Analysis: Between a Rock and a hard Brexit

Scaremongering has been rife among Gibraltar-based egaming operators since the morning of 24 June 2016, as the UK (and Gibraltar) faced the immediate aftermath of the Brexit referendum. Like a particularly rotten hangover, an air of impending doom shrouded the Rock, but, short of one restaurant shutting up shop and heading back to Hungary in the wake of the public’s decision to leave the EU, nothing really changed. And that remained the case for almost a year following the vote, until 888 outlined its Brexit contingency plan to move its operations to Malta in April 2017.

Egaming was always expected to be one industry hit the hardest by Brexit, and in an effort to secure operators’ UK-facing business the Gibraltar government established a two-year memorandum of understanding (MOU) with the UK in March. At the time, Gibraltar’s chief minister, Fabian Picardo, said: “Great care has rightly been taken by the UK and Gibraltar to ensure regulatory standards will be maintained between us in a manner that will be designed to assure customer protection and equivalence on regulatory outcomes going forward.”

And while the deal did go some way to reassuring the industry on the Rock, the question of what would happen to those operators leaning heavily towards European markets still remained.

Contingency plan

Lottoland, in particular, attributes a “substantial” part of its GGR to Europe. Having established its headquarters in Gibraltar’s premier Ocean Village marina in 2013, the company has physically expanded into three new offices and grown its staff numbers by approximately 300 in five years.

“[The consensus among operators] is very bullish,” Lottoland CEO Nigel Birrell comments. “There has been hardly any noticeable difference – there has only been more companies coming in. We do [have a contingency plan in place] and we know with most of these plans you can move very quickly, but we’re waiting to see what happens.

“The ability to get a licence in another jurisdiction is pretty easy. We’ve got one in Ireland, although currently that does not give us the ability to market to customers outside of Ireland, but by how it’s going I’d certainly think about extending that to capture business from other jurisdictions. We’re not rushing headlong into Malta, but we have A, B and C plans in place. However, we are very happy in Gibraltar.”

In May, both bet365 and William Hill – two of the Rock’s largest operators – announced plans to build some operations to Malta. And while bet365 has had a small office on the island for a number of years, the Times of Malta claimed it would be relocating 1,000 staffers from Gibraltar. However, the operator was quick to downplay the scale of the move, telling EGR Intel it was looking for additional space and manpower to expand on its Malta operations. The Gibraltar government swiftly quashed the media frenzy that surrounded the story, saying the Rock remained the jurisdiction of choice for the most reputable companies in the world, and Brexit negotiations were going well.

Nigel Feetham, partner at prominent Gibraltar law firm Hassans, says the biggest concern for operators remains the free movement of workers across the Spain-Gibraltar border. “I am very hopeful that a Brexit agreement with Spain, that is positive for both sides, will be reached,” he adds. “A large number of persons that work in the gaming sector live in Spain. In the worst-case scenario, which I do not think will materialise, [if] an operator decides to relocate to say Malta, the economic loss would not just be for Gibraltar but also for Spain.”

The mayor of the neighbouring Spanish town of La Linea, Juan Franco, has expressed similar concerns, telling EGR Intel that approximately 41% of the 10,000-strong workforce that crosses the Spanish border to Gibraltar each day are in “online gambling and company services”. According to an economic impact report on the possible effects of Brexit on the surrounding Campo de Gibraltar area, the combined annual salary of gambling industry workers living in Spain is £81m, of which approximately £40m is invested back into the La Linea economy. “We practically depend entirely on [the cross-frontier workers],” Franco laments. “I believe [we are] the only territory in all of continental Europe that felt the effects of Brexit as of the day following the referendum.”

Spain’s solution

Spain appears to be making moves to poach gambling companies from the Rock, post-Brexit. According to Madrid-based law firm Loyras, a clause in the Spanish online gambling law will see companies that operate entirely from Gibraltar will have their Spanish licences revoked after the UK withdraws from the EU. In a bid to make Spain a much more attractive jurisdiction for operators to host their operations, tax benefits will be offered to those carrying out product research and development efforts in the country.

The government also revealed, as part of the summer’s budget reform, plans to lower gambling taxes in the tiny autonomous enclaves of Ceuta and Melilla located on the north coast of Morocco. Feetham says that while it is certainly a bid to make Ceuta and Melilla attractive to operators based in Spain, they are unlikely to rival Gibraltar as a main hub for egaming. “They lack the technological and telecommunications infrastructure that Gibraltar has, and they lack a skilled workforce in this area,” he adds.

Carlos Lalanda Fernández, a partner at Loyras, admits the recent shift in Spanish government, from the far-right People’s Party to the Socialist Worker’s party, is unlikely to drastically change the country’s laws on online gambling. But Feetham is hopeful that a new Spanish government will lead to friendlier Brexit negotiations between Spain, the UK and Gibraltar. Lottoland’s Birrell is equally as positive about the new socialist administration. “I suspect some of the more deep-rooted political tensions, which were driven by Madrid, won’t transpire now,” he says.

For Feetham, this could mean La Linea becoming a half-way point for operators to establish a small back office base and maintain access between Gibraltar, the UK, Spain and the rest of Europe. The move would remedy the issue of Gibraltar-based operators that hold a Spanish licence requiring a base within the EU. He is also advising operator clients to establish a small presence in Malta, which is the stance William Hill and bet365 have taken. “This strategy can be implemented in a manner that maximises the opportunities for all territories rather than in competition with one another,” Feetham outlines in an article for online legal analysis publication Mondaq.

Despite the international media’s negative outlook on Gibraltar’s place in the ongoing Brexit negotiations, new business on the Rock has been blossoming. In a year, both Superbet and start-up operator Addison Global have established their main headquarters in Gibraltar, while Playtech has vastly increased its workforce upon relocating its staff to the World Trade Center. Most recently, bet-on-lotteries newcomer Lottomart was granted a local licence and plans to launch its offering in the coming months.

“To me [Gibraltar], always has been the blue-chip destination for gaming companies and I think it will remain that way. Any aspiring operator will always strive to be in Gibraltar because it is a seal of approval for the industry,” Birrell concludes.