Europeans embrace online gambling

PARIS – Across Europe, governments
looking for ways to reduce yawning budget gaps are embracing online gambling, a
source of revenue they once viewed with skepticism.

While opposition in the United
States to Internet betting has centered on concerns about gambling addiction,
European politicians previously objected for a different reason: Liberalizing
the practice, they feared, would undermine state-sponsored lottery monopolies
and gambling operators.

But more and more gamblers are
spurning land-based casinos and logging on to Internet poker and sports betting
sites – many of them based in places that are out of reach of tax collectors.
As public finances worsen, governments are trying to bring this once-shadowy
business into the mainstream of Europe’s digital economy, where it can be
regulated and taxed.

“What’s happened is a realization
that you can’t uninvent the Internet,” said David Trunkfield, a consultant at
PricewaterhouseCoopers. “People are gaming online. You either try to regulate
and tax it, or people are going to go to the offshore operators, where you
don’t get any revenue.”

France, which only four years ago
arrested the top executives of an Austrian Internet gambling company, Bwin,
last month permitted private companies like Bwin to start taking bets online in
competition with publicly owned gambling sites. Denmark approved legislation in
June authorizing a similar shift. Greece plans within weeks to introduce a bill
legalizing online gambling, which is currently banned.

Others considering liberalization
include Germany, Spain and Switzerland. They are all following Britain, which
in 2005 became the first big country in Europe to confer respectability on the
business, and Italy, which has been phasing in legalized Internet betting over
the last three years.

Europe has grown into the biggest
online gambling market in the world, accounting for an estimated $12.5 billion
of the industry’s $29.3 billion total revenue this year, according to H2
Gambling Capital, a consulting firm. If all of that activity were taxed, it
could potentially raise billions every year, though the exact amount is hard to
predict because of uncertainty over the tax rates that might be applied.

The growth online contrasts with
the state of the old-fashioned casino business in many European countries. In
France, for instance, land-based casinos have suffered double-digit revenue
declines in recent years. In Britain, plans for a giant, Las Vegas-style casino
in Manchester were scrapped two years ago, and even the country’s ubiquitous betting
shops have started to suffer. In other big gambling markets like the United
States and China, online betting is also widely practiced, though officially
banned. An American law banning financial transactions related to online
gambling, which was passed in 2006, took full effect this year.

Rep. Barney Frank, D-Mass., has
proposed legislation to effectively overturn that law and legalize online
gambling. The House Financial Services Committee has been debating the bill
over the last week, but previous efforts to overturn the 2006 law have
faltered.

Meanwhile, lawmakers in several
states, including New Jersey, California and Florida, have independently
floated proposals for legalizing some kinds of online gambling, taking
advantage of what supporters call a loophole in the 2006 federal law, potentially
permitting such activity as long as it does not cross state borders. So far,
however, no states in America have actually gone as far as British Columbia, in
Canada, which has legalized some kinds of online gambling.

Rather than highlighting the
potential revenue-generating benefits, European lawmakers generally cite two
main arguments for bringing the activity aboveboard. One is a desire to protect
problem gamblers by regulating the sites; the other is pressure from the
European Union, which claims that some members have been using restrictions on
online sites as a way to protect state-controlled casino operators from competition.

Less often mentioned is money. But
analysts say it is no coincidence that the new push for legalization has come
at a time when governments are under growing strain.

“I think the penny has dropped,”
said Simon Holliday, an analyst at H2 Gambling Capital. “They deregulate a
little bit, like what happens and deregulate more. The governments get more
addicted to the tax than the players to the games.”

France, which started allowing
private companies to offer online sports betting just in time for the World Cup
soccer tournament, said that in the first month gamblers opened more than 1.2
million accounts, betting 83 million euros ($108 million) on licensed sites.
That was nearly twice as much as the amount legally wagered online in the comparable
period a year earlier, when state-run betting sites were the only option. As of
this month, those numbers should rise further, analysts say, with the start of
legal online poker, which was previously banned.

The French government has not said
how much tax revenue it has generated from the change in the law. But Italy
says it collected about 150 million euros in taxes last year as a result of a
partial liberalization of the business.

Now Italy, which had previously
legalized Internet sports betting and low-stakes online poker, is moving to
open up further; it recently authorized higher-stakes poker, as well as
Internet casinos offering games like roulette. Analysts say tax receipts could
surge.

Liberalizing the rules on online
gambling has not always created a boon for governments. Britain, for example,
has found tax revenue elusive, despite being an early mover.

The problem is that while Britain
has legalized Internet betting, it has not required operators to obtain a
license and pay taxes in Britain. Many sites, therefore, have continued to
serve British gamblers from tax havens like Gibraltar. Two big British betting
companies, Ladbrokes and William Hill, moved their online operations to
Gibraltar last year to take advantage of lower taxes. Some companies that
operated in France’s gray market before the online betting legislation came
into force have chosen to withdraw rather than meet what they say are onerous
restrictions. One of these sites is Betfair, a London-based sports betting
exchange that lets people bet on odds set by other gamblers rather than a
bookmaker.

Tim Phillips, director of European
public affairs at Betfair, said the French legislation was unfair to betting
exchanges because it taxed every single transaction conducted by a gambler,
rather than the overall winnings. Users of betting exchanges sometimes employ
multiple, offsetting bets on a single game; some of these they might win, while
losing others, but under the French system they are taxed on all of them.

“Our view is that the French are trying
to turn back the clock and say, ‘We don’t want you to bet like this,’ in order
to protect the offline business,” which is still state-controlled, Phillips
said.

For online gambling companies that
have lobbied European governments to open up to Internet betting, “it looks
like a case of be careful what you wish for,” he added.

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