One reason why governments focus on the growth of interactive gambling is that they want to predict the possible tax and licence revenues that could flow into government coffers by offering jurisdictional services to operators. Certainly, the UK government, in framing its 2005 Gambling Act, intended to create a high quality, world wide jurisdiction that would attract major firms.
There is one problem in any attempt by one jurisdiction to make substantial revenues by cornering the world’s, or even Europe’s, market. The problem is encapsulated in the old adage that, “if anyone can do it, you can’t make any money at it,” i.e. competitive forces will reduce economic rents and push price downwards toward the average cost of production of the service. In the same context, competing jurisdictions may have to compete with lower tax rates to attract remote gaming companies.
It is clearly the case that any country can offer jurisdictional services to companies, and have them serve the world with the internet or other remote technologies. Thus we would expect that, as more jurisdictions offer services, firms will be able to switch locations to take advantage of cheaper/better deals. Firms can be expected to make their decisions about location on the basis of three factors:
– financial costs [licence cost and tax rates, and other costs of doing business];
– quality of information technology services available; and
– the reputation that customers will perceive the jurisdiction to have, including being part of a regional grouping such as the EU.
The experience of the UK government with respect to bookmakers in 2001 is a clear example of the power of firms to force tax reductions in a particular jurisdiction.
Malta is the first EU Member State to provide jurisdictional services to interactive gambling firms. Prior to 2004, only online betting was licensed, but in April 2004 gaming licences were offered. The island’s entry into the EU has given the added advantage of being the only EU location with online gaming licences allowing casinos, lottery, bingo, poker and backgammon.
Betfair’s decision to obtain a Maltese gaming licence, initially only for the supply of online poker services (which cannot yet be offered under licence in the UK) effectively gives it the option of relocating its whole operation to Malta, if UK tax decisions turn out to be unattractive. That step can be interpreted as a means of pressuring the UK government with respect to their tax policy.
It would seem that customers may switch between online sites very flexibly, and respond rapidly and accurately to odds offered in sports books or perceived payouts in casinos. One limitation is the advantage that any site has in a country where its operator has an existing land-based business. This offers the potential to pay out online winnings at a land based outlet, as well as adding to the online service the land-based reputation of a known national brand. Firms that have not been able to link a land-based business to their interactive service have suffered. In Australia, PBL and Tattersall’s have high profile land-based gambling outlets, but since they could not offer interactive services to Australian residents, their brands were of limited use in the global market and they closed their interactive operations. The American company MGM, with its online casino licensed on the Isle of Man, had similar experiences due to not being able to accept US residents as customers. There is some evidence that online operators may attempt to strengthen their brands by opening landbased outlets. Thus Blue Square, an online sports book now owned by Rank, has opened a licensed betting shop in London. Victor Chandler, operating out of Gibraltar, intends to open licensed betting shops in the UK.
It may be that residents of some countries will gamble online with overseas firms if their ‘own’ firms either do not have online sites, or have poor or non-existent reputations or brands.
Given the low tax and licence revenues that governments in active jurisdictions can expect to derive from remote gambling operations in the long term, they still have strong reasons for offering jurisdictional services: controlling the probity of gambling, enforcing social policies regarding problem gambling, and providing other consumer protections. Governments can still offer incentives to operators that agree to use their jurisdictional services, or accept their standards of conduct. One such incentive would be the right to advertise and otherwise market their websites in the country.
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