The eGaming industry has evolved and faced significant recent changes. Consolidation in the market, regulatory action against leading brands, market consolidation, regulatory action and changes, diminishing margins and increasing player acquisition costs have all impacted on profits.

The introduction of local licensing requirements in Europe has raised new hurdles for operators at the same time as others have been lowered in a selection of US States.

Major changes to the regulatory regime in the UK

Implementation of the Gambling (Licensing & Advertising) Act 2014 on 1 November 2014

The Gambling ( Licensing & Advertising) Act 2014 (Act) came into force on 1 November 2014. It amends the Gambling Act 2005, so that remote gambling by consumers living in Great Britain will be regulated on a 'place of consumption' instead of a 'place of supply' basis.

Prior to 1 November 2014, the Gambling Act 2005 required each operator offering its services in Great Britain to be licensed or regulated by one of the jurisdictions  approved by the UK's Gambling Commission (Commission)  - the 'white listed' jurisdictions.  Licences issued in these 'white listed' countries were treated as having been issued in Great Britain.

However, the government became concerned that without specific requirements imposed by overseas jurisdictions, operators were not compelled to report certain information, such as instances of suspicious betting activity, to the Commission. Although some operators voluntarily shared information with the Commission in addition to their home regulator, it was often of insufficient detail to be used in an investigation. As such, the government asserted that the regime needed to change to a 'place of consumption' basis because "it [is] essential for the Gambling Commission to have a greater degree of oversight in respect of the gambling offered into Great Britain."

To that end, the main change set out in the new Act is an obligation for overseas operators which sell into the British market to obtain a licence from the Commission.

Operators are now required to abide by the provisions of the Gambling Act 2005, and its regulations, as well as the social responsibility and technical standard requirements issued by the Commission. This means that, for the first time, operators based abroad are now under a legal obligation to notify the Commission in respect of suspicious betting patterns involving British consumers to help combat illegal activity and corruption in sports betting.

New 15% levy on profits derived from customers in the UK

Crucially, the new licence regime removes the tax benefit of being registered in a low-taxation jurisdiction. Since 1 December 2014, all companies which have an operator licence from the Commission have needed to pay the same 15% tax on UK gross profits, no matter which jurisdiction they are registered in. Whether this was a fortunate by-product of the government's wish to address problem gambling or the driving force behind the changes (the tax is anticipated to raise around £300 million per annum) has been the topic of much debate within the industry.

Taxation of regulated eGaming activities

The UK imposes a number of taxes specifically chargeable on the gross profits of regulated eGaming activities such as bingo and bets placed.

As noted earlier, UK gaming taxes now operate on a 'place of consumption' basis which means that all operators which provide regulated gaming activities to UK customers will be required to charge, and account, for UK gaming taxes regardless of where their business is established. Consequently, operators will be required to verify whether their customers are "UK persons" as defined under the Gambling Act 2014.

For the purposes of UK gaming taxes a "UK person" will be:

  • an individual who usually lives in the UK; or
  • a body corporate which is legally constituted in the UK.

eGaming operators which intend to carry on a regulated activity with UK customers must register with HMRC for gaming taxes, submit regular returns and pay the required tax. If the operator fails to comply with the tax regime, is late making payment or makes mistakes, HMRC may charge a penalty and/or interest on unpaid amounts.

eGaming advertising

The Act requires that only gambling operators licensed by the UK's Gambling Commission (Commission) are allowed to advertise to consumers in Great Britain or offer eGaming services to them.

Licensed operators which offer eGaming are under an obligation to show a link (on all web pages that are used to access gambling services) to their licensed status with the Commission. This provides consumers and those who feature gambling-related advertising with the option to check whether operators are properly licensed.

The Commission requires under its licence conditions and codes of practice (known as the LCCP), that eGaming operators wishing to advertise must comply with the advertising rules. These rules are written and maintained by the Committee of Advertising Practice (CAP) and enforced by the UK's Advertising Standards Authority. These rules cover the content and placement of marketing communications and ensure that gambling-related advertising is socially responsible, with particular regard to the need to protect children, young persons and other vulnerable persons from being harmed or exploited. The rules provide, for example, that no-one who is, or seems to be, under 25 years old may be featured gambling in a gambling communication.

There is also a voluntary code developed by the gambling industry which supplements the CAP Code. It sets certain minimum industry standards in the following areas:

  • social responsibility messaging;
  • display of licensed status;
  • broadcast media - messaging;
  • television advertising - watershed; and
  • sports sponsorship.

Additional data protection requirements for eGaming operators

eGaming operators licensed in the UK, as well as having to comply with European data protection law, are held to a higher standard by the Gambling Commission's conditions and codes of practice. Heavy sanctions can be imposed for failure to comply.