Negative Spin

mkodo Mark GibsonMark Gibson, business development director at mkodo, considers the impact for UK players of the Gambling (Licensing and Advertising) Bill.

Gambling operators will be watching with interest the progress of proposed legislation that 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.

The Gambling (Licensing and Advertising) Bill, which has its third reading in the House of Lords on Monday 18 March, is set to introduce the principle of a point of consumption tax on gambling revenues. The Bill will also introduce the requirement for operators to hold a UK Licence (Remote Operating Licence) in order to provide remote gaming services, and to advertise remote gaming services, to UK players.

But following the consultation process, this ‘point of consumption’ 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. This is in contrast to regulation in the N. American market, which demands more rigour in remote gaming location-identification.

The recommended alternative to ‘point of consumption’ has been to apply a ‘point of residence’ qualification. So 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.

Customer identification
This will not, in effect, change many – if any – of the customer data collection processes applied by most remote gaming operators. The payment providers and fraud/security checking platforms that are extensively utilised tend to provide mechanics for customer identification through a variety of channels. These methods deliver a degree of confidence in the identity of the customer, including a place of residence.

Essentially, the Bill will also not change the range of services and products that will be available to UK players, nor will it dictate any change in terms of the locations from which the UK player can ‘consume’ the services.

But the change in tax liability and the point at which the tax is applied will have a critical impact on the commercial viability of the operations of some gaming operators, and also, of specific products within a remote gaming portfolio.

Operators currently supplying remote services from a base outside of the UK will still be able to do so, and customers will still be able to participate in those remote services. However, the question will be whether the application of UK gaming duties kills the viability of the provision of the service commercially.

Player confidence
How will the customer benefit from this change? It may be suggested that requiring all operators to register in the UK and to be liable to UK tax and duties will make the supply of gambling services more ‘responsible’. It may also be suggested that there will be a greater degree of player confidence in the operators and platforms supplying those products and services.

However, this does beg the question as to whether there is currently a shortfall in player confidence, or a significant degree of player harm as a result of the current industry architecture and supply, and whether the proposed changes would affect this.

In terms of customer impact, it is 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. There is significant variation in the current typical Return-To-Player values between different types of products. The proposed legislation does not intend to accommodate variation based on that consideration. The same rules and the same duty will apply across products.

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. The proposed level of the UK ‘point of consumption’ tax at 15 per cent is expected to have a significant impact on operators, and might even have a detrimental effect on the volume of business, as the player might receive poorer odds or payout rates as operators look to mitigate the reduction in profit (to tax) by increasing their overround.

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 business development director at mkodo