United Kingdom’s online gambling market, in consonance with the international tendency, has demonstrated a remarkable growth in the past decade. In 2009 the gross online gambling revenue for UK alone amounted to GBP 1.510 billion. Within this figure, online poker revenues were valued at GBP 287 million, revenues from bingo – GBP 242 million, revenues from casino games – GBP 347 million, while revenues from sports betting were estimated to have reached GBP 634 million. In 2013 compared to 2009, the gross online gambling revenue in the country surged at a staggering 67.55% to reach GBP 2.530 billion, as all four comprising segments registered an increase.
What is more, experts project that growth rates may remain robust, with the total revenues breaching the GBP 3 billion level during the upcoming two years. According to data by the Gambling Compliance Research Services (GCRS), online gambling revenues will probably soar to GBP 2.58 billion in 2014. The GCRS projects that total revenues may climb 10% to GBP 2.83 billion in 2015 and another 13.6% to GBP 3.22 billion in 2016. Released in October 2014, the report stated that William Hill remained the top online operator in the United Kingdom, holding a share of 14.5% of the entire industry in 2013, followed by the Stoke-based Bet365, whose share extended to 13.7%.
As far as UK sports betting market segment is concerned, Bet365 not only retained but expanded its leading share to almost 25% in 2013, recording a net gaming revenue of GBP 1 billion. William Hill took over the second position in UK sports betting, having outperformed Betfair.
As of September 2012, there were 293 remote gambling activity licenses, which were held by 216 operators. Remote gambling encompasses all customers who use remote communications such as the Internet, telephone, television and radio.
Engagement in online gambling has been gradually on the rise. The 2010 British Gambling Prevalence Survey revealed that 73% of the adult population in Great Britain was engaged in some form of gambling during the 12 months preceding the year of the survey, while 14% gambled online.
In the following years, experts anticipate that online casino games will be the major driving force behind the entire online gambling industry in the UK, with annual net gaming revenue growth being 14% on average.
The Legal Side of Online Gambling in the UK
Online gambling at websites based in the UK obtained a legal status for the first time with the Gambling Act 2005, which came into force on September 1st 2007. Until then the only relevant legislation to deal with matters, such as online gambling, was the Gaming Act 1968. Under the latter, gambling activities from a website hosted in the country were considered as illegal, as the Act postulated that the player needed to be physically present in the room, where these activities were exercised. Let us also not forget that this Act pre-dated the invention of the worldwide web.
The Gambling Act 2005 revealed a new regulatory regime for gambling in Great Britain, with the only exceptions being the National Lottery, regulated by the National Lottery Commission, and spread betting, which is regulated by the Financial Conduct Authority (FCA).
In a report on the Gambling Act 2005, released in July 2012, the Culture, Media and Sport Committee stated that the key motivation behind the Act was to ensure order and regulation of the online gambling sector, so that British customers are protected against potentially unscrupulous operators and the country is made a base for the growing online industry. The Act set up a new regulator of the gambling industry, the Gambling Commission, whose main responsibility is to issue operating licenses to business entities and individuals providing gambling facilities. In order to uphold its objectives, the Gambling Commission publishes Licence Conditions and Codes of Practice (LCCP), which license holders have to conform to.
Gambling Behavior
In 2012, for the first time, the Health Survey for England featured matters in regard to gambling activity. The study concluded that during the observed 12 months 68% of male and 61% of female residents of the country took part in some form of gambling activities. Among those, the most popular were the tickets for the National Lottery (56% of men and 49% of women), scratchcards (19% of men and 20% of women) and horse racing bets (12% of men and 8% of women). Among both male and female residents participated in the survey, prevalence of gambling varied by age, with the highest being among persons aged between 25 and 64.
4% of men and 1% of women participated in seven or more different forms of gambling during the reported period, while 0.8% of men and 0.2% of women were categorized as problem gamblers. Problem gambling prevalence was higher among younger male residents (2.2% of men aged between 16 and 24) and lower among the oldest males (0.3% of men aged over 75).
4.8% of men and 1.6% of women were categorized as low-risk gamblers, while 1.7% of men and 0.4% of women were identified as medium-risk gamblers.
| Gambling Behavior in UK in 2012 | ||
|---|---|---|
| Men | Women | |
| Took part in some form of gambling activities | 68% | 61% |
| Tickets for the National Lottery | 56% | 49% |
| Scratchcards | 19% | 20% |
| Horse racing bets | 12% | 8% |
| Participated in 7 or more forms of gambling | 5% | 1% |
| Categorized as problem gamblers | 0.8% | 0.2% |
| Medium-risk gamblers | 1.7% | 0.4% |
| Low-risk gamblers | 4.8% | 1.6% |
The Gambling (Licensing and Advertising) Act
Under the Gambling (Licensing and Advertising) Act from 2014, online casinos and remote gambling operators of other types, which offer various gambling options to residents of the United Kingdom, will have to pay tax at the point of consumption (PoC). According to this Act, any online casino, which is operated from any location outside the UK, but offers gambling options to local residents will have the liability to pay tax in the UK. So far, online casino operators based in regions outside the UK have been liable for tax at the point of supply, or their tax liabilities have been conformed to tax regimes in their respective jurisdictions. Under the Gambling (Licensing and Advertising) Act, since December 1st 2014 online casino operators will be obligated to pay 15% tax on their gross profits from online gambling activities in the United Kingdom. In addition, operators based elsewhere will have to obtain a license from the Gambling Commission.
The impact and the reaction by operators
Many experts had expressed concerns over the possible implications the new PoC tax may have on B2B and B2C providers before the new legislation came into force. According to one group of opinions, the new tax might cause the ”prosperity” of a considerable grey or black market in online gambling services for UK customers. Others emphasized that the most likely hit on online gambling operators might be delivered to their marketing activity, which would reduce their competitive potential, and as a result – their profitability. In addition, many licensed operators currently servicing the UK market from other jurisdictions (Gibraltar, Isle of Man) might suffer significant dual or additional regulation and compliance costs.
A number of betting lawyers warned that the new tax would have an ”illegal status” under European law, because it might be considered as an obstruction to free movement of goods and services for tax purposes.
As a result of the imposed PoC tax, William Hill, for instance, has refused to resume sponsorship of the Lincoln Handicap race at Doncaster. The bookmaker has been a sponsor of the race since 2006.
Ladbrokes reported a 22% annual drop to GBP 14.3 million in its operating profit in Q1 2015, citing the imposed PoC tax and their customers’ luck.
Pressure from regulatory and tax authorities have led to the closure of 150 bookmaker shops in 2014. In addition to the 15% PoC tax, the tax rate on high stakes gambling machines was lifted to 25% from 20% previously. That surge was projected to cost Ladbrokes around GBP 75 million annually, while the impact on William Hill was estimated to about GBP 22 million per year.
While the new PoC tax applies strictly to online casino operators, it is logical to expect that there may be certain implications for gamblers as well. Apart from the fact that some operators may consider to leave the UK market and local customers may be faced with lesser gambling options, the remaining operators may decide to lift costs and restrain the scope of benefits for customers. In addition, a lesser number of legal gaming companies may cause gamblers to turn and play more at unlicensed (shady) websites.
