Will new UK Gambling Laws affect affiliate rev shares?

[webanalysissolutions]

To be confirmed in the March UK budget, but new laws are likely to be enforced on December 2014 that will mean that offshore based companies will have to pay a 15% tax levy on their UK based customers:
http://www.hmrc.gov.uk/gamblingtaxreform/index.htm

Given the way most affiliate-advertiser relationships work, the affiliate has a set of terms and conditions or contract that says that you have to absorb any taxes in the calculation the advertisers uses for "net revenue".

These tax changes could seriously hit a lot of the big names based off shore - William Hill, Ladbrokes, BWin etc

Those companies that have gone off shore to get a nice tax break, but have still primarily focuses on picking up UK players may end up seeing the benefits of being located off shore evaporate.

When you see the betting turnover numbers an affiliate has to generate to get paid on the mega-small margins a lot of bookies work on these days, taking another 15% off profits could see some of these off shore guys only breaking even on sports betting.

As an affiliate we'll be keeping a close eye on this going forward and perhaps not exposing our revenues too much to off shore companies that may, come December, be taking another 15% out of our net revenue figures.

One good thing that may come out of this though is that the playing field will be levelled for everyone with regards to UK players. No longer will the offshore people be able to skip the tax levy and therefore offer high value odds, meaning that the companies currently based in the UK and paying their taxes (and have been for years), may come out of 2014 with businesses that are a lot more sustainable than those based off shore - it's no change for those companies based in the UK already.

[webanalysissolutions]

More info:
http://news.sky.com/story/1129538/on...cent-tax-in-uk

"The shift will affect some of the industry's largest players.
Ladbrokes, Bwin.party, William Hill and Betfair all have online operations based in Gibraltar, where taxes are levied at 1% and capped at £425,000."

Ouch! Going from paying a fixed maximum amount of tax at £425K to 15% of all profits from your key UK customers.

"William Hill, which has the largest share of the UK's remote gambling market, has previously suggested that it could challenge the changes on the grounds that they breach European Union competition law."

Good luck with that one!

[JackTenSuited]

Yep, going to be interesting to see how this hits our bottom line. We've had it easy this far

[webanalysissolutions]

No doubt the bottom line will be hit though. A lot of affiliates won't even notice it too - all they'll see over time is lower earnings, as net revenue is largely a black art and impossible to determine how it's calculated with most operators, as the terms and conditions are generally very ambiguous.

We're playing it safe and focusing 2014 on UK based operators who already pay this tax, then we won't get any nasty surprises come early 2015 when revenue dries up with these off shore operators.

[webanalysissolutions]

What is very interesting though is HMRC will assume a player is UK based if an operator cannot prove otherwise, and if an operator does not comply with the law then the UK will withdraw the licence from that operator to market to UK customers. They're pretty serious about it - it's not just a token political change to win votes.

[TheGooner]

Yes - the tax will affect affiliate earnings if you market to UK customers as most big name bookmakers are based ihn Gibraltar or Malta - so rev-share would be afffect and eventually CPA rates will be adjusted to reflect lower earnings.

The good news for Bet365 sports affiliates is the company has remained in the UK and already pays local tax, and so will not pay this remote tax for sports customers.

[webanalysissolutions]

The good news for Bet365 sports affiliates is the company has remained in the UK and already pays local tax, and so will not pay this remote tax for sports customers.

Further proving that if you run your business in an honest and sustainable way you'll succeed.

Makes me wonder though whether the business case for moving off shore to avoid taxes and basically acquire a cheaper affiliate team and program is effectively blown out of the water by this move by the UK Government? I'd estimate at least 80, if not 90% of any European facing sportsbook's revenue is from UK customers. Will be interesting to see what is announce in the budget in March. Not many people going to have any sympathy for bookmakers, and people who go off shore to reduce tax in this economic climate.

[sweetbet]

Luckily, it won't have any significant impact on me because I don't have much UK traffic, but the additional costs will definitely be passed down to the affiliates. It'll be interesting to see how the affiliate programs will handle this.

[Renee]

I can't speak for other operators, but if it's anything like the danish tax, affiliates will only be paying ~35% of the 15% tax, same as the commission percentage they are making, not the entire tax amount.

[TheGooner]

I can't speak for other operators, but if it's anything like the danish tax, affiliates will only be paying ~35% of the 15% tax, same as the commission percentage they are making, not the entire tax amount.

OF course it will be proportionate Renee. But it will be 15% off net profit totals before rev-share is calculated.
The effect is a potential 15% reduction in the profitability of UK players for remote gambling sites..

[ball2win_affiliate]

I can't speak for other operators, but if it's anything like the danish tax, affiliates will only be paying ~35% of the 15% tax, same as the commission percentage they are making, not the entire tax amount.

the proportional share of tax burden for house and affiliate is a more fair solution.

[webanalysissolutions]

Yes, I'm sure affiliates will take their "revenue share" equivalent of this 15% tax on the UK players. I expect some operators may try to pass the whole lot onto affiliates too by deducting 15% from all net revenue before revenue share is calculated. I expect the latter may be the norm, as I think gooner is suggesting, effectively taking a big chunk out of affiliate earnings. Most of us I expect are highly exposed to the UK market as that's where almost all companies want to target.

[TheGooner]

I'm not suggesting anything nefarious or devious at all. I don't expect programs to apply the whole charge to affiliates - but applied properly programs will see a 15% reduction in UK customer profits - and that WILL flow through to affiliates. It's basic maths.

Assume an affiliate on 30% rev-share has UK customers which achieve $1000 (after usual expenses) at a remote gambling site.
- Prior to the tax the affiliate receives 30% of $1000 = $300.
- After the tax begins those some customers only bring $850 after RG tax. Affiliates 30% share is then calculated now at $255.

The difference for affiliates is -$45 which is 15% less than the $300 originally earned.

If the tax was applied unfairly (ie charged directly to affiliate after rev-share) then it would be a potential $150 charge or half the 30% rev-share affiliates earnings, but I think it's pretty obvious that this would be an incorrect way to calculate it.

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So - there will be a 15% hit to affiliates and programs alike. And given the small profit margins (3-5% of turnover / revenue) that most programs run on I think that might mean some SERIOUS cost cutting that may occur in our industry for remote gaming sites that target the UK.
- Player bonuses to reduce?
- Odds margins to increase?
- Customer support to dwindle?
- Affiliate support outsourced / reduced ?

Would that mean that RG tax paying programs become uncompetitive, and many players "vote with their mouse" and start joining caribbean outfits that pay no tax at all and can keep offering better lines? Effectively starting a "wild west" stampede?

Also consider that several programs have walked away from France having worked out that the extra tax made the French market unviable!

We live in interesting times ... and I expect significant market upheaval when this Remote Gambling Tax becomes law.

[webanalysissolutions]

I'm not suggesting anything nefarious or devious at all.

I wasn't suggesting you were.

Agree with all your points. Can't see this law not happening but I guess we'll see what is announced in the March budget. I reckon it could actually be worse than people think as the Government seem to like laying into the "bad guys" in their perception at the moment, and it's a political thing for them given they want to look like they're taking action against tax avoidance.

I expect all companies with UK exposure are already preparing for this hit. Would be interesting to see what cost cutting/revenue generating measures they are preparing to make up the 15% difference. Certainly odds value has increased massively in recent years with some sportsbooks running on tiny margins. They may have to take a step back and reduce odds value and increase those margins again.

[chicky01]

I was not aware of this situation...i will check with my operators..

[ocreditor]

No doubt the bottom line will be hit though. A lot of affiliates won't even notice it too - all they'll see over time is lower earnings, as net revenue is largely a black art and impossible to determine how it's calculated with most operators, as the terms and conditions are generally very ambiguous.

We're playing it safe and focusing 2014 on UK based operators who already pay this tax, then we won't get any nasty surprises come early 2015 when revenue dries up with these off shore operators.

I agree. its a shame but this is how it works, it would be much better if the program would be more transparent with their stats when it comes to "other" costs including taxes

[TipsterWarehouse]

Surely any savvy operator will relocate or register their business elsewhere if they really wish to avoid paying tax.

[baldidiot]

Surely any savvy operator will relocate or register their business elsewhere if they really wish to avoid paying tax.

It's actually a tax on profits from UK punters, regardless of where the company is based. So moving wouldn't do much..

[webanalysissolutions]

It's actually a tax on profits from UK punters, regardless of where the company is based. So moving wouldn't do much..

And if a company just thinks it's based somewhere where it cannot be chased down for the tax and/or sits on a tax bill arguing about the law and how it should not be in place (William Hill have said they'll challenge it), the UK Government will just suspend that company's licence to advertise in the UK too. The Government will also assume your customers are UK based if you cannot prove otherwise. Pretty harsh measures if they follow them through and the tax people dealing with it actually use their powers.

[justbookies]

Surely any savvy operator will relocate or register their business elsewhere if they really wish to avoid paying tax.

lol - this tax is aimed specifically at companies that have done this.