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United Kingdom Gaming Interests Drawn to Australia by UK Taxes

Wed, Aug 28, 10:31am by Kevin Pitstock

William HillAustralians wondering why several foreign online gaming companies have moved aggressively into the Aussie market have steep new taxes in the UK to thank, says CNBC out of the United States. Online bookmakers, led by William Hill plc, have spent over a billion dollars to invest in the Australian online gambling in 2013 alone.

The decision to delve into the Australian market includes several calculations. The lucrative nature of the Aussie gambling culture and the devoted nature of Aussie punters are seen as factors. A history of national authorities looking the other way, despite provisions of the IGL, is another factor. But a massive new 15% levy by the government of the United Kingdom on UK gamblers is the driving factor.

Gambling Levy to Be Imposed in December 2014

Starting in December 2014, the government of the United Kingdom will impose a 15% gambling tax on punts by UK residents. The levy should increase government revenues by £300 million pounds, just under $500 million in Australian dollars.

When this goes into effect, the loss in revenues to those companies targeting British players will be significant. In the words of researchers Simon McGrotty and David Jennings of the Davy Research, the new tax is causing a “seismic shift” in the UK gambling industry.

With the new taxation system a little over a year away, major companies like William Hill and Ladbrokes are looking for ways to expand their customer base outside the United Kingdom. These companies, based out of British crown dependency Gibraltar, will face stiff levies on their traditional customer base. Skimming fifteen percent off the top makes it hard to run a profit from one of the traditionally most lucrative gambling demographics in the world.

“Seismic Shift” in Gaming Investments

The researchers from the Davy Research said, “The introduction of the POC tax is likely to cause a seismic shift in the competitive landscape of the U.K. online gaming market.”

In an interview with CNBC, David Jennings said, “All of these gambling companies are trying to diversify their earnings streams, to help them mitigate the POC tax when it comes in. But the number of markets they deem realistic to invest in is limited. That’s why they are going to other countries.”

On the surface, it would seem Europe is the best place to invest. William Hill and Paddy Power already are heavily invested in gambling powers on the Mediterranean coast, where gambling laws are tame. Jennings added, “Italy and Spain continue to offer the most interesting opportunity outside the U.K., given the large market size, high propensity to gamble, favourable taxation and low penetration of online gambling to date.”

Why Australia Is Better

The problem is, Europe is such an obvious investment opportunity that competition is fierce in those places, creating what Jennings calls a “land grab” mentality. For that reason, the more remote Australia has become the best place to invest for UK-related gaming companies. While the game in Australia is heavily regulated, most of the market is dominated by three companies, so the foreign interests see room to growth. The traditional Australian gaming monopolies are seen as substantial competitors, but also hidebound in their ways, due to 20 years of controlling state gaming monopolies.

Thus, Australia becomes the natural place to grow, which explains why William Hill bought Sportingbet for $670 million earlier this year and Tom Waterhouse for $34 million earlier this month. Paddy Power plc. already controlled Sportsbet.

David Jennings summarised why Australia is so attractive. “In Australia, the competitive landscape is particularly attractive, because about 85% of the market is dominated by three players, compared with the U.K., where the top five companies account for 55-60% of the market. Companies are looking for a sizeable and sustainable market. Australia is very regulated, with a competitive landscape, which wouldn’t create fear for European operators who are used to competing in a regulated market in the U.K.”

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