Gibraltar’s online gaming presence began in 1989 when British betting operators began online gambling in Gibraltar, taking bets over the telephone and availing themselves of Gibraltar’s low level of taxes and betting duty. From these modest beginnings began a phenomenal industry for Gibraltar.
The list of Gibraltar licenceholders includes highly familiar household names from the world of sports betting (Ladbrokes, Victor Chandler, William Hill, Stan James and Gala Coral) and international players who have built their reputations entirely in the online world (Bwin- Party, 32Red, Betfred, 888, Betfair etc). The industry provides significant employment and financial benefit to the Rock, not least in bringing diversity and growth to its economy.
The number of licence holders has grown significantly over the past year under the new political administration – the four latest additions outlined by Phil Brear, the Gambling Commissioner for the Gibraltar Government, at the KPMG eGaming Summit in April 2013 amounted to a 20% increase;
“One was the reconfiguration of the Gala Coral Group, we also opened the Bally Technologies offices, likewise with Shuffle Master, and finally the introduction of Amaya through their acquisition of Ongame. Each is very different and each is underpinned by a commitment to Gibraltar’s values.”
A cloud on the horizon
The approaching challenge for Gibraltar and the eGaming industry as a whole is the UK Government’s plans to protect UK consumers by requiring companies who wish to serve the UK market to be licensed in the UK (with the small matter of also being liable for UK tax at a rate of 15% at the point of consumption). This has encountered increasingly strong resistance over the last year, particularly in Gibraltar.
That resistance met with recent support from KPMG and the Remote Gambling Association in the form of their report ‘An economic review of the proposed change in UK legislation for online gambling taxation’ on 16 September 2013 (2). The report, which was produced by KPMG’s Simon Trussler, Bill Robinson and Adam Rivers spells out the dangers of the UK’s proposals;
“There is a serious risk of the Government’s proposals failing to establish a viable market for UK licensed operators with the consequent danger that the Government’s following stated goals will not be achieved: i) protecting UK consumers; ii) levelling the playing field for existing UK based operators; and iii) increasing public revenues. This is because the current proposals for changing the tax regime could well unintentionally distort prices and products on offer in the UK market and, in doing so, result in the creation of a larger black market than the Government has anticipated.
“A number of operators believe that they will be unable to absorb the tax and will be forced to pass the additional cost on to their consumers. Given how price sensitive many customers are this will result, the industry believes, in a large number of customers switching to offshore, duty-avoiding, providers who are able to continue to offer lower priced, more attractive products.”
Whilst the possibility of legal challenges remain, KPMG’s report operates on the assumption that the UK Government intends to press ahead with this measure and therefore focuses not on opposing the fact of it, but rather on making two main recommendations, based on objective economic analysis, for achieving the Government’s stated goals in a way that will also benefit the tax payer, consumers and the industry:
- Any tax on UK online gambling activity should be on a gross profits basis and not, as appears currently to be suggested in the consultation documents, on gross gaming revenues. This will require gross profits to be defined. In particular, the bonuses and free plays that are a central part of the marketing strategies of online companies and which consumers expect to have should be excluded from tax calculations.
- Whatever the tax structure chosen, in order to meet the Government’s fiscal and social objectives the tax rate should not be set at an excessive level. The prudent approach, in terms of the economics of the situation, would be to start with a tax rate of no higher than 10 percent and adapt it over time as the Government gains sufficient experience of this new regime to gauge the revenue-maximising level of tax.
Finally, and this is key, the report also considers that there is a need for effective enforcement measures to be introduced against those operators who do not comply with the new legislation once it is introduced.
Both the then-minister for Gaming, The Hon Gilbert Licudi, and the Gambling Commissioner made it clear at the KPMG e-gaming Summit in April 2013 that they expect the growth in Gibraltar licenceholders to continue, with the minister stating;
“It is my expectation that several further licences will be granted over the course of this year for operators that are considered fit to join the selection of incumbent licensees, of which Gibraltar is justly proud.” Brear concurred: “we have no fewer than ten companies in different stages of discussions for licensing. Some of these may not complete, although I suspect that around half will over the next 12 months and I expect that, by this time next year, we’ll have at least 30 B2B and B2C licences – all readily, if not instantly, recognisable names in remote gambling.”
Operator Performance
Whilst much of the public commentary can imply that the news around the online gaming sector is negative, in current performance terms nothing can be further from the truth. William Hill Online continues to go from strength to strength and online bingo operators Tombola and Jackpot Joy continue to produce stellar results. One of the biggest events since April was of course Bet365’s results announcement – operating profits up over 50% to almost £180m, wagers hitting £20bn (up 57%) and all of this achieved from a purely online presence licensed in Gibraltar.
Global Performance
A recent report commissioned by Gibraltar licensee Odobo and researched by H2 Gambling Capital (‘Opportunities for game developers in regulated real-money online gambling’, March 2013) outlined the size of the global regulated online gambling market as follows;
‘Regulated real-money online gambling (RMG), excluding lottery and skill-based games, already generates almost $30bn in gross win internationally, with the UK and Europe accounting for 54% of the market. Recent legislation passed in several US states supports licensing for online gambling and, according to H2, means that by 2017 the US may already represent up to 30% of the global online gaming market and generate gross win just over $7.4bn, this will continue to grow annually.’ H2 also estimated the pace of convergence between real-money gambling and social casino gambling which, when combined, generated just over $30bn in 2012 and are, they estimated, forecast to grow to over $40bn by 2015. So, plenty to play for…
No rest in sight
As this brief overview of both Gibraltar’s online gaming market, and the wider global picture, makes clear, this is a sector which experiences constant change and challenge – little wonder that Gibraltar’s Hon Gilbert Licudi QC, closed his address at the KPMG eGaming Summit in April 2013 with these words: “You don’t need me to tell you that in this industry, no-one in the private sector, and certainly no Government, can ever relax.”
With the recent reshuffle of the Cabinet and the appointment of Minister Albert Isola as the new Minister for Gambling and Lotteries, I feel sure that he and his colleagues are equally committed to seeing the sector continue to develop, diversify and grow – and that they too, will not relax for a moment.
Archie Watt is Head of eGaming, at KPMG Gibraltar & Isle of Man
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