Analysis: UK tax rate, the games begin

The timing couldn’t have been more appropriate. Just a few hours before the opening weekend of the new Premier League season, the UK Treasury announced its long-anticipated proposal for a 15% tax rate on UK online gambling revenues. On the brink of what is expected to be the biggest spending EPL season on record from the egaming sector, the announcement will kick off a new round of lobbying and strategizing from an industry facing its biggest upheaval since the introduction of the Gambling Act.

The announcement of a 15% flat rate for all online gaming verticals drew headlines in the mainstream press in the UK with talk of up to £300m in additional tax being raised. Most of the coverage has revolved around the offshore operations of the likes of William Hill, Coral and Ladbrokes and the potential for them moving back onshore. But it will have a significant impact on all operators as the new tax will mark the first time casino, bingo and poker revenues for the vast majority of operators targeting the UK sector are taxed on a point of consumption basis.

The 15% rate was no surprise, as it is in line with existing gross revenue tax in the UK, but there will continue to be concerted lobbying for a more competitive tax rate. “It will be a substantial negative impact, and we’re not expecting any balancing positive impact so it will go directly to the bottom line,” Richard Flint, managing director of Sky Betting and Gaming, said. “A lower level would arguably lead to more revenue generated in the long run and would better serve the aims of social responsibility by attracting a higher proportion of operators to be based in the UK.”

But although there is anticipated to be an increasingly heated period of lobbying as industry bodies and offshore jurisdictions such as Gibraltar and Malta look to protect their established industries, many in the egaming sector don’t expect much movement on the rate. Speaking off the record some of the UK’s biggest firms expect the 15% rate to remain once the legislation is finalised and it’s the level assumed by analysts in their projections for future revenues. So what happens next?

UK-based firms such as Stoke-based bet365, and Sky Bet, are better positioned than most as they are already paying GPT on their UK sports betting revenues, which will give them a competitive edge as other operators have to adjust their business models to compensate. And it could be a case of only the large survive in the shakeout as the hit on the bottom line impacts on bonusing and marketing spend.

“Some smaller operators with relatively weak balance sheets will be looking a bit nervously at this, and it may lead to some more M&A activity in the sector,” Panmure Gordon analyst Simon French said.

French adds there are two schools of thought on the potential ramifications for the sector. One is a cut in marketing spend across the board as margins are hit, while another is for the big firms to ramp up spend in an attempt to steal market share from smaller operators who don’t have the balance sheet to compete.

What is certain is the UK market is far too important for any of the major players to give up on, and the impact of the 15% rate is far too significant to simply give in easily to. So while this marks the beginning of a new era for UK egaming the final score is still a long way off being settled.