A Rock in a hard place?

Ninety-six percent. That’s the overwhelming proportion of Gibraltar that chose to remain in the EU when the population cast their vote in the UK referendum in June 2016. More than three years on, UK parliament is in deadlock and it is still unclear whether the UK will depart with a deal, crash out without one, or if a second extension to Article 50 will be needed. There’s also the chance of a second referendum or the remote possibility that Article is 50 is revoked. Throw in an imminent UK General Election for good measure and this state of affairs probably has many in the British Overseas Territory shaking their heads in dismay.

“Obviously the uncertainty is not good for anybody. It’s not good for Gibraltar, the UK or the rest of Europe,” says Peter Montegriffo, partner at Gibraltar law firm Hassans.

Gibraltar’s chief minister, Fabian Picardo, told EL País in September that London and Brussels were playing a poker game and that “gambling with people’s lives is not what the voters elected me to do”. With the UK set to leave on 31 October, there are concerns about how businesses operating on the Rock will be impacted, especially if there is no deal. Right now, there are 30 licensed online gambling companies (15 B2C and 15 B2B) with their headquarters or operations in Gibraltar.

This includes the likes of GVC Holdings, William Hill, Betfred and 888 Holdings, while Gibraltar-headquartered BetVictor recently marked its 20^th anniversary on this 2.6 square-mile jurisdiction south of the Iberian Peninsula. Nigel Birrell, CEO of Gibraltar-based secondary lottery operator Lottoland, says that once staff got over the initial shock of the referendum result things returned to normal. “They were all concerned in the immediate few days after the vote. I was in the UK and I had to fly back to reassure them that it was business as usual but once everyone got over the first couple of days, everyone was reasonably happy.”

Just a short stroll from Lottoland’s offices is the headquarters of Addison Global, the operator behind the MoPlay brand. Here, chief strategy officer Nyreen Llamas acknowledges Brexit “poses planning issues” as the company’s products have yet to be rolled out in numerous EU markets, though Britain’s departure isn’t an “existential threat to our raison d’être”.

She adds: “This industry is very used to challenges from a licensing and regulatory perspective. It is a highly adaptive industry, always learning and incorporating new ways of providing services and has, in my view, very sophisticated players leading their respective businesses to handle these challenges. In an EU environment where there is no pan-European harmonisation of licensing and regulatory regimes for this sector, and where businesses hold country licenses, Brexit will not be the insurmountable challenge it poses for other sectors like the travel industry and food.”

Papers, please

Gibraltar isn’t part of the EU’s customs union, so there are checks on goods crossing the border. It also isn’t part of the Schengen Area, which means passports are supposed to be scrutinised. Yet, most workers commuting every day from Spain hardly break stride these days and passport control staff barely glance at passports. The fear, of course, is that a no-deal Brexit could lead to long queues and delays at the frontier, at least for a while after the UK’s departure. That scenario would cause chaos for egaming companies and for those staff travelling back and forth from Spain. Around 3,500 people are employed in gaming on the Rock, up from 1,900 a decade ago.

According to the Gibraltar government, there were 14,740 people who live in Spain and work in Gibraltar as of March 2019. That’s around 50% of Gibraltar’s labour market. Of those employed on the Rock, more than 9,000 were Spanish nationals and in excess of 2,300 were British citizens. For Lottoland, around three quarters of its 250 staff live in Spain and travel daily to and from the operator’s office in Marina Bay via Winston Churchill Avenue. “If there was no deal and you needed to get a visa that would be a problem,” says Birrell. He adds: “I think the government is very aware of the key issue and they will do what they can with their Spanish counterparts to make sure there isn’t an issue. But who knows, we might wake up on 1 November with two-hour queues.”

But with Gibraltar accounting for an estimated 25% of the GDP for the neighbouring region of Campo de Gibraltar in Spain, intentionally orchestrating delays at the border would appear to be a short-sighted strategy. Llamas says: “The authorities on both sides of the border, particularly those in the direct neighbouring areas in Spain, have no interests whatsoever in making the border crossing difficult.” This could change, though, if the left-of-centre Spanish government is supplanted by politicians on the opposite side of the political spectrum. “If the right-wing guys get in,” Birrell explains, “they might become more aggressive towards Gibraltar, and one way of trying to starve or squeeze the blood out of Gibraltar is to restrict the border. Doing that, they would be cutting off their own nose to spite their face.”

Is this the future for Gibraltarian egaming?

Contingency planning

Since the referendum, egaming companies with operations in Gibraltar have been making arrangements to prepare for the British Overseas Territory eventually being outside the EU. For instance, Gibraltar-based 888 has obtained a Malta gaming licence and established a server farm in Ireland to serve EU markets without disruption to its business. Likewise, GVC has relocated some servers to Dublin and plans to use its Malta licence to accept EU players from certain member states. William Hill, on the other hand, has used its £242m acquisition of Mr Green and its Malta operations to neatly still gain access to EU markets after Brexit, leaving William Hill’s Gibraltar office as its UK-facing hub.

On the whole, though, Gibraltar’s online gaming sector has carried on without too much upheaval. That is apart from the bombshell this summer that bet365 was to move hundreds of its workforce from its Waterport Place office to Malta. The UK-founded online giant cited Brexit as a reason behind the decision. Andrew Lyman, head of Gibraltar’s gambling regulatory authority, says bet365 has reduced its headcount on the Rock from around 500 to approximately 100, although he insists “substantive operations” will remain. So, how hard did the government try to persuade bet365 not to move a critical mass of its workforce to Malta? “We attempted to persuade them to leave a greater percentage here,” he responds.

“Plainly, it was disappointing that they decided they would move more of a percentage of their business to Malta than we thought was necessary, but we respect that they are entitled to make a strategic decision. We don’t necessarily think that that strategic decision was the right one in its entirety [but] we respect that they have got to maintain EU access.” While the downsizing is a blow for Gibraltar, Lyman believes all the licensed egaming companies are committed to the Rock and that if a mass-departure was going to take place it would have happened by now.

In fact, the regulatory authority has granted a slew of licences since the referendum, including to SBTech-powered sportsbook Virgin Bet a few months ago. “To my understanding,” says Peter Howitt, managing director of the Gibraltar office for law firm Ince, “most operators have previously made necessarily structural changes to be prepared for issues that can arise from Brexit and this has not led to an exodus.”

Despite the uncertainty around Brexit and despite Lottoland securing B2C and B2B Maltese licences in March, Birrell is adamant Lottoland will stay in Gibraltar as it is where the company was “born [in 2013] and grew up”.

Addison Global’s Llamas also insists the operator is “fully committed” to Gibraltar. “We set this business up post-Brexit vote, with a focus on growing an international business from Gibraltar, and Brexit does not pose a major obstacle to these original plans.” Following bet365’s intentions to scale back its presence, companies like Lottoland and BetVictor went on a hiring spree. Meanwhile, GVC, which employees around 300 staff at its office on Europort Avenue, is currently advertising for a number of roles while William Hill has more than 20 vacancies in Gibraltar spanning marketing and CRM to cloud engineering and data science.

Are Gibraltar-based operators already looking to distant shores post-Brexit?

Making alternative arrangements  

Bet365’s decision to move staff and grow its operations hub in Malta was a feather in the cap for the Malta Gaming Authority, even if uncontrollable circumstances forced bet365’s hand. Malta, an EU member state since 2004, naturally welcomed the operator’s announcement with open arms. Prime Minister Joseph Muscat crowed in a tweet about the company’s “significant expansion” of its Malta operations and how “its footprint will now double that originally envisaged”. It’s been reported that bet365’s enlargement on the Mediterranean island is costing €70m.

For Malta, Brexit has been an opportunity to capitalise on those operators seeking a dotcom licence to serve those EU countries without egaming regulations. And who could blame them? “Malta is keeping an eye on changes that may unfold in Gibraltar, which is one of the country’s competitors in the online gaming industry,” says Iosif Galea, a Malta-based regulatory compliance specialist and gambling consultant. “Gibraltar’s gaming hub might experience serious strains if the Spanish government continues with its plan to put stricter controls at the borders upon Brexit, especially when keeping in mind that the majority of Gibraltar’s gaming companies are run by employees who cross the border daily.”

However, Gibraltar could also be facing a new emerging threat from an egaming jurisdiction much closer to home. Just across the Strait of Gibraltar on the northern shores of Morocco lies the autonomous Spanish enclave of Ceuta. The seven square-mile tax haven has stated its intentions to exploit the impacts of Brexit on Gibraltar. Ceuta, which uses the euro, imposes a gambling tax of 10% on net profits for companies based in the city. That’s half the rate of mainland Spain. Besides VAT, income and wealth tax breaks, Ceuta’s corporate tax is pegged at 7.5% for the first two years and 12.5% thereafter.

A handful of companies have recently either planted their flags in Ceuta or announced plans to do so. For example, Betfred has established a new office there to serve the Spanish market after recently securing a gaming licence from Spain’s regulator, DGOJ. In addition, 888 CEO Itai Pazner told EGR in September that the operator plans to create an office in Ceuta next year as a way of reducing its tax burden in Spain, 888’s largest market after the UK. Yet, Lyman stresses that press reports have overblown the significance of these operational hubs being established in Ceuta.

“The Spanish media have slightly misrepresented this idea that there is a flood of companies moving out of Gibraltar to Ceuta,” he says. “They have gone to Ceuta because they would have had to establish something in Spain anyway. And by establishing it in Ceuta they have actually reduced the costs of establishing in the Spanish market. So it isn’t, in the truest sense, a rival to Gibraltar. I don’t want to run it down but there are things I lay awake at night worrying about and Ceuta isn’t one of them.”

Will Gibraltar be caught in between two worlds post-Brexit?

Ticking all the boxes

In order to further its appeal as a gambling jurisdiction and stay competitive, Gibraltar slashed taxes for gambling companies from 1% to just 0.15% last year. Combine this with a robust regulatory regime, as well as no capital taxes, no wealth taxes, no VAT and an average of 300 days of sunshine a year and the Rock still has a lot going for it. The jurisdiction is also updating its regulations around IT, with Lyman revealing that they have had to be flexible of late with gaming companies regarding IT infrastructure arrangements. Indeed, an anonymous gaming executive previously told EGR that bet365’s move was partly driven by its disagreement with the government over the use of cloud-based servers.

While Lyman describes the relationship with bet365 as “convivial”, more broadly he concedes the prospect of Brexit has inevitably harmed Gibraltar as a tier-one egaming hub. “The fact that Brexit has been rolling on for three years and there is the possibility of a hard Brexit, I think has reduced to a degree the level of confidence in the jurisdiction, naturally. Nobody is confident, whether they are in Gibraltar or the UK, about what the future brings. It is a lack of confidence driven by uncertainty more than anything else. That has caused gaming companies to look at how they need to structure [themselves] in order to continue to access the EU markets.”

In the meantime, no one can say for sure what will happen regarding Brexit, such is the fluid nature of the situation. Operation Yellowhammer – the British government’s document spelling out the potential consequences of a no-deal Brexit – suggested Gibraltar could face shortages of food and medicine. On top of this, significant delays of up to four hours on the border with Spain could last “at least a few months” in the event of no-deal. The Gibraltar government insists this document is outdated and plans are in place to cope with a hard Brexit.

For Addison Global, Llamas says the operator has no regrets about basing itself on the Rock after the referendum. “Our growth and expansion since set-up and then launch has shown we were correct in making Gibraltar our home from a headquarters perspective. Gibraltar’s authorities also play a considerable part in our choice of anchoring ourselves locally. They have been firm but approachable at all times, and Gibraltar has positioned itself at the forefront of regulating this industry and supporting it. If anything, the threat of Brexit has shown the authorities to be even more supportive of the online gaming sector.”

When the UK introduced a 15% PoC tax a few years ago, Gibraltar’s viability as a gaming hub was questioned. Ultimately, the doubters were proved wrong. And while a hard Brexit is being touted as a possible doomsday scenario for Gibraltar, at least in the short term, it could end up meaning operators only licensed in Malta are not able to accept UK players. Either way, Gibraltar seems set to remain a premier egaming hub. Lyman says: “To use an old [ex-William Hill boss] Ralph Topping expression, ‘There are a lot of naysayers who try to run Gibraltar down’. To date, those naysayers haven’t been right.”

Jay Dossetter, head of CSR and corporate communication at London-listed GVC Holdings, discusses the effects of Brexit

EGR Compliance: More than three years on from the referendum, how do you see Brexit impacting GVC’s operations in Gibraltar, and is GVC committed to the British Overseas Territory?  

Jay Dossetter (JD): We don’t anticipate that Brexit will have any material impact on the business. GVC remains committed to Gibraltar as the operational hub of our online operations and we do not foresee that changing regardless of the ultimate settlement the UK reaches with the EU.

EGR Compliance: How has GVC been planning for the UK and Gibraltar’s eventual departure from the EU?

JD: As disclosed in our interim results announcement, ahead of the scheduled departure date of 31 October we have registered part of the online business under a Maltese online gambling licence in order to meet EU regulations. In accordance with the requirements of some states that companies operating online gambling services in those countries locate their servers within the EU, some of the group’s servers were transferred to Dublin in June 2019.

EGR: How concerned are you by the possibility of long queues at the border if the UK crashes out without a deal?

JD: Again, we don’t anticipate any material impact on the business. In the event of any temporary disruption at the border, then we have flexibility for staff to work remotely and carry out their duties as usual.