The impact of the point of consumption tax on the UK betting market

Adam Lawrence discusses the impact of the POCT on the landscape for the UK football trading market.

Categories: All Sports, Execution & Getting On, Funding, Prices, Professional

So, is it really Doomsday on September 30th 2014 with all these big players pulling out of the UK market?

Or will we survive and make and find new and better ways to gamble in the future?

I believe it will be the latter. Let’s be honest and start with the facts:

1) There are very few natural monopolies that exist in this world. Gambling certainly isn’t one of them. Less competition for UK punters means a worse deal for UK punters. Some of the monster names pulling out of the UK (and let’s be clear, there will be more to come) are low-margin, very highly respected and loved sportsbooks.

2) HMRC don’t fully understand the industry, and neither do the Gambling Commission. Amazingly, of the contact that we’ve had with the GC over the years (the most significant being when we were on the wrong end of a match-fixing situation with a high profile snooker player, having done our dough with no chance of ever winning), I’ve never met anyone who has ANY experience on either side of the fence. They are mostly (or were) licensing experts, people familiar with legislation, and the like.

Is that representative of the whole of the GC? Probably not. However, there is a mixture needed. I don’t think the GC have come out well with recent problems (which have been blindingly obvious) at Betbutler and Canbet. Both of these situations have been handled poorly and punters have been and will be ripped off in avoidable situations. The regulator HAS to stop that – THAT should be the focus.

3) The broker model, which is now becoming much talked about, is a complex beast. LotsĀ of people who aren’t familiar with it will be dipping their toes in the water thanks to some aggressive marketing – a couple of brokers seem to think it is their Christmas. We believe that they certainly haven’t discussed this at length with HMRC.

Here’s why – let’s look at the model:

Your money goes via bank wire or e-wallet to the broker/agent

That agent holds it in a (hopefully ringfenced, not that that offers any guarantees of worth) holding account

That agent opens for you what is essentially a sub-account of his/hers at your desired bookies. Dependent on your standing (and their credit checks are a mystery to us!) you can obtain leverage of up to 5 times on your deposit. This is a massive plus under the model because it keeps your credit risk down.

That agent facilitates your betting at all these books, soon to be non-accessible to UK residents, either via a platform like mollybet, sportmarket etc, or via skype/MSN (chat betting). Skype betting is for the heavy hitters who cannot fill their whole stakes even by taking a max bet across the board (or a series of max bets).

The agent takes 0.125% commission and the platform takes 0.125% commission win or lose, from the bookie – i.e. the bookie is paying the agent to bring them the liquidity, because the model works on liquidity (rather than opposing an outcome, almost always the favourite, in the traditional UK bookmaking model). The agent takes a 0.25% commission on the skype bets, which is more from the punter’s end arguably (on skype you ask for a match, and tell them your stake, they then give you a price which is fill or kill pretty quickly, obviously. You don’t know where the 0.25% is being shaved off because it’s a lot less transparent).

So – what’s actually happening? Effectively the agent is taking the bet, and putting it on in their name. The end layer is the same person – IBC, Pinnacle, SBO, whatever. How are HMRC going to feel about this when they take the time to understand it? My take would be that they will say the agent is laying the bet, and then laying off. Thus any profits the agent makes from the bets it lays (in HMRC’s eyes, which are not actually profits, of course, remember they are like an exchange in that sense, they take commission whatever the outcome) would be taxable under the new regime.

If an agent was catering for mostly sharp punters, as some do, this won’t actually cause a problem in practice (although there is still a risk) – overall money will be flowing from asia, via the agent, to the sharp punters. No profit, no tax. There’s still the licensing costs to consider of course.

However if an agent who caters for sharps and arbers in equal volume at the moment attracts a lot of arbers (the sharps in our opinion are a lot thinner on the ground – read 50 sharps for 1000 arbers as a finger in the air guess), they will be overall losing accounts – so the agent becomes the conduit for the money to flow from the UK arber towards asia over time, since arbers will lose at asian books over time and win at the softer UK books.

There is the position that will cause problems for the agents who are aggressively touting for UK business, over the next 2-3 years, since these wheels will move slowly.

However, what we are asking ourselves is, do we want any financial exposure to a company/individual/organization that looks odds on to get a tax demand or a criminal charge levelled against them, whether they think they are safe in Malta or not? Our answer is a resounding no.

Serious players will be relocating abroad – perhaps only virtually, but that is another matter for another STN blog…..

About Adam Lawrence

Adam divides his time between betting for profit and the property business. His background is varied including a strong academic pedigree alongside international experience in finance and wealth management, but he has found his niche now and is busy settling into it for the long haul.
2 Thoughts on The impact of the point of consumption tax on the UK betting market
    Luke
    10 Aug 2015
    5:07pm

    i recently looked at this, but for me as you have said transparency is key. i’m a semi professional soon to be professional(i hope) arb betting was always a key staple of my portfolio sadly UK books much to my surprise hate this kind of punter. Who wouldnt want money and liquidity going through the books. Thanks for an informative article.

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