UK voters deciding to leave the European Union with a 51.9% majority vote brings about another possible exit discussion: Is it time for gambling companies to leave Gibraltar?
Gibraltar is the buzzword that pops up in various discussions about the impacts of Brexit on the UK. The people of Gibraltar made their stance on the issue incredibly clear by deciding by a 96% majority to remain in the EU. This is most likely what the 33 Gibraltar-licensed gambling companies would have wanted. That list includes Ladbrokes, BetVictor, Gala Interactive, IGT and NYX Gaming Group – a who’s who of the gambling industry.
Approximately 3,000 people are directly employed by gambling operators in Gibraltar and a near 1,000 jobs are impacted by the industry. For any commuter that crosses the border from Spain to Gibraltar every workday, this could of course lead to border control complications and it could restrict movement. BBC reported in 2012 that the overall number making its way over the border to get to work on a daily basis is 4,300.
Spain could come to the rescue
Of course it would be complicated to work out what happens when Spanish residents have to travel outside and back into the EU in order to get to and from their place of work, but time will tell if this issue can be resolved. Spain’s Acting Foreign Minister Jose Manuel Garcia-Margallo has wasted no time in making it clear that Spain will seek to jointly govern Gibraltar, which would certainly go some way to ironing out the creases on this issue, although like many Brexit outcomes, it all seems a little unclear. Only when clarity is provided would it make sense for gambling companies to decide what is the best course of action for them.
EU nations are worse off than Gibraltar
Some statistics point out that with the gambling industry, Europe needs the UK more than the UK needs Europe. The EU forecast that the EU online gambling market would be worth approximately €13bn (£10.62bn) in annual revenues for 2015. Barclays Research, Betfair and Paddy Power estimated that online gross win for the UK would be approximately £3.5bn for 2015. If this trend were to continue when the effects of Brexit occur, and presuming that revenues and gross win can be taken as similar metrics, the EU is losing 33% of its market. Gibraltar is not losing touch with that 33% piece of the pie.
This is the New Jersey/PokerStars issue surfacing again, where it boiled down to the fact that the state needed the operator more than the other way around. Deals between UK gambling operators and the rest of Europe may not be at a dead end, for the simple reason that the UK is too sizeable a market to miss out on doing business with. Brexit does not mean that all free trade agreements between the UK and other European countries are at an end either, and Gibraltar could enjoy the benefits of new deals. We just do not know for certain.
What we do know though is that the EU states on its website that there are no EU-specific gambling laws. If UK gambling operators have not been affected by specific gambling law, then this includes Gibraltar.
Tax benefits can still be enjoyed
An operator that relies on the UK market and is currently based in Gibraltar would still rely on the UK market and will still pay a 15% tax on i-gaming net revenue. Leaving Gibraltar will not change this. It could be argued that being based in Gibraltar was made pointless when the UK introduced the point-of-consumption (PoC) tax in 2014, but what about the rest of Europe? For a Ladbrokes, operating in markets such as Belgium, Ireland and Spain, or a William Hill, which has operations in place in Bulgaria and Italy, nothing has changed. If a particular country does not have a PoC regime in place, why would operators want to immediately change that and move out of Gibraltar, where fixed-odds betting operations are taxed at 1% of turnover up to £42.5m of annual turnover, with tax capped at £425,000 per annum? It is also still a reasonably good deal for internet casino gaming tax, levied at 1% of gaming yield or gross profit. Gibraltar being in or out of the EU does not change that. If a Gibraltar exodus did not occur following the implementation of the PoC tax and licensing regime, there is little reason why it should occur now.
Theoretically, operators could decide to move operations to the Isle of Man or another tax-friendly jurisdiction, and then they would be able to pay the low tax rates on profits from non-PoC markets and would not have to worry about the Spanish/Gibraltarian commuter problem. Whether the company itself thinks going through all the paperwork that is required to move operations and letting go of all its Gibraltar-based employees is worth it is up to them, but it would require a heavy amount of upheaval. This upheaval would still suffice if the companies choose to move into an EU territory.
We could still be in limbo for some time
As it is not clear when the implications of Brexit are going to occur anyway, all industries would be likely to take stock of the result and assess what the appropriate actions should be moving forward, and the gambling industry should be no different.
In a time of uncertainty, the status quo was not given the benefit of the doubt by UK voters. We will now wait and see whether the UK gambling industry gives the benefit of the doubt to Gibraltar.