A closer look at the online aspects of the UK government’s response to the Budd Report

Phil Fraser.

London,
April 12th, 2002.

    Upon publication of the government’s response to The Budd Report the world news flooded with ‘Las Vegas is coming to Blackpool’ headlines. Behind that, the next biggest headline was that legalised online gaming was coming to the UK. Great news, on the surface of it; ‘Britain will become a leader in online gaming’ was the general consensus of opinion. But how true is that? Now that the dust has settled and the headlines have become fish and chip wrappers, it’s time to look more closely at the government’s proposals with regard to online gaming. Sadly, it may be the case that if the UK is to become the world leader in online gaming, it will not be for a number of years yet.
 

    On March 26th the DCMS published it’s response (‘A Safe bet for Success’) to the Gambling Review body’s report, known as ‘The Budd Report’. Apart from a couple of footnotes, it accepted all the recommendations made by Budd in relation to online gaming (recommendations 137 – 151). It accepted that online gaming should be permitted in the UK under the legislation of the proposed Gambling Commission, and that, as Budd had stated, it would be ‘entirely unrealistic to prohibit’. In summary, the other points accepted covered testing and development of games and probity of operators to be under the auspices of the Gaming Commission, the protection of the vulnerable (underage and problem gamblers) through checks and self-limits, the identification of, and payment of winnings to, players, the issuing of a ‘kitemark’ to licensed operators and which sites could and could not advertise.
 

    Through accepting these recommendations the government feel that ‘the UK could potentially catch a significant proportion of the online gambling market with specific legislation’.
 

    The government accepted all the proposals put to it. Great, no more than the UK, and world, online industry could ask for. Granted it does give the UK the opportunity to become a world leader and quite rightly it recognised the need to keep crime out, protect the vulnerable and ensure fairness to players. The view from The States is ‘a rational approach from government – how novel. Perhaps our government might listen’ So with all the good news, what is the problem?
 

    The problem is a number of things; There was a complete lack of any detailed proposals. It is unclear what form any legislation might take. It is easy for a government to agree in principle, but it will be a different matter when it comes to writing law. The devil will be in the detail. The general view from the UK online gaming industry is ‘We’ll wait and see what actually happens but we can’t wait’. However amongst other points that were raised in consultation stages, there are three points that need close attention. They are timing, tax and advertising.
 

    When is this going to happen? Of course the land-based industry is also asking this but for the online sector this is much more pertinent. Firstly because there is currently no existing legislation, compared to the land-based industry who are awaiting amendment, not creation, of legislation. Secondly, as we all know, everything moves much, much quicker online than it does offline. 
 

    Since Budd was published UK online gaming companies have been active; Rank have received a license in Isle of Man, Gala have indicated their plan to set up in Gibraltar, MSN.co.uk have launched a gaming channel, Victor Chandler have launched a bingo site, Littlewoods and Ritz Clubs have received licenses in Alderney. And that is just the tip of the iceberg. There are many, many more moves afoot in the online sector of the UK industry. Major strategic moves like these have not happened in the UK land-based industry during that period. 
 

    If as the DCMS say, legislation will not be brought before parliament until at least 2003-04 session, who knows what will happen in that time, and more importantly how relevant the legislation will be. Action has to be taken now.
 

    A number of interim measures were included in the government’s response that would not need to wait for primary legislation. Disappointingly, online gambling was not included in these. As a suggestion, it should have set up an interim ‘Online Regulatory Board’ to deal solely with this area. This could then become a department of, or be rolled into, the Gambling Commission when it launches. But no, there was nothing. Not wishing to mix metaphors, the train has already left the station and we are going to miss the boat.
 

    The only mention of the ‘T’ word (whisper it ….. ‘t-a-x’) seemed to be on page 68 of the appendix to the government’s response which stated that ‘Customs & Excise are addressing the implications’. As a general point, the complete aversion to mentioning tax by both Budd and the response from the government is surprising seeing as this whole review procedure is being driven by the potential for increases in UK tax revenue. As I write the next UK budget is less than a week away and do not be surprised if the topic of tax on the gaming industry does not get mentioned. 
 

    Unlike the land-based industry, the online industry has a choice as to which tax regime to be based in. Therefore tax becomes an influencing factor in the siteing of an operation and, more importantly, becomes a simple commercially-led decision. When considering how much to tax the potential UK online gaming industry, the government must remember the alternatives. Beneficial tax regimes for online gaming do not solely exist in little known islands in the Caribbean. Competition comes from legitimate licensing regimes in Gibraltar, Isle of Man and Alderney amongst others. If the government is considering, as rumoured, a uniform gambling tax it must not include online gaming in it. Online gaming must have its own (low) tax laws. ‘That’s not fair’ cry the objectors. When have ‘tax’ and ‘fairness’ ever been bed-fellows? There is also the argument that online gambling and land-based gambling are in fact different products anyway.
 

    Proposal number 150 in the Budd Report stated that only those online gaming companies licensed in the UK would be able to advertise in the UK. In effect this recommendation is banning advertising from sites licensed anywhere else in the world. The site in question could well be a legal entity in it’s host country, could have been subject to strict regulatory scrutiny and be offering something that’s legal to participate in in the UK but it would not be able to advertise. Why? Tax - If you don’t pay our tax you can’t use our media. 
 

    As this rule stands it also throws up the anomalies that major UK corporations like Ladbrokes, William Hill, Littlewoods, Stanley Leisure, Victor Chandler et al would be able to advertise online sports betting in the UK but not their online casinos. Neither would Sun online nor MGM, as they are licensed in Isle of Man. Even more odd, major UK player Rank.com could advertise their new £1m bingo game (as it is a fixed odds game rather than a real bingo game and therefore legal) but not any multi-player bingo game that they may launch from the Isle of Man. The rule is nonsensical and unworkable. It must go.
 

    So in summary, what do we take out of this? Firstly, don’t get over-excited, there’s a long way to go yet before we see online gaming licensed from the UK. When it does come in will it bring off-shore operations onshore? Probably not. Will it bring in new operators who are looking for legitimacy, regulation, enforcement and security? Possibly. Those companies that already run offshore gaming sites should implement the Budd recommendations regarding protecting the vulnerable now as a minimum. Ideally they should also be looking at even more stringent ways to do so than recommended and be looking for additional safety and security measures. 

    However underlying all of this one must remember that the marketing and performance of a site will always be much, much more important than where it is licensed from.
 

Phil Fraser
i-ludus Consulting
pfraser@i-ludus.com
www.i-ludus.com