Britain shifts taxes on online gambling to boost industry

LONDON -- The Treasury is not giving odds, but the betting is heavy that a change in Britain's taxation of online gambling will give it a global lead in a market worth tens of billions of dollars.

Chancellor Gordon Brown, announcing the budget for the coming year, said the government would drop the 9 percent tax that it had collected on all bets since 1966 in favor of a 15 percent tax on bookies' gross revenues.

The deal came after lengthy consultations with the nation's turf accountants, who in return agreed to relocate to Britain the e-gambling outposts they had established in such tax havens as Antigua, Gibraltar and the Channel Islands.

The decision likely will have limited immediate impact on gamblers in the United States, where laws prohibit Internet betting, but is difficult to enforce.

But in the longer run, the change could give well-known British bookmakers a significant advantage in the world market, say analysts, bookies and casino operators.

Big British bookies, such as Ladbrokes, William Hill and Coral, said they had been forced offshore to compete with smaller start-ups that were using the Internet to escape regulation and taxation. They were delighted by the change in the tax law.

"From the company point of view, it was fantastic news," said Simon Clare, spokesman for Coral, the third largest British bookmaker and the one that claims the largest online presence, operating out of Gibraltar.

"From across the ocean, it seems like a very reasonable and indeed a strategic move," said Alan Feldman, director of public affairs at Las Vegas-based MGM MIRAGE.

"The English position is well out in front in terms of establishing a legitimate, well-regulated environment for people who want to participate in sports wagering over the Internet," Feldman said.

"It makes Britain the center for excellence for global online betting," said Andrew Burnett, an analyst on gaming research for Merrill Lynch in London.

The British government took in $708 million in taxes on gambling last year, and anticipates the same level this year. The chancellor agreed to change the tax, starting in 2002, to safeguard the revenue stream for the government, aides said. "With the bookmakers going offshore, there could have been a revenue loss," said one, speaking on condition he not be further identified.

The change in taxation announced last week could mean a 40 percent drop in tax revenues in the short term, but could lead to vastly more money in future years as more international betting flows through British online bookies, analysts said.

The British "government is gambling that there will be a lot of new money coming into the United Kingdom that is currently offshore," said Burnett of Merrill Lynch. "The U.S. will probably be tying itself in knots for years."

Although the U.S. Congress last year narrowly rejected a bill that would have banned the use of credit cards to pay for online gambling, federal prosecutors used a 1961 law to secure a conviction and a 21-month sentence against a Jay Cohen for running an offshore Internet gambling business.

The jury found that Cohen had violated the U.S. Wire Wager Act by accepting bets and wagers on sporting events from Americans over the Internet and telephones.

Cohen, then president of an online firm called the World Sports Exchange, was among 22 defendants charged in March 1998 with operating offshore companies which took bets from Americans over the Internet or on telephones.

Despite the legal ban, about 40 percent of all Internet bets are placed by Americans, said Coral spokesman Clare. That is business that the British bookies say they can live without, as long as the threat of prosecution remains.

"We do not allow U.S. customers to place bets with us," said Clare.

Americans who want to bypass the U.S. restrictions might disguise their whereabouts by establishing foreign addresses or credit cards. And those willing to take the risk may be more attracted to established British bookies than to offshore operators.

According to surveys, said Feldman, the "American public is cautious about participating in the activity because they don't know who the operators are." When the operator is a known British brand, "the public knows that they have recourse through the British government, and they will feel far more secure with it."

The overall size Internet gambling market and its growth potential are hard to calculate, because so much of it is illegal.

Americans place an estimated $360 billion on illegal sports wagering, said Feldman, but "it is not clear how much of that is on the Internet -- at least a third and more than likely growing."

That compares to $20 billion in turnover by casinos in the United States, he said.

In Britain, the annual turnover on betting is $10.8 billion, channeled through bookmakers.

Burnett of Merrill Lynch estimated that online gambling could grow to $177 billion by 2015.

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