Gambling predictions for 2015 – US

2015 is going to be another year of frustration. New Jersey, Delaware and Nevada continue to disappoint. If they had proved a success then other states would have been spurred into action. Sheldon Adelson has now been joined by Steve Wynn in opposition to internet gambling. Mr Adelson is a big contributor to the Republican Party, Governor Christie (Republican) is unlikely to go against a big donor and the Republicans have both Houses on Capitol Hill. Sports betting in New Jersey is, therefore, a long shot for 2015. As for California e-gaming regulation, we live in hope rather than expectation.

Lotteries will finally take the plunge and use Internet to sell tickets, a move that if promoted properly will enhance revenues to the states. 

2015 Prediction – Another year in the waiting room for a big state to go live with casino and/or poker. Lotteries will finally take the plunge with internet sales. 

 
Land-based gambling
Atlantic City has had a tough time of it. There has to be fewer casinos as competition from neighbouring states increases. There is talk about creating a non-gaming resort development and the US is very good at regeneration projects. The weather in Atlantic City is not ideal – cold in winter, wet in autumn. Big investments require visitors throughout the year. Is this an opportunity for a JV with a casino company and the Europe-based Centre Parks to develop one of its big park vacation destinations?
Las Vegas is off the bottom and moving forward as the city continues its move toward non-gaming activities. We see the China VIP gambler moving from Macau to Vegas where there is more much more entertainment on offer and less scrutiny from Beijing. Vegas now has direct flights to Beijing.
The fall in horse racing handle has stopped thanks to betting on machines that offer pre-recorded horse races. Given the success I would expect more states to follow the lead provided by Arkansas, Oregon, Wyoming, Kentucky and Idaho. Time will tell whether the machines will cannibalise the pure horse racing product, so far it has not.

Gambling predictions for 2015 – new markets, digital currency

Mexico is bringing forth new legislation to update its current law and hopefully legalise its illegal gambling. Mexico does have country risk but the opportunities are significant.

I still like Western and East Africa. Sports betting is taking off in
Kenya, Nigeria, Tanzania and Uganda.
Any country that has the geographical proximity to serve the Chinese gambler, such as
Russia’s Vladivostok integrated resort development, Saipan, Cambodia, South Korea and possibly Vietnam

Digital Currency
This is a great idea. The prospect of a currency that is not going to be abused by Government through overprinting should cause most people to want it. Interest has been shown by the igaming industry as an alternative to current arrangements.
It has taken thousands of years for the current system to get where it is today, it is not perfect but it is actually trusted by all. Anything that deviates from the norm will have teething problems but even if they were to be overcome digital is not going to happen any time soon.
Our ridiculously over regulated banks are wary of it because they fear users may breach money laundering regulations and the banks will be fined as a consequence. The banks are becoming the Government inspectors, at least in the UK and digital is not in any Government’s best interests. Companies have found that using a digital currency leads to their bank accounts being closed.
The payment solution market is very competitive I doubt there is any cost benefit at all in using digital currency over existing banking and payment providers. Risks and no benefits so far is all I see.
2015 Prediction – 2015 will see the profile of digital currencies fall from grace even amongst its most ardent enthusiasts.
  

Review of last year’s predictions 

 Where I got it right: 
• The fall in the oil price. 
• Operators would not move from offshore to onshore. 
• Bookmakers would continue to move to better location in the UK’s high streets in spite of negative publicity. 
• Lay England, they will not win the World Cup. 
• Singapore would maintain a duopoly and license only Singapore Turf Club and Singapore Pools. 
• First time rise in the minimum wage in six years, to be fair I expected it would be higher than it was. 
• Gambling companies will forward finance to lock in low interest rates. 
• It would be a good year for UK gambling. 

Where I was hopelessly wrong: 
• California would legislate for internet poker. 
• Ladbrokes was the top M&A pick. 
• Favoured four teams for World Cup one of which was Germany but went nap on Argentina. 
• Macau will again produce double digit growth. 

8/12 – must do better!!

Gambling predictions for 2015 – Europe

Europe
How long can this dysfunctional EU last? Reform is required but there is no appetite for it and even less appetite for change if the impetus for change is coming from the UK. The gambling news from Europe always appears to be negative, the latest big issue has been the potential for countries to levy VAT on the bet, and Germany could not wait and did it straight away.
 


European countries, however, need to reduce budget deficits and they will look towards Italy that has regulated gambling and raised so much more in gambling taxes.
Spain is warming to online gambling and we expect that to be their focus in 2015. The Netherlands is also seeking applications for Internet gambling with a 20% rate of GPT.
The Russian economy is suffering a triple whammy: a falling oil price, economic sanctions and US dollar denominated debt. So we would expect some relaxation in Internet gambling law starting with poker.
I suspect they will licence locals companies first and invoke bad actor clauses against other European firms. Mr Putin is not likely to give up this lucrative market to EU and US companies given the current stand-off over the Ukraine.
Poland will try and fail to quash what they term as “illegal” internet gambling.
What will happen to Bwin? Will it be a sale, breakup or just carry on. There is now uncertainty over the VAT issue in Germany, twelve months is a long time but at the moment I think the odds favour Bwin continuing as a listed company.
Europe really needs, and the people want, a large integrated casino resort. Surely there is a European country that has the courage to give people what they want?

Gambling predictions for 2015

Continuing the recent trend, 2015 will be another busy year for the gambling sector as various political, regulatory and operational event bring their influence to bear on gambling operators. 

2015: a year of further recovery……hopefully!
I say hopefully because in this world you never know. There are so many geo-political risks that can cause all good economic data and news to evaporate quickly. There are three principle negatives for the year ahead. The war between Russia and the Ukraine affecting European growth, China’s slowing economy, and the potential for Ebola to break out of Africa and thus threaten travel and globalisation. In my view all are balanced by the significant fall in the oil price.
When I was starting out as a management trainee in the sports betting industry in the 1960s everything was affordable. I could buy all I wanted and save. I took taxis to work and when I had finished work late after night racing I ate in good restaurants. The reason was that you kept most of what you earned and energy was cheap. Oil was priced at about $15 a barrel, petrol was priced at 8p per litre, and it is now £1.20. Cheap oil is very good for the consumer; it is like every wage earner having a reduction in tax and every pensioner having a lift in pension. A fall in the oil price benefits everyone and this multiplies throughout the economy.
It is against this background that I make my 2015 predictions.
Last year I said “Add to this the great shale bonanza in the US and more economic use of fuel and the pressure on the price of oil has to be down”.

Gambling predictions for 2015 – Asia

Macau
Last year we said Macau was the compelling investment case. It proved not to be so! Beijing’s anti-corruption policy has caused VIPs to stay away for fear of being spotted at the tables and thus investigated thereafter. We predicted double digit growth of 16%; it is likely to be zero growth.

Yet the mass market is up 15% and we have the Hong Kong-Zhuhai-Macau Bridge in two years. Is this a buying opportunity for investors? I think so. The smoking ban and corruption crackdown are all factored into the price.
2015 Prediction – Gaming stocks will finish the year higher than today in Macau. Galaxy: HK$ 47; Sands China HK$ 40
Singapore
Seen by many observers as the pathfinder state in Asia. Will others copy with the hard line legislation that Singapore has introduced over e-gaming?
2015 Prediction – others governments will not follow Singapore’s lead yet, they will wait and see. Governments are inclined to be cautious.

Gambling predictions for 2015 – UK

United Kingdom (UK)
There is a General Election in May 2015 and the Conservative and Labour Parties are presently trading at the same odds with the bookmakers. Will gambling become a political football in the run up to the election? I don’t think so; the public now see gambling as main stream entertainment and they will wish to focus on the main issues: health, cost of living and immigration. If politicians move from those three main issues and hit gambling they will be given short shrift by the electorate.

The fall in the oil price will suit the incumbent Conservatives and with rising house prices and the rise of the SNP in Scotland, where Labour holds many seats, the Conservatives might just scrape home with a majority. Both political parties dislike gambling but on balance I believe we are better off with the Conservatives because of their better management of the economy. Labour do silly things when they are in control.
The betting shops which are already paying 15% gross profits tax will have a good year in spite of no major soccer tournaments in 2015. The improving economy, the maintenance of low interest rates for most of the year, and low energy costs will give the consumer a boost. Unless any new Government decides to mop up those benefits with tax increases.
Last year we tipped consolidation with Ladbrokes as a top pick. It did not happen although there was some significant M&A with Amaya and PokerStars, Scientific Games and Bally, IGT and GTECH.
2015 predictions – Hung Parliament with a Conservative Prime Minister. A good year for betting shops based on rising consumer spending. Coral will sell the bingo clubs and return to how it started – a bookmaker, ready for either a sale or a listing.
Last year I said ‘Lots of ifs and buts but I expect 2014 to be a good year’. It has been a good year!
  

UK Interactive Gambling
I do not think that Point of Consumption Tax will really hit the industry until 2016 even though we are without a major soccer tournament in 2015 so the year on year comparisons will be harder. The improvement in the economy with the same spend on marketing from the major operators will see the industry through 2015. Profits will fall due to the tax increase by 20% to 30% but I expect revenues to be robust.
2015 prediction – The gambler will see little change in the payout, value will be maintained. Q4 2015 POCT will start to bite, expect a June 2015 budget, with Government spending cuts and tax increases. I expect to see some industry consolidation amongst those that supply the industry and operators.

2015 brings egaming VAT headache

Europe – A Single Market?
Gavin West, Director of Betting and Gaming at EY discusses the forthcoming EU VAT rule changes and considers how the position could be much worse than previously reported for those operators outside the EU. 

The introduction of new VAT rules for companies within the EU is one of the most significant taxation changes the gambling industry has faced. Effective 1 January 2015, the rules will change the place of supply, and the country where VAT is paid, of B2C electronically supplied services which include eGaming.
Whilst there has already been a fair amount of media commentary to date, I am not sure that all angles have been fully explored. For example, where operators are based outside of the EU, VAT liabilities may already have accrued and operators may have to repay VAT dating back to 2010.
The risks and costs associated with this are significant and it is clear that further detailed and structured analysis is required to ensure that unnecessary tax exposures are mitigated.

2015 EU VAT rule changes
As if the UK gaming tax reforms were not enough to contend with, eGaming operators face further issues with the implementation of new EU VAT regulations which take effect 1 January 2015. The new rules relate to where electronically supplied services, including eGaming, are taxed for VAT purposes. This will become where the consumer is located and suppliers will need to determine their liability to account for VAT across all EU Member States where they have customers.
It should be noted that where social gaming is offered, related income received from customers across Europe is likely to be subject to VAT as this typically falls outside the VAT exemption. 
Is it not the case that eGaming is exempt from VAT?
This is the starting point under EU VAT legislation. However, each Member State can introduce limitations and conditions to the exemption within their respective national VAT rules. Issues arise where countries VAT legislation is outdated and does not consider eGaming.
Arguably there are up to 10 Member States where the situation should be reviewed. Major markets include Germany and Ireland where the VAT exemption is seemingly applied only to the extent that a local gaming tax is payable. Other Member States where it would be prudent for eGaming operators to review the position include Finland, Greece, Croatia, Luxembourg, Poland and Romania. 
This represents a multi-million Euro cost to industry
It has been reported that in the event that VAT is ultimately chargeable in major markets such as Germany and Ireland the cost to industry could run into millions of Euros. Such statements appear to have been calculated by reference to the position going forward. Media reports to date seem to have missed a critical point for operators located outside of the EU VAT boundaries including Gibraltar and Alderney. 
For operators outside the EU the position could be significantly worse
The VAT regulations taking effect 1 January 2015 relate to supplies made by EU operators. The critical point is that for operators located outside of the EU, in jurisdictions such as Gibraltar, Alderney and further afield, the EU VAT rules actually changed in 2010.
Article 58, Directive 2006/112/EC was amended with effect from 1 January 2010. This means that from that date, operators supplying eGaming product to EU customers may have already accrued a liability to VAT. If this is the case then the industry position will be much worse than previously reported. Affected operators could have retrospective liabilities (for example, in the UK, tax authorities can assess for underpaid VAT going back over a 4 year period) of significant amounts plus penalties and or interest depending on the rules in that jurisdiction. 
Is there any way of avoiding this?
The issue appears to have arisen due to the fact that the VAT rules and regulations in certain EU Member States have not been written to consider eGaming. It is definitely the case in some jurisdictions that the VAT legislation has not kept pace with technological innovation.
Opinions I have seen to date do not appear helpful. In the case of Germany and Ireland then a vanilla interpretation of the legislation appears to suggest that VAT may be payable on eGaming activities. However, given the amounts that are potentially at stake it would be prudent for operators to consider this from all angles and more widely than “is this subject to gaming tax or VAT?” Tax legislation, policy and case law is generally complex and VAT is renowned as one of the most complicated areas. As such it is definitely worth exploring the strength of arguments across jurisdictions where the risk could be seen as material.
Once operators have undertaken additional analysis, confirmed the strength of potential arguments and calculated the amounts at risk then informed commercial decisions can be made. 
This should be approached in a structured manner
This matter should, if not already, be firmly on the Board’s radar. Clearly materiality needs to be taken into account as nobody is likely to get too excited where revenues across potentially affected jurisdictions are of a negligible amount. It is also important to consider carefully the questions to be asked in affected jurisdictions, especially the nature and context around the question. It is often the case that things can get lost in translation and it should be remembered that the jurisdictions under analysis may not have much in the way of experience in eGaming.
In the event that VAT is found to be ultimately payable, analysis needs to be undertaken on the effect of marketing and promotions, and use and enjoyment provisions. That is in addition to the compliance aspects of registration, statutory reporting requirements and whether fiscal representation is required.
Once this is complete companies can then determine any system and process implementations that may be required before actually being in a position to calculate respective VAT liabilities.
If all of the above is not enough, industry awaits with interest how Member States respond to recent European Court VAT judgements on B2B service agreements and the ongoing Base Erosion Profit Shifting issues across wider taxes.
Taxing times indeed for eGaming. 
 
Gavin West is a Director in EY and is responsible for the firm’s Indirect Tax team’s service offerings to the betting and gaming industry across UK and Ireland and plays a key role in a network of EY gaming specialists across Europe. He also plays a lead role in a wider management team implementing and delivering EY’s strategy in this industry sector. Gavin has experience of advising all key stake holders including operators, suppliers, trade associations and regulatory bodies.
He can be contacted on +44 121 535 2912 or by e-mail at gwest@uk.ey.com
A PDF version of this article can be downloaded here: EY GWest_GBGC_EU VAT19 11 2014.

Bookie infiltrates BHA

Bookie infiltrates BHA
By Warwick Bartlett
There have been a lot of managerial changes at Ladbrokes in recent years so another one should come as no surprise. But this one is different because Nick Rust has gone to work for the British Horseracing Authority (BHA) as its new Chief Executive.
It is akin to Conservative Party Chancellor George Osborne moving over to the Labour Party.
 

The gambling industry will be wondering what secrets Nick will take with him that can be put to good use at the BHA but the reality of the situation is somewhat different.
We live in an age of transparency and the detail in the financial accounts of the listed companies shows there is very little to hide from anyone these days. Add to this the numerous investment analyst reports and whatever Nick has to tell the BHA is already known anyway.
As the PR splurge tells us Nick loves horse racing, a sport that depends on betting to survive. So his appointment is one that has overcome years of bookmaker prejudice at the Jockey Club and the BHA’s forerunner, the BHB.
This is a truly enlightened approach on the part of the BHA. At last it shows that bookmakers have been recognized as serious-minded businessmen who do have something to offer in the improvement of the sport we all love.

UK National Lottery celebrates 20 years

The first draw of the UK national lottery took place on 19 November 1994 and had a jackpot of GB£ 5.8 million. Since then, the lottery’s various games have created more than 3,700 millionaires and paid out GB£ 53 billion in prizes. Camelot has been the operator of the UK’s lottery throughout its existence so far.

Overall, lottery sales have been performing well in recent years but the growth is being driven by the Euromillions game and instant tickets rather than the traditional domestic Lotto game. Back in 1999 the Lotto game accounted for 84% of sales but has fallen to just 34% in 2013.
  

GBGC UK National Lottery Sales
Since launch the price of a Lotto ticket had been GB£ 1. That price applied up until October 2013 when Camelot doubled the price of a Lotto ticket to GB£2 and also restructured the prize table.
 
GBGC Lottery Jackpot House Index

Malta i-Gaming Seminar 2014

Malta i-Gaming Seminar 2014
By Warwick Bartlett
I am often asked what are the best conferences to attend. Not an easy question to answer given how many there is and what suits one section of the industry does not suit another.
This year I attended MIGS at the Hilton Hotel, Malta. The venue is great, the bedrooms are spacious, three restaurants, awesome breakfast, and courteous and helpful staff. So we are off to a good start! 

The conference is well organized with good speakers and if I may say a polite audience who attend every session. There is no graveyard shift for speakers.
I estimated about 400 delegates which is quite a lot given the number of conferences these days, generally most companies are cutting back on conference attendances. Cost to travel, food and beverage, and ticket price all add up to about £2,000 per delegate in some instances, and if it’s transatlantic even more.
 
The keynote was delivered by my old acquaintance Declan Hill. He came to see me just as he was starting out on his research into match fixing. He has now produced a book on the subject and is regarded as the number one authority on the subject.
Reassuringly he said anyone wanting to fix matches in the major European countries is ‘nuts’. So the reporting procedures put in place by bookmakers through ESSA are bearing fruit.
I was less re-assured to hear that match fixing was not all about players and referees. It would seem that corruption in football goes right to the top, with match-fixers claiming that the heads of various countries’ sports authorities are themselves corrupt and in on the fix. Declan’s book, The Insider Guide to Match Fixing is definitely worth a read if you are involved in sports betting. 
I served my time on the poker panel. The question put by conference to the panel was ‘Is poker dead or not reaching its full potential?’ Alongside me on the panel were Steve McLaughlin from Poker Tracker, David Jung from Hero Poker, and Nicolas Levi from Ranking Hero.
They were not enthusiastic about the future with some saying it was absolutely dying. I did express caution stating that one company managed to produce US$1.1m in revenue with US$400m in profit. But the guys were having none of it. PokerStars they said had changed the T&C’s and players were not happy with that. But they acknowledged no one else comes close to what PokerStars has to offer in terms of liquidity.
 
Executive Chairman of the LGA Joeseph Cuschieri said Malta’s success was no accident – it was achieved through careful strategic planning. The stated intention was to increase protection in the regulatory framework. 97% of gamblers have no problem with gambling at all but Malta takes problem gambling seriously and will provide assistance to problem gamblers.
Mr Cuschieri said there was a lack of political will in the EU to enact free movement of goods and services and even more barriers to trade were being erected.
Malta is a major igaming success story. In 2013 they had issued 321 licenses and this has grown to 401 in 2014. The number of companies operating on Malta has risen from 220 to 258.
The LGA has identified the UK’s Point of Consumption Tax and changes to VAT as major problems. However Malta is confident enough to be changing the curriculum in schools to produce students that are more aligned with the needs of the e-commerce industry.
Internet gambling has become a very important part of the Maltese economy. People told me it was now larger than the financial services sector and forty percent of residential lettings were to the i-gaming industry.
 
There is a sense of vibrancy on the Malta i-gaming scene that is not so noticeable in other jurisdictions. I put this down to the fact that, from the beginning, one of the licence conditions was that companies had to put their back office in Malta. So there are many young people working in, or associated with, i-gaming.
As most of the companies are smaller than those that we see in Gibraltar they are more entrepreneurial in outlook. Very often these days at conferences we see lots of lawyers, corporate service providers, payment solution companies and few gambling operators. MIGS was a welcome change to that and is on my conference list for next year.

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