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Thursday, 21 July 2016

Brexit: implications for the gambling industry


All Bets Off – Gambling’s Brexit Gamble
Dan WaughPartner at Regulus Partners blogs on last week's discussion co-hosted with Olswang.

There are few industries as familiar with the vagaries of life than gambling – which may be just as well given the uncertainty that faces the industry in the wake of Britain’s EU referendum.

The binary uncertainty of ‘Leave/Remain’ has now been replaced with myriad unresolved questions concerning the effect of Brexit on the judicial, legislative and economic landscape for all of us.

So for gambling – as for the rest of the UK – life must go on. What that life (on the other side of the Brexit looking-glass) will be like was the topic for discussion when Jenny Williams, former CEO of the Gambling Commission, chaired the Olswang/Regulus Brexit debate in London last week.

Those joining Williams on the expert panel – Dan Tench and Tamsin Blow from Olswang and Paul Leyland from Regulus – were quick to discount any lingering hope of the ‘Remainers’, that Article 50 would somehow not be triggered. The bookies may have called this one wrong but there will be no Stewards Inquiry.

Positively, this is one political secession that would be undertaken in a considered and well-ordered manner. The future may be uncertain but major disruptive upheaval is not on the cards. Indeed, once we are out it may be that much of life (and law) will feel much the same as before.

In particular, if the UK joined the European Economic Area (EEA) “EU directives or not, key legislative requirements of UK gambling firms on matters such as money-laundering and data protection are highly unlikely to be changed”, said Tench. And even if the UK left the EU and did not join the EEA “Substantive EU law will remain on the statute books and there will be no hurry to redraft them.” Indeed, the practical need to have consistent reciprocal laws with our continental neighbours may mean that the influence of legislators in Brussels will continue to be felt within our shores for the foreseeable future.

Yet if our laws are likely to remain largely unchanged, the question of who interprets them is a little harder to judge. If the United Kingdom remains within the EEA, then the highest court would shift from the CJEU to the European Free Trade Agreement Court. Given the slimmed down nature of this court (just three judges, currently drawn from Iceland and Norway), the UK may expect to exert greater influence on it than it had been able to on the CJEU.

And if the UK did not join the EEA on Brexit, the UK's own Supreme Court in London would be likely to have the final say – but even here the need for coherence of interpretation (with respect to our EU trading partners) will remain a consideration.

In terms of the broad economic outlook, Paul Leyland advised firms to buckle up for a roller-coaster ride with the financial markets highly sensitive to the volatility that the Brexit negotiations and their aftermath seem likely to bring (something that share trading had exemplified in only the first few weeks post-referendum). 

Inward investment would falter, with multi-national companies exercising caution on major capital projects. Early high profile property asset sales in the wake of ‘Leave’ would no doubt be followed by others.

Critically for gambling companies, securing lending (already a tough beat) is only likely to get tougher. How the consumer reacts to all of this is harder to discern – but with a weaker Pound and jobs under threat in certain quarters, risk appeared to be largely on the downside.

Against this background, Theresa May’s new Government will be highly sensitive to the needs of business; but not all businesses are created equal. Gambling’s political significance typically outweighs its economic importance – and that may make it vulnerable to tax increases (to fund spending) and regulatory intervention (in response to the politics of party fragmentation). The following day’s announcement that John Whittingdale (widely seen as a sympathetic observer of the gambling industry) would be replaced in the new PM’s Cabinet by the crime-busting Karen Bradley reinforces this analysis, as does the re-appointment of FOBT disliking Tracey Crouch.

Gambling’s take on Brexit has undoubtedly been skewed by concerns over the fate of offshore territories such as Gibraltar, Isle of Man and Alderney - where so much of the value of Gambling Inc is now located. Gibraltar knows from experience how Spain can turn the screws (in terms of border crossings) when it chooses to – and Madrid has not been slow to draw the link between a UK free of the EU and a Gibraltar free of the UK.

It was true that UK would undoubtedly fight to defend the interests of Crown dependencies and other offshore jurisdictions – but that the matter was unlikely to be anywhere near the top of Brexit Minister David Davis’s priorities (nor for that matter Boris Johnson’s – although he has since met with Picardo to give reassuring words).
All of which leaves remote operators in these territories with a dilemma – sit tight and hope that political pragmatism will protect their ability to operate within the EU from small islands; or relocate. Stay put and trust to fate or precipitate the scramble for Malta (with all the attendant issues of bandwidth, talent and resource)? Companies will have to make such calls on the shifting sands of HM Treasury policy, although for some the threat to the offshore exemption on input VAT may just help to make the options clearer.

Rather closer to home, is the possibility that our impending break with the EU will result in the dissolution of the Act of Union and the rebirth of an independent Scotland. Given the current position on FOBTs of the Scottish Nationalists, this would clearly pose challenges for the betting shop sector – but any move towards regulatory localisation will present opportunities too.

Every question answered on the future of gambling in the Brexit and post-Brexit eras appears destined to spawn many more. The journey to schism has started and requires careful and close scrutiny from here on in. 

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