The announcement in Chancellor of the Exchequer Gordon Brown’s pre-Budget statement that he is considering axing taxes on the £8bn of bets punters place with bookmakers, could help propel the UK gaming industry into the world’s top rank, the bookies believe. They claim that with further deregulation and a more friendly taxation regime, they will be able to create the world’s most innovative and forward-looking betting sector – and sell their services overseas too.
Since the launch of the National Lottery in 1994, the floodgates to a new Las Vegas in the UK have been opened. Never before had demand for gambling been stimulated through TV advertising. Since the Lottery’s “finger of fate” was first pointed at UK viewers, barely a month has gone by without another legal restriction on gambling being dropped.
A steady drip of deregulation has opened the market and made it easier for punters to bet on everything from horse racing to bingo and casinos to fruit machines.
Next year will be a watershed for the bookmakers, and the future of the entire UK gaming industry.
Either Camelot or The People’s Lottery will run the lottery – and both promise to raise sales by at least 33 per cent, to over £7bn a year.
Findings from the Home Office review of gaming legislation, carried out by economist Sir Alan Budd, is due for publication in July – and the indications are it will allow far more deregulation.
Internet and TV betting is set to take off, and in last week’s pre-Budget statement, Brown made it clear a new tax regime for bookmakers is likely.
These events may not lead to the completely free market in gaming some in the industry are lobbying for, but indications are the Home Office review will significantly open up the market.
It was a short paragraph on betting duty in the Chancellor’s pre-Budget report that so pleased the bookmakers:
“The Government believes there is scope to modernise the way betting is taxed in the UK that would provide the right competitive environment for the UK betting industry to thrive, both domestically and internationally, taking full advantage of e-commerce opportunities, while protecting the long-term revenues from betting duty and giving punters a better deal.”
One plan being considered is to shift taxation away from punters’ bets – levied at 6.75 per cent – and onto the bookies’ profits.
A spokesman for Ladbrokes believes this could dramatically increase betting turnover: “When the Government in Ireland reduced duty charged from 10 per cent to five per cent, they saw a 25 per cent increase in turnover,” he says.
A Customs & Excise spokesman says the move is being considered to head off the threat of UK punters placing their bets through off-shore telephone and Internet betting services which escape high taxes – those based in Gibraltar such as Victor Chandler International, Ladbroke International and Coral pay just 0.5 per cent in tax.
But the spokesman stresses that while the drift to off-shore betting may be a future threat, it has failed to make any deep inroads yet. Last year’s tax take of £492m was up 10 per cent, and so far this year it is down one per cent. He blames this on the cancellation of many race meetings because of heavy rains. Other estimates put Internet betting in the UK at about £150m.
And he adds: “The main group of people we are worried about shifting to off-shore betting are those who undertake telephone betting, the high-rollers, who account for 10 per cent of the market. If Internet betting takes off, it will be they who move first.
“Internet betting is not that appealing – companies require minimum bets. To most people [betting] is a social thing to do down at the bookies, but the Internet lacks a social dimension. Everyone was saying Internet betting was going to take off. It may do, but nobody knows what changes it’s going to bring.” He says the proposed shake up in betting’s taxation regime in next March’s Budget, which is being discussed with the industry, is aimed at heading off a possible threat, rather than a reaction to it.
Tote chairman Peter Jones – a founding partner of BMP, a current director of Omnicom, and a former adman who knows the on-course bookies’ sign language called Tictac – says: “No one is quite sure what he [Gordon Brown] has got in mindDuties will have to come down to at least three per cent general betting duty, or the equivalent, in order to bring off-shore back on-shore, with a more aggressive effort against those who advertise here.”
Following an appeal court ruling earlier this year (MW March 2), that closed a legal loophole allowing offshore bookmakers to advertise bets in the UK through Teletext or the Internet, some observers believe companies are flouting the law by having links from their UK sites to their off-shore, tax-free sites.
Jones adds that if the tax is shifted to gross profits away from bets placed, it will make little difference as the bookmakers will have to recuperate the money somehow, and the punter will eventually pay.
Powering into the market
Next year will also see a new and potentially powerful entrant into the UK betting market. Paddy Power, Ireland’s largest bookmaker, has hired Bartle Bogle Hegarty to run a £5m UK launch campaign in January (MW last week).
Paddy Power is opening a handful of betting shops, but BBH has been briefed for the launch of a UK-based Internet site paddypower.co.uk. and interactive television betting through a tie-up with NTL.
Paddypower.co.uk believes it threatens established bookies through completely repositioning gambling. Marketing manager Ken Robertson says: “We are trying to sell betting as fun, not the Ladbrokes and William Hill model of betting to get rich – it is simply not true. We are positioned as entertainment.”
Paddy Power regularly indulges in headline-grabbing stunts such as taking bets on the chances of The Pope playing for Glasgow Rangers, or hiring Barings fraudster Nick Leeson for the launch of its website. Many of its ads have been banned in Ireland.
The established bookies dismiss Power’s tactics as little more than theatre, and say it is far more fun for punters to take their bets seriously. But Power has built up a 30 per cent share in the Irish market, with sales of some I£600m from a standing start 12 years ago – taking market share from Ladbrokes.
It is possible it will repeat its success in the UK, and broaden the appeal of betting to a new group of light or lapsed punters.
As UK betting organisations gear up for flotation next year – William Hill and Coral have delayed floats this year and there is speculation that Hilton will float off Ladbrokes – the push to extend betting opportunities is building steam. The bookies are lobbying for the gaming review to allow them to take stakes on UK National Lottery numbers, for example.
However, if the new tax regime manages to undermine Internet betting, these bookies may see some of the value inherent in their online operations undermined.
Organisations working with problem gamblers believe that the genie is out of the bottle, and the explosion in gaming is leading to an increase in problems for vulnerable groups.
Gamcare, which works with problem-gamblers, is lobbying Budd and the industry for companies to pledge a small part of their profits to helping gaming victims. Chairman Mark Griffiths identifies four at risk groups: Problem-gamblers; people who drink heavily or take drugs and may have impaired judgement as a result; those with learning difficulties; and children/young people.
“We have to put in place measures to help the vulnerable,” he says. While Camelot already donates £50,000 a year to Gamcare, Griffiths would like to see other gaming organisations cough up. “There should be a gambling levy on the industry. If we have a deregulated system, it will increase problems.”
UK gambling survey
A recent survey of 8,000 UK adults, carried out by Gamcare, suggested that under one per cent had problems with gambling. Across the UK population, this amounts to some 400,000 people. In Las Vegas, Griffiths says the figure is about seven per cent of the population with gambling problems, though he says this is unlikely to be repeated in the UK, as Las Vegas is saturated with gambling opportunities. “We have reached nowhere near saturation point, even though some want a totally free market.”
Australia has widely deregulated its betting industry, and now it has been criticised for exacerbating problem-gambling.
“In Australia there is a higher proportion of problem-gamblers, but they have pushed things to their limits – most problems are with repetitive machines,” says the Tote’s Jones.
A Ladbrokes’ spokesman also warns against repeating the Australian experience: “We would not want to see a total relaxation, it can back-fire – Australia is an example. There are new problems with problem-gambling and now there’s a back-lash with people calling to reverse some of the deregulation.”
As discretionary leisure spending increases, more pounds are likely to be spent on gambling. New technology and innovation mean UK gaming companies are now in a good position to become worldbeaters – Camelot is already exporting some of its expertise through Camelot International Services.
But it will be down to Sir Alan Budd and Parliament to strike the right balance between building the market through deregulation and ensuring the “Las Vegas effect” of saturation-gambling does not take hold in the UK.