March 7, 2001 — Lending new legitimacy to online gambling, Great Britain on Wednesday dumped its tax on sports betting in exchange for a pledge by its famed bookmakers to shut down their offshore Internet operations and reopen them at home. One bookmaker said the change could turn the United Kingdom into “the hub of the global gambling industry.”
The tax-code change, announced by Chancellor of the Exchequer Gordon Brown as part of the government’s budget for 2002, makes Britain the first world power to embrace Internet gambling.
Under the new scheme, the government on Jan. 1 will scrap its 9 percent tax on wagers, which was paid directly by bettors, and replace it with a 15 percent tax on gross profits that will be absorbed by bookmakers who conduct off-site wagering, either via the Internet or by telephone, in Britain.
The British bookmakers will be free to accept wagers on sports contests from all over the world, though it still will be illegal to offer online casino-style games over the Internet from the United Kingdom.
Britain’s entry into online gambling is expected to put additional pressure on the United States and other nations to either join the rush toward regulation or develop a workable strategy to stop Internet gambling operators from targeting their citizens.
Offshore competition drives move
Britain’s decision is the direct result of competition from offshore operators doing business in tax-free jurisdictions. In the face of such competition, virtually all of Britain’s bookmakers had established their own Internet divisions in such far-flung locales as Antigua, Gibraltar and Malta, cutting into the tax revenue the British government collects from gambling.
Now, those bookmakers that return to Britain will enjoy a competitive advantage over those offshore operators, who will be banned from advertising their services in the United Kingdom.
“For the customer, they’ve got no need to shop around and find the smaller offshore tax-free firms because as far as the customer is concerned they’re getting the same deal from the big firms,” said Andy Clifton, a spokesman for Ladbroke’s, Britain’s largest bookmaker.
The change was loudly cheered by the country’s four largest bookmakers — Coral, Ladbroke’s, Stanley Leisure and William Hill — all of which indicated they would close their offshore Internet operations and reopen them at home.
“The Treasury wins because at this level of duty we will be able to repatriate our offshore bookmaking operations, so the tax-man will share in all the profits we make on our fast-growing international business,” said a statement issued by bookmaker William Hill, which currently operates its Internet gambling operation from the Caribbean island of Antigua.
Simon Clare, a spokesman for Coral, said that while the government and the bookmakers will likely see revenue decline in the short term, business is expected to explode over the long haul.
“The U.K. could become the hub of a global betting industry,” he said.
Betting revenue contributed more than $723 million to the British Treasury in the 1999-2000 tax year, largely unchanged from the previous year as offshore operators began to make an impact. Industry leaders believe the taxation change and the return of the bookmakers could increase gambling-related tax revenue by 50 percent.
Some will stay away
Not all bookmakers are expected to take the government up on its offer.
Victor Chandler, who became the first British bookmaker to flee offshore when he opened a phone and Internet betting operation in Gibraltar in 1997, has indicated that he will keep his business, Victor Chandler International, on the British dependency.
Saying that the government’s action comes only after “the stable door has been opened and the horse has bolted,” Chandler told The Guardian newspaper that bettors will still be paying the freight under the new tax scheme.
”(The 15 percent tax on profit) equates to a 3 percent betting duty — and that will be passed on to the punter,” the newspaper quoted him as saying. “The punter will always suffer. Meanwhile, VCI offers as good a service but with better odds. People are still going to find us, even if government restricts our advertising.”
Despite Chandler’s optimism, many outside observers believe that Britain, which maintains strict oversight of its bookmakers, will immediately become a major player in an industry that detractors have long portrayed as impossible to regulate.
“Immediately, the U.K. has become the premier destination for new and existing online gaming corporations,” said Paul Lavers, CEO of Covers.com, a sports-betting information site. “Not only does the U.K. offer companies a superior communications infrastructure, but it also offers streamlined access to traditional financial markets and all of the legitimacy attached (to its international reputation).”
A break in the pattern
I. Nelson Rose, a professor Whittier College in California and a leading expert on gambling and the law, said Britain’s decision to regulate and tax Internet gambling breaks the worldwide pattern that had seen more than 50 smaller jurisdictions — either individual states within a country or small nations — license operators of online games of chance.
“The bigger governments have been slow to act and when they have, they’ve tended to say ‘Hey, let’s just wait,’” Rose said. “For example, the Australian government last year put in place a moratorium stopping its states and territories from issuing licenses while it studied the issue.
“The U.K. is the first to break that pattern. ... Really, it didn’t have any choice economically but to say we’d better figure out a way to bring these people (the bookmakers) back.”
Rose said Britain’s move will put added pressure on the opponents of Internet gambling in the United States.
“For the U.S., it’s one more indication that the federal government is going to end up being almost alone in the world,” he said.
It also may roil relations between the allies, since two of Britain’s four biggest bookmakers — William Hill and Stanley Leisure — accept bets over the telephone and Internet from American citizens despite a U.S. law prohibiting sports betting using telephone lines.
Rep. Robert Goodlatte, R-Va., who has led the fight against Internet gambling in the U.S. House of Representatives, on Wednesday criticized Britain’s approach to the problem.
“What Britain is doing is voluntary for the offshore operator,” he said. “It is their choice to return and subject themselves to regulation and taxes. I do not think that this will be effective. The only way to curb illegal online gambling in the United States is to prohibit it and give law enforcement the tools they need to enforce our existing gambling laws.”
Goodlatte has announced that he will reintroduce legislation to prohibit Internet gambling in the United States except in cases where it is otherwise authorized under federal law, which would likely exempt pari-mutuel wagering.
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