Warning signs in Belgium?

Having gone to great lengths to operate in Belgium’s online gambling market, Betclic Everest’s recent decision to withdraw from the country was understandably met with much surprise by many in the industry. Indeed, the Parisian company’s exit came little more than a year after Betclic.be went live ahead of the 2016 UEFA European Championship.

Betclic’s launch had been preceded by a long spell on the regulator’s comprehensive blacklist of operators prohibited from taking bets in the country. Yet Betclic clearly still saw potential in a market — estimated to be worth up to €200m today — few foreign operators at the time were showing much interest in. Betclic was eventually removed from the naughty list in 2015 and subsequently awarded an operating licence having agreed to pay tens of thousands of Euros in fines for its unlicensed activity.

“The Belgian market is very competitive now and Betclic started the race after many companies” – Emmanuel Mewissen, CEO of Ardent Group

So it is in this context that Betclic’s withdrawal announcement also came as a bolt out of the blue to the Belgian regulator. “We were very surprised because Betclic had gone to much effort and taken a lot of time to come back into the market again,” Peter Naessens, director of the Belgian Gaming Commission, says. “They had gone to great lengths to be removed from the blacklist and paid all the fines – including the fines of the online customers who had played illegally in Belgium.”

The operator has so far kept quiet on the reasons behind the prompt departure. However, its Belgian land-based partner, Ardent Group, claims Betclic found the market far more arduous than it had originally anticipated. “I guess it was an operational decision as the Belgian market is very competitive now and they [Betclic] started the race after many companies,” Emmanuel Mewissen, CEO of Ardent, says.

Betclic did offer the caveat that it could one day return to the market, but for now its withdrawal means the number of well-renowned foreign brands – including Unibet, Ladbrokes and bwin – in Belgium are few and far between. And there is little indication this situation will alter radically anytime soon. But what is causing online operators to either leave or stay away? And is the situation likely to change in the future?

Tax burden
The first thing to note is that regulated operators in Belgium are today working within the parameters of a more burdensome tax regime than previously. Last year, for example, the Belgian government introduced a new 21% value-added tax (VAT) on online gambling operators, effectively increasing the tax burden overnight from 11% to 32%. And to rub salt into the wounds, land-based operators and the national lottery provider’s online scratchcards were exempted from the tax, handing them a financial and competitive advantage.

Kindred Group operates its Unibet brand in the market and according to its general counsel, Ewout Keuleers, there are few countries across the European Union that can make digital gaming policy work with a tax pressure higher than 20%. “A smaller market in combination with a very high tax pressure of 32% makes it indeed a very difficult place to create sustainable consumer value and establish yourself in the market,” he says.

Before the sales levy was imposed, H2 Gambling Capital (H2GC) estimated that Belgium’s black market was less than 15%, making its channelisation rate and customer protection higher than many other EU countries. The recent VAT hit, however, means it will be a challenge for online operators to compete with the black market on customer value and retention. In fact, a recent report indicates the earlier positive channelisation trend has now ceased and is on a downward trajectory.

As a result, the Remote Gambling Association (RGA) has gone on the offensive and is calling on the European Commission to investigate whether the VAT is discriminatory and constitutes state aid. The result of its introduction, the trade body argues, has been to make Belgium far more unattractive for online gambling operators and believes recent actions open the doors to an even more discriminatory approach being adopted in the future.

“It is hard to think of a more overt example of discrimination between different forms of gambling, and one effect of this will inevitably be that more online operators will review whether the Belgian market remains a viable one for them,” Clive Hawkswood, CEO of the RGA, says. “The additional tax burden may have to be passed on to customers by lowering payout ratios, for instance. The effect of that would be to make Belgian-licensed online operators less competitive compared to the land-based sector and online operators who are licensed outside of Belgium but who are still accessing the market.”

Weighing it up
With a population of approximately 11.3 million, Belgium is hardly the biggest regulated online gambling market in Europe, meaning its domestic liquidity is relatively incomparable to countries such as Spain and Italy, or the open UK market. And like any egaming licensing model, Belgium’s regulatory track record has undoubtedly been something of a mixed bag since it opened its doors to foreign operators in January 2011.

“The model worked well as channelling was high – circa 85% – due to the full product scope and a moderate tax level that allowed the creation of an attractive value offer to the customer,” Keuleers says. “To protect customers, you need to channel them away from the illegal offer, to the legal alternative. For instance, the self-exclusion system EPIS only works in the legal market.”

A distinguishing feature of the Belgian market is its requirement for firms to either have a land-based presence or to partner with a retail operator to offer products online. This is seen by some as one barrier to market too many. And the regulator seems unlikely to alter this model, at least for the foreseeable future.

“I think the Betclic case has proven to us that there is more stability in the land-based sector than in the online sector,” Naessens claims. “When a company leaves even after making lots of investment and effort to enter the Belgium market – that’s not the stability we’re looking for. So in a certain way it proves that in order to have stability it’s good to have a link between online and offline.”

Time for change?
And while the Gaming Commission was clearly surprised by Betclic’s decision, Naessens says he is neither disappointed nor concerned by the operator’s departure in the context of the regulator’s long-term objectives. Indeed, he actually appears optimistic that new online operators could be ready to seek a Belgian licence within the next 12 months.

“There are companies leaving but there are also signs that there are still lots of operators interested in entering the market” – Peter Naessens, director of the Belgian Gaming Commission

“Our main goal is to maintain a certain order to the sector,” he explains. “Betclic was in Belgium on a partnership and the key partner for us is always the land-based casino operator – so an online operator leaving the market is not too important from our perspective. From a competitive point of view the Belgian market is not monopolistic and there are different operators from a range of countries that have come and gone.

“There are companies leaving right now but there are also signs that there are still lots of operators interested in entering the market,” he continues. “However, we don’t actually want to meet a 95% channelling rate or to have a crowded market with 100 or 200 operators that just copies the black market – that would be more of a nightmare than an objective to obtain.”

In the last few months, Belgium’s gambling sector has banded together to form a new trade body – the Belgian Association of Gaming Operators – which consists of big multi-national brands such as Ladbrokes and Unibet. Its launch could not be more timely based on recent reports of a further crackdown on TV advertising on online operators and a rumoured ban on virtual betting. But whether it can help make the market more attractive to new online operators in the future remains to be seen.