Israel, the Online Gambling Empire Where No Israelis Can Lay a Bet

The gambling industry has become one of the great growth drivers for Israeli high-tech, with dozens of companies encouraging foreigners to part with their money online.

Racegoers queue to place bets during the first day of the Royal Ascot horse-racing festival in England, June 2013
Reuters

The offices of William Hill, on the 32nd story of a Tel Aviv skyscraper, tell the whole story of online gambling in Israel. The walls sport posters of English soccer stars, dartboards and slips on which any bet in the world could be written. For instance, how many times the players will lose the ball in five minutes, or the gender of the next British royal baby. None of the company employees can bet, whether in Israel or abroad.

William Hill has been around since 1934. It has some 2,000 betting shops around England, and reached Israel because of its online gaming activity, which it began in 2008. It collaborated with Teddy Sagi’s company, Playtech, which provided the infrastructure for an online casino.

The collaboration, run from Gibraltar – with operating and customer-service centers in the Philippines and Bulgaria – was a success. After three years William Hill bought out Playtech’s 29% stake in the venture for about 460 million pounds (about $670).

Today, William Hill’s Israeli operation has 250 employees and runs a startup accelerator (so far it has two companies inside). It also invested in the Israeli startup NeoGames. In other words, William Hill is now a player in Israeli high-tech, despite having no Israeli clients at all – gambling is illegal in Israel. It serves clients in other markets, explains local manager Schraga Mor.

About half of the Israeli William Hill operation is marketing – yes, in other countries. “Marketing strategy is set in Britain, which is where the deals get signed, but the operation is in Israel,” explains Mor. The upshot is more than a million new customers a year. “The roots start with the technological abilities and creativity of the Israelis who identify new markets. Israel is also very strong in distribution and marketing.”

See opportunity, eat opportunity

Israel has numerous online gambling companies, including giants 888 and Playtech, and dozens of minnows. The local online gambling companies are of three main types: casinos, like 888 and William Hill; technology companies; and affiliates – companies that attract players to the gaming sites by all sorts of means, not necessarily technological. This is sometimes done by people working from home, but these are serious companies with hundreds of employees.

“The gambling industry is one of the great growth drivers for Israeli high-tech,” says 888’s Itai Frieberger.

“Israel has a record number of companies that provide platforms for gambling, such as Playtech,” adds Tal Ron, head of a law company that represents companies engaging in forex, binary options and gambling. Indeed, if an Internet gambling company isn’t Israeli, it probably has representation here. Deals are done, like the giant acquisition of PokerStars to Canadian gaming group Amaya Gaming for nearly $5 billion.

Though technically they’re offering financial instruments, “forex companies” means websites where ordinary people can bet on foreign currency exchange rates. They and the binary-option companies may target a different segment of society, but in essence it’s the same product, says a gaming maven – gambling. “Betting on the shekel-euro exchange rate is the same as betting where a ball will stop in roulette.”

Name of the game

The online gambling companies need algorithms that know how to identify the potential players, motivate players who tire, and analyze reams of data on player behavior. They also need experts on user interfaces, to make the game experience as pleasurable as possible so players stay on, and on, and on.

One might think the Israeli companies would hire mainly development people, but only 30% do that – 70% engage in marketing, estimates Eyal Solomon, CEO of Ethosia.

The main factor distinguishing one gambling site from another is marketing ability, say local industry sources. “The gambling companies have no technology,” sniffs a digital marketer. “It’s a turning wheel, behind which is a simple function of random number selection.” The real skill is roping in a client and getting him to spend money. Ten years ago, the name of the game was technological innovation. Today it’s marketing, he says.

“They say Israelis are lousy at marketing, but marketing has changed completely in the last 10 years,” says Oren Kaniel, chief executive of the startup AppsFlyer, an online marketing company that serves gaming companies. “Today, the world is measurable. Advertisers can measure every shekel,” he notes.

These marketing tools are primarily technological – from client acquisition to managing customer relations – and it’s thanks to the gaming companies that Israel has become an online marketing powerhouse.

Don’t forget that when you lose money gambling, the house wins. Employees at these “houses” encounter their share of heartrending pleas. “One guy contacted us, saying he’d lost $36,500 pounds in a weekend,” says one worker. “It was his son’s university fund. He said if his wife found out, she’d throw him out.”

How do Israeli employees handle the moral and emotional cost? “I wouldn’t work at a company like 888, despite the pay and benefits, because they ruin people’s lives and make money at it,” claims one developer. The ones who don’t cavil at such employment note that the absence of direct contact with clients makes life easier.

This is probably a good time to note that you’re not playing against some beady-eyed croupier in a weird hat but an algorithm – that’s designed to make you feel you’re winning at first.

However, because of their ethical haziness, when hiring the companies tend to pay high and act defensively, says Solomon. “These aren’t workplaces that people are proud of. A high proportion of candidates for work clearly define themselves as not wanting to be offered a job in gaming, gambling, forex or porn. The companies have a problem with their positioning, so they seduce the candidates with good terms.”

What do the employees actually think about their employers and the ethical dilemmas involved in their work? “We rarely talk about actually being employed in gambling,” explains one marketing person, at a major Israeli online gambling company. “Most of the people don’t think about it. They come to work, see it as making a living, nothing unusual. People are in denial. But if the subject comes up, they don’t see anything wrong with it. They don’t call the gamblers ‘people’ but ‘players.’ It creates a psychological distance. For us, it’s all numbers. Goals that we have to meet.”

Don’t Israelis care about the social implications of gambling? “That is a populist argument,” states 888’s Frieberger. “We only operate in countries where there is regulation. This isn’t the Wild West. The industry is undergoing a period of maturation.”

He notes that there are places like Britain where, in contrast to Israel, gambling is part of the culture.

Here it isn’t, though, and some of the employees have difficulty explaining to friends and family what they’re doing. “I say I work in games of chance or online gaming,” admits one employee. “Last year, I was dating a girl and when I told her I worked in Internet gambling, she got mad. She asked how I wasn’t ashamed to do something like that. We didn’t meet again.”

‘People have, do and will gamble’

Sources in the industry claim online gaming is strictly regulated, assuring that the companies can’t cheat the players.

Markets where gambling is permitted include Britain, France, Portugal, Italy and three American states – New Jersey, Nevada and Delaware. India and Mexico allow some gaming.

Dotan Baruch, partner and head of gaming and electronic trade at the law firm of Barnea & Co, says there are constraints on advertising and the games that can be promoted. For one thing, it’s prohibited to use algorithms that clearly cheat users. These things are monitored, it turns out. “There are inspections – some technical in nature at independent laboratories – where we have to show that the algorithm works properly, that things aren’t changed,” he says. Breaking these rules means losing one’s license and registration.

It’s true that these companies are out of business if people aren’t losing money, Baruch admits. But they have no interest in people losing their pants, either. Moral issues aside – it would annoy the regulator, who might ask inconvenient questions.

The workers also protest that they’re not in it to make people go broke. Nobody’s stealing from these people, one employee points out. She points out that in games of chance, when somebody’s demonstrating destructive patterns of behavior and losing too much, they tend to boot him off the site. “We operate under regulation, and that influences our moral perspective.”

Maybe moral standards to things like gambling are, like so much else, a matter of geography. “People have always gambled and will always gamble. Gambling is everywhere,” says William Hill’s Mor. “You need to realize, however, that there is a difference between Israeli culture and British. In Britain, it’s part of the culture.”

Here, the regulator governing the companies is responsible for wielding the monkey wrench thrown into the works when things get out of hand: “We are directed to do things to prevent gambling problems, like setting a ceiling on the amount you can deposit when registering, or the possibility of extracting oneself from the game if one feels one has gotten carried away,” adds one worker. These things help the Israeli workers feel better about themselves, it seems. They also point to the contribution of these companies to the domestic economy – while no Israeli players are at risk, because, as we keep saying, gambling is illegal in Israel. Including on these sites.