In its short life to date, online gambling has grown exponentially, both in terms of customer base and revenue. But the industry faces a difficult future as different governments begin to take wildly different approaches to regulation.
So far, individual states have shown little consideration for common interests or needs when setting their individual regulatory frameworks for online gambling, leaving a disjointed picture across the world.
Now, while the US moves to maximise revenues from internet poker and its kind, the UK is introducing increasingly prohibitionist rules. This could cause serious problems for UK operators.
Land of the increasingly free
In the US tentative steps are being taken towards borderless online gambling. Widely considered one of the last frontiers of online gambling, recent moves by the states of Delaware, Nevada and New Jersey suggest that the US is beginning to relax its laws prohibiting internet betting.
Until recently this didn’t seem likely. The introduction of the Unlawful Internet Gambling Enforcement Act in 2006 saw many publicly traded online gambling and poker sites withdraw from the US market. The UIGEA effectively buttresses the Wire Act of 1961, which renders illegal “bets or wagers on any sporting event or contest” made using a “wire communication facility”.
Then, in 2011, a fresh round of enforcement actions saw the founders of Full Tilt Poker, PokerStars and Absolute Poker charged for violations of the UIGEA, as the Department of Justice reaffirmed its commitment to pursue and indict those who continue to offer online gambling to US citizens.
But in a surprising turn of events, in December 2011, the Department of Justice reversed its interpretation of the 1961 Wire Act, ruling that “interstate transmissions of wire communications that do not relate to a sporting event or contest … fall outside of the reach of the Wire Act”. Now many of those online gambling companies that beat a hasty retreat from the US market are returning, investing in joint ventures with US-based businesses.
UK operator 888 Holdings, in conjunction with Scientific Games, has been selected by the state of Delaware to provide the gaming technology for its first online casino and poker platforms. Online gambling will also come to life in New Jersey on the 26th November, with UK businesses Bwin.party Digital Entertainment, Betfair and Gamesys licensed to offer casino and gaming in partnership with Borgata, Trump Plaza and Tropicana Atlantic City. UK operators appear to be looking to ties in the US in order to help them re-establish a presence in the world’s most valuable gambling market.
By contrast, the UK looks set to introduce a more hostile regulatory environment for online gambling operators. The point-of-consumption tax, which is scheduled to be unveiled in next year’s budget statement and implemented on the 1st December 2014, will require online betting companies serving UK customers to pay a 15% tax on gross profits, irrespective of where they are located. The tax is expected to net the government £300 million per year and will require all UK-facing operators to hold a Gambling Commission issued licence.
The proposals also signal the death knell of the Commission’s “white list” which allows online gambling businesses licensed in the European Economic Area, Alderney, Antigua and Barbuda, Gibraltar, the Isle of Man and Tasmania to advertise and operate in the UK.
UK-facing companies located in Gibraltar are likely to be hit hardest, with the likes of Betfair, Coral, Ladbrokes and William Hill, about to lose their current tax rate of just 1%, capped at £425,000. Under government plans, operators may have their remote gambling licenses revoked, as well as receiving unlimited fines and prison terms of up to seven years, for failing to adhere to the new regulations.
Global consultancy firm KPMG, in a study undertaken on behalf of the Remote Gambling Association, has rubbished the idea that the UK’s proposal will fulfil its aim of protecting consumers. It suggests that many online gambling businesses will simply pass on increases in operating costs to the consumer who will, in turn, migrate to unlicensed operators who are able to offer better value for money.
With disgruntled online gambling operators arguing that revenue generation rather than consumer protection underpins government proposals, a challenge on the grounds that the plans breach European Union competition law is likely to be forthcoming.
There is a battle coming in online gambling and the UK is setting itself up for a losing streak. Unless more thought is given to the way this legislation is developed, and soon, the UK may well lose revenues. Online gambling may be seen as seedy by some, but it puts money in government coffers. We could all do with a bit of extra spending money at the moment.