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Julian Harris, Partner, Harris Hagan harris@harrishagan. com
The European Commission has issued detailed comments on Germany’s draft of a new Interstate Gambling Treaty, to replace the current Treaty which is due to expire in 2012. The Commission’s view is that the draft Treaty, which would bring in a limited opening of the online gambling market, creates an ‘uneven playing field’ for new operators due to the lesser requirements imposed on the existing state monopolies. The draft sets out that limited licences would be available at a proposed cost of ¤250,000 each. Combined with a tax on gambling turnover at 16.67% we do not consider that Germany is likely to be a profitable marketplace for online operators unless the current draft proposals are significantly amended.
• Licence costs: €250,000 fee in the first year and €175,000 for each additional year.
• Restrictions on types of sports bets allowed: only bets on the outcome of the game would be allowed and the popular “in running betting” option would be prohibited.
• A maximum stake per consumer at €750 a month.
• ISP and financial blocking system for illegal websites and payments with strict criminal and administrative punishments imposed by the regulator.
• Stringent advertising restrictions.
By far the most contentious proposal is the potentially commercially unviable rate of 16.7 per cent tax on turnover. This is a tax on the amount gamblers stake at source and does not take into account how much operators ultimately win, as the popular saying goes, ‘the house always wins’.
This extortionate rate is double that which French regulators impose and analysts / stakeholders insist that even at 8 per cent it is already too high, especially since operator’s profitability margins are estimated to generally be between 10 per cent and 15 per cent. Both Italy and the UK use a Gross Profits Tax model, also known as Gross Gaming Revenue (GGR). The worry is that on top of potentially
light uptake of licences and the German state earning little as a result, consumers would be the ones to literally lose out. Since consumers are driven by value, if German licensed operators offer them uncompetitive odds such as 1.80 odds or even lower on a two-way selection (as seen in France), they would be driven elsewhere. That place is most likely going to be the black market where, for example, traditional 1.90 odds or better on a two-way selection are more readily offered. Strong lobbying by trade organisations and operators, as was done in Greece and Spain will be required to, amongst other concessions, switch the tax model to the more attractive Gross Profits Tax model, calculated as stake minus winnings (to the player), including bonuses or in the case of Betfair (and other exchanges such as Betdaq), the commission the company charges – usually 5 per cent of winnings by the player and any ‘premium charge’. The company has recently put pressure on German lawmakers by complaining directly to the Commission about
the GeRman inteRactive maRket is
pRedicted to top €957m By 2015.
what the company sees as discriminatory restrictions.
The turnover tax model certainly rules out Betfair since its exchange model relies on high- volume, low-margin gaming products. During the past year it has seen its share price drop 43 per cent, due in large part to greater regulation throughout Europe, including a proposed ban on exchange betting in Greece, France and Spain. To add to the misery for most operators, the proposal also bans the popular ‘in-play’ betting which are many operators’ USP. After news of the proposed tax rate broke out,
Bwin.party shareholders watched helplessly as its shares dropped by 16 per cent in just one day, ironically almost the same rate as the proposed turnover tax rate. Betfair’s stock felt a smaller drop of 3.7 per cent on the same day.
According to data released by H2 Gambling Capital, a leading supplier of data in the gambling industry, under the current restrictive proposals, in 2012 only 7.3 per cent of all online gambling activity would be seized by locally licensed operators. “H2 would expect the total gross win generated by the German interactive gambling market to be €833 million in 2012 growing to €957 million by 2015. However, it is expected that just 7.3 per cent of this would be onshore in the former, with this rising to just 8.2 per cent by the latter.” This is a quite significant growth considering that in 2008 only 5 per cent of national gambling consumption was done online.
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GeRmany
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