Difficult games on Brexit

Difficult games on Brexit

Without a deal what will happen to the United Kingdom (Uk) after the exit from European Union (Eu) after the end of 2020? Gambling operators and their staff are certain to entertain a nebulous future.

by Michael Haile

Brexit will have a profound effect on all sectors and industries, and the gambling market will not be exempt. In November 2019, the European Union (Eu) and the United Kingdom (Uk) reached a deal for the Uk to leave Europe at the end of 2020, however they are finding it difficult to find a deal for the after 2020. As you read this article, it will be improbable that the Uk and the Eu will have in themselves to find a permanent or semi-permanent deal following the end of 2020.

The Uk has one of the most highly regulated gambling markets in the Eu, or even the world, as such Brexit will not create problems immediately for operators. The most imminent problems derive from the perspective of human resources as much the status of Europeans working in the Uk and the British working within the Eu remains rather uncertain.

The strange case of Gibraltar – Gibraltar, commonly referred as “The Rock”, is the most egregious example. If you do not know Gibraltar, the place is an island, or a rock, located in the south of Spain. It is a British territory, and it houses one of the largest online gambling territories in the world, where it also abodes the licences of some of the largest gambling online operators. It is estimated that 60% of the staff of online gambling operators commute from Spain every day. Also 60% of global online gambling activity is licenced in the Rock. When the Uk exits the Eu so does Gibraltar.

If the Uk and the Eu cannot reach a deal, it is probable that many companies will have to relocate, maybe twice, in the UK and in one of the EU jurisdictions, everything is still in the air as everyone is watching what deal will be reached, if one will ever be.

For the giants of the sector such as William Hill and Ladbrokes it will not be a problem, but swallowing relocation will not be easy. A consequence will be a higher cost structure which will be a hit on profitability. For small to medium operators Brexit without a deal on services will create formidable challenges. Small operators will not be able to stomach such an increase of operational cost and will probably have to choose in which market to operate.

The future of Gibraltar will also depend on the attitude and political position Spain will take. Spain generally struggles to accept British sovereignty over The Rock. It has asked the Uk government for negotiations, beyond the negotiations with the Eu, regarding shared sovereignty over the island, something akin to the deal reached with the Republic of Ireland over Northern Ireland. An anathema for the British government, as much as it is for the citizens of Gibraltar.

Once Brexit happens Spain could simply close the borders (something that has occurred in the past, against Eu rules), and The Rock, from one day to another, could find itself without 10.000 workers, which would have a devastating operational effect to all businesses on the island, including gambling operators.

Players – From the perspective of British players not much will change immediately, but down the road the Uk government might change or optout from Eu directives such as Data Protection and Money Laundering. However if a British company wants to trade within the Eu suffice to say it will be obliged to follow Eu directives.

Operators – The UK government published a Brexit manual for operators that offer digital services, which includes online gambling operators. The manual explains what are the dues that operators have to offeror digital services within the EU. The guidebook, elucidates , that British operators which offer features within the Eu, overall those that offer digital licensed platforms and content licensed by the Gambling Commission, the Uk regulator, would require a representative within the Eu, to help them follow Eu directives. Furthermore, those which offer digital platforms would have to revisit their copy wright contracts. Not a small matter.

The Maltese Case – British operators which own Maltese licenses will own a further headache. Licenses released by the Malta Gaming Authority-Mga, (123 online operators, mainly casinos, out of 189, which own 1700 websites) mainly operate within the Eu, will have to swim into egregious regulatory seas. According to the article 10 of Maga regulations, every operator which owns a Maltese licence must be based in an Eu country (or Eea). The substance is, according to Maga regulations, operators who own a Maltese licences, which by the way enjoy a low tax regime, should either transfer into an Eu jurisdiction, but are also allowed to transfer their license to a third party.

Templates and Scenarios – Once Brexit happens, with or without a settlement, all operators have twelve months to conform with Eu statutes and the regulations of the in the various countries they operate in. A challenging timeline for those operators who offer various trusted platforms, games and content.

But there is an impromptu scenario, or a risk for many, which would complicate an already complicated panorama. The Uk government might opt for a complete deregulation and liberalization of the gambling market, a 180-degree reversal compared to the policy followed in the last few years.

Some important segments of the Conservative Party within the British government, high priests of Brexit, which includes the Prime Minister Boris Johnston, are eager to launch a deregulation spree of the City and the financial sector, right after Brexit, in order to stay competitive, which as a matter of order would require also reducing taxes, so to reduce relocations of institutions to Dublin, Frankfurt or Amsterdam. It is not farfetched to think this could also be a policy for the gambling market. The propulsive ideology behind Brexit has its axioms that the Eu “ties our hands and erodes sovereignty” (too many rules, cannot control immigration, a faraway autocracy and bureaucracy etc…)

One of the fundamental reasons that high tech companies like Google, Facebook and Amazon do not enter the gambling market is that they consider the regulatory oversight too onerous to their business model. A deregulated gambling market might catch their attention. A senior Amazon executive once told me that it was easier to sell a helicopter than a sports bet, from a regulatory point of view.

Another unexplored factor of a post Brexit deregulated market is the fragmentation of the regulatory make up of the Uk. The Uk is made of four countries, England, Scotland, Northern Ireland and Wales. A deregulated market imposed by the central government, composed mainly by English members of parliament, might sit too well to the other countries.

Scotland is an anti-Brexit and pro Europe country, and the Scottish National Party under Nicola Sturgeon is hopeful in attaining a successful independence referendum post Brexit, so it has an interest to keep its regulatory make up as closely aligned to the Eu, so to be able to re-enter the Eu as soon as possible.

The Northern Ireland government, the only Uk part that has a land border with the Eu, is particularly interested in having a regulatory structure with the Republic of Ireland (a Eu country) as its economic structure id dependent upon it. And Northern Ireland is not eager to have a hard border between the Northern part and the Republic as it might reignite the troubles which ended in the Good Friday agreement of 1997.

Wales is not particularly bothered by the might of its English brethren, but Covid has exhibited that a muscular nationalist fervour can produce political gains. The Uk has now four health systems. Scotland went as so much to propose a border between England and Scotland, unthinkable only a year ago. But it is not only political, but also cultural. A deregulated gambling market is not an attractive option in the north of the Hadrian Wall or the religious counties of Northern Ireland, compared to England. It is not a pipe think that the Uk might have a fragmented gambling regulatory market post Brexit, similar to the current German system.

Land based gambling – In regard to land-based gambling, Brexit might affect casinos much more anything else. Casinos will have a rotten time finding adequate personnel, in numbers and skill sets. The Uk government has also decided to change the immigration system, to a point based system. The higher your qualifactions are, the higher you points, similar to the Australian system. The Uk Gambling Commission requires that all workers that operate in the gambling sector have a personal gambling licence, which can be released by an Eu recognised regulatory agency. If the various multinational companies are required to obtain separate licences for every Uk worker (if they have enough immigration point as is) they might close some operations, due to lack of human resources and also licences have a cost.

A splendid example is Lottomatica (Igt Group), one f the largest gambling groups in the world. It is headquartered in London, but its major European operations and revenue originate from Italy, but is has a large Italian and European staff in the Uk. A post Brexit nightmare, from a regulatory and company management point of view.

The last thought, which fixates the most thoughtful of operators, is that if Brexit will be a success for the Uk, many jurisdictions and regulators will resist any further harmonization of Eu regulations, which would create further complications to multinational operation.

If Brexit happens without a deal, and there is only a month left, all is possible. Fingers crossed.