Q&A: Is Ireland on the cusp of becoming attractive for operators?

Ireland’s gambling industry has endured a torrid time of late, with a lack of regulation and a harsh taxation environment pushing many smaller operators out of business and placing the bigger ones at significant strain.

In October 2018, the Irish government announced it would double the gambling tax on betting operators to 2% of operator turnover, lighting the fuse on a bitter war of words between the industry and the Irish government. Irish industry stakeholders claimed the rise would cost as much as 3,000 jobs in the industry, with Paddy Power Betfair estimating a £20m hit on its financials following the rise.

It was a war that the industry would eventually lose, with the revised tax rate going through despite opposition in January. The full effects of this change have yet to be felt, but it could have lasting repercussions for the industry in the long-term, affecting its development as a market.

However, last month the Irish government said that it would look to launch a new regulatory and licensing system for operators, modernizing the previously antiquated system. As part of this announcement, the guidelines for a new and independent Irish gambling regulator were released, with the Irish government committing to a sustained drive toward a more open market.

Now that things are looking more positive for operators, Alan Heuston, partner and head of the Betting & Gaming Group at Irish law firm McCann Fitzgerald, talks to EGR Intel about the potential future makeup of the Irish market going forward.

EGR Intel: Where are the big opportunities for operators entering the Irish market?

Alan Heuston (AH): The Irish Government estimate the value of the Irish gambling market as being between €6 to 8bn. The fact that the Irish Government plans to modernise the legislative regime that exists in Ireland will help create a stable jurisdiction for operators to invest in.

In addition to providing an attractive jurisdiction for customers Ireland also offers operators an attractive low-cost jurisdiction in which to locate operations.  At 12.5% Ireland offers one of the lowest corporation tax rates in Europe.  This coupled with the fact that post Brexit Ireland will be the only English-speaking common-law jurisdiction in the EU will makes Ireland an attractive jurisdiction for operators looking to access the EU markets.  Given that 9 of the top 10 global technology companies already have substantive operations in Ireland it is clear that Ireland has the infrastructure and access to talent that are required to support high tech businesses such as those run by online gambling operators.

EGR Intel: How will the creation of an independent dedicated regulator help the Irish gambling market?

AH: The creation of an independent dedicated regulator would provide regulatory certainty to operators currently operating in Ireland and those who may wish to invest and set up operation in Ireland in the future.  It would also enable operators to obtain licences in areas where licences currently do not exist (e.g. online gaming) thereby potentially opening up new markets for operators’ products. In addition to assisting operators the creation of an independent regulator will provide greater protection for consumers and particularly those who are vulnerable.

Once established the office of the regulator would be tasked with overseeing areas such as advertising, sports sponsorship, enforcement of age restrictions on gambling services, the creation of a social fund for access to treatment for addiction, and various other consumer protection measures.  All this would help to create an environment in which only legitimate and responsible operators would be allowed to operate in which in turn provided greater protection to consumers.  This should thereby help the growth of the industry with the potential for increased employment, taxes and investment, which that can bring for Ireland.

EGR Intel: Was the Irish government right to raise the tax on gambling to 2%?

AH: Based on the information that is publicly available it is difficult to say with certainty that increasing the rate was right.  When announcing the increase in Betting Tax on Budget Day it was estimated that the increase in tax from 1% to 2% would yield an additional €50m to the exchequer.  This estimate was to be incremental to the €52m in betting tax receipts which were collected in 2017. Unfortunately, no break out was provided as to how the increased betting yield was calculated and whether it factored in any negative impacts that the increase might have on the industry (e.g. shop closures/job losses).

As the estimate is broadly double the betting receipts of 2017 that the incremental receipts did not factor in any potential for contraction in the industry because of the measure. There has been intense criticism of from retail operators as it was felt that with rising labour costs and an increase in the costs of commercial property in Ireland, it was conceivable that the increase in tax rates would make many operators unsustainable, resulting in closures and a subsequent loss of jobs and tax to the exchequer.  After intensive lobbying by the industry the Minister For Finance confirmed a decision to review the proposed rate of 2% and the findings of that review are currently awaited.  As an alternative to the 2% turnover tax it has been proposed that a fairer basis of taxation might be to place a 10% tax on profits for retail bookies while a 20% profits tax rate on online operators.

A turnover based tax is seen to be punitive on operators as unlike other forms of taxation it taxes transactions rather than the profit that is being made.  This can be especially hard on retail operators who have an increased cost based to online operators. It will be interesting to see whether the Ministry of Finance changes to a profits-based tax after they have concluded the findings of their review but all the indications are that a change is likely to prevent smaller independent operators from being forced out of business.

EGR Intel: In your opinion where are the biggest deficiencies in Irish gambling regulation?

AH: Much of the existing legislation which exists in Ireland is outdated and not fit for purpose. The reason for this is that it was designed at a time when the legislature did not have within its contemplation the huge changes in technology that would occur in the intervening period, particularly the advent of the internet.  In the Chairman’s preface to the Report of the Casino Committee on “Regulating Gaming in Ireland” established by the Department of Justice in 2006 and published in July 2008, the Chairman describes the Gaming & Lotteries 1956 Act (which is the relevant legislation that governs gaming in Ireland) as “a relic of social history” that is “utterly unsuited to effectively regulate gaming in a modern, wealthy European State”.

His preface goes on to state that” when it was enacted foreign travel was rare, the first Planning Act had yet to be passed, bingo was called pongo and much of the Oireachtas debates concerned protecting the livelihoods of persons providing gaming at carnivals”. In addition, the legislation which exists is piecemeal in nature and spread across several different acts. This can lead to a disjointed approach when it comes to regulation in Ireland.  Under existing laws there is no single regulatory body in Ireland that is responsible for the regulation of gambling in Ireland.

Currently, there is a wide array of stakeholders (including without limitation the Department of Justice, the Revenue Commissioners, the Minister for Finance, the Department of Public Expenditure and Reform, Local Authorities, the District Courts and An Garda Síochána (the Irish police force) having some degree of responsibility for the regulation of gambling activities in Ireland.  The negative impact of this can be seen when it comes to the enforcement of the existing laws on gambling in Ireland as it can lead to a lack of clarity and resources as to who is responsible for enforcing the various aspects of the existing laws which exist.

Therefore, the existing legislation is not fit for purposes and is largely not serving to protect consumers or provide a stable platform for operators to invest and operate within.  The imminent reform of gambling laws in Ireland should therefore be a positive and it will serve to create a modern regulatory framework for gambling activities in Ireland.