IAGA SUMMIT FOCUS: KEYNOTE UK/US LEGAL AND REGULATORY DEVELOPMENTS IN GAMING M&A


antitrust clearances (which has always been the case for non-EU/UK merger control conditions). Te Panel also codified certain practices regarding the invocation of offer conditions. Although most of those practices already existed, codifying them has brought into sharper focus that a failure to obtain regulatory clearances (for example, gaming regulatory clearances) at all or by the deal long stop date will not necessarily entitle a bidder to terminate a transaction, unless that failure has extremely serious consequences for the bidder in the context of the transaction.


In April 2023, the UK Government issued its long-awaited White Paper reviewing the UK Gambling Industry entitled “High Stakes: Gambling Reform for the Digital Age.” Many M&A transactions in the UK gambling sector will trigger a change of control of an operator regulated by the Gambling Commission. Te change of control approval process involves identification and approval of all direct and indirect holders of a 10 per cent interest in the licensed operator.


Te White Paper notes that change of control applications have become more difficult to review because of operators becoming larger, more organisationally complex and internationally based. Te White Paper observes that this complexity has made it increasingly difficult for the Gambling Commission to manage change of control applications and that the Gambling Commission’s due diligence is taking an increasing amount of its time. Tis trend, which affects transaction timetable and integration, is likely to continue, as the White Paper states that the Government will legislate to give the Gambling Commission additional powers to assess and regulate new business owners.


Te upshot of these regulatory developments is that it is now even more important to assess early on if and where regulatory (including antitrust and gaming) filings and clearances will be required or necessary, what that entails in terms of conditionality and timing, and how any failure to obtain clearances, including a requirement by the Takeover Panel to close over that failure, can be addressed to mitigate unintended consequences.


In the United States, the Federal Trade Commission and Department of Justice’s Antitrust Division continue to scrutinise what they view as potential anti-competitive practices. Of note, the FTC is particularly focused on curtailing the scope of non- competes on employees and in January 2023 proposed a rule that would in effect preclude employers from imposing non-competes on their employees.


While the likelihood of an outright ban on non- competes in the US remains uncertain, there is certainly a political push to try and curtail their scope. In light of the important role that employees possessing significant knowhow


P82 WIRE / PULSE / INSIGHT / REPORTS


“Challenges arise because


regulators, governments and policy makers across the world, are turning their focus and enforcement efforts


increasingly on grey market activity, not least as it


becomes ever more apparent that existing gambling laws, many of which were enacted a long time ago, cannot easily be applied to online activities that know no borders. For example, the UK's Proceeds of Crime Act 2002 makes it a criminal offence to fail to report a suspicion of money laundering or be complicit in the transfer of the proceeds of crime.”


play in tech companies, purchasers of online gaming companies should keep this under review.


In light of the rapid growth and emerging nature of online gaming companies, M&A targets with businesses or operations involving so-called “grey” markets continue to present obvious opportunities but also challenges for potential acquirers seeking to grow through M&A.


Challenges arise because regulators, governments and policy makers across the world, are turning their focus and enforcement efforts increasingly on grey market activity, not least as it becomes ever more apparent that existing gambling laws, many of which were enacted a long time ago, cannot easily be applied to online activities that know no borders.


For example, the UK's Proceeds of Crime Act 2002 makes it a criminal offence to fail to report a suspicion of money laundering or be complicit in the transfer of the proceeds of crime. As such, acquiring a target that has violated gaming laws as a result of grey market operations could constitute a transfer of the proceeds of crime and therefore result in the purchaser, and potentially any of its regulated advisers (such as outside legal counsel) breaching this Act and being sanctioned.


Of course, in many cases it might not be entirely clear whether an actual violation of gaming laws has occurred in a given grey market – hence why such market is considered “grey”. Tat uncertainty not only increases potential risks for purchasers, but can also reduce the appetite of lenders to finance transactions that touch upon any sort of grey market operations.


“A violation of gaming or other laws in a grey market by a newly acquired target could also have serious


consequences on gaming


licences already held by the purchaser, or on pending or future licence applications for new territories. In some cases, if the proposed transaction will impact those other licences or plans, the use of a spin-off, divestiture or restructuring can be considered to satisfy a


regulator or governmental authority.”


Anti-money laundering (AML) compliance is also attracting additional scrutiny in all facets of gaming activity, whether land-based or online, including the use of digital wallets and cryptocurrency for transactions. Moreover, there continues to be a proliferation of data privacy and cybersecurity laws being enacted throughout various jurisdictions. With customer data being the lifeblood of an online gaming company, how such company stores, processes and transmits any personal data also continues to play a key role in evaluating risk in an M&A transaction.


A violation of gaming or other laws in a grey market by a newly acquired target could also have serious consequences on gaming licences already held by the purchaser, or on pending or future licence applications for new territories. In some cases, if the proposed transaction will impact those other licences or plans, the use of a spin-off, divestiture or restructuring can be considered to satisfy a regulator or governmental authority.


Finally, as with other industries, environmental, social and governance and diversity considerations are, for certain investors and stakeholders, increasingly important when evaluating M&A transactions.


Te views and opinions set forth herein are the personal views or opinions of the authors; they do not necessarily reflect views or opinions of the law firm with which they are associated.


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