allow more freedom for gaming companies to do tri-party deals with national brands who have previously been too nervous to promote gambling companies.

Current situation

By November, the public tender for license applications will take place, with licenses awarded by December 31. This will be a defining moment for gambling in Spain. Current operators can only use '.com' domains and not '.es' and must be working towards a licence application. Advertising can continue if it was a contract signed before January 2011 and taxes for May 29 to June 30 are due to be paid by July 31. If you haven't paid by then, you will be charged interest and receive a fine for late payment. If this payment has not been made by the time the licence tender takes place, you won't qualify for one.

The word I would use to sum up the current mood in Spain is 'uncertainty'. The regulation timeframe is unclear, finite details are still not fully defined with the government releasing details as and when they are decided. The Ministerio de Economнa y Hacienda (Home Office) is carefully monitoring all online gambling sites and released technical and integration information on July 6, 2011, however, it's so general that it's not really much use at the moment. Precise clarification will take time.
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