gibraltar: e-gaming and the economy - new statesman · 10/7/2013 · real-money online gambling:...

An industry and a catalyst

Gibraltar: e-gamingand the economy

Sponsored by

Gibraltar Cover:Statesman supplements 01/10/2013 15:12 Page 2

2000 out of 30,000

people work in the gaming

industry

Gibraltarian economy overall

Employment World market for gambling

Regulated real-money

online gambling: $30bn

internationally

UK and Europe's

percentage:

54%

US' projected percentage by

2017: 30%, making $7.4bn

in total

Record Budget Surplus –

highest ever at £37.174m

GDP growth of 7.8% (£1.137bn

to £1.226bn)

Cash Reserves quadrupled to

£85m

Gross Debt down by £142m or

27.5%

GAMING IN GIBRALTAR - THE ECONOMICS

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New Statesman7th FloorJohn Carpenter HouseJohn Carpenter StreetLondon EC4Y 0ANTel 020 7936 6400Fax 020 7936 [email protected] enquiries,reprints and syndication rights:Stephen [email protected] 731 8496

Supplement EditorGuy ClappertonDesign & ProductionLeon Parks

Commercial DirectorPeter Coombs020 7936 6753Account DirectorEleanor Ng 020 7936 6417

How to fuel an economy

e-gaming in context P8

How to regulate e-gaming P4

4 Regulating by the whites of their eyesBe established before setting up a gaming company in Gib, says Philip Brear

8 Online gaming - moving obstaclesNew laws may damage the e-gaming infrastructure, says Archie Watt of KPMG

10 E-gaming in contextThis is part of the continuum, says Peter Howitt

13 Consumed by taxNew UK legislation could backfire, says Hon. Albert Isola MP

14 An infrastructure issueE-gaming needs solid underpinnings, says Tim Bristow

The paper in this magazineoriginates from timber that issourced from sustainableforests, responsibly managedto strict environmental, socialand economic standards. The manufacturing mills haveboth FSC and PEFCcertification and also ISO9001and ISO14001 accreditation.

E-gaming is an important industry in Gibraltarand not just because a lot of people enjoy itworldwide. As part of the wider economy itemploys 2,000 people. From a totalpopulation of 30,000 this is significant.

Those employees mostly live on the Rockand they in turn fuel the other parts of theeconomy. They buy and rent homes, theyshop, they use transport.

It’s not just the people either - e-gaming hasstarted pulling through other industries in itswake. One thing utterly crucial in a regulatedenvironment like gambling is a completely

robust technical infrastructure. Gibtelecomhas built a powerful communications networkpartly because the gaming industry hasdemanded it - and it’s now solid enough forfinancial services to reside on it.

E-gaming used to happen only on desktopcomputers. In recent years there has been aproliferation of smartphones and tablets,resulting in a fledgeling software designindustry around the e-gaming partners on therock. The industry is actually a powerfulcatalyst for a great deal else - this supplementexplores how it works. l

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First published as a supplement to the New Statesman4-10 October 2013.© New Statesman Ltd. All rightsreserved. Registered as anewspaper in the UK and USA.

This supplement, and other policy reports, can be downloaded from the NS website at newstatesman.com/supplements

e-gaming infrastructure P14

CONTENTS

ARTICLES

03 contents:Statesman supplements 01/10/2013 16:07


Let’s get this straight: tax is low inGibraltar, particularly if you are abusiness. VAT is 0 percent. Corpo-ration tax is 10 percent. Locatingthere for tax is a legitimate aim of

many businesses who have set up on theRock. However, tax haven or a tax dodger’sdelight it is not. It is strictly regulated.

In no area is this truer than when it comesto e-gaming. The industry has set up on theRock since its inception about a decade ago,with Ladbrokes being one of the first com-panies to arrive with a telephone gamblingoperation. However, anyone thinking theycan set up a skeleton operation to avoid pay-ing tax will be disappointed. Philip Brear,Gibraltar gambling commissioner, hasstrong advice for start-ups wanting to cometo the Rock. “We probably wouldn’t enter-tain you,” he says. “The Gib licensing pol-icy for 16 years has been only to accept ex-pressions of interest and applications fromestablished and respected businesses –“ here he breaks into his own words ratherthan those of the official policy – “who haveas much to lose as we have if they get itwrong.”

In practice this translates as Brear receiv-ing over 200 applications for gaming li-censes on Gibraltar during his six year oldincumbency and rejecting 99 percent ofthem – including in particular the start-up

community. “By definition they’re alwaysthe highest-risk operation, whether it’s sit-ting in a café or buying equipment. Thereare always exceptions but our strategy hasalways been: if you’re launching today,please go and prove yourself somewhereelse first.”

This is why, compared to other tax-ad-vantageous territories, Gibraltar has a lownumber of e-gaming companies licensed;under 30 are currently operating there. Cri-teria are stringent and the authorities have areputation for ‘regulating by the whites ofyour eyes’ – if you’re not physically avail-

able on the peninsula, you won’t getthrough. “The Gibraltar model is that youactually exist here as a real entity,” explainsBrear. “That requires you to establish atechnical presence here, which in the caseof remote gaming means key servers, plus asignificant proportion of managementpresence and key elements of the operationmanaged or staffed here.” A business mayhave a huge European footprint, for exam-ple, but middle management in Gibraltar.

Regulate by the whitesof their eyesby Guy Clapperton

Gibraltar has a low tax rate and is known as a centre for e-gaming - but don’t think that means you can set up a skeletonpresence and make a quick Gibraltarian buck. Gambling Commissioner Philip Brear explains the rules.

INTERVIEW

This has to translate into real people, andthis in turn means pumping real moneyinto the local economy. Ladbrokes has 120staff on the Rock, Victor Chandler 450. Bythe time you’ve added up all of the directstaff the total is about a couple of thousandpeople. Add the ancillary benefits to theterritory such as the retail, real estate andother areas they will consume and you real-ize what a significant part of Gibraltarianlife e-gaming comprises when the totalpopulation is just under 30,000.

And it can’t be overstressed, having aphysical presence is an important part ofthe gaming industry’s culture on Gib. “Wehave to explain that carefully because sadly,in some jurisdictions, they care less wherethe operator is based,” explains Brear. Thissounds fine and is feasible technically, butisn’t much use when there’s an issue to pur-sue and Brear’s team needs to visit a man-ager. They can be in another jurisdictioncompletely, making the journey inconven-ient and any enforcement impractical. “Welike to touch and feel what we’re regulat-ing,” he says. “Rightly, gambling is a regu-lated industry, it carries consumer risks. Ifyou’re not exercising the right degree ofcaution, recent history tells us you’re invit-ing problems for the jurisdiction, the con-sumer and the regulation of the industry,”he says.

The Gibraltar licensingpolicy is to accept onlyestablished businesses

04-07 Regulator interview:Statesman supplements 01/10/2013 15:55

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Licensed companies must keep the au-thorities up to date on their suppliers aswell as their own business. If someone es-tablishes a business in Gib and wants tochange partners such as a major softwaresupplier, or a software supplier changesownership, for example, it has to be re-ported. As far as possible the authoritieskeep tabs not only on the companies withlicenses but the entire web at whose centrethey sit.

ComplaintsA means by which the authorities can keepa check on e-gaming companies is throughmonitoring and investigating customercomplaints. The system is open and simple;anyone who is not satisfied about how anyGibraltarian operator has dealt with them iswelcome to contact the regulator.

The procedure is straightforward; thecomplaint is received, the member of staff

at the Gambling Complaints Commissionevaluates it and sends a response to bothparties for feedback. Following feedback heor she sends a final determination letter toboth parties, with an assurance that theycan engage direct with the gambling com-missioner if need be. On the odd occasionBrear has dealt with a case he has mostlyfound more evidence to support his staff’soriginal conclusion rather than informa-tion suggesting it should be overturned.

“What’s remarkable,” says Brear, “is thatwe have under 30 licensees, probably 10mcustomers between them and we actuallyhear from only about 200-250 customersper year who want to make a complaint.”They are offered an advice note which ad-vises that experience has shown that mostcomplaints are as a result of a customerhimself or herself breaching terms and con-ditions. For example, a company might of-fer £30 worth of free bets to first time play-

ers; existing customers setting up a newemail address and attempting to register as anew customer when they already had an ac-count under their old one will fall foul ofthis. People willing money under falsenames for whatever reason also find them-selves legitimately shut out by legitimateterms and conditions.

Inevitably a handful of the complaints aregenuine. “We get about 20-25 a year whichhave traction but the majority are becausethe customer has done something more de-vious than a simple fraud,” says Brear. Asthis supplement went to press, for example,his staff were investigating a situation inwhich some people in an Eastern Europeanstate had found a way of interrupting theinformation flow between a gaming opera-tor and one of its systems; they won a sub-stantial sum of money as a result and inves-tigations proved the names and thelocations given were false.

Gaming on the Rock: a low level of complaints

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Brear deals with the legitimate cases se-riously. Some are down to misunderstand-ings or staff training. For example a gamblermight phone in and asks to be taken off thesystem. Brear posits a situation in which acustomer has been a client for five years,lost £10,000 and wants to be taken off com-pletely. “Technically the manual says if youdon’t ask to be ‘self-excluded’, in otherwords locked out completely for sixmonths, you can just close the account.”However the staff won’t be psychologistsand phone calls or Internet chats can bemisunderstood. The customer serviceagent may simply close the account ratherthan block it, allowing it to be reactivated.“The customer comes back a few days later,sees the account can be reactivated, does so and loses another £150 and complainsthey should have been locked out,” saysBrear. “So we might conclude that the staffshould have applied a bit more judgment inthat case.”

Self-exclusion as a piece of jargon is ajoint agreement between the gambler andthe company, with the company under-standing that the gambler is likely to try toget back; however, the term tends to getused loosely. “A lot of customers use it justto manage the vast number of accounts theyhave,” says Brear. It’s not uncommon forpeople wanting to take advantage of morethan one introductory offer or better odds

to join as many as 15 gaming sites. “So when they call [and ask for self-exclu-sion]they may just mean ‘close my accountdown’ – it’s a technical term that leads todifficulties.”

Inevitably the bottom line is that thehouse always wins – a cliché but one thatkeeps the gaming companies in business.Complaints therefore include the ‘numberseven never comes up’ or the ‘this game isfixed so I don’t win’ complaints. These areeasily dismissed with a quick examinationof how many people actually emerge withmore money than they entered. “Our ad-vice is that the customer is not supposed towin – if you’re playing roulette at 10p a spinand someone can win £10,000, you have tolose a lot of 10ps to pay for that guy’s prize.”

Complaints serve the regulators as well asthe consumer. “It’s a fantastic way of get-ting a window into what’s happening in theindustry,” comments Brear. If, for example,one company is getting more than the aver-age amount of complaints over a typical is-sue, it’s probably worth looking into. And ifa particular category of complaint becomescommon for one operator, it’s probablyworth checking the others as well.

SanctionsAt the operational level, when somethinggoes wrong the regulators use recommen-dations rather than any big stick approach.

“We don’t need to go any further thanthat. If we recommend that an operatorpays the money, or some money, I canconfirm that they have never demurredfrom that recommendation.” In caseswhere there is something more systemicneeding to be done – say a cost aroundchanging processes, or a rubbing point be-tween a promotion and the marketing de-partment, then the regulators will write astiff letter or revisit the organization to en-sure action happens. Theoretically, if anoperator were persistently raising regula-tory issues, special terms could be in-serted into their license (with the agree-ment of the Minister) – following thissuspension of a license and its subsequentwithdrawal at renewal time are all possi-ble. This has never happened in practice.“We don’t actually have direct powers toimpose a financial penalty, but we haven’tneeded one,” says Brear.

Overall the system seems to work prettywell, and Brear gets back to the small num-ber of operators. Licensing fewer than 30means you’re unlikely to have an avalancheof complaints unlike other territorieswhich might get a considerable number. “IfI had 1000 complaints a year I might feeldifferently – I might let the operators dealwith their own complaints and come andpick a couple of samples to look at. Wouldwe have had the PPI crisis if the banks’d had

INTERVIEW

LADBROKES: the older timerSteve Buchanan, finance di-rector and head of Gibraltaroperations for Ladbrokes, isvery clear about why the com-pany set up on the Rock in thefirst place: “Tax-driven.” It ar-rived in 1993 along with VictorChandler and put part of itstelephone betting operationthere. Mainly football betting,it used only a handful of staff

and truly established itself with the 1994 World Cup. In 1999 itbecame the second company to move the whole of its phoneoperation – again following Victor Chandler – with 200 staff.

Tax was a powerful incentive, explains Buchanan. “Bettingduty was what we paid in the UK at 9 per cent, and it was 1 percent in Gibraltar. Also it was capped. So there was a mass exodusof bookmakers to Gib, and in 2000 we launched our first itera-tion of Ladbrokes.com, at that point called Ladbrokes.co.uk.”

In 2001 Gordon Brown, then chancellor of the exchequer, tried

relocating the bookmakers back on shore by replacing bettingduty based on turnover with a gross profits tax, so Ladbrokes’telephone betting system went back to the UK and headcount inGibraltar went down to 25 because the Internet was so new.

The business grew in the dotcom boom – “Pubs and book-makers always seem to weather the storm,” says Buchanan - andhas now reached 172 employees. It launched poker in 2002 as astandalone player then in 2009 allowed players to compete withcompetitors on other networks. “Poker became very competi-tive when the US shut down as a market – not helped by the factthat online poker itself became less intriguing as it got older,” hesays.

Ladbrokes’ traditional market has been in the High Street andit is still putting effort into marketing its online operation. It isusing business intelligence and consumer relationship manage-ment technology to tell it how its online marketing should work,confirms Buchanan.

Gibraltar remains a good location not only because of the taxbut because the regulation is stringent, he says. “There is nobrass-plating here.You can look at other jurisdictions where youdon’t have the same thing – Gibraltar only wanted high quality,low numbers of people who were going to invest in the infra-structure here.”

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4–10 OCTOBER | NEW STATESMAN | 7

32RED:the newcomerEd Ware came over to Gibraltar to set up the tele-phone operation for Ladbrokes, which morphed intoan Internet operation. He started in their retail shopsin the UK, became a regional director of operationsresponsible for 500 betting shops, 20 years youngerthan the his three counterparts. “I got to this stageand they said, would you like to go to Gibraltar.” In2000 he moved his family to the rock, with a reason-ably clear understanding that he’d set up the businessand return.

He didn’t. By 2002 Ladbrokes had a telephone bet-ting centre and an online casino – but the casino wasn’t a big part of it. “At the time, ifyou wanted to play in an online casino in the UK, you had to do it with a bookmakerwho’s really more interested in sports betting with maybe a little bit of casino gaminglater,” he explains. He had the idea of turning it around and focusing on people whowanted to play slot machines, blackjack and other casino games. He persuaded hisfamily and some backers and in 2002 he gained his independent license for 32Red. “Inour second full year we made a bottom line profit of £1m.”

The shareholders had their initial seed back within two years, then in 2005 hefloated the business. “It was before the bubble burst and we were completely clear-cut, and we followed Party Gaming and 888. Half way through our roadshow 888 toldits market there was no growth left in the market.” This would have been a biggerproblem if the company had been looking for finance rather than profile. Other issuesit faced included a trademark infringement lawsuit against William Hill (32Red won)and an acquisition that nearly finished the business.

Growth has continued and picked back up nonetheless. The company has trebledits size in the last three years and is looking for £10m Earnings Before Interest, Tax,Depreciation and Amortisation (EBITDA) in the coming year. Employing around 70people, it occupies two buildings on the Rock and sells primarily on service. “Thegames themselves are commodities,” he says. “We wave the customer service flag alot, we have awards from mystery shoppers and stuff like that,” he says.

Currently running a major advertising campaign in the UK, 32Red looks more andmore like one of the established gaming companies all the time.

a proper complaints process? Do you thinkpeople weren’t complaining for 20 years?People were making complaints whichwere going into the banks’ black hole andnobody was collating them. If someone putin that level of complaints to us, we wouldsee it.”

In fact the biggest issue facing the locale-gaming market comes not from Gibral-tar but from the UK in the form of the newproposals for tax at the point of consump-tion. Elsewhere in this supplement Hon.Albert Isola MP puts the case from thepolitician’s point of view; Brear feels morestrongly if anything. “Gambling is not asexy issue, it’s not a headline issue, andthere’s a danger these measures are drift-ing through the political process withoutthe level of scrutiny they need,” he says.

The Point of Consumption proposals,he believes, fundamentally alter licensingarrangements, regulatory arrangementsand tax arrangements for the UK and alsofor the world. “The UK is setting itself upas a potential global hub for online gam-bling,” he says. Which is fine if it has theright skill, wisdom and resources – or ifyou’ve grown with the hub and under-stand how and why it works and where therisk elements fall. There might be falloutfor Gibraltar if the UK became a gamblinghub but that’s not where Brear says his ob-jections are,

He cites elements including the firstdraft of the Bill, which stipulated that anypiece of gaming technology capable of be-ing used by UK citizens had to be licensedand therefore subject to tax. “So if I have anAustralian website and a UK consumer cansign up, I’ve got to get a UK license and payUK tax?” For ten years, he says, Australiancompanies have been able to offer bettingto UK citizens without even an Australianlicense. Expecting them to get a license inthe UK – even were this enforceable – isoptimistic.

Following Brear’s input into the selectcommittee in charge of the Bill, that part atleast was changed. However, at a meetingbetween the Gibraltar chief minister andJohn Penrose, then the Minister in chargeof the bill in the UK, it emerged that therewas a plan to fast track organisations al-ready licensed in reputable territories suchas Gibraltar to UK licensed status. “After-wards I said, that’s just a ridiculous state-ment.” What happens, he asks, to an or-ganisation that has been licensed in oneterritory but turned down by another?

There are currently license holders in li-censed jurisdictions who are subject to or-ganized crime investigations from the USDepartment of Justice and the FBI but as li-cense holders in reputable territories, theycould logically be fast tracked into the UK,he suggests. Members of some US gam-bling sites are still on the run from the FBI,he says; there are Dutch companies underinvestigation but logically the Minister’sbrief suggested they would be fast tracked.

That wasn’t the only issue. “When wesaw this bill, in January this year, it aban-doned any notion of a UK licensees requir-ing a UK presence. This would be to facili-tate American interest. But a new UKlicensee can have its base elsewhere com-pletely.” A number of US operators wouldfulfill all of the UK license requirementsand be thoroughly honest, Brear suggests;

but then the operator in the Phillipines, orMoscow, or Costa Rica, can also apply. “Ifyou read the 300-word Bill, it says in sim-ple terms that if you apply for a license youget it unless the records show you’re not fitand proper.” So, logically, companies interritories where there is no need for a li-cense – and therefore no record against abusiness for any wrongdoing – could applyand by default start operating in the UK.“There isn’t going to be the right informa-tion on whether someone is fit andproper,” adds Brear. “The FBI isn’t going tohand their intelligence over, the UK Gov-ernment has no right to ask for it. Every-thing that gambling regulation is supposedto stand for, to make it safer, is under-mined by this Act – how do you make itsafer by inviting in applications from theother side of the world?”


8 | NEW STATESMAN | 4-10 OCTOBER 2013

Gibraltar’s online gaming presencebegan in 1989 when British bet-ting operators began online gam-bling in Gibraltar, taking betsover the telephone and availing

themselves of Gibraltar’s low level oftaxes and betting duty. From these modestbeginnings began a phenomenal industryfor Gibraltar.

The list of Gibraltar licenceholders in-cludes highly familiar household namesfrom the world of sports betting (Lad-brokes, Victor Chandler, William Hill,Stan James and Gala Coral) and interna-tional players who have built their reputa-tions entirely in the online world (Bwin-Party, 32Red, Betfred, 888, Betfair etc).The industry provides significant em-ployment and financial benefit to theRock, not least in bringing diversity andgrowth to its economy.

The number of licence holders hasgrown significantly over the past year un-der the new political administration – thefour latest additions outlined by PhilBrear, the Gambling Commissioner forthe Gibraltar Government, at the KPMGeGaming Summit in April 2013 amountedto a 20% increase;

“One was the reconfiguration of theGala Coral Group, we also opened theBally Technologies offices, likewise with

Shuffle Master, and finally the introduc-tion of Amaya through their acquisition ofOngame. Each is very different and each isunderpinned by a commitment to Gibral-tar’s values.”

A cloud on the horizonThe approaching challenge for Gibraltarand the eGaming industry as a whole isthe UK Government’s plans to protect UKconsumers by requiring companies whowish to serve the UK market to be licensed

in the UK (with the small matter of alsobeing liable for UK tax at a rate of 15% at thepoint of consumption). This has encoun-tered increasingly strong resistance overthe last year, particularly in Gibraltar.

That resistance met with recent supportfrom KPMG and the Remote GamblingAssociation in the form of their report ‘Aneconomic review of the proposed changein UK legislation for online gambling taxa-tion’ on 16 September 2013 (2). The report,which was produced by KPMG’s SimonTrussler, Bill Robinson and Adam Rivers,

Online Gaming inGibraltar – loomingobstacles

Operators may pass new taxes on to their consumers

by Archie Watt, Head of e-gaming, Gibraltar, KPMG

Gibraltar’s gambling industry employs one in 15 people and fuels the localeconomy through their role as consumers as well as in its own right. In this article KPMG puts the economy of the Rock into context.

ECONOMIC BACKDROP

spells out the dangers of the UK’s propos-als;

“There is a serious risk of the Govern-ment’s proposals failing to establish a vi-able market for UK licensed operatorswith the consequent danger that the Gov-ernment’s following stated goals will notbe achieved: i) protecting UK consumers;ii) levelling the playing field for existingUK based operators; and iii) increasingpublic revenues. This is because the cur-rent proposals for changing the tax regimecould well unintentionally distort pricesand products on offer in the UK marketand, in doing so, result in the creation of alarger black market than the Governmenthas anticipated.

“A number of operators believe thatthey will be unable to absorb the tax andwill be forced to pass the additional coston to their consumers. Given how pricesensitive many customers are this will re-sult, the industry believes, in a large num-ber of customers switching to offshore,duty-avoiding, providers who are able tocontinue to offer lower priced, more at-tractive products.”

Whilst the possibility of legal chal-lenges remain, KPMG’s report operates onthe assumption that the UK Governmentintends to press ahead with this measureand therefore focuses not on opposing the

08-09 Archie Watt KPMG:Statesman supplements 01/10/2013 15:16 Page 22


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fact of it, but rather on making two mainrecommendations, based on objectiveeconomic analysis, for achieving the Gov-ernment’s stated goals in a way that willalso benefit the tax payer, consumers andthe industry: lAny tax on UK online gambling activityshould be on a gross profits basis and not,as appears currently to be suggested in theconsultation documents, on gross gamingrevenues. This will require gross profits tobe defined. In particular, the bonuses andfree plays that are a central part of the mar-keting strategies of online companies andwhich consumers expect to have shouldbe excluded from tax calculations. l Whatever the tax structure chosen, inorder to meet the Government’s fiscal andsocial objectives the tax rate should not beset at an excessive level. The prudent ap-proach, in terms of the economics of thesituation, would be to start with a tax rateof no higher than 10 percent and adapt itover time as the Government gains suffi-cient experience of this new regime togauge the revenue-maximising level oftax.

Finally, and this is key, the report alsoconsiders that there is a need for effectiveenforcement measures to be introducedagainst those operators who do not com-ply with the new legislation once it is in-

troduced.Both the then-minister for Gaming,

The Hon Gilbert Licudi, and the Gam-bling Commissioner made it clear at theKPMG e-gaming Summit in April 2013that they expect the growth in Gibraltar li-cenceholders to continue, with the minis-ter stating;

“It is my expectation that several fur-ther licences will be granted over thecourse of this year for operators that areconsidered fit to join the selection of in-cumbent licensees, of which Gibraltar isjustly proud.” Brear concurred: “we haveno fewer than ten companies in differentstages of discussions for licensing. Someof these may not complete, although I sus-pect that around half will over the next 12months and I expect that, by this time nextyear, we’ll have at least 30 B2B and B2C li-cences – all readily, if not instantly, recog-nisable names in remote gambling.”

Operator PerformanceWhilst much of the public commentarycan imply that the news around the onlinegaming sector is negative, in current per-formance terms nothing can be furtherfrom the truth. William Hill Online con-tinues to go from strength to strength andonline bingo operators Tombola and Jack-pot Joy continue to produce stellar results.

The Rock: steady on e-gaming

One of the biggest events since April wasof course Bet365’s results announcement –operating profits up over 50% to almost£180m, wagers hitting £20bn (up 57%)and all of this achieved from a purely on-line presence licensed in Gibraltar.

Global PerformanceA recent report commissioned by Gibral-tar licensee Odobo and researched by H2Gambling Capital (‘Opportunities forgame developers in regulated real-moneyonline gambling’, March 2013) outlinedthe size of the global regulated onlinegambling market as follows;

‘Regulated real-money online gambling(RMG), excluding lottery and skill-basedgames, already generates almost $30bn ingross win internationally, with the UKand Europe accounting for 54% of themarket. Recent legislation passed in sev-eral US states supports licensing for onlinegambling and, according to H2, meansthat by 2017 the US may already representup to 30% of the global online gamingmarket and generate gross win just over$7.4bn, this will continue to grow annu-ally.’

H2 also estimated the pace of conver-gence between real-money gambling andsocial casino gambling which, when com-bined, generated just over $30bn in 2012and are, they estimated, forecast to growto over $40bn by 2015. So, plenty to playfor...

No rest in sightAs this brief overview of both Gibraltar’sonline gaming market, and the widerglobal picture, makes clear, this is a sectorwhich experiences constant change andchallenge – little wonder that Gibraltar’sHon Gilbert Licudi QC, closed his addressat the KPMG eGaming Summit in April2013 with these words: “You don’t needme to tell you that in this industry, no-onein the private sector, and certainly noGovernment, can ever relax.”

With the recent reshuffle of the Cabinetand the appointment of Minister AlbertIsola as the new Minister for Gamblingand Lotteries, I feel sure that he and hiscolleagues are equally committed to see-ing the sector continue to develop, diver-sify and grow – and that they too, will notrelax for a moment

Archie Watt is Head of eGaming, at KPMGGibraltar & Isle of Man

08-09 Archie Watt KPMG:Statesman supplements 01/10/2013 15:16 Page 23


Gibraltar’s history makes it a uniqueplace to live and work within theEU. Its small population and sizeand its geographic position on theSouthern point of the Iberian

peninsular makes it naturally Europeanfacing in its business and outlook.

Gibraltar has over 15 years experience inremote betting and gaming. This makes itone of the most stable, experienced and im-portant e-gambling jurisdictions in theworld. Likewise the online gaming is cru-cially important to Gibraltar, since it repre-sents over 20 per cent of its GDP and em-ploys more than 10 per cent of the localworkforce. In turn, the industry hugelybenefits the economy in both Gibraltar andin the surrounding areas of Southern Spain.

Gibraltar has a population of around30,000 and there are around 10,000workers who cross the border from Spainto work there every day. In addition, theRock has seen a significant increase in mi-

gration by highly skilled and experiencede-commerce workers and executives fromaround the world. Gibraltar has mini-communities of people from the US,China, Sweden, Denmark, Germany andthe UK (to name but a few).

The concentration of operators in Gibral-tar, coupled with its highly respected li-censing and regulatory regime, has also at-tracted secondary market gamingsuppliers, such as software suppliers and af-filiates, who do not necessarily providegambling services themselves. It has alsohelped to attract a growing regulated elec-tronic money and payments sector.

Access to employees and commercial ad-visors who are experienced in European-wide transactions and activities and prox-imity to many leading gaming operatorsmakes Gibraltar a great choice for otherbusinesses in the e-commerce sector.

In terms of e-business, benefits are sig-nificantly based on Gibraltar being part of

Gaming on the Rock

by Peter Howitt, Chief Executive, GBGA

More e-gaming companies want to set up onGibraltar than are eventually licensed to do so.The Gibraltar Betting and Gaming Associationsets the scene.

BACKGROUND

Britain and subject to English law. Thosewho have experience of operating in dif-ferent territories know the benefits of thebusiness-aware law and regulations andthe work ethic that is evident in a Britishterritory. The legal system is virtually thesame as that in the UK including a mirroedstructure of higher courts with judgesfrom the Court of Appeal presiding inGibraltar.

Tax Benefits of GibraltarLower taxes and sensible structuring ofthem are also a significant contributor toeconomic success. Gibraltar is not alone inthe EU in having business friendly taxes.Indeed, the UK is restructuring its taxcodes to try to encourage more multi-na-tional businesses to establish their head-quarters and their intellectual propertyportfolios in the UK. Likewise many othermember states, e.g. Ireland and theNetherlands, also work hard to encourage

e-Gaming: The European opportunity

10-12 Peter Howitt:Statesman supplements 01/10/2013 15:58 Page 4


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both investment by local and multi-na-tional businesses.

Gibraltar’s zero VAT obviously has ad-vantages for businesses. Corporation tax isrelatively low at 10 per cent. Gaming andbetting duty is 1 per cent of turnover or yieldand is capped at £425,000 per annum. Inaddition, there are no capital gains taxes.However, Gibraltar should not be viewedas a ‘tax haven’ as local gaming companiesmust have local offices, taxes are and licens-ing fees are collected and paid and are in-vested back into the regulatory regime andfor the wider good of Gibraltar. In addition,Gibraltar is a willing participant in the in-creasing international efforts on exchangeof information for tax purposes.

The licensing process, whilst not overlycomplicated and onerous, is neverthelessthorough and if an operator does notachieve the high standards expected, theywill not be licenced. Gibraltar has one of themost effective, well-respected and long-

standing regulatory regimes for onlinegaming in the world, balancing strict safe-guards with a competitive offering for con-sumers. The reputation of the industry inGibraltar is closely protected and defendedand it is something about which the indus-try and community is rightly proud.

European ChallengesOnline gambling services are, in fact, oneof the few areas in which European opera-tors have established themselves as worldleaders in the online sector. Despite,therefore, the current economic chal-lenges in Europe, this industry (and to alarge extent Gibraltar’s economy) has con-tinued to grow and develop with a strongEuropean foothold. Gibraltar now rightlyboasts that it has been instrumental inhelping to develop a European technologyhub which is, in fact, capable of beingleveraged and extended to the wider e-commerce sector.

The biggest overall challenge for the on-line gambling operators, which also affectsother e-commerce industries such as someplayers in the financial services sector, is thefact that their businesses naturally cross na-tional borders. This is all very well until thenational laws (and often the politics) of aparticular territory mean that an operatorfrom another EU territory is not welcometo supply local customers. The EU is aunique construction, seeking to have EUwide laws while allowing member statesthe necessary freedoms required of coun-tries in such a union. However,laws need toconverge so that all member states agree ona similar and sensible approach to manag-ing online businesses that naturally crossborders.

At present, there is a minefield of differ-ent laws, regulations and interpretationswithin the EU and adherence to EU law isno guarantee, at present, that an operatorwill not fall foul of national laws or politicalpressure. There are concerns that in Europe,some member states are acting contrary toEU principles and this is unlawfully affect-ing what operators can do when dealingwith customers in certain territories. Thishas led to a balkanization of the Europeanonline market. Germany has been one ofthe most high-profile states in this respectand its laws are currently under EU reviewand a decision is eagerly awaited.

To give some wider international per-spective to these issues: the United Stateshas overwhelmingly secured the lion’sshare of the growing and broader onlinebased technology sector (as witnessed bythe success of Google, Apple, Amazon,EBay, PayPal, Kickstarter and others). Aftersome reticence, the USA is now clearlymoving towards the licensing and regula-tion of online gambling services. Carefulnote should be taken of comments earlierthis year by an eminent US policy-maker(Mr. Mark Lipparelli – former Chairman ofthe Nevada State Gaming Control Board)who cites the regulatory approach beingadopted by Europe as mistakes that the USmust seek to avoid in formulating and im-plementing its policy in this area. Mr. Lip-parelli appears to see the current Europeanbalkanisation of online gambling licensingand regulation as yet another US e-com-merce opportunity.

As a consequence the GBGA are engag-ing in an open and constructive dialoguewith the EU institutions and with themember states across Europe, with the ob-



jective of ensuring that the delicate balancethat currently exists between strict safe-guards and a competitive offering for con-sumers is not damaged.

The GBGA believes that any potentialregulatory or public policy changes to e-commerce activity must be justified, pro-portionate and based upon a sound eviden-tial and legal footing. For example, therecent inclusion of online gaming in thedraft 4th Money Laundering Directive iswelcome but the ‘special treatment’ that isbeing suggested for the sector (without anapparent evidential underpinning) showsthat more needs to happen to ensure thatonline gaming operators are granted thesame rights as operators in other sensitiveforms of e-commerce such as financialservices. Otherwise, the danger is that onlyEU-wide obligations will be imposed onthis sector.

UK Challenge to GibraltarThe proposed legislation in the UK relat-ing to point of consumption licensing andtaxation are causing particular concern atpresent ('POC measures'). Given the im-portance of gaming to the local economyand the lack of consumer detriment underthe current UK regime, it is hard to avoidthe conclusion that the UK has paid littleenough attention to the law of unintendedconsequences for itself and no attention toany impact on Gibraltar when construct-ing these proposals.

The industry view is that the proposedPOC measures will not be recognised by anever growing number of unlicensed opera-tors and marketing affiliates in poorly regu-lated jurisdictions that are keen to exploitthe UK market whilst sitting beyond theUK authorities’ reach.

The UK Government is strongly op-posed to the proposed Financial Transac-tions Tax (FTT). The UK can not sensiblyon the one hand advocate going it alone for aPOCT for gaming but then claim it willbring a legal challenge for any financialservices tax brought in by other MemberStates if they are not agreed at EU level. EUtax law makes no such distinction betweenthe two sectors and there is a real dangerthat with a POCT the UK is opening up theimposition of extra-territorial taxes byother European countries against thehugely important UK e-commerce and fi-nancial services businesses (and potentiallyundermining its position in any political orlegal challenge against FTT).

Gibraltar operators lawfully supplyingthe UK market may also face substantialdual or additional regulation, complianceand licensing costs. The unnecessary additional costs, aggressive tax structureand rate and the absence of effective measures to control unlicensed operatorsand marketing affiliate will be hugely damaging to the regulated sector and UKconsumers.

In addition, the proposals appear to allowUK licence holders to base their operationsanywhere in the world with no distinctioneven made between EU operators andthose based outside of the EU. We note thereal dangers of misuse of UK licensed statusby unscrupulous operators that do notshare a common EU legal framework (in-cluding e.g. for money laundering pur-poses). The industry would suggest that,for example, extension and modification ofthe EU passporting model in financial serv-ices would be a better, safer and more lawfulapproach to dealing with any valid UK reg-ulatory concerns.

Ultimately, the proposals are a poor dealfor UK consumers as they increase priceswhilst diminishing the quality and safety ofthe UK market. If the legislation is broughtin as it is currently drafted, many UK con-sumers will move to unlicensed or poorlyregulated operators outside of the EU.

The GBGA is actively seeking direct dis-cussions with the UK authorities regardingmore careful structuring of the proposedPOC measures to ensure that Gibraltar cancontinue to be a competitive online juris-diction and that the UK does not under-mine its own interests or introduce unlaw-ful measures that make matters worse forUK consumers. The UK and Gibraltar arenatural allies and should act accordingly.

What about the relationship with Spain?

Gibraltar’s relationship with Spain hasalways been interesting and has been evenmore tense as a result of the fishing dis-pute that sparked issues with the border inthe summer of 2013. Given the significantlevels of Spanish unemployment, theSpanish population close to Gibraltar does

not share the same sentiment as centralGovernment in Madrid - which some sayhas used the dispute to divert attentionaway from its many more significant do-mestic problems.

Despite the significant pressures im-posed on people’s right to enjoy living andworking freely within the EU, without fearof harassment and intimidation, people inGibraltar continue to remain positive andbuoyant. People living and working inGibraltar are also heartened by the strongsupport shown by the UK and the fact thatsenior members of the UK Government areclearly supporters of the Rock:

‘We will continue to respect the wishesof the people of Gibraltar and we will adoptany action that is necessary to protectGibraltar, it people and its economy’.(William Hague.)

Gibraltar recognises the Spanish markete-gambling licence requirements and manySpanish licence-holders (inc. Gibraltarbased ones) currently have servers in Spain.

Investment?Subject to more careful consideration ofany proposed changes to the UK gamblinglaws, there is no reason why the online in-dustry cannot continue to grow and pros-per in Gibraltar.

The country is a natural launch pad for in-vestment in Europe. Gibraltar benefitsfrom a significant level of world leading e-commerce expertise to help ensure thatGibraltar remains ahead of the curve in anincreasingly fast moving world economy.Efforts are being made at all levels to ensurethat more e-commerce related companiessee the benefit of being located in Gibraltar.Gibraltar is a well-run and well-regulatedplace and it is rightly proud of its commu-nity values. Its small size allows for agilityand means it is easy to work with Govern-ment and regulatory bodies in relation toeconomic concerns, and those concerns arethen addressed within the context of re-spect for the rule of British and EU law.Gibraltar remains a great place to live andinvest in.

The Gibraltar Betting and Gaming Association comprises over 20 operatorsbased in Gibraltar, many of whom are the leading names in world online gam-bling. The GBGA is an active industry asso-ciation that is also an affiliate member of the EGBA (European Gaming and Bet-ting Association).

BACKGROUND

The Point Of ConsumptionTax measures are a poordeal for UK consumers



Gambling policy is a difficult andtroublesome area of every Gov-ernment’s agenda. Over the last10 years the UK , EU Countriesand the United States have wres-

tled with some or all aspects of gamblingpolicy, not least with remote or ‘online’gambling.

By contrast, Gibraltar has had a settledand successful regime for many years. It isanchored very firmly in “hands on”, directregulation to ensure that its consumers areprotected, wherever they are in the world,in this global, online market place. To beeffective in protecting the consumer thelicensing and regulatory regime must becapable of keeping crime out of onlinegambling, and of protecting consumers insuch things as integrity and transparencyof the gaming process, security of stakesand winnings, protection of the youngand the vulnerable.

This requires that licensees have theirimportant management and operationalfunctions in Gibraltar so that they are ac-cessible to the regulator. So, “Brass plate”operations (as will be permitted by theproposed new UK regime) where opera-tors are licensed in a country but do nothave their main operations there are notpermitted in Gibraltar, and we also main-tain a high standard entry level to ensurethat we host only reputable and reliableoperators and websites.

The UK is itself now grappling with anew licensing, regulation and taxationregime. The outcome of that is as impor-tant to Gibraltar’s economy, and to thecommercial survival of leading Britishcompanies in this sector as it is to contin-

ued protection of UK consumers. InGibraltar we understand the UK Govern-ment’s desire to raise tax from this activ-ity, especially in these economically diffi-cult times. But equally, we think that it isimportant that the UK gets it right, notjust so that Gibraltar is not gravely dam-aged at a time that we are once again under“economic siege” from Spain, but to en-sure that the current high levels of protec-tion that UK consumers enjoy is noteroded. We think that both things can beachieved.

How can “getting it wrong” harm bothBritish companies and British consumers?Well, the online gaming industry is bydefinition as global as the internet itself.British consumers can switch to foreignwebsites at the click of a mouse. So, ifBritish operators are saddled with exces-sively high taxes they are rendered un-competitive with other foreign websites.They cannot offer their customers thesame odds or chances of winning in casinogames as foreign websites operating in un-regulated, untaxed countries. Experiencein other European countries has shownthat this leads to a “lose, lose, lose” sce-nario: British consumers will switch toforeign websites in search of better prices,where they have no consumer protection;important and world leading British com-panies will go out of business in this mar-

Gambling Bill in the UK– an international issue

The online gaming industry is as global as

the Internet itself

by Hon. Albert Isola MP

The Minister for Financial Services and Gaming in Gibraltarwrites that he wants a fair deal for all countries

OPINION

ket; and, HMRC will not collect as muchtax as it could.

Gibraltar and its regulators and opera-tors are world leaders in this relatively newsector, where rapidly changing technol-ogy means ever and fast changing busi-ness models and regulatory and consumerprotection threats and challenges.

We and our market leading operatorswant to work closely with the UK to en-sure that the new UK regime works welland fairly for all: that it does not under-mine Gibraltar: that it raises tax for the Ex-chequer, and that it preserves rather thanundermine UK consumer protection; thatit does not lead to UK consumers beingpenalised on pricing and quality of offer-ing.

There is much to be learned from thepast unhappy experience of Europeancountries that have rushed into this com-plex commercial, legal, technological andconsumer protection minefield, if ad-verse, unintended consequences are to beavoided. Having initially banned (andnow permitted) online gaming the USAstands poised to wrestle commercial lead-ership of this industry, where Britishcompanies currently lead, as a result of Eu-rope getting its policy wrong. We inBritain and British Gibraltar can still get itvery right.

We think that it is possible to achieve allof these things, and I am delighted that theUK Departments will shortly be meetingwith our operators through their associa-tion to ensure that the UK regime benefitsas much as possible from our knowledgeand experience in relation to the issuesthat I have mentioned.

13 Isola:Statesman supplements 01/10/2013 15:23 Page 22


Gibraltar Telecom has sponsoredthis supplement on e-gaming butyou’re a telecoms company. What’sthe link?Gibtelecom built a fibre-optic networkthroughout Gibraltar in the 1990s which,together with the merger with a local inter-national carrier and mobile business, pro-vides the communications backbone forthe e-gaming sector in Gibraltar. Meetingthe requirements of some of the biggestand best e-gaming companies in the worldhas influenced our development and madeus raise our game. Without the communi-cations infrastructure, online companiescould not have come to Gibraltar in thefirst place. Since then, we have substan-tially enhanced our national and interna-tional networks, and consequently Gibt-elecom remains the communicationscompany of choice in the jurisdiction evenafter competitors entered the scene.

What makes Gibraltar a competitivejurisdiction for e-gaming?Though e-gaming companies are attractedto Gibraltar as an EU jurisdiction, with a

friendly business environment and com-petitive fiscal package, they also benefitfrom a qualified workforce and plenty ofancillary professionals. The online gam-ing industry is dependent on goodtelecommunications, and would not beable to thrive here if the industry was notup to speed; it is this all round package thatmakes Gibraltar competitive.

Although Gibraltar has more than onelocal telecommunications provider, it isGibtelecom that is still leading the way lo-cally with resilient fibre optic connectivity,multiple diverse international links (part-nering with Telefonica, Interoute andVodafone amongst others). Gibtelecom hashuge amounts of bandwidth readily avail-able for expansion or event bursting.

Gibtelecom has been committed to in-vesting in providing robust and diverse na-tional and international fibre-optic routes.Gibtelecom’s investment in the state-of-the-art Europe India Gateway (EIG) sub-marine cable and quality data centres willhelp keep Gibraltar a top tier business juris-diction. The EIG high bandwidth fibre-op-tic system not only complements existing

The connectedplayer

Q and A:Tim Bristow

Gibtelecom has been both building block and beneficiary of the explosion of e-gaming on the Rock. Its Chief ExecutiveOfficer makes the links.

STRATEGY

routes but also provides Gibraltar with analternative submarine path, without thecapacity limitations or the incidence of in-terruptions that often face land routes.

What does Gibtelecom have to offerand what has it been doing to meetthe quality and services required insuch a demanding area such as e-gaming? Gibtelecom prides itself on being in-syncwith technology as well as in touch withits customers. Gibraltar is a hub for someof the leading e-gaming companies in theworld. The Rock is not just a businessfriendly environment with a competitivetax regime, it is also well connected andhas a stable regulatory framework focusedon good corporate governance and cus-tomer protection. Indeed, if the commu-nications infrastructure and solutionswere not continuously developing thenthe e-gaming sector couldn’t have thrivedin the jurisdiction as well as it has. In aworld that is increasingly reliant onround-the-clock high speed communica-tions Gibtelecom is at the forefront of de-

14-15 Gibtelecom piece:Statesman supplements 01/10/2013 15:23 Page 22


veloping the technology to ensure thegrowing needs of e-commerce and thewider community in Gibraltar are met. Athome Gibtelecom is building a next gener-ation network, which can facilitate inter-net speeds of up to 100 Mbps throughoutGibraltar. Gibtelecom is also an accredited‘recognised for excellence’ company bythe European Foundation for QualityManagement, which is a testament to thehigh standards the Company has deliv-ered to Gibraltar’s e-gaming community.

How has the Company developed itsdata centre business?The data centre business as we know it to-day has changed much since Gibtelecomset up its first hosting environment nearlya decade ago, and as the market needschanged developing this part of the busi-ness was a natural move. Gibtelecom’sdata centre development plans are verymuch aligned to customers’ business andIT strategies, as well as their specific regu-latory and industry requirements. For ex-ample, the facilities being Payment CardIndustry (PCI) compliant is an essential

factor for many of our customers due tothe large volumes of financial transactionsthey process.

Our aim is to be the customer’s partner ofchoice by ensuring that our data centreshave the right technical set-up, connectiv-ity, security and environment to meet mar-ket requirements.

What challenges does a focus on e-gaming and finance markets create?Catering for some of the most demandinge-commerce businesses in the world hasresulted in Gibtelecom creating a more ro-bust international network from Gibral-tar. In a global business environment,hosting facilities need to be paired withseamless and resilient connectivity. Thiswas the impetus for the Company beingone of the founding shareholders of theEurope India Gateway (EIG) consortium,a new 15,000km high bandwidth fibre-optic submarine cable spanning fromLondon to Mumbai. The cable systemruns across three continents and has thir-teen landing points along the way, ofwhich Gibraltar is one. As well as provid-

ing linkages to other international cablesystems, the route complements Gibtele-com’s other links, connecting to hubs inLondon, Madrid and Marseilles.

What is Gibtelecom doing to meetthe demands of gaming companieswith regards to the contracting ofhosting services?Trends in the sector, which Gibtelecom isactively leading, are towards a one-stop-communications-shop, embracing tele-communications, computer hosting andvalue-added services. Gibtelecom is by farthe biggest provider of data hosting serv-ices in Gibraltar. We operate several state-of-the-art data centres in a secure location;well above sea level and away from themain centres of business on the Rock. Ourdata centres employ the latest industrystandard technologies, including efficientcooling and standby power, and are Pay-ment Card Industry (PCI) compliant. AllGibtelecom’s data centres are supportedby an onsite Network Operations Centre,with engineers available 24/7.

Could you explain what the EIG proj-ect represents and what does this in-vestment represent to the Company? The EIG submarine cable not only com-plements Gibtelecom’s extant terrestrialand other sea routes, but has placed thecompany in a position to seek business op-portunities outside Gibraltar. This is anexciting project for us. It means Gibtele-com is now a global carrier and able to pro-vide wholesale bandwidth and carrierservices with more routing options anddiversity. Gibtelecom set up an interna-tional marketing arm in 2011 to developand seek new offshore growth opportuni-ties, since landing partnerships withtelco’s headquartered in London, Sydney,New York, Monaco, Johannesburg andSeychelles amongst others. Following thesubstantial multi-million pound invest-ment in this submarine route, Gibtelecomis looking at expanding its networks fur-ther, with plans already underway to in-crease network diversity via new routestransiting through Monaco and Marseillesinto various key communications hubs inEurope. This said, the considerable addi-tional investment has not been enduredby the customer. In fact, 2012 saw substan-tial reductions in IP bandwidth prices ofup to 25 percent, and averaging some 14percent across all e-commerce customers.

14-15 Gibtelecom piece:Statesman supplements 01/10/2013 15:24 Page 23

Bet on quality communications

15/21 John Mackintosh Square, GibraltarTel: +350 20052200

www.gibtele.com - [email protected]

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