The general questions that need to be asked and answered are:
– How much remote gambling will be supplied out of Europe by 2011?
– How much of this will be supplied to EU consumers and how much to non-EU consumers?
– How much, as a proportion of GDP, will EU consumers spend on all forms of gambling?
– How much of this will be spent on internet gambling and how much on the various forms of land-based gambling?
– How much of the internet gambling supplied to EU citizens will be supplied by EU based companies and how much from outside?
The following pages contain a distillation of the substantial volume of evidence and speculation we have received on the size of the remote gambling market in the EU, as it is now and as it is likely to develop, according to the broad consensus of those who have responded to us.
The contribution that gambling of all types already makes to the UK economy was assessed in section 1.3 of The Gambling Bill: regulatory impact assessment. Expenditure (i.e. stakes less winnings) in the year ending 31 March 2004 was estimated at €12,870 million, 0.8% of UK GDP. €1,900 million was provided in gambling-related duties (approximately 0.3% of total Government revenues), and around €1,900 million in good causes contributions (almost wholly from the National lottery). Employment in the gambling industry was about 100,000 full time equivalent persons.
According to River City Group3 estimates, the global market for remote gambling generated revenue of €4,700 million in 2003, and was forecast to reach €6,100 million in revenue in 2004. This represents just over 2% of land-based gaming revenue.
Global remote GGR in 2003 was estimated at €4,620 million, implying about €1,300 million for the EU. The forecast for 2012 was for a global GGR for all gambling of €230,000 million, implying about €65,070 million for the EU. The remote gambling forecasts for 2012 were for a global GGR of €9,310 million implying about €2,630 million for the EU.
Other estimates of the scale of the global remote gambling industry have been quoted by ARGO [The Association of Remote Gambling Operators]. They suggest that the world interactive gambling market is worth somewhere between €5,700 million and €9,900 million in annual revenues in 2005 and growing. 4 The lower part of that range would accord with the GBGC and River City Group estimates for 2003 plus some growth. Slightly higher estimates for internet based Global Gambling Revenues by Christiansen Capital Advisers5 are about €10,000 million in 2005 and €20,220 million in 2010.
We can have some confidence in estimating that the global interactive gambling market provided a GGR of about €5,700 million per annum as of 2003, with the EU share being about €1,630 million. The above forecasts assume only clearly predictable changes in the policy context.
One problem in using these estimates of GGR for remote gambling is that they measure the activities of firms with reference to the jurisdictions from which they operate, rather than the jurisdictions from which the customers gamble. This is not a problem in measuring landbased gambling, where the two are the same, but it is an important feature in remote gambling. The case of Malta illustrates this point most clearly. Gambling GGR as a percentage of GDP in 2003 was 7.3% compared to the EU average of 0.7%, and this with Maltese licensed remote gambling companies not being allowed to sell their services to Maltese residents.
We know that EU-based online gambling generates income from the Far East. UK bookmakers William Hill and Ladbrokes have clients in over 150 and 160 countries respectively, the latter offering their remote gambling services in eleven languages. The smaller Expekt.com, moving from London to Malta in 2000, boasts internet customers from 227 countries using 19 languages, although it is mainly focused on the Scandinavian market. The leading pan-European sportsbook is run by BetandWin, an Austrian-based bookmaker operating out of Gibraltar. The leading global remote gambling companies are the remote specialists Sportingbet, UK-based but operating from Antigua, and PartyGaming, based in Gibraltar. All these firms have a broadening global reach, and are in fierce competition.
Licensing jurisdictions similarly compete for client companies.
The sensitivity of operators to tax levels was brought home to the UK government when UK bookmakers moved their telephone betting services off-shore in response to a turnover tax on bets. Bettors in the UK had to pay a tax of €13.05 for every €145 they bet to cover a 6.75% tax plus a racing levy. If they chose not to pay the 9% tax, but then won, they had to pay 9% on their winnings. Thus, if they paid €1.30 tax on a €14.50 accumulator and won, they kept all their winnings, say €43,540. Bettors not paying the €1.30 tax would have to pay €3,915 tax on their winnings. Offshore betting sites would either charge the customer nothing or add on tax at only 3%. For the high-rolling bettor, the offshore advantage was great. After the betting tax was abolished in October 2001 and replaced by a profits tax [yielding lower overall tax revenues], almost all British-owned off-shore betting businesses returned to the UK. It is clear that operator location depends on tax rates [and/or licence fees] as well as on legal permission.
This is a substantial and expanding business. Even without EU companies being involved, the market will continue to evolve. There are already jurisdictions within and outside the EU offering licences to operators and the business shows little respect for national boundaries.
For the moment, EU-based companies are to the fore, especially those with a British base. Concentration of business in the industry was highlighted by Kaszubowski in 2005, when measuring the market capitalisation of the publicly quoted firms within his i-Gaming Business Global Top 30 Index. He estimated that the top five remote operators, adjusted for remote exposure – William Hill, Ladbrokes6, Sportingbet [all British], BetandWin [Austria] and Cryptologic [Canada] – account for 63.3% of the market capitalisation index value of the ‘top 30’ operators. In 2003, the Economist estimated that British companies held around threequarters of the cross border betting market. It would seem that the quoted data for firms’ operations will exaggerate the amount of remote gambling by residents within the EU, particularly for countries like the UK, which licence egaming companies, and most particularly for small countries such as Malta. However, statisticians may take some comfort from evidence that firms seem to do most of their business in ‘their own’ countries. Thus Ed Andrewes, Managing Director of UK firm Victor Chandler, licensed in Gibraltar, is quoted7 as saying that his firm’s remote gaming revenues are derived “more than half” and probably “not too far from” three-quarters from the UK.
BetandWin is determinedly crossing borders in Europe, but does not challenge the UK market. The Economist estimated, in May of 2003, that “up to one third” by value of the bets that are taken by UK bookmakers on major events come in from abroad and that Britain already holds around three-quarters of the cross border market.
Survey evidence from The Netherlands in 2004 indicated that the percentage of economic units in the Netherlands that have in the past 12 months participated in one or more foreign games of chance is 4.7%, or 391,000 economic units. Shares of foreign games of chance are mainly German Lotteries [84%], Sports betting [2%], British National Lottery [1%] and other foreign games of chance [13%]. The total amount spent on foreign games of chance in 2004 was €67 million, which is 4% of the amount spent on domestic games of chance. This shows that, in a nation with a well serviced, land based, national industry and high internet access, but without domestic interactive gaming, foreign interactive operators will enter the market. This is only a small proportion of the total market, but a government may feel that it represents a loss of revenue which is not acceptable.
The most important sectors involved in remote gambling are betting (e.g. on racing and sporting events), followed by gaming (e.g. on gaming machines, casino style table games, and poker), as shown in the table below, which presents handle estimates (total amount of money wagered) and demonstrates the recent global growth of the interactive channel, especially in gaming. Furthermore, recent growth in internet poker since 2004 has probably accelerated interactive gaming handle.
Based on these estimates, in Europe, betting at event locations had fallen to only 10.8% of the total betting market in 2003.
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