March was a tough month for gaming operators in regards to development of the UK market. The revision to UK Gambling legislation passed through its Third Reading in the House of Lords on the 18th March and this was swiftly followed (the next day) by changes in tax levies announced in the Chancellor’s Budget Statement.
Critically, the Budget introduced a new higher tax rate for revenues accrued through FOBTs – the 25% rate being much higher than expected. This, in itself, is expected to cost the betting industry an additional £335m in levies in the UK over the next five years. This was accompanied by an increase in the horse racing levy for those organisations based off-shore (eg Hills, Coral, Ladbrokes and others) and a tax rate of 15%, taking effect from December 1, was set for online gaming. The Budget changes will have a significant impact especially when considered in relation to the changes affecting tax and promotions that are part of the Gambling Act amendments.
Gambling operators have been watching with interest the progress of proposed revision to UK gambling legislation through its Third Reading in the House of Lords last month. Debate around the propositions contained within the Gambling Bill has already seen some operators indicate they could step back from the UK market because of the impact it would have on tax regulation of gambling revenues and advertising practices for operators’ advertising and marketing in the UK.
The changes proposed will have an impact on the commercial viability of the operations of some gaming operators. Indeed some of the major players in the industry have already flagged that these changes will require commercial restructuring – e.g. Paddy Power said it will cut its marketing costs and seek to restructure revenue share deals with affiliates and partners as a means of mitigating the impact of the change. William Hill has also stated that it will be seeking to cut costs to the tune of £15-20m.
The main principles of the Bill’s proposed revisions to the Gambling Act are designed, it is argued, to ensure greater protection for UK users of remote gambling services. The Bill, if (and when) enacted will ensure that operators of remote gambling are regulated at a point of consumption rather than the point of origin of the remote service; that operators providing gambling in the UK hold a UK Gambling Commission LIcence; that to advertise gambling services in the UK for UK players will require a UK licence; that there will be stricter interpretations of where and when gambling services may be advertised; that remote gambling operators must report any suspicious betting patterns involving British customers; and that there will be operator contributions required towards research and education on gambling addiction.
The amendment with, possibly, the most impact and certainly the one with most publicity has been the proposed introduction of a ‘point of consumption’ tax (PoC). However, following the consultation process, this PoC tax will, in effect, be more of a ‘point of residence’ tax, because the challenges of ascertaining and maintaining customer location records across all bet/spin activity have been deemed too difficult to implement. If through its reasonable efforts the gambling operator can determine the customer’s usual place of residence as the UK, the tax will apply to all gambling revenues generated by that customer.
Aside from the PoC tax changes, the other main contention impact may be on the advertising of gambling services. As the next UK general election hoves into view (in the next 12 months) there is much focus on matters deemed to be of ‘public concern’. The advertising of gambling (especially remote gambling) will be affected by this focus and the Bill. There is expected to be a bar on advertising gambling services on TV before the ‘watershed’ (9pm). This will significantly impact advertising and brand sponsorship of TV programmes around sporting events, especially (in the UK) football. It will also restrict the available time slots for advertising gambling services and so, likely, push up advertising costs.
In terms of customer impact, it’s reasonable to assume that there will be decreased competition (usually considered to be a bad thing for customers). There may well be a change in the level of Return-To-Player rates as gaming operators look to ensure that their services are profitable within the ‘new’ tax regime. There might also, longer-term, be less innovation as fewer operators and new entrants are in the market and research and development offers less in the way of profit-opportunity.
The value of this change in tax regulation would seem likely to have little positive impact on the UK’s current gaming players. The impact will be on operators who have notable numbers of players residing in the UK. There are examples of operators already stating a willingness to take a step back from the UK market.
As such, the £300m+ in tax revenue estimated by The Treasury may not be fulfilled as operators and players reduce their activity and touch with the UK’s online gaming market.
Mark Gibson is a specialist in mobile communications and mobile’s convergence and relationship with other ‘new media’. His focus is on devising and bringing to market interactive, accessible applications that deliver customer-focused solutions across the mobile, social and digital environment. Mark is also Chair of the AIME Mobile Betting Gaming Forum, a working group designed to discuss and represent the mobile gaming industry and further the cause and reach of mobile gaming.
mkodo provides practical and creative solutions in all aspects of mobile. mkodo has been enabling clients to develop their mobile interactivity since 2001.
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