Outline of conference Sports betting crisis in Italy – how to reverse the decline?

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Explore:  EU Gambling Sports Betting

As mentioned, DLA Piper held yesterday an interesting seminar in Rome named “Sports betting crisis in Italy – how to reverse the decline?” which was very well attended by most of the sportsbetting operators within the Italian market.The purpose of the seminar was to identify the reasons of the current crisis of the online sportsbetting sector in Italy which led to the reduction of the spending in the sector from € 173 million in 2010 to € 135 million in 2013 as opposed to countries like the UK where the online sportsbetting spending has increased from € 489 million in 2009 to € 776 in 2012 despite the fact that it is a very mature market.

The seminar saw the participation of the head of remote games at the Italian gambling regulator Francesco Rodano, of the contribution of Marco Planzi from the University of Milan who showed a very interesting presentation on the reasons of the downturn of the online sportsbetting market based on the data obtained directly from AAMS database, of the gaming consultant Graham Wood and of the members of DLA Piper global gambling group, Hilary Stewart-Jones from the UK, Albert Agustinoy from Spain and Max Wenger from Germany.

The core of the discussion was on the current tax regime prescribed in Italy for sportsbetting which is based on the turnover as opposed to the gross gaming revenues (or margin/spending) that is the usual method adopted in most of the jurisdictions. It appeared immediately clear to all the attendees that the current turnover gaming tax between 2% and 5% depending on whether the bet has more than 7 possible outcomes is considerably hampering the market.

And indeed the University of Milan even showed that in September 2012, the spending of the market was minus € 1 million i.e. the amount paid to players in winnings was higher than their actual spending but, despite of that, operators had to pay during that month € 2,7 million of gaming taxes in aggregate. Also, 2012 had been a very unlucky year for sportsbetting operators since the pay-out was 87% of the amount spent which means that given the current tax regime in the majority of the cases, operators paid gaming duties for amounts that were not representing a gross profit for them.

It was interesting to hear from Hilary Stewart-Jones that in countries like the UK there has been a massive debate of the amount of point of consumption tax that will be shortly put in place as 15% of the gross gaming revenues had been deemed too high and that advertising investments in the country might reduce because of such tax regime. And the same comment came from Albert Agustinoy in relation to Spain where the 25% gross gaming revenues tax regime is deemed excessive and, also in the light of the massive fines that operators had to pay in order to enter into the market, the advertising investments have been considerably reduced. Likewise, Max Wenger from Germany showed his concerns as to whether the 5% turnover gaming tax introduced in Germany would actually be feasible also mentioning that some operators already decided to leave the market following the example adopted in France where the same tax regime is in place.

Furthermore the peculiarity of Italy will be that while sportsbetting will be taxed on the turnover, betting exchange and bets on virtual events will be subject to a 20% gross gaming revenue tax and Graham Wood stressed that this might lead to a cannibalization of the online sportsbetting market since there would be similar products targeting similar players, but with two different tax regimes.

Finally, the head of remote games, Francesco Rodano, recognised that also in the light of the figures showed by the University of Milan the current tax regime is one of the reasons of current crisis of the sector. A possible change should be considered at least as part of a testing phase that even in the unlikely scenario where it would lead to a reduction in tax entries this would not be a relevant loss for the State since the online sportsbetting sector contributes for a very small portion to the tax entries generated by the gaming sector that are mainly dependant on the land-based AWP and VLT market.

Indeed, in my view a testing phase of one year where a 20% gross gaming revenue tax regime would be extended to the online sportsbetting sector might show to the Government and the regulator that such regime can:

  1. allow operators to offer better odds also attracting players from the unlicensed market and therefore increasing the number of active players in the market that has been static in the last years;
  2. allow players to better enjoy their betting experience since a higher payout would enable them to play for longer with the same amount of money; and
  3. increase the tax entries both in terms of gaming duties as the whole growth of the market would generate more taxes, but also indirectly through the higher advertising investments that operators might be able to afford with a better structured tax regime.

We will see how the Government will react to the issues raised during the conference.