Internet Gambling – Taxes and Law
By Warwick Bartlett
I always thought from inception that the e-gaming business model was so strong that it would convert governments to the Internet model of providing goods and services in real time at a discounted price to the benefit of consumers.

I was wrong. I realised that in 2008. But companies found it difficult to extricate themselves from previously adopted legal and political positions.
Chief executives are now facing up to the new world with candour. Norbert Teufelberger, CEO of Bwin.party, said on 22April 2013 that his company was to focus all future expansion plans toward regulated markets.
“In the past we have just done too many things at the same time and we have done them all mediocrely, so what we are trying to do now is fewer things, but do them really well,” Teufelberger explained. 

William Hill and Paddy Power have only taken bets from regulated markets and have done very well by doing so. But their principle regulated markets are Ireland and UK and trading offshore into those markets carried a reasonable rate of tax. The new regulated world of mainland Europe is somewhat different. 
I recall a story of a fast-food businessman suffering from a hike in VAT.
Imagine you sell fish and chips and take £100 pre VAT. The government introduces VAT at 15% and you pass that on to your customers. You should take £115 but your customer is not earning an extra 15% so your takings remain static at £100 and the government is taking £15 in VAT leaving you with £85.
Margins get squeezed. The shop owner has to increase prices sufficiently to cover the VAT and the loss of business from those who cannot afford the new price has to be made up from those who can. You are now charging £125 for what was £100 worth of fish and chips. The fish and chip shop industry contracted. 
The UK’s point of consumption tax will probably yield £275 million. That money will either come from bookmakers’ profits or punters. Money will leave punters or the online gambling industry never to be returned.
This kind of realism and honesty in the industry was never more apparent than at 888 Holdings.
The steep rise in 888 shares, over 100% this last twelve months led to an inevitable correction. 
On 12 March 2013 the shares dipped 7% in a single day.
Brian Mattingly, 888’s Chief Executive, said he was “really not unhappy” about the fall in the share price. “We were valued at 11 times EBITDA – that’s far too much. I believe it’s good we are settling back to a share price valuing us sensibly” he told the Financial Times.
Looking back at this innovative industry and all the cases at the European Court of Justice, the inevitable deflection in management time and attention, and the cost to profits, you have to ask what would have happened without it and was it all worth it? No it could not have been.
But if you are someone who believes in fair play it had to be done, but if you are cynical like me you believe you cannot win taking on government, if you do win they change the rules so you don’t. 
The court case 32Red v William Hill highlights the futility of going to court. 32Red won, in fact they won very well. But the judge ordered compensation for the trade mark infringement of only £150,000.
Now this case must have taken years to come to court plus another year to argue over damages. I would guess that the legal fees would be around £3 million in total. 32Red, the victor, would be able to claim costs but not all costs are paid so I estimate that even with compensation and most fees paid they would be out of pocket. How can one side win but both sides end up losing in a commercial case? 
Mark McCormack was the founder of International Management Group (IMG) and he managed many of the world’s great sporting stars. He wrote the book “What they don’t teach you at Harvard Business School”. There is one chapter every Chief Executive should read: Don’t Sue the Bastards.
He says that, whatever the dispute, go and see the other party and if necessary camp outside their office until they will see you and reach a deal whatever the cost. It will be cheaper than going to court. What was Mark McCormack’s profession? He was a lawyer.