Mr Bartlett opened his presentation with reference to the last time he had travelled to Gibraltar in 2008 to present a message he described as being quite gloomy: “We looked at our economic forecasts, looked at what happened after Lehman Brothers and we said that, basically, the industry was going to go through quite a torrid time.”
“But the good news is”, he continued, “although times have been really tough, the industry has consolidated; they have reduced their costs, all of the unknowns are now known and I think that the growth-story is back on the agenda. Add to this the prospect that the industry may be able to gain access to the US market you can clearly see why prospects have improved”.
“I also think we’ve reached a tipping-point in taxation”, explained Mr Bartlett. “I think, depending on which country you are looking at, governments have realised that you cannot tax the industry to death without giving rise to illegal gambling.”
“Betting Tax was first introduced to the UK at 2.5% in 1966 by the Labour Government, the rate of taxation started very low because they were pre-conditioned by history,” he explained. “When the UK introduced a rate of tax at 5% on turnover in the 1930s bookmakers found ways to evade the tax and in the end it was scrapped to the embarrassment of Government. Fast forward to 1966 and Labour Chancellor Callaghan introduced betting tax at the low rate of 2.5% this time the bookmakers paid the tax but made the mistake of absorbing the tax and not passing it on to the gambler. The result was that in the next budget the tax was increased to 5%! If there’s one lesson you take from history, it is always pass the tax on otherwise you invite an increase.”
Betting tax rose again to 6% in 1970, 7.5% in 1974 and again, in 1990, to 8% under the Conservatives. “But what the Government did was test the system to destruction,” Mr Bartlett surmised. “Bookmakers suddenly had falling turnovers and compensated by making the deduction from the customer 10% a 2% premium over the rate of tax. That set-off illegal gambling.” Gambling tax was eventually dropped to 6.75% in 1996, “so this process of testing the system took 30 years and, eventually, we ended up with a sensible 15% Gross Profits Tax without any illegal gambling.”
“But the interesting thing,” as Mr Bartlett pointed out, “is that from 1963 through to the 2001 Budd Report, there were relatively few changes. Since then, the industry has had to contend with changes almost every four months and what this tells you, in my opinion, is that with the 2005 Gambling Act, Government got it wrong. With the 1963 Act, they got it right.”
GBGC finds that most simply are not interested. “People will queue block after block for a rollover lottery ticket so why aren’t states taking advantage of online? Is it because to do so, they would have to open themselves up to other forms of online gaming and are reluctant to invite competition or that they just want everything to stay the same or they are waiting to see if the pathfinders at Illinois are successful? This remains to be seen. In the meantime, operators are betting big money that the market will open up by forming strategic partnerships, mergers and acquisitions” he confirmed.
“But if we do accept that the US will eventually allow Internet gambling and continues to remain the largest gambling market in the world,” explained Mr Bartlett, “we have to ask; where is the best place in which to serve the global market and in which to base your headquarters? Which state or country is likely to give operators the best protection when they trade overseas? In my view the most likely place to base your headquarters would be the US and the most likely state would be Delaware because of its tax advantages and close proximity to Washington and New York. Were the US to follow the UK example of adopting a place of consumption tax where profits on all foreign income would be taxed in the US and given that the US is the world’s largest market I can see that this does not bode well for the offshore jurisdictions. However this is very long-term, ten years at-least” he reassured the Summit. “Sports betting drives Internet gambling and the US is a long way from legalising sports betting”.
“I envisage lower taxes and a more open market in France and Italy, particularly during the next 5 to 10 years” predicted Mr Bartlett. “But the real growth story, of course, is Asia.”
European operators have, historically, had little success in Asia, explained Mr Bartlett. But domestic sites are all very successful in their own markets. Indeed, some are making £6million net profit per month. These sites, he continued, understand the Asian gambler and perhaps more importantly, have the payment solutions to operate in those un-banked markets. Most also operate on credit, making it very difficult for European operators to penetrate that market because they do not have the connections in place.
Note : 15th May 2012. Italy has lowered the rate of tax on slot machines by 0.5% down from 12.6% to 12.1% of turnover as revenue was falling due to high taxation.