Britain Bets on Internet Casino Games

Business Week US this week reported on the UK’s Gambling Bill. They reported that although Britain does not yet have any big Vegas style casinos the country has gone mad for betting. Newsstands are packed with glossy gambling magazines and the national daily newspapers often feature articles on online and offline gambling.

The magazine reported with interest that the UK has several cable and satellite channels devoted to poker and casino games. As reported previously on Jackpot News the magazine noted that Britain even opened its first casino college where you can learn to be a croupier or learn casino management skills amongst other related subjects.

In a move quiet the opposite to Americas prohibition stance on online gaming Britain is welcoming online betting companies by allowing people to wager electronically on sports betting, casino’s and poker. Many of the online betting and casino sites are operated by high street names in the UK such as William Hill, Ladbrokes and Victor Chandler as well as pure online companies such as SportingBet and Betfair. Britain it seems saw how much money some of these firms were earning and decided that rather than spending resources in trying to combat online gaming they would legislate and work with them reaping rich rewards o9f 15% of gross profit in tax. It is reported that the UK government’s tax proceeds since 2004 from the gaming sector have topped $2.5 billion.

Britain is now ready to raise the stakes. The UK government has brought in new legislation through last years Gambling Bill that will further open up the online market. As mentioned online casino games and betting is already phenomenally successful, however the vast majority of companies that run these online companies are based offshore in tax havens such as Gibraltar, The Channel Islands and Costa Rica. The governments hope is that once it is the first country in the developed world to legalise online gaming and put into place an attractive tax structure for such companies that they will begin to move to the UK and contribute even more to the Treasury by way of taxes.

Britain has always been known as a nation that likes to bet. However online betting has brought the pastime to millions of new players who had never previously set foot in a high street betting shop. Last year Britains wagered a massive $40 billion online alone.

The industry is growing at such a rate that investors in Britain have begun to sit up and take notice. Attracted by the favourable regulatory environment in the UK three of the biggest betting companies in the world including the colossal PartyGaming went public on The London Stock Exchange in a multi-billion dollar listing. The listing made billionaires of its four founders. One of those, a former electrical engineer had never even played poker or seen the inside of a casino until he joined the company back in 2000. Proof that he knew a good thing even before seeing it!

The online gaming environment on the other side of the pond could not be more different. Despite being by far the biggest online gamblers, betting $145b billion over the internet in 2005 alone; the US government favour prohibition. This means that neither the government nor the stock exchanges are benefiting from this huge cash income. Under the 1961 Wire Act, a law passed before the age of the internet, online gambling is illegal. The act prohibits using telephone transmissions to bet across state lines and the same rule may be applied to the internet if a new proposed act is applied.

A coalition of casino interests and conservatives are now pushing for even tougher laws in the US. One of the most controversial is to try to cut the lifeblood of online gaming by making it illegal to place bets online using credit cards, checks or electronic means, effectively cash starving the industry from the bottom up.

This of course is bad news for online casino operators because for many the US is by far their biggest market. The UK Company SportingBet took out cheeky full page adds in US Newspapers aimed at the US Treasury saying simply, “Please, sir, can we pay tax?” The CEO of SportingBet, Nigel Payne calculates that if internet gambling were made legal in the US it would have generated around $1.2 billion in tax revenues in 2004 alone.

In light of the lack of regulation in the US, some online gaming firms are focusing their attention on other areas of the world. For example, in 2005 American players made up almost 90% of PartyGaming’s player base. However now according to Bhargava, their marketing director 40% of all new players on the site come from outside the US, “Slowly but steadily we are decreasing our dependency on the US market,” he commented.

Business Week went on to speculate that if a Congressional online gambling bill does go through, the US loss would most likely be the UK’s gain. Economist Vaughn Williams of Nottingham Trent University explained, “If legislation passes, the US has wiped out any chance of capitalising on what is becoming the world’s fastest growing and most lucrative businesses.”

Conversely in Britain companies wishing to set up will pay a yet to be determined fee for a gambling license. Thereafter they will pay a certain level of corporation tax. The UK government has not yet decided what level internet gambling companies will be taxed at. Credibility will also be a deciding factor in moving a company to the UK, should the tax levels prove too steep for larger companies they may well stay away. However, it is largely expected that newer smaller companies will be more likely to base themselves in the UK.

British regulation can only be a good thing for online gambling companies. It will offer credibility for customers and investors. Another benefit will be that companies will have better access to a larger skilled workforce than can be found in smaller jurisdictions such as Gibraltar or The Channel Islands.

According to Christiansen Capital Advisors the global gambling industry, currently valued at $12 billion is set to double inside five years. “Britain is ahead of the rest of the world when it comes to regulating online gambling,” says Deloitte’s Potts. “Instead of pretending it can be banned, the government is regulating the industry and protecting its citizens.”

Editor, - 2006-08-29 13:06:08

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