The draft Gambling (Licensing and Advertising) Bill (the "Bill") was initially introduced by the UK government (the "Government") in December 2012 and, if implemented, will result in a significant change to UK regulation of online gambling.
When the Gambling Act was introduced in 2005 (the "2005 Act"), one of the unintended consequences was to encourage online operators to move their remote gambling offshore and hence to remove themselves from the remit of the UK Gambling Commission (the "Commission"). All it took was for one operator to move offshore and the others followed, as it became less competitive for them to remain in the UK. Currently, only one of the top ten operators remains active in the UK: Bet 365.
The flight of online operators was a direct result of the 2005 Act only requiring a license from the Commission to provide gambling services in the UK if an operator has at least one piece of remote gambling equipment located in the UK. If all of its remote gambling equipment is located outside the UK, then no license is required.
Further, the 2005 Act regulates how operators may advertise in the UK. Under current legislation, operators based outside the UK, but regulated in an EEA state or Gibraltar can freely advertise in the UK. Operators based in Alderney, the Isle of Man, Antigua and Barbuda or Tasmania are also able to advertise to and to transact with UK consumers without requiring any license from the Commission by virtue of being part of the "white list'". Operators outside the EEA, Gibraltar or white list territory cannot advertise their services within the UK.
As a consequence, the introduction of the 2005 Act led to the mass evacuation of online gambling operators from the UK to the aforementioned offshore tax havens and this is now something that the Government is trying to address. Adoption of the Bill will amend the 2005 Act so that all operators advertising to or transacting with UK consumers need to be licensed by the Commission. The Bill also seeks to introduce a compulsory point of consumption gambling tax, whereby online operators are taxed on the basis of the location of their customers regardless of where they are based.
Unsurprisingly, the introduction of the Bill has caused much discussion and concern in the industry. In the UK, the remote gambling is worth more than £2 billion and the general consensus among industry leaders is that the Bill has been introduced to create revenue for the Government as opposed to addressing any need for greater regulatory protection of UK consumers. Research firm GamblingData published a forecast recently indicating that the UK online gaming market will be worth £2.74 billion by 2015. If the point of consumption tax is set at 15% and the rate of compliance is approximately 92.5%, GamblingData suggests the UK Treasury could gain up to an additional £385.7 million from tax revenue in 2015. However, the Government stand by their statement that the Bill is being introduced in order to protect the interests of people using remote gambling websites in the UK.
As the Bill will affect taxation, before it is implemented it needs to be approved by the European Commission. The European Commission will only approve a Bill if the changes it introduces are in the public interest and not just for mere financial benefits. Therefore the Government's statement that the Bill has been introduced to protect consumers as well as to provide an equitable approach to taxation of all gambling operators, online and offline, onshore and offshore, is hardly surprising.
Before it becomes law, the Bill must still pass through a number of stages. First, it must be assessed by the European Commission in terms of its compliance with Treaty obligations. Second, it will come under the scrutiny of a committee in the Department of Culture, Media and Sport. Finally, it must pass through both the House of Commons and the Lords and defeat any challenge to its legality on the basis that it may restrict freedom to provide services in the UK. Further, if any substantive amendments are made to the Bill throughout the consultation period then these will have to be notified to the European Commission and if this procedure is not followed then the Bill will be unenforceable.
So in the meantime, all operators can do is to consider what they will do next. If the Bill is introduced, then operators who want to accept UK customers and to advertise in the UK must obtain a license and accept that the gross profit from all bets taken with this license are subject to a 15% gaming tax. EU rules prohibit companies from setting alternative price structures for the same services based on the nationality or the location of the consumer so the likely result will be the formation of special UK sites, such as pokerstars.co.uk, specifically serving UK customers, who currently make up a massive 17.7% of the online sports betting market worldwide.
The Government estimates that the Bill will be implemented in December 2014. For now, all operators can do is hedge their bets and wait for the game to play out. We will soon find out if the Government always wins.