By Paul Leyland, Principal Consultant, Regulus Partners
“I fear all we have
done is waken a great, sleeping giant and fill him with a terrible resolve” Admiral
Isoroku Yamamoto on the Japanese ‘victory’ of Pearl Harbour
The UK Gambling (Licensing and Advertising) Act, 2014 has
been postponed for one month to allow Lord Justice Green time to consider the
arguments put forward in the Judicial Review. Contrary to some observations,
nothing can be read into this delay other than the rather predictable
conclusion that the issues are too complex to make a snap judgement.
The case focused principally on legal arguments, as one
might expect, which are rather pointless to repeat and in any event are now in
the hands of the judge. However, it is important to make two broader points
from a policy perspective which could prove far more significant in the long-run
than whatever the judgement turns out to be:
1.
Licensing at Point of Consumption (as well as
tax) is a growing trend and here to stay
2.
Resistance to sensible regulation from gambling
operators, associations and supply-side regulators is counter-productive and
substantially increases risks to the sector
First, why is Point of Consumption (PoC) licensing is an
irresistible force? Simply because customers are a much more effective source
of power, governance and legitimacy than businesses. Ignoring for a moment the
natural tendency to want an outcome that best suits immediate economic concerns
or fits an existing structure, consider the following:
·
A regulator which gains its authority from a
government of consumers is essentially answerable to those consumers: probity
is the key reason for existence
·
A regulator which gains its authority from an
offshore jurisdiction is principally concerned about jobs and economic impact:
business is the key reason for existence
·
A regulator in a supply-side jurisdiction is in
a competitive landscape; it must make its regulations attractive, light and fit
for multiple markets to attract and keep business
·
A regulator in a demand-side jurisdiction is
tasked solely with getting regulation right for its particular market-place; it
has a clear mandate to adequately resource and intervene
·
A supply-side regulator is unlikely to respond
to the domestic political, integrity or social responsibility concerns of a
given country (will, resources, mandate, self-interest); a demand-side
regulator is essentially tasked with managing these
You will notice that tax isn’t mentioned there once: PoC
stacks up without it.
If you are an operator you probably like the sound of a
business-friendly, competitive and light touch regulator. It probably has the
added benefit of coming with a very low ‘business-friendly’ tax regime, since
the (small) jurisdiction in question gains more from lots of supply-side jobs
than it ever could from taxing its (small) population on their remote gambling
spend. You’d probably want to defend that status quo. The jurisdiction probably
would too – and not unreasonably - in its own economic interests.
However, if you are a politician in a country that has even
a middling domestic market, you would be very hard pressed to see anything good
about supply-side regulation, other than that not raising the question keeps
gambling off the political agenda. Nevertheless, gambling has a nasty habit of
getting itself onto the political agenda, despite the best efforts of more
sensible operators (or even because of the reckless mischief of others).
Politicians make laws; not businesses, and not even regulators.
Politicians, when faced with having to make a choice between PoC or PoS, will
overwhelmingly choose PoC, for fairly obvious reasons when comparing the points
above (the neo-liberal Gambling Act 2005 being something of an anomaly, which
the UK government is now trying to correct). Further, there is nothing in the
EU treaties to prevent this choice, only to control the manner and nature of
its operation. PoC is therefore here to stay and likely to grow its reach
significantly over time.
Significantly, and especially in light of Bet365’s news that
they are relocating to Gibraltar, PoC licensing does not necessarily reduce the
attractiveness of PoS jurisdictions. From a UK perspective, Gibraltar (and
other locations) offers a concentrated pool of industry veterans, attractive
personal tax rates, a solution to the VAT problem (gambling companies in the EU
have to pay VAT on services but cannot recover it since they do not charge it),
low corporation tax, and comparatively limited additional licensing
requirements. There is, on the whole, very little to fight about.
Given all of this, why is an act of folly for offshore
operators and other stakeholders to resist PoC licensing? Again, the answer is
really very simple and here the UK provides the best example. Since 2007, the
Gambling Commission has regulated with a measured, consultative and
evidence-based approach. Political pressure has meant that this has been
partially derailed in the context of gaming machines, which I shall come back
to. However, for the remote sector, the new licensing regime is not insisting
on a wholesale transfer of equipment or personnel, it is not enforcing any
material product restrictions, its advertising requirements are relatively
benign and no ‘special treatment’ is being given to domestic incumbents. Separately
(and it is separately, in law and in intent), there is also a tax rate being
introduced which is among the lowest and most consistently applied of any PoC
regimes (GBD vs. RGD treatment of bonuses probably being the only big issue).
The industry, in theory at least, should have much to welcome in what is one of
the most liberal and sensible PoC regimes (not) yet promulgated.
The regime and the regulator have been eminently sensible
because there has been no political will to be tougher, eg, through: higher
taxes, product restrictions, tighter advertising, more interventionist social
responsibility measures (eg, pre-commitments). A regulator which is broadly
supportive of the industry has largely been allowed to get on with it. Further,
the idea that EU law is somehow pro remote gambling (rather than just anti
blatant protectionism or trickily Byzantine) is a myth being pedalled long
after the facts speak for themselves (eg, variously tough and restrictive PoC
regimes in France, Italy, Spain, Belgium). The irony here is that a tougher
approach to licensing requirements would actually make the passage of an Act
easier from a European perspective since it would be going far further in terms
of protections than anything seen in supply-led regulatory jurisdictions – an
irony that may yet bite.
There is a General Election coming up. Two out of three (or
four) major political parties are already on the record to be tougher on
gambling (or at least some of its forms). There has also been the recent
politicisation of gaming machines in betting shops, which still has some way to
run (taxes are going up, tougher regulations have yet to be introduced,
research is pending). The public, on the whole, are at best dispassionate about
most forms of gambling (unless bad practice or ‘tax dodging’ is the issue), but
a small constituency are mildly suspicious or worse; the press is probably less
keen than the public. There are therefore no votes in being nice to gambling
operators (not unless they do the kind of bridge-building work the bingo sector
has done, little of which is in evidence elsewhere). On the flip side, there
are some points to be scored by being tough: vide B2s (the contentious gaming machines in betting shops). At
least in the case of the LBO sector, the operators’ principal crime was
probably arrogance and/or complacency, rather than outright belligerence. The Gibraltar
(GBGA) challenge, with some (sometimes too-late muted) cheerleading from
operators, looks a lot more like an outright attack.
Perhaps if Gibraltar ‘wins’ its JR we will see what a
properly annoyed and politically-mandated government is capable of, especially
(but not only) if the principal party in Government is Labour rather
Conservative: the offshore sector’s sense of victory may not last long…
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