Gambling

Written evidence submitted by Betfair (GA 12)

Introduction

1. This paper constitutes the written response of Betfair Group plc to the Culture, Media and Sport Select Committee (‘the Committee’) Inquiry into Gambling (‘the Inquiry’). As well as this response, Betfair would be willing to give oral evidence before the Committee if that would be deemed useful to the Inquiry. Betfair would also be very happy to host the Committee on a site visit to see Betfair’s operations at its UK-Headquarters in Hammersmith, West London or elsewhere.

2. This submission follows the structure of the seven areas on which the Committee states it wants written submissions to focus. As an online gambling company Betfair does not aim to have a view on all areas of the Inquiry, only those relevant to Betfair and the remote gambling sector.

About Betfair

3. Established in 2000, Betfair Group plc [1] is one of the largest UK-headquartered betting companies operating purely online. The Betfair Group has three million registered customers worldwide, and processes more than five million transactions per day, more than all the European stock exchanges combined. Betfair employs over 2,300 people worldwide, with over half of those jobs being located at our UK offices in London, Stevenage and Halifax.

4. Betfair’s core product is the world-leading online betting exchange, a concept which it pioneered. The exchange mechanism uses technology similar to a stock exchange allowing Betfair to offset its risk perfectly by exactly matching supply and demand in a way not possible for traditional bookmakers. Betfair has also developed casino and poker products and has used pioneering technology to extend its products beyond the internet to allow them to be accessed on a range of different platforms including TV, radio and mobile.

5. Betfair is a British internet success story, comparable with US brands such as Google, Amazon and Facebook. Betfair has twice been named the UK’s ‘Company of the Year’ by the Confederation of British Industry and is the only online betting company to have won a Queen’s Award for Enterprise. It was awarded its first in 2003 for innovation and its second in 2008 for international trade.

6. Betfair currently holds licences to operate betting products in Malta, Gibraltar, Italy, Australia, the UK [2] and the US (through it horseracing TV channel TVG).

7. Until 2011 Betfair was one of the few remaining online gambling companies licensed, and paying Betting Duty, in the UK. In March 2011 Betfair took the commercial decision to switch its betting exchange from operating under a UK licence to a Gibraltarian one. However, Betfair’s headquarters remain in the UK and is committed to meeting at least the same social responsibility standards as required by the UK regulator, the Gambling Commission (‘the Commission’). In addition the company has put the same amount of money back into British horseracing for 2011/12 that it would have been required to pay under the statutory Horseracing Levy so that sector will not suffer financially from a sound business decision on the part of Betfair. [3]

Issue 1: How effective has the Act been in its core objectives to (a) ensure that gambling is maintained crime-free and conducted in an open and fair manner; (b) protect children and vulnerable people from the adverse effects of gambling; and (c) update the legislative framework with regards to online gambling.

8. The UK has one of the most mature gambling markets in the world. By allowing UK residents to access a wide range of betting and gaming products within a regulated market the UK government has ensured the gambling industry is able to operate in a similar manner to many other leisure industries.

9. The Commission, the industry regulator as created by the Act, has a duty to promote the licensing objectives in the 2005 statute. [4] The Commission ‘must also permit gambling, in so far as it thinks it reasonably consistent with pursuit of the licensing objectives’. [5] Betfair believes that at times the Commission has taken an unnecessarily stringent approach towards the industry, which may draw into question whether this has been effectively achieved.

10. The vast majority of gambling is crime-free and conducted in an open and fair manner while research, such as the British Prevalence survey, shows that problem gambling levels appear largely consistent since the implementation of the Act. However, it should be recognised that this is primarily because companies active on the UK market choose to operate to the highest standards rather than the Act effectively implementing and enforcing the highest standards. For example the Commission’s Licence Conditions and Code of Practice (LCCP) requires online companies age verify UK resident customers within 72 hours but does not demand any further KYC (Know-Your-Customer) checks beyond that. [6] Responsible, multi-licensed companies , like Betfair , however generally attempt to KYC all customers, therefore going beyond the demands of the Act.  Many other jurisdiction’s legislation require KYC and also apply Anti-Money Laundering due diligence across all products rather than just casino as in the UK.

11. The Act has proved comparatively ineffective at updating the legislative framework for online gambling specifically. This is discussed in more detail in response to issue 4.

Issue 2: The financial impact of the Act on the UK gambling industry.

12. The online sector in the UK currently has a gross Gaming Yield of around €1.9 billion (c. £1.7 bn) and is about a fifth the size of the offline gambling market [7] .

13. The tables below show how each of the sectors breaks down and how the market is set to grow in the coming years [8] :

UK Land - Based Gambling Data (Gross Gaming Yield, €m)

Year

2011e

2012e

2013e

2014e

2015e

Bingo

744.1

733.2

723.6

715.0

707.4

Betting

1,975.0

1,946.7

1,897.6

1,871.4

1,836.5

Machines

3,680.9

3,768.0

3,835.0

3,913.6

3,986.2

Lotteries

2,888.1

2,986.7

3,069.8

3,176.3

3,313.0

Casinos

944.5

911.7

924.6

940.1

957.7

Total

10,232.60

10,346.30

10,450.60

10,616.30

10,800.80

UK Internet Gambling Data (Gross Gaming Yield, €m)

Year

2011e

2012e

2013e

2014e

2015e

Bingo

282.6

294.0

305.7

317.5

329.5

Betting

492.7

550.7

525.2

587.6

548.9

Machines

295.0

371.8

335.5

339.6

343.7

Lotteries

418.3

437.6

457.2

477.2

497.5

Casinos

420.6

455.7

493.3

532.9

574.7

Total

1,909.20

2,109.80

2,116.90

2,254.80

2,294.20

14. The UK has the largest offline and online gambling markets in Europe. [9] The offline gambling market in Europe is considerably larger than the online industry being estimated at some €81.0 bn (£71.5 bn), as compared to about €10.2 bn (£.9.0 bn) for the latter. [10] However, over the next four years the European online industry is predicted to grow by 34% compared to 7.2% for the offline industry.

15. There has been some limited work conducted to try and measure the positive economic impact of the gambling sector on the UK using key measureables such as tax revenues, employment numbers and expenditure on advertising and sponsorship. A report published in 2010 estimated that the betting industry [11] alone contributed £6 billion and approximately 100,000 jobs to the UK economy. [12]

16. The Act has had a positive impact on the UK economy in terms of allowing the industry to flourish and consumers to have greater choice through a wider range of betting products. However, the Act has largely failed to secure significant gambling tax revenues from the online gambling sector due to the non-complementary structure of the regulatory and fiscal regimes. This issue was recognised by the last Labour administration and continues to be reviewed by the Coalition Government. It is generally perceived as the most substantial flaw of the Act as it has encouraged betting operators to base their online operations offshore, thus escaping the regulatory and fiscal net, whilst allowing them to continue targeting the UK market. [13] However, it should be noted that some online operators, such as Betfair, continue to employ a significant number of employees here, thereby significantly contributing to the UK economy via national insurance contributions, income tax and corporate taxes.

Issue 3: The effectiveness of the Gambling Commission since its establishment, and whether it represents good value for money.

17. Although Betfair no longer operates its betting exchange for UK customers under a Commission licence the company maintains a close a relationship with the regulator here. Betfair continues to retain UK licences for disaster recovery and shares information about unusual or suspicious betting patterns with the Commission’s Sports Betting Integrity Unit (SBIU). Betfair has a positive relationship with the Commission.

18. The Commission is well-regarded in Europe as an example of how a national regulator can effectively monitor and control a dynamic licensed gambling market. However, it must be recognised that not every country in Europe has such a mature gambling market, or indeed wants to create one.

19. With regard to the online sector, the efficacy of the Commission is clearly impaired by the current structure of the regulatory regime created by the 2005 Act, which demands companies locate equipment here if they wish to hold a UK licence. If this regime was amended in the future such that any operators targeting the UK market had to hold a licence from the Commission, regardless of where their equipment was located, the number of operators under the Commission’s jurisdiction would very likely increase. Betfair would support such a regulatory structure which would see a greater proportion of online operators taking bets from UK residents falling under the UK regulatory regime. We would expect to see greater resources provided to the Commission if this were the case in order to allow it to oversee and monitor licensed remote operators and monitor and prosecute illegal activities by unlicensed operators in the UK.

20. In the areas of responsible gambling Betfair is aware that the Commission collects data from operators on a wide range of performance indicators and compliance-related issues. Information collected from online operators includes numbers of customers who use self-exclusion tools and the numbers of under-age people who seek to gain access to an operator’s site. Betfair is not sure to what extent the Co mmission makes use or analyses this data currently. Betfair considers that it may be of interest for the Committee to investigate this further as part of its Inquiry , not least in light of the Government’s stated intention of making collected data more readily available as part of its transparency agenda.

21. The Committee will be aware of the plans to merge the Commission with the National Lottery Commission, in order to streamline activity and reduce regulatory costs. It is, however, important to note that these two regulatory bodies were established via different pieces of legislation and therefore any merger will require primary legislation, potentially taking several years to complete. [14]

Issue 4: The proliferation of off-shore online gambling operators on the UK gambling sector and what effect the Act has had on this.

22. One of the aims of the Act was to ensure that there was an effective regulatory framework for the emergent online gambling sector. However, by basing licensing requirements on where operators have their equipment based, rather than whether they are targeting UK residents, via advertising to and/or taking bets from them, the legislation has failed over time to ensure that the majority of the online operators active in the UK hold a licence from the Commission.

23. The principal problem with the current licensing regime is that remote operators licensed in the European Economic Area, a white-listed jurisdiction or, indeed Gibraltar can freely take bets from UK residents and advertise into the country, without requiring a licence from the Commission or having to pay General Betting Duty.

24. The failure of the licensing regime to capture the online market has two principal effects:

· The Commission has no regulat ory control over the vast majority of online operators active on the UK market;

· HM Treasury has seen the number of online operators contributing tax revenue s dwindle to just a handful with the take from this sector in stagnation since 2007 .

25. Fortunately, h owever, i t is Betfair’s belief that whilst often regulated in other jurisdictions the vast majority of online companies taking bets from UK residents meet high regulatory standards.

26. The issue of online gambling regulation is one the Government has been reviewing since 2009 and Betfair welcomes the progress, albeit relatively gradual, being made in this area. In line with Betfair’s response to the DCMS ‘Consultation on the regulatory future of online gambling in Great Britain’ which the company submitted to the Department in June 2010 [15] , the operator remains of the view that it would be appropriate to prohibit non-licensed operators from marketing their services and products in the UK. Betfair also supports the proposal in that consultation to make it an offence for non-licensed operators to transact with UK consumers. However, Betfair would only advocate such a step as long as the licensing system adopted is not one which limits or restricts the ability of any gambling operator licensed in the European Union (EU) to obtain a UK licence. Should the UK adopt any such system, Betfair would suggest that it would fail to comply with European Internal Market rules, as it would constitute a restriction on the freedom of EU-licensed operators to provide services within that space.

Issue 5: Why the Act has not resulted in any new licences for casinos or "super" casinos.

As this is an offline sector issue Betfair does not have an opinion on it.

Issue 6: The effectiveness of the classification and regulation of gaming machines under the Act.

As this is an offline sector issue Betfair does not have an opinion on it.

Issue 7: What impact the Act has had on levels of problem gambling.

27. The British Gambling Prevalence Survey 2010 [16] (‘the S urvey’) published in February 2011 , recorded a small increase in the number of problem gamblers to 0.9% of the adult population - or 451,000 people - up from the 0.6% recorded in both 2007 and 1999. This increase is ‘at the margins of statistical significance’ [17] which suggests that since the implementation of the Act in 2007 the level of problem gambling in the UK has remained fairly consistent.

28. As well as measuring rates of problem gambling, the survey also records rates of ‘pathological gambling’ [18] amongst the adult population. The survey found that pathological gambling rates had fallen since 2007 to 0.3% of the adult population. This compares favourably with the international norm of 1%. [19]

29. It is important to recognise when looking at the issue that most problem or pathological gamblers have a multitude of addiction issues in their lives. They should not be recognised simply as ‘problem gamblers’ but as individuals with multiple dependencies with which they need support and help. [20] Only through recognising this will individuals receive the multi-agency help via charitable organisations, the health service and other agencies if they are to overcome their problems. Isolating ‘problem gambling’ and treating it as if it were only one issue an individual may have is to deal with a single symptom and risks leading to the overall cause potentially being overlooked which does not help the person themselves and represents an inefficient allocation of resources.

Conclusion

30. Betfair operates under the following two fundamental principles:

· Paying gambling tax at the prevailing local rate, providing it is charged on a fair basis across all operators targeting consumers in a country;

· Adhering to all of the relevant regulatory standards required of gambling operators licensed in a country, providing they are proportionate and consistent.

31. In due course, with regulatory and fiscal changes in the UK, Betfair is confident that the Government can establish a sustainable regime for online gambling here. Betfair believes the evidence gathered, and work done, by the Committee as part of its Inquiry will be helpful to this process and remains at the disposal of the Committee should they require any additional information from the company.

June 2011


[1] Betfair became a public company in October 2010 entering the FTSE 250: http://corporate.betfair.com/

[2] Betfair retains UK licences for disaster recovery and software development but is not transacting business under them

[3] On 14 th June 2011 Betfair announced that that it would give a £6m voluntary levy donation the Horserace Betting Levy Board. This news was ‘warmly welcomed’ by The Rt. Hon John Penrose MP, Minister for Tourism and Heritage at the Department for Culture, Media and Sport (DCMS): http://corporate.betfair.com/media/press-releases/2011/2011-06-14a.aspx

[4] The Gambling Act 2005, Section 22

[5] The Gambling Commission, Licensing, compliance and enforcement policy statement , September 2009, para. 1.3: http://www.gamblingcommission.gov.uk/pdf/Licensing%20compliance%20and%20enforcement%20policy%20statement%20-%20September%202009.pdf

[6] Only offline casinos have to do full KYC checks

[7] H2GC Gambling Statistics, June 2011. Taken from the Euro Summary file at http://www.h2gc.com/ec_welcome.php (a login is required, but Betfair can supply the Committee with more statistics, if required). All figures calculated in € and then converted to £ using the exchange rate calculator at: http://www.xe.com/ on 17 June 2011

[8] Ibid

[9] Ibid

[10] Ibid

[11] Excludes online gaming, bingo, poker, casino and spread betting

[12] The Full Picture: An Economic Impact of the British Betting Industry , Deloitte (commissioned by Ladbrokes), January 2010

[13] The Economist , ‘The Bet Collectors’, 16 th June 2011:

[13] http://www.economist.com/node/18836278?story_id=18836278&fsrc=rss

[14] The National Lottery Commission was established via the 1993 National Lottery Act while the Gambling Commission was created by the Gambling Act 2005

[15] Betfair’s full response to DCMS’s ‘Consultation on the regulatory future of online gambling in Great Britain’ can be found at: http://www.culture.gov.uk/consultations/7234.aspx

[16] The Gambling Prevalence Survey 2010 can be found at: http://www.gamblingcommission.gov.uk/PDF/British%20Gambling%20Prevalenc e %20Survey%202010.pdf

[17] The British Gambling Prevalence Survey 2010 , page 11

[18] ‘ Pathological gamblers’ are defined as those who meet at least five out of the ten criteria on the DSM-IV measure compared to ‘problem gamblers’ who are defined at those meeting at least three of the ten criteria.

[19] . J. Wiebe & R.A. Volberg, 2007 Problem Gambling Prevalence Research: A critical overview , (A report to the Canadian Gaming Association)

[20] H.J. Shaffer & R. Martin, ‘Disordered Gambling: Etiology, Trajectory, and Clinical Considerations’, Annual Review of Clinical Psychology Vol. 7 : 483-510, April 2011.

[20]

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Prepared 29th July 2011