A taxing issue: How the Danish market is reacting to an online gaming tax hike

When the Danish government unveiled its 2020 financial budget along with its plans for an online gaming tax hike, the industry was once again left reeling. The proposals put forward in the budget included an increase in online-gaming taxes from 20% to 28% as of January 2021, with the aim of raising DKK150m (£17.1m), or DKK20m (£2.3m) per year.

The 20% tax on online gaming has been in place since the market regulated in 2012, and for many operators, Denmark has been considered a fairly balanced and favourable market. The country first opened its doors to private online gambling operators in 2012, prior to that having been dominated by former monopoly operator Danske Spil.

For some operators, it’s too early to gauge what impact will be felt from the tax changes. Thomas Bille Winkel, Danske Spil’s press director, told EGR the firm doesn’t yet know how the tax increase will affect its business but, like the other gaming operators in Denmark, it will indeed be affected when it comes into force in January 2021.

“According to Danish newspaper Borsen, the Danish Ministry of Taxation assumes that the eight-percentage-point tax increase for bets and online casinos will trigger an 8% drop in the tax base for bets and online casinos,” said Winkel.

However, other industry experts are already concerned the tax hike will have a detrimental effect on the online market. Morten Ronde, CEO of the Danish Online Gambling Association, previously told EGR that the online market could shrink as a result of the changes.

Exit strategy

And his fears may not be unfounded, with the tax hike already having seen one operator casualty as Betsson’s Betsafe brand exited the Danish market last month. A spokesperson for Betsson confirmed that the decision to close Betsafe.dk was as a direct result of the tax changes, saying: “I can confirm that Betsafe.dk has been closed. This was a direct consequence of the new tax increase agreed upon in the latest national budget in Denmark. The reason for closing Betsafe.dk one year before the tax increase is, in effect, so we can strengthen the competitiveness of the two brands that are still operating: NordicBet.dk and Casino.dk.”

The Betsafe.dk sportsbook was axed on 6 January, with customers no longer able to log in to their accounts or deposit funds. A notice on the Betsafe website now directs casino and sports betting customers to Betsson’s other Denmark-licensed brands, Casino.dk and NordicBet.dk.

Could this signal the start of a mass exodus of operators from the Danish market? For Copenhagen-based affiliate Better Collective, this is a legitimate fear, and there’s the chance it could make their pool of operator partners in Denmark diminish. “If you take Betsafe, that’s a concrete example. That’s one less operator to work with,” explains Better Collective’s CEO, Jesper Søgaard.

“And where will that go? How many will end up leaving, and which operators that were considering entering the market won’t now? From our perspective, it’s ideal to have a well-regulated market with plenty of private operators,” he adds.

Ronde agrees that other operators will consider exiting the Danish market, but he thinks those that are currently in the market will adopt a “wait and see” approach. “They will be trying to get a better market position during 2020 so they’re in good shape for 2021.”

Ronde said the industry’s response to the government’s decision has been one of “shock and disbelief”. There had been rumours that the tax increase would be much smaller and that before introducing such a change the government would do a proper analysis of the impact. However, Ronde says what is often the case when putting together state budgets is that the government simply allocates the money and there is not much thinking or reasoning behind the decision.

Risking reputation

In what has been a favourable market and one that has stood up as a pillar for other gambling markets to follow, many believe the changes by the new government are putting the country’s reputation at risk.

“It’s surprising because we have delegations coming from all over the world to visit Denmark to see how it is possible to have a regulated market and still maintain a low level of gambling addiction,” says Ronde.

Just last month, the Danish Gambling Authority published new guidelines stating Danish licence holders are legally obligated to enact responsible gambling procedures. As of January 2020, operators are required to consult the country’s national self-exclusion register (ROFUS) before accounts are created and deny registration for any player who has previously self-excluded via ROFUS.

This is in addition to a new code of conduct that came into force on 1 July 2019, which aims to strengthen consumer protection and lower the risk of gambling addiction in the country. The code itself states that Denmark is already making in-roads in terms of player protections compared with its European counterparts. It cites a 2016 survey that shows problem gambling is less prevalent in Denmark than in Norway, Finland and England.

But despite the new responsible gambling guidelines, is Denmark risking its reputation and hard work in this area by making the market conditions unworkable for licensed operators?
“The concern is that we are jeopardising a very well-functioning market,” says Søgaard. He cites a tax lawyer in the Danish business media who, after having looked at the numbers from the Danish Ministry of Taxation, said it is expected there will be a decline in the share of regulated gambling in Denmark. Before the change in taxation, this was said to be around 90%, with that figure expected to drop to 80% after the tax change.

This also ties in with the expectation that this will have a knock-on negative effect on the white market, which will become smaller. And if you have fewer operators with less-favourable products, it means the market is more susceptible to operators without a licence who don’t pay gaming taxes or face the same restrictions. Ronde says: “It doesn’t take much for the market to leak to a non-
regulated one, and we see that happening in other countries.”

The new Danish government, which was elected in June 2019, has shown that it is taking a tougher stance on the gambling sector by not only announcing the tax changes, but also mandatory deposit limits and advertising restrictions. Could this be an indication that Denmark is following in the footsteps of its Scandinavian neighbour, Sweden?

“There’s no doubt that the current government has a stricter view on the gambling market,” agrees Søgaard. His personal concern is that the stellar work that Denmark has achieved in tackling gambling harm will be countered by the tax change and drive players to the black market instead. “Today, we barely have a black market in Denmark. So that’s the risk, and that’s a balance you always need to have in mind when you make changes to the regulatory framework for gambling.”

Stricter regime

On 1 January this year, the new government introduced measures to heavily restrict marketing and Ronde thinks this is a sign of more to come. “The tax minister has announced that he will look into further restrictions on advertising, so it’s definitely not a government that is very favourable to our industry.”

By increasing the tax rate by 40% next year for an industry where margins are low, there will be much less profit for operators, and, in turn, this could affect operators’ marketing budgets.
“Most operators will have less money for marketing, and some operators will have no money for marketing; it’s obvious that those that have no money for marketing will exit the market,” explains Ronde.

With talks of further restrictions on gambling advertising down the line, the minister has called for the industry to take further action beyond the code of conduct that is already in place. So it appears there are more challenges ahead for the Danish sector.

While some operators will opt to wait and see how the tax impact plays out next year, others may decide the maths doesn’t make sense anymore and exit the Danish market. But whether the world’s happiest country will be able to keep its gambling sector content is another question entirely.