Could the new Gambling Act have unintended consequences for integrity and sponsorship?

Leigh Thompson discusses how the Gambling Act could have unitended consequences for both the integrity and sponsorship of professional sport.

1 October 2014 sees the Gambling (Licensing & Advertising) Act 2014 come into force.

This snappily-titled piece of legislation might be relatively short in length but its implementation marks a major shift in the way gambling operators and the advertising of gambling will be regulated.

The changes mean that only gambling operators licensed by the Gambling Commission will be able to offer gambling products or advertise to British consumers – in other words regulation will occur at the Point of Consumption (POC).

Under the new regime it will therefore be an offence to provide remote (online) gambling services in Great Britain without a licence and to advertise unlicensed remote gambling.

As such the Act raises important questions not only for gambling operators but also for those that carry gambling advertising or who are sponsored by gambling companies eg football clubs.

The passage of the Act has not been without controversy. This is in large part because the new regime it creates means gambling operators based in low-tax overseas locations (for example ‘White List’ territories such as Gibraltar) will not only require an operating licence but will also have to pay the same Point of Consumption (POC) tax as domestic operators.

It is estimated that this will bring in an additional £300m per annum in tax revenues. It is perhaps unsurprising therefore that the Gibraltar Betting and Gaming Association (GBGA) has sought a judicial review on the basis that the Act is contrary to EU law and does not protect consumers.

In this context it is possible implementation of the Act could be delayed if the GBGA is successful at the High Court this week.

Assuming the Act does come into effect as planned on 1 October, what might it mean for sports integrity and sports sponsorship by betting companies?

In terms of integrity many would argue the new POC regime should make accountability and regulation both clearer and simpler.

From this perspective, only licensed operators can serve the British market which means any operator seeking to take bets from British punters must abide by the licence conditions set down by the Gambling Commission. In particular licence condition 15.1 which requires operators to share suspicious betting patterns with sports governing bodies.

However, an alternative viewpoint is that the legislation may in fact create the unintended consequence of driving some betting activity towards unlicensed operators.

Such an outcome would undermine efforts to protect sports integrity since a shift in betting activity outside the scope of licence condition 15.1 would effectively create a ‘blind spot’ whereby regulators and sports bodies would be deprived of vital information which might point to instances of match-fixing.

Although these sorts of concerns have previously been expressed in terms of the impact of taxation on the gambling industry, the underlying economic argument bears further consideration.

In a highly-competitive global gambling market the imposition of a tax could, if it is passed onto highly mobile and price-conscious consumers, simply drive them to seek out cheaper (ie unlicensed) alternatives. Indeed some activity may move away from legitimate operators altogether to the black market.

Interestingly, this is a phenomenon that has already been observed in Victoria, Australia where some betting activity has moved offshore to more price-competitive, unlicensed operators.

Indeed the integrity risk around this development is considered sufficiently grave that Victoria’s gambling regulator has sanctioned an incentive scheme to lure these punters back to licensed operators.

While there are differences between the Australian and British regimes which make comparisons difficult, this nonetheless serves to illustrate the point that in a competitive market with highly mobile consumers decisions that affect relative prices can have unintended consequences.

All of this will put the onus on the Gambling Commission as the regulator of the system. In principle the rules should be clear: no licence, no bets from British consumers.

In practice however the difficulty that may arise is whether the Commission can in fact place an obligation on an unlicensed, non-UK facing operator to comply.

This is because in order to establish an ‘airtight’ Point of Consumption-based system requires the ability to effectively prevent British consumers from placing bets with unlicensed operators.

A counterargument is that this task should be made easier by the new rules which restrict advertising of unlicensed gambling to British consumers. In this context unlicensed operators will not be able to access the market to attract consumers.

While this will be true to an extent, it relies on consumers being largely passive and unlicensed operators actively restricting access to their products by British consumers.

In practice experience from other countries suggests that, even with blocking technologies, consumers looking for the best odds and offers – and in particular those looking for somewhere to place corrupt bets – will actively seek out opportunities in a global online marketplace.

Whether this will in fact occur as a result of the forthcoming changes only time will tell.

So much for integrity, what about the impact of the Act on sponsorship?

The new Act repeals the old offence of advertising foreign gambling which – when combined with the new licensing rules – means it will now be an offence to advertise unlawful (ie unlicensed) gambling to British consumers.

As before, this change should make the position on advertising and sponsorship tie ups with gambling operators straightforward: no licence, no advertising.

However for certain types of sports sponsorship it could be problematic.

To take an example, what would be the position of a Premiership football club sponsored by an online Asian betting operator which didn’t have a British-facing business (and therefore didn’t have a Gambling Commission licence)?

Although not intended to target British consumers, strictly speaking this sort of sponsorship arrangement could be classed as advertising unlicensed gambling and therefore be put at risk.

Furthermore it would have the effect of restricting the pool of potential gambling sponsors clubs can approach to only those holding (or actively seeking) a British licence.

At this point it’s worth reminding ourselves just how big the English Premier League’s following in Asia is. Asian audiences generate almost £1bn in broadcasting rights revenue – around half of the total EPL overseas broadcast revenues – and this is set to increase.

In this context it is not difficult to see the attraction for Asian sponsors wishing to exploit an association with a Premiership team in their home markets.

Similarly British football clubs will increasingly be interested in growing their fanbase in these thriving overseas markets. Indeed both Hull City and Aston Villa have sponsorship agreements with Asian betting firms.

Given this commercial dynamic it will be interesting to see what transpires should this particular aspect of the new regime be tested, for example through a scenario like the one outlined above.

The guidance issued by the Gambling Commission on this point is equivocal – essentially the view seems to be that a decision as to whether an offence has been committed would be down to legal interpretation based on the facts of an individual case.

This may be a risk sports clubs are not prepared to run.

As with any reform it will take time for the Act to bed in and overall we believe the Act represents a positive step forward.

But – to use a gambling turn of phrase – it always pays to be alert to the possibility of unintended consequences.

Read more blogs by Leigh.

Read more Sport and Recreation Alliance blogs.

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