Danger ahead: Could rising living costs hamper Malta’s egaming industry?

Blessed with its warm Mediterranean climate, low tax regime and a substantial talent pool to tap into, Malta has matured over recent years to become the unofficial home of the egaming industry. According to the latest figures from the Malta Gaming Authority (MGA), the country is currently host to some 300 licensed online gaming companies which collectively employ more than 6,000 full-time staff members, 70.4% of which are non-Maltese workers.

Where a company chooses to set up shop is clearly be one of the most important decisions made by any business. And it seems there is still formidable gravitational pull towards Malta for many prospective operators with the number of licences increasing 18.5% year-on-year to 661 in the six-month period to 30 June 2018. The jurisdiction will also soon welcome the likes of bet365, William Hill and 888 to its shores as the online gambling giants all look to navigate the complexities of a post-Brexit world.

The arrival of such industry heavyweights to the Mediterranean country will no doubt be a welcome contribution to a Maltese economy which already benefits substantially from being home to what remains a growing industry worldwide. Indeed, according to the MGA, the egaming industry in Malta paid €29.4m in gaming taxes to the government in H1 2018, generating just over €623m in gross value and contributing nearly 12.2% to the whole Maltese economy.

“Malta’s position as Europe’s egaming hub is firmly established, and the island is still the number one base for much of the industry,” claims Anthony Hennessy, head of Malta at recruitment firm Pentasia. “The winning combination of access to the European market, pool of EU talent and attractive Mediterranean lifestyle remains difficult for other regions to compete with. Malta’s government continues to strongly support the egaming industry, with regulatory bodies and policies ensuring Malta is a great place to do business.”

Yet, while no one would question the exponential growth of egaming in Malta, the island is now having to contend with some potentially critical concerns. Higher living costs and talent acquisition difficulties are just some of these issues being flagged up by Malta-based industry personnel in recent months, which may well dent its reputation as the gaming jurisdiction of choice for European operators. But just how detrimental could these problems actually be going forward?

Teething problems

In November, Enrico Bradamante, chairman of the industry trade association iGEN, met Malta’s parliamentary secretary Roderick Galdes to discuss growing concerns among Malta-based gaming workers about soaring costs of living. In the meeting, the former NetEnt managing director claimed an increase in rental costs over the last couple of years was by far the biggest issue, particularly for those of entry-level positions, and in some instances meant people had to share accommodation or live far from their office.

To combat this dilemma, Bradamante urged the Maltese government to introduce various reforms, including an index linking rent prices to salaries rather than property prices, creating an independent body to regulate rent prices, and giving tenants the right to renew their rental contract upon expiry. The government had the previous month unveiled plans to introduce minimum lease periods but it stopped short of announcing plans to regulate rental prices. However, it’s clear this issue is now firmly on the government’s radar and the call for action is only going to get louder.

“High rent and bills, together with general increased costs in eating out, entertainment and shopping is impacting the retention period of a junior role on the island,” Claudia Ginex, head of people at Gaming Innovation Group (GiG), says. “We have seen an average stay on the island from two years to just over one year. In turn this means we need to constantly attract and replace junior talent on the island.

“We can now hope the local authorities will follow up on the announced improvements such as the regulation of the rental market and other plans to meet housing demands. It is also time for the bigger companies on the island to strengthen their collaboration in order to stabilise the entire talent market and move on from talent war to fair competition.”

“High rents and bills, together with general increased costs, is impacting the retention period of a junior role on the island” – Claudia Ginex, GiG

The gaming industry has largely tended to congregate around popular coastal areas like St Julian’s and Sliema where housing is vastly in short supply. In fact, there is said to be an acute shortage of studio flats and affordable housing in particular, a situation likely to make Malta less attractive to entry-level talent than anyone else. As a result, Andreas Bardun, CEO of mobile sports betting start-up Mobilt, believes gaming companies should look beyond these popular areas and relocate to other areas of Malta with much cheaper accommodation.

“It was much easier to sell in the past with the closeness to the seas, cheap food and beverages and good quality of the rental apartments in relations to what you paid for. This is a problem but there is a simple solution in my mind,” Bardun, who has lived in Malta for nearly 20 years, says. “Gaming companies need to reconsider location as Malta has so much more to offer than St Julian’s and Sliema. There has been a lot of exciting initiatives to improve transport with car sharing and rent a bike and better public transport. This should enable more cheaper localities for gaming companies.”

Has Malta got talent?

Economic advisory firm ARQ Economic & Business Intelligence recently unveiled its findings for Malta’s first house rental index – and the results do indeed show how much more expensive these areas are. Based on data collected from over 5,300 transactions of contracts since 2015, the index revealed rent increases had been much more prominent in the northern harbour area of the country, which includes St Julian’s and Sliema.

The study also claimed that rent affordability looked set to remain a challenge in the future as rent payments continue to rise faster than median earnings. So, with rents in Malta increasing considerably year-on-year and other living costs among the most expensive in Europe, it is clear Malta’s gaming workforce is really feeling the pinch. This issue is not just confined to the gaming industry – Malta’s service-based economy includes a substantial finance sector – but the worry for many gaming companies based in the Mediterranean country is whether this will hamper their recruitment strategies.

According to Julian Perigo, managing director at Boston Link, the situation hasn’t yet prevented the recruitment company from relocating talent to Malta, but he does believe it represents a significant threat to the jurisdiction’s future egaming prosperity.

“Malta’s competitive advantage was always that it was low tax but also low cost across the board too,” Perigo explains. “As a recruitment company, we have had to change our pitch over the last couple of years from saying ‘come to Malta and get an awesome two-bedroom apartment with a sea view for €500 a month’. We stopped saying that because it’s no longer true. Now, we basically have to tell people to do their sums before they accept anything here because it’s not necessarily straightforward to make ends meet.”

Pentasia’s Anthony Hennessy believes Malta will maintain its position as Europe’s premier gaming hub

With more egaming companies now based in Malta than ever before, the demand for talent is going to continue increasing for the foreseeable future. Yet there has long been a shortage of specialist skills locally in Malta and a need to recruit talent off the island, particularly for C-level roles and in certain key skill areas such as foreign languages, and SEO and affiliate marketing. As it’s long been home to so many Nordic operators, Malta has also historically recruited heavily those people with Scandinavian language skills which wouldn’t be found among the local population.

Bardun claims that, now Sweden has regulated its gambling market, many Scandinavians working in Malta have already begun to move back home. This, coupled with soaring living costs, is only going to make attracting the right talent to Malta ever more difficult. The key question is whether these issues, as well as higher office rental costs, have become so profound that existing and prospective Malta-based egaming companies are seriously considering to up sticks and move their business elsewhere.

Taking the bull by the horns

Perigo of Boston Link believes the egaming industry should be under no allusions as to the challenges Malta is currently facing and believes some operators may soon seriously consider new jurisdictions if the situation doesn’t improve. “I think there is that danger as this is probably the biggest enemy to future growth in Malta because costs continue to rise and either people won’t move here or companies will need to keep increasing their salaries and then increase them to such an extent that they might as well be somewhere else,” he says.

The recruiter says Boston Link has a client with offices in the Isle of Man and Malta which moved its back office to Malta approximately four years ago and, after two years, found it so expensive and difficult to attract talent that it moved their back office back to the Isle of Man. Whether actions such as this becomes more commonplace remains to be seen.

However, it does seem there is now at least a willingness from the government to address the problem. Indeed, steps are being taken to both improve living costs to attract foreign talent and to improve the skill-set of the local population. “The island has started addressing this in a sustainable way, by reviewing its education system so more of the right skills can be home-grown,” GiG’s Ginex says.

“As with any challenge, there is not just one solution that can magically fix the problem. The Maltese government are making some good progress with investment into egaming-orientated courses. In addition, the quality of technical conferences is constantly improving. However, I think that further investment needs to come from private companies to share knowledge, constantly improve and evolve their talent flow.”

So it does seem like steps are being taken to help maintain Malta’s reputation for being the jurisdiction of choice for online gaming. At a time when the island is seeing more licence applications and operators setting up shop there than ever before, it can also be easy to exaggerate the extent of the problems for a country which was the first EU members state to regulate egaming. And there are now new opportunities on the horizon that could help solidify Malta’s industry stature.

For example, the island looks set to benefit from the UK’s withdrawal from the EU, it’s at the forefront of the blockchain revolution, and it continues to off er people a lifestyle that is largely unmatched by nearly every other jurisdiction. Malta also has a business-friendly government and a regulator in the MGA which continues to attract praise for the work it has done in recent years in improving the country’s regulatory regime, as well as making an MGA licence one of the most respected a company can have.

The hope will be that these two entities can now work in tandem to tackle Malta’s current issues and maintain its reputation as the jurisdiction of choice for the online gaming industry.

“Yes, there are challenges, and perhaps areas of operations that competing locations like Bulgaria may chip away at, but Malta certainly looks set to remain a hub of gaming operations for the foreseeable future,” Pentasia’s Hennessy concludes. “Judging from the influx of new companies setting up here every month, and the continual arrival of the industry’s most talented staff , we’d say Malta’s gaming industry is shining as brightly as ever.”