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What the gambling industry can expect in 2014

FOCUS: Major changes are expected next year in the way remote gambling is regulated and taxed in Great Britain.19 Dec 2013

The reforms, if introduced as currently expected, will fundamentally alter the way in which remote gambling is licensed and will also signal profound changes to the existing tax regime.

But it appears likely that the proposed reforms will be subject to a legal challenge by gambling companies operating out of Gibraltar - the tax haven where many of the UK's best known bookmakers are based and regulated.

The issue is just one of a number of developments in the gambling world that is set to engage industry and regulators in 2014.

Remote gambling reforms

With rising popularity in online betting, major brands such as William Hill and Ladbrokes decided some years ago to base their businesses in Gibraltar, where the tax regime offers significant advantages over the tax regime in the UK.
 
At the moment, an online gambling operator does not need a licence from the British Gambling Commission if it does not have any key gambling equipment in Great Britain.  Even if an operator has no key equipment here, it cannot advertise its offshore gambling to people in Great Britain unless it is regulated in the EEA or a "white-listed" country.  The "white-listed" countries are those whose regulatory regimes are regarded as meeting the standards required by the Gambling Act, and include the Isle of Man and Alderney/Guernsey.  Gibraltar is not white-listed but is treated as part of the EEA for these purposes.

All this is set to change. 

The Gambling (Licensing and Advertising) Bill is currently making its way through Parliament. It had its second reading in the House of Lords on 17 December. If introduced, the regulation of remote gambling operators in Great Britain would be set on the basis of where bets and wagers are placed –  the 'point of consumption' (POC) – rather than where the operator is based ("point of supply").
 
Foreign-based operators would, under the plans, require a licence from the Gambling Commission to take bets and wagers from, or to market their gambling to, British consumers. – even if those operators have no equipment in Great Britain. 

In addition changes are proposed to the tax regime that currently applies. The Government has set out its plans for a new 'point of consumption' tax framework to be introduced under which the liability to pay tax on profits generated from customer bets and stakes would be calculated on the basis of where the person placing those bets and stakes usually lives.

The tax reforms are expected to be effective from 1 December 2014. The regulatory changes were expected to come into force in Spring 2014 but the Parliamentary timetable has slipped and it now looks unlikely that the bill will receive royal assent before 1 March 2014.  Applications for the licences required under the new regime are expected to be accepted by the Gambling Commission two months after royal assent, with the new regime going live a month later – so if royal assent is given on 1 March, the new licences would be required from 1 June 2014. The Commission has been consulting on a number of related matters, including changes to the licence conditions and codes of practice, the licence application process, protection of player funds and regulatory returns.  The first three of these consultations have closed but the results have not yet been published, so we do not yet have final details of the application process which will apply to the new licences; the consultation period for the last was extended from 28 November until 3 January 2014.

It is likely to be mid-January at the very earliest before the results of these consultations are known and the final versions of the licence application forms are available. However, gambling operators in Gibraltar and white-listed countries that do business in GB should be starting to think about applying for licences now, even though the timetable has slipped slightly.

The timetable for reform faces a further threat. The Gibraltar Betting & Gaming Association (GBGA) is reported to be considering asking for a judicial review challenge against some of the proposed reforms.

Late last month the GBGA set out an alternative to the Government's proposed 'point of consumption' approach. The alternative regime would involve a form of 'passporting', where remote betting operators based in "rigorously regulated jurisdictions such as Gibraltar" would be able to serve gamblers based in Great Britain.
 
The GBGA has questioned whether the Gambling Commission would have the power to "inspect offices and servers in other jurisdictions" and said that, under its plans, reciprocal arrangements could be drawn up between the Government and other countries to allow obligations relating to tax, data protection, anti-money laundering and consumer protection to be addressed.

Fundamental EU rules provide a general right to freedom to conduct business. The Government's plans may meet with a challenge under EU competition rules if they are regarded as motivated by revenue-raising concerns rather than consumer protection.

Agreement of the final wording of the Gambling (Licensing and Advertising) Bill, a decision on the 'point of consumption' tax rate that will be set, and final changes to the regulation of remote gambling by the Gambling Commission will dominate the agenda in early 2014, with the potential for major delays to reforms should any potential challenge be launched and be successful.

Other developments to look out for

Next year is likely to see the continued rise of betting via smartphones and mobile devices, meaning new, improved betting apps and mobile websites can be expected from some of the major operators.  This trend will only be strengthened by the World Cup.

The market for betting on the outcome of individual events within sports events, such as next goal scorer in football, has emerged and grown in recent times. Earlier this year, however, the Australian Government outlined plans to ban adverts on radio and television for in-play betting during the time matches were being played. The drive was aimed at addressing problem gambling in the country. Nevertheless we expect in-play betting to continue to grow over the next year.
 The Committee of Advertising Practice will issue expanded guidance on advertising gambling, but it is expected that this will concentrate on free bets and bonus offers, after concerns have been expressed that wagering requirements associated with these offers have not always been sufficiently clear.

Spread betting is treated separately from other betting, being subject to the Financial Services and Markets Act rather than the Gambling Act and regulated by the Financial Conduct Authority (FCA). Concerns have been raised that spread betting operators, unlike other sports betting companies, are not required to notify regulators of suspicious betting patterns. The FCA is expected to issue new guidance to sports spread betting operators about their obligations to report suspicious activity.

Separately, moves at EU level may be made to get regulators based across the trading bloc to co-ordinate better on issues such as enforcement against illegal operators of remote gambling sites. In September MEPs at the European Parliament backed a non-binding resolution which, among other things, called for there to be "consistent policy on criminal sanctions" for illegal online gambling activities across the EU and greater administrative co-operation. So far regulation has been very much left to individual member states, but this resolution may herald greater involvement by EU regulators.

Away from remote gambling, 2014 may also see the opening of a third of the new casinos permitted under the Gambling Act 2005.  Although plans for a "super casino" were abandoned, the regulatory regime still allows local authorities to issue permits for up to 8 large, and 8 small, regional casinos.  So far only 2 of these new casinos have been opened, both by Aspers: one at the Westfield former Olympic site and, in September 2013, a second in Milton Keynes.

Following years in the planning, the small casino in Bath is scheduled to open before the end of 2014. Plans for large casinos in Birmingham, Great Yarmouth and Leeds are also in progress but these aren’t scheduled to open until 2015 or 2016. Progress on others may be limited unless casinos can be shown to trigger regeneration of the surrounding area.

The continuing debate about the regeneration of the high-street will continue in 2014 and attention will continue to be focussed on the prevalence and impact of licensed betting shops in town centres.
 
The industry can also continue to expect criticism about the deployment of fixed odds betting terminals (FOBTs) and Self Service Betting Terminals (SSBTs) within these shops, even though many believe the concerns expressed about them – which include that they encourage irresponsible betting due to the high stakes and rapid play nature of the gaming machines – to be misplaced and not supported by robust evidence.

A major decision is also anticipated in April in a case involving Sportech and HM Revenue & Customs (HMRC). HMRC has challenged a ruling by the First-tier Tax Tribunal last year which found that it had incorrectly charged Sportech VAT when the company ran a 'spot the ball' competition. A 'spot the ball' competition involves inviting consumers to identify the likeliest position for a ball which has been removed from a photograph, in return for a potential prize.

The decision may influence whether the Gambling Commission views 'spot the ball' competitions as games of skill or chance, and could therefore impact on the way such games are regulated.

Susan Biddle and Audrey Ferrie are gambling law experts at Pinsent Masons, the law firm behind Out-Law.com

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