New UK Online Gambling Law has many Sports Books Running for the Exits

Hartley takes a look at the new UK Gaming Comission Law and how it will likely affect players and operators around the world.

Many bettors may have heard about the new UK Gaming Commission law and are wondering what exactly that's all about and how it will affect them. After all Pinnacle Sports has announced that UK bettors are no longer permitted to wager on their site and many other companies seem to be set to follow.

The issue stems back several years when the UK government announced that it was tired of companies trying to skirt paying UK taxes by moving their online gaming operations offshore. The government always charged a tax on gross profits to companies located in the UK, but had no way of collecting from sites that moved their operations to places like Gibraltar, Malta or Antigua. As a result companies like Victor Chandler, William Hill and Ladbrokes continued to locate their headquarters in the UK but accepted online wagers in tax free jurisdictions in an effort to avoid paying taxes to the government. Originally the UK government was going to try and force UK based companies to return to the British mainland and set up operations there if they wanted to continue to cater to the UK market (similar to what France and Germany have done) but in the end they realized they could face a serious free trade complaint if they used this method. So instead they decided to institute a new licensing and tax program, while allowing companies to remain offshore. The new licensing and tax scheme only relates to bets accepted from UK residents and applies to all companies that want to accept wagers from UK residents.

First, the companies must acquire a UK Gaming Commission (UKGC) license. The deadline to apply for the license was September 16th and the fees were based on the type of wagering offered (sports, poker, casino, bingo etc.) as well as the expected revenue generated from UK based bets. The UK allowed all companies to keep their other licenses from Gibraltar, Alderney etc. for bets from other parts of the world but the betting company had to also have a UKGC license. The law goes into place on October 1st, so any companies providing bets to UK residents without a UKGC license on that day is breaking the law. The second part of the scheme calls for all companies to pay a 15 percent point of consumption tax based on gross profits. Thus, whether a company is taking bets in Alderney, Gibraltar, Malta or even Antigua they are required to pay 15% of profits from UK based bets to the government. This tax goes into effect on the first of December.

Not surprisingly many offshore jurisdictions were crying foul since they would lose that part of the revenue that would stay in the country and go to those governments. Double taxation is not allowed and many companies would likely leave the jurisdictions they are located in and move back to the British mainland unless those jurisdictions agreed to change their fee structure to take into account the new costs and taxes those companies would have to pay to the UKGC. The Gibraltar Gaming Commission was the first to launch a lawsuit with the EU over the new licensing and tax scheme and while Victor Chandler and a few other companies joined the suit, William Hill and Ladbrokes decided not to do anything. Instead they just said they are a British company and the new tax is just a cost of doing business. Not surprisingly Bet365, one of the largest sports betting companies in the world, is reaping the biggest benefits since they have always had their operations in the UK and have already created a betting structure that satisfies the current British law.

Another facet to the new scheme is that advertising and promotions will be limited only to companies that abide by the new law and the old "white list" will become obsolete. As a result the ability to advertise and promote in the UK will have nothing to do with the regulations of the jurisdiction the company is physically located in. This is just another nail in the coffin of Antigua who went out of their way to be put on the white list figuring it would give one more reason for companies to still operate there. Now with the onus for compliance to UKGC regulations being on the company it just provides one less reason for companies to obtain an Antiguan gambling license.

Companies that felt they couldn't be competitive under the new scheme told UK bettors they were no longer welcome while Mansion and 12bet informed UK bettors that their bets were only welcome on casino games until they could work out a new license for sports and poker. Pinnacle Sports which is based in Curacao told bettors in the UK, Scotland, Northern Ireland and Wales that they could no longer play at Pinnacle as of the end of September but did say that they would welcome back bettors if the environment changed. People close to the situation told me that Pinnacle did apply for a UKGC license but there was strong belief it could be rejected as a result of Pinnacle's past dealings with American customers; it's association with illegal bookmaking with Cantor Gaming; the fact that the UKGC never recognized Curacao in the original white paper list; and the fact that Pinnacle voluntarily withdrew its Alderney Gaming license in 2013 after the Alderney Gaming Commission launched an investigation into Pinnacle's actions. There is also some belief that Pinnacle is hoping at some point to re-launch its US focused operations if and when online gambling and sports betting is legalized stateside and they realize this would only be possible if they look squeaky clean.

The one company that has decided to abide by the new rules but also keep its existing structure is PokerStars. Apparently Amaya Gaming already considered the new law when they purchased PokerStars and under their scheme they will offer 2 URLs for their poker product. One URL is for UK based residents and one is for the rest of the world. All games and pots will be combined, but PokerStars will be able to determine how much is contributed to rake by the login URL, so that they can pay the appropriate tax to the UKGC. Moreover, many of the perks and incentives that are given to customers in the rest of the world will be cut out or reduced significantly to players from the UK to help pay for the 15% tax and the new license fee.

I spoke to Clive Hawkswood, the CEO of EU based Remote Gaming Association for his comments on the new law and was curious if he thought it was fair since the RGA has always called for fairness in the treatment of wagering.

" . . . bigger states wanting to benefit from the revenues on what they see as their players . . . "

"We opposed the original Bill on the basis that it was addressing non-existent consumer protection issues, but the focus recently has been very much on working with the regulator and tax authorities to make the regime as viable as possible for our members.

The impact will be on companies rather than jurisdictions, but in the grander scheme of things this is just one more predictable move by bigger states wanting to benefit from the revenues on what they see as their players rather than seeing the economic benefits accrue in smaller countries like Malta etc. It is an irreversible trend, but at least the UK is not making operators physically relocate so offshore jurisdictions can still retain employment and other benefits. To that extent the UK is still hugely more flexible than the USA, Germany, France and so on."

While the new law will impact companies like William Hill, PokerStars and even Bodog it likely will have little effect on companies located in other jurisdictions like Costa Rica or Kahnawake. Companies in those locations are already offering betting to U.S. citizens without any real concern as well as to customers from countries like Germany and France. And it is becoming quite clear that despite any threats in the end the regulators in those countries have no way of enforcing their laws against them nor do they really have a desire to do so. After all the amount of wagers from UK residents to companies like, 5 Dimes or SBG Global are minute."

And as Clive Hawkswood said to me on the new regulations:

"The gambling regulations probably don't add much to what established companies were already doing, but in very general terms they do not present any fundamental problems.

With regard to enforcement, the Gambling Commission is largely relying on their licensed operators being so big and competitive that there will be little or no incentive for consumers to seek out unlicensed operators in other jurisdictions. The advertising ban for non-licensed operators is intended to cement that position. They could also bring in ISP and/or financial transaction blocking, but they have no plans to do so.

As and when they identify any breaches I'd expect them to issues cease and desist letters and push local regulators to co-operate with them. There are fines/imprisonment penalties available for the GC to use, but again they don't think they will need them."

And for bettors that don't reside in the United Kingdom, the law does not apply to them at all. So North American readers of OSGAand those from around the globe need not fear any actions against them from UK based companies, while UK residents will find a shrinking pool of place to place online bets.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!

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