Im-Esummit-Report-2013.Pdf

Introduction

By combining a tax competitive and mobile software development from challenges as well as some reassuring responsive commercial environment Microgaming’s Head of Product solutions. Following a fire in our with a world leading telecoms Channels, Neill Whyte. Also of planned venue just days before the infrastructure and robust regulatory particular interest to the local cluster event, organisers were met with a framework, the Isle of Man has was an economic review of the quite humbling response from parties secured its place amongst the proposed change in UK legislation for ranging from government world’s most desirable jurisdictions online gambling taxation, which was representatives and the hospitality in which to conduct online gaming provided by Sue Rossiter of the sector, to eGaming stakeholders, operations and, more widely, Remote Gambling Association, Bill friends and sponsors offering their e-business. Robinson, Chairman of KPMG’s support. KPMG would like to take this Economics & Disputes team, and opportunity to thank speakers and The Isle of Man became one of the Adam Rivers, Assistant Manager in the attendees, as well as this wider world’s first jurisdictions to introduce same team. Together, Sue, Bill and business community. Our experiences legislation specific to eGaming in 2001 Adam covered a number of key issues this year have proven that the promise and has since become home to some from an economist’s perspective of of IOM Plc to provide a supportive and of the its leading operations, both the proposed changes, notably tax integrated e-business cluster is one licensed and non-licensed alike. Each structure, tax rate, and a competition that investors can rely on. one has cooperated with the Isle of analysis of the proposed risks to the Kindly sponsored by KPMG employs a number of eGaming Man Government to secure and future of eGaming in the UK. industry specialists throughout the protect the Island’s proposition as a This report provides a summary of the world’s leading jurisdictions and is business friendly jurisdiction which day’s events with a view to sustaining committed to cutting through the places consumer protection and the culture of sharing and cross complexity of this constantly evolving professional support at its forefront. industry dialogue championed by its and exciting industry. On 12th November 2013, The Palace contributors throughout. This year’s Hotel played host to the fourth in a Summit brought with it some peculiar series of eGaming summits which seek to maintain this community engagement by drawing upon the Island’s first class reputation for sector collaboration, and providing a forum within which key stakeholders can discuss the eGaming sector and its future trajectory. A word from The Hon. John Shimmin MHK, Minister for Economic Development opened the day’s proceedings with a the Sponsor welcome address which described the eGaming sector as a ‘true Isle of Man With its advantageous public-private success story’ and outlined the partnerships, a world class government’s commitment to communications infrastructure and engaging with every level of the a portfolio of some the industry’s industry, both licensed and non- leading companies, the Isle of Man licensed, to understand the market is a pioneering jurisdiction which is Continent 8 Technologies is proud to and its requirements. The morning the envy of many across the globe sponsor this report and we look session followed, providing global and and one which Continent 8 is proud forward to next year’s KPMG eGaming sector specific updates as well as a to call home. Summit in the Isle of Man. history of sports betting, from land- Our investment in the Island, in the Richard Ebbutt based to online and social media. recently expanded Continent 8 Data Highlights of the 2013 eGaming Centre as well as our new and Continent 8 Technologies Summit included the first of the day’s revolutionary cloud backup facility is panel sessions, moderated by Hilary testament to our commitment to Stewart-Jones, on the challenges of adapting to the needs of our clients in enforcement in remote gambling, as this constantly evolving marketplace. well as a rare glimpse into the world of

Address “Our small team is engaged with every level of the industry The Hon. John Shimmin MHK to understand the Minister for Economic Development market and your The Hon. John Shimmin MHK Isle of Man Government needs.”

Before his election as Minister for action taken within the Government. I’m delighted to see continued growth Mr Shimmin acknowledged the danger thought leaders in this respect and I Economic Development in 2011, the “Our national income accounts, throughout the year, while the pipeline of complacency, however, explaining urge the leaders of every industry to Hon. John Shimmin MHK held the released last month, confirmed 29 of opportunity looks as strong as ever.” that there are always challenges that do the same. Only recently comments post of Minister for the Department years of continuous growth,” he must be embraced. He confirmed that from Prime Minister David Cameron “But another, and probably the most of Environment, Food and enthused. “We have a record number the Isle of Man Government is actively and Chancellor of the Exchequer important strength, is the relationship Agriculture from 2010-11, and has of people in employment, with an pursuing opportunities wider than George Osborne have recognised the that we in government have with you held previous posts as Minister for unemployment level of approximately eGaming, e-business and ICT, and is strides the Isle of Man Government in the industry. Ours is a public/private Local Government and the 2.3 per cent, and our indications are currently diversifying into China and has taken to maintain a strong partnership working to excellence. Environment, Home Affairs, and that the economy continues to grow at the Middle East. “Our whole reputation. We must celebrate what Our small team is engaged with every Transport. A keen supporter and a rate of 3 to 4 per cent: in global and government proposition now covers you have achieved to date. The level of the industry to understand the representative of the Isle of Man’s Western economic terms, a real 20 diverse sectors of our economy,” he opportunity for growth on the Isle of market and your needs.” The Minister eGaming cluster, Minister Shimmin success story. A major part of that has confirmed, “which gives us strength. Man is strong and to be welcomed, alerted the floor to the recently formed has been instrumental in the been our eGaming industry, which We are open for business, we are and I think that by working together eGaming Strategic Advisory Board, coordination of a number of continues to play a significant role in open for excellence in standards, and we will demonstrate the enterprise, which provides an extra level of government initiatives to enhance delivering that economic growth. We we are here to grow your business. the innovation, and the independent expertise to the industry, “because we the Island’s regulatory environment now have more than 50 licence If that requires you to bring people in spirit of a small island that will ensure understand that’ Government does not as well as its overseas reputation as holders, and eGaming provides 9% of to grow it we have an open door, and I our success for years to come.” have all the answers” he added. “Our a world leading jurisdiction for our GDP, and it’s still expanding. I can work with you and your industry to strategy of working with the Board is eGaming and e-business. would like to thank personally all of bring in the people you require. If you you who contribute towards this taking us in the right direction and we Mr Shimmin welcomed delegates to and your business are looking to grow commitment to ensure that the Isle of will continue to work with you to “My department will what he described as “a Summit on on the Isle of Man, come and talk to Man remains at the forefront of the exploit every opportunity.” the Isle of Man that showcases a real myself or Peter and the team before global eGaming industry. My and does remain local success story – our eGaming “But we have more on the Isle of Man you put in that application to see if I’m department will and does remain sector. For those of you who are first than just the eGaming companies: it able to facilitate a smooth transition for committed. When the industry speaks, committed. When time visitors,” he continued, “I hope wouldn’t work on its own. Those of you you. We are a proud nation; we want we listen.” we live up to your expectations. We who have chosen to join us on the jobs for our own people, and you as the industry speaks, are aware that we are a success story Mr Shimmin continued in explaining Island will also appreciate the software entrepreneurs will create those jobs if and are known globally for our that the Department of Economic providers, the corporate service we create the environment in which we listen.” eGaming reputation. From your side, Development had strengthened its providers, lawyers, accountants, you can succeed.” affiliates, payment providers and data I hope that you find the Summit eGaming team this year with the In closing, Mr Shimmin expressed his specialists; all the different parts of a beneficial.” appointment of Peter Greenhill as CEO desire to reassure the Summit that the of eGaming Development; a newly business community. These are Mr Shimmin then went on to explain Isle of Man wants to be the thought created position within the Isle of Man businesses that have formed a world that his predecessor, the Chief leaders of a global community on Government. “Within those first few class cluster and, what’s more, we Minister Allan Bell, in his Autumn taxation affairs. “Our 0/10 per cent months Peter has brought renewed have more capacity for growth in those Statement placed growing the corporate tax is secure and approved; energy to our business,” he said, “and areas.” economy at the very heart of every we have shown ourselves to be the

Warwick Bartlett Chief Executive Global Betting and Gaming Consultants Warwick Bartlett

Warwick founded Global Betting and he remarked. “It has had a dramatic The only way is up Gaming Consultants (GBGC) in effect on employment and on salary “But there’s a downside to this, and 1998. Originally from an operational increases and this has cramped that is that governments never know background, Warwick now has over spending. For the eGaming industry when to stop,” Mr Bartlett remarked. 40 years’ continuous experience in new signups are hard to ﬁnd, and “And there’s now a pattern emerging the gambling industry, continuing to those that do sign up have less money whereby gambling taxes are being chair and present at numerous UK to spend. It’s also affected those that increased.” Drawing the attention of and international gambling work in the industry. Investors in the the Summit to his presentation, Mr conferences. He is regarded as one industry want results and the Bartlett listed 14 countries and 1 US of the industry’s top experts. managers are very often held as state in which various gambling taxes scapegoats. The number of managers “I think it’s a good idea if we start at a already had, or were due to grow, who leave an organisation and turn up distant point, which is the onset of the including the UK, Finland, Mexico, somewhere else is quite 2007/8 recession”, Mr Bartlett opened, Spain, South Africa, Massachusetts, considerable.” “because that basically has affected Bulgaria and Argentina, to name a few. everybody and everything that we do. “But what we’ve always said at GBGC “A rise in tax rates leads to a fall in You could call it the ‘Great Recession’ is that recession brings opportunity”, revenues, and when you combine that if you live in the USA, Britain, Canada, Mr Bartlett continued, “and it does.” with the recession the industry, Australia, the Nordic countries and He explained that recessionary particularly the land-based arm, has Germany, but if you are from Italy, climates cause governments to review been slowly hit.” Spain, Portugal, Greece, Ireland, it’s their tax revenues and realise the By way of illustration, Mr Bartlett not the Great Recession it’s the Great imperative to explore new avenues for turned the attention of the ﬂoor to a Depression. What’s happened there is income; “so it causes governments to line graph depicting levels of GDP and quite catastrophic, particularly for think about the gambling industry like Gross Gambling Yield growth in Spain people who live in those countries.” they’ve never thought about it before.” from 2004 to 2013. Despite showing a Drawing upon Singapore as an close correlation between the two What has it cost per household? example, Mr Bartlett observed that from 2006 to 2010, a rise in gambling Quoting information from the Federal regulators had historically avoided taxes in the period then leading to 2013 Reserve Board Dallas, Texas, Mr legitimising gambling but have been showed an inverse correlation, with Bartlett demonstrated that, based on a forced to allow the opening of two GDP rising in 2010, and GGY falling conservative estimate, the cost of casinos in recent years. Similarly, dramatically over the same period. Bar recession in the US is $50,000 to South Korea is, at the time of writing, charts depicting the most severely $120,000 for every household, which formulating legislation to encourage affected industry in Spain and Greece, amounts to an overall cost of between investment in new casinos, as is the land based casino industry, showed US$6 trillion to US$14 trillion for the Japan. “So there’s a world change, and similar pattern s – with a €250 million United States alone. “Multiply that to we see this in the United States with fall in annual revenue between 2007 match the rest of the world and, of eGaming,” he added. and 2012 in Spain, and a €465 million course, this has had a dramatic effect,” fall over the same period in Greece.

© 2013-2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 5 (“KPMG International”), a Swiss entity. All rights reserved. 6 “The two most economically powerful countries in the world have the most “Any economy that doesn’t scope for gambling services, given the accommodate start ups is legislation that will allow it.” destined to fail”.

The softer issues per capita was recorded in Oceania the US is different: in some States UK Point of Consumption Tax cost base, so what else can they The Isle of Man (US$741 per capita), then North gambling is prohibited or restricted and “And once they’re here, they’re economise on? Marketing spend has America (US$294), Europe (US$212), what this tells you is the scope for the Closer to home, the introduction of the Moving on to the benefits of the Isle of unlikely to move”, he added. “Our increased rapidly as companies try to Central/South America (US$96), Asia United States is significant. Then you Point of Consumption Tax in the UK is Man as a place in which to do research at GBGC shows that once a increase their market share in (US$43) and, finally, Africa (US$7). compare China and Macau. forecast to raise £300 million for HM business, Mr Bartlett placed the zero company is licensed in a jurisdiction anticipation of the introduction of the “Looking at Oceania, it’s easy to see Those of you that have been will Treasury, “and that is £300 million that rate of corporation tax at the top of his they tend to stay there because they Point of Consumption Tax, but when why Ladbrokes, Coral, William Hill and testify that the Chinese gamblers in will leave the industry never to return”, list, followed by low income tax for have various anchors in place. But we reality kicks in that spend will have to so on are investing heavily in that Macau will bet their last dollar on the Mr Bartlett added. “That is going to employees, and zero Capital Gains Tax need to build on those anchors. Good reduce. My fear, however, is that all market”, he explained. “But at the turn of the cards. In Hong Kong, have an effect, particularly on those (CGT) for businesses. “This is very schools, the European café lifestyle, this will lead to less value to the other end of the spectrum we have legalised gambling is conducted companies that focus heavily on the important for entrepreneurs”, he links to the UK, luxury homes, and consumer”, Mr Bartlett continued. “The Africa. It has low income per capita through the Hong Kong Jockey Club, UK. I would say that for those remarked, “because if you come over shopping, these are important. When consumer is going to lose his money and poor communications, but we who run the lottery and sports betting companies some consolidation is likely here to set up a business, you work people come to consider moving here, quicker, he’s not going to have as much need to consider where Africa is going even though the offer to punters is to take place. Most eGaming hard and when you look for the exit at for the guys there are nine golf fun, and he might be pushed to spend in the future. Africa is growing; it has competitive by our standards, Hong companies run on tight margins and some point in the future, you’ll want to courses, lots of sport and plenty of his money elsewhere.” massive investment from China, and in Kong police say that the illegal have probably already lowered their keep the gains that you’ve made. pubs. You can go fishing, diving, you 2007 at the height of the recession it gambling is still double that which is Moreover, CGT is being looked at can have a boat, you can have a grew 8%. It won’t happen tomorrow recorded as regulated. The peoples of pretty much everywhere except here.” motorbike; the guys just fall in love but companies are already building a both China and Hong Kong have a with the Island. Then they bring their “We also have excellent data centres”, brand there for the future. In terms of similar taste for gambling yet the wives over, and it’s a different story. he continued. “Gambling taxes are Asia, no one can believe that they only differences in recorded legalised This is a problem: if we intend to reasonable and the licence fee is spend US$43 per capita, but what gambling are not so very different as accept money from various countries £35,000 a year, which for the larger we’re talking about here are the they are between Canada and the either as bank deposits or direct companies is chicken feed. But for regulated gambling figures - the illegal USA. investment then we need to small start ups, this fee is quite gambling in Asia is really significant.” onerous. An entrepreneur may enter reciprocate and if companies want to So you can see there that the two the market knowing that he’s not going invest in our retail sector from abroad Global gambling revenues most economically powerful countries we should allow them to do so. in the world have the most scope for to make any money for the first three Moving on to global gambling spend gambling services, given the years, but he will have spent over Economic policy per capita by jurisdiction, Mr Bartlett legislation that will allow it.” £100,000 on a piece of paper that drew parallels between neighbouring “Businesses need consistency when allows him to operate a business here. jurisdictions the US (GGY per capita “So long term we’ve got a lot to look they’re making decisions; it’s the most So they look upon it as a commodity US$396) and Canada (US$621), and forward to”, Mr Bartlett explained in important factor”, explained Mr Bartlett. when they’re setting up a business.” China (US$16) and Hong Kong closing. “In the immediate future, “When the government’s expenses (US$500): “and the reason for this however, life is going to have its “But any economy that doesn’t are rising and incomes are declining selection is that the US and Canada, challenges. But that, after all, is the accommodate start ups is destined to this creates uncertainty, so businesses like China and Hong Kong, both share nature of the business.” fail, and that’s a fact”, Mr Bartlett need a clear, unequivocal statement a common border, so the culture is warned. “Some might say ‘if they can’t from government concerning what the pretty much the same for both pairs.” afford £35,000 we don’t want them fiscal strategy is for the next five anyway’, but we’re not in that market years.” He demonstrated that although the US now. You’re not going to blast has a higher disposable income per Global gambling Ladbrokes, William Hill and Coral out of capita, the gross gaming yield per Gibraltar; they don’t pay VAT there and Turning to the global gaming market, capita in Canada is much higher. “The the cost to move is onerous. So we Mr Bartlett referred the Summit to a reason for this is that gambling in need the start-ups.” Mr Bartlett bar chart which showed the global Canada is pretty much run by the proposed a £5,000 licence fee for the gambling spend per capita by state. They embrace it because they first two years, rising to £35,000 continental region in 2012. In want to tax the revenue, and they thereafter, noting that the loss to descending order, the highest spend want the money for good causes. But Treasury is inconsequential because those startups would not otherwise choose the Isle of Man as their

headquarters. © 2013-2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8 7 Peter Greenhill

Following a very successful career and betting operators whilst MD of Sector Update: IOM specific Peter Greenhill in banking and banking systems both Cyberview UK and TCS John with Credit Lyonnais and Unisys, Huxley Europe. As an executive CEO eGaming Development A regular contributor to and Gambling Regulators European Forum, Peter has spent over 17 years in consultant, Peter has also advised a ‘stalwart’ of the KPMG eGaming the International Masters of Gaming Isle of Man Government executive management positions in number of companies in the mobile Summit series, Steve Brennan Law, and the IAGR, or International Department of Economic the gaming sector. He has provided and eGaming sector on their B2B opened this year’s Isle of Man Association of Gaming Regulators. solutions to lotteries worldwide operations and has also worked for Sector Specific Update by first “The Isle of Man has got a place in Development whilst with EssNet AB and Betex, the board of Camelot on strategic introducing the floor to Peter those forums”, he assured the Summit. and to the major European casino issues. Greenhill, the new CEO for eGaming “This is where policy is being Development with the Department discussed and taken back into of Economic Development and jurisdictions, and my view is that it is noted figure within both the very important that the Island has a eGaming and international finance voice at those forums to make sure sectors. that it can be part of and go some way in shaping the discussions that affect Mr Greenhill then formally introduced the interests of the Island sector.” “We’re working hard himself before outlining the role of the DED as being a means of working with Mr Brennan also noted that the in tandem with the the eGaming sector “to grow the Gambling Supervision Commission economy, to create jobs on the Island, has also been lobbying with the Channel Islands and and develop the right market European Commission, stating that an with our EU conditions not just so that companies expert group of 28 Member State Steve Brennan can grow here and expand, but also to representatives has been set up and at attract new businesses to the Island.” which the Island currently does not Chief Executive representatives in have a place. “But this is an Last 12 months opportunity for us to have an input at Isle of Man Gambling Supervision Commission Brussels to make sure An overview of 2013 soon followed, that group and we’re working hard in during which Mr Brennan remarked tandem with the Channel Islands and that doors are being that the sector’s private/public with our EU representatives in Steve Brennan has been the Chief responsibility within the partnership had “made tremendous Brussels to make sure that doors are Executive (formerly Director) of the Commission is for the development opened and the strides these past five years, not just being opened and the Island’s voice is Isle of Man Gambling Supervision and maintenance of the regulatory in creating but in protecting the represented.” Commission since June 2008. The framework to license and supervise Island’s voice is environment in which the eGaming Business development Gambling Supervision Commission all forms of gambling in the Island. sector has flourished.” He continued in was initially established in 1962 and Prior to his appointment with the represented.” explaining the importance of the Island “What the DED provides in this consists of an independent panel GSC, he held senior positions within representing itself at various respect is the framework for attending headed by a Chairman and four the Isle of Man Treasury. conferences, expos and forums related conferences and seminars all around members. Steve’s primary to the sector, noting in particular the the world”, Mr Greenhill added. “We’re importance from a gambling inviting our partners here on the Island regulator’s perspective of remaining to come with us and help to create Steve Brennan active in forums such as GREF, or the one environment that we can show to

the world. At EiG for example there tremendous movement in this area, Headlines: last 12 months the message going out to operators with terrorist financing. “I can’t “Our pipeline for new were 11 companies at the DED’s with encouraging growth on the job and advisors in the room is; if you have overstate how important this is to the Mr Brennan explained that the UK stand, representing the Isle of Man side of the Island’s software houses a product that you’re looking to add to industry,” Mr Brennan added. “The Point of Consumption Tax and the business is also together through CSPs, operators and and platform suppliers. We’ve seen your licence in the next 12 months Island is going to be measured by the closure of UK White List as part of data-centres, and we’re getting a significant investment in the capacity then it’s important to bring your Council of Europe’s Moneyval in the associated licensing activity had looking very strong, massive response from that.” of our data centres across the board product forward and get it up and next two to three years, and our featured heavily throughout the course and we’re expecting our new business running so it can be added from your legislation and its application will come Year on year comparison of 2013. “There’s been a lot of not only in terms of to fill up that capacity. Our CSPs are IOM licence to your UK continuation under scrutiny. It’s important that we discussion on this matter and the case Taking over from Mr Greenhill, Mr growing as well, one company has licence.” show the law is being used and that is changing as arguments get our application Brennan then referred the Summit to a over 20 staff dedicated to gaming, there are tangible results. The Fourth stronger”, he remarked. “But I think the Moving on to the Isle of Man’s live table illustrating growth figures for the which is superb. We’ve also seen new European Money Laundering Directive bottom line is the UK will do what they gaming tournaments legislation, considerations but industry over the past 12 months. businesses start up, one that sees a is also on its way so I think it’s the intend to do: they’ll introduce new known as the Casino (Amendment) Overall, the table evidenced steady large number of staff, or principals, proper time to make sure our AML licensing and a new tax regime and Bill, which was enacted in 2012, Mr also in terms of growth within the sector. The number betting on behalf of themselves, and legislation is more comprehensive and which doesn’t need a licence. These the Isle of Man, rather than objecting Greenhill described the PokerStars of licence holders has grown from 45 ready for when the directive comes in are all adding to a pool of gaming to it all and standing on the outside of poker tournament held in October as qualifications of in 2012 to 56 in 2013, while fewer and the assessment takes place. The related companies on the Island.” the debate, has adopted a cooperative “a massive PR boost for the Island, licences had been rescinded or industry can expect to see a lot of approach to ensure that we have some creating more than 1,100 bed nights, a interes t”. suspended (7 in 2012, and 5 in 2013). Economic benefit material concerning AML from the insight and input. Our objective is 30 per cent increase in casino A number of licensees were also Gambling Supervision Commission Turning to the economic benefits of always to understand the direction the attendance, a 50 per cent increase in awaiting approval while a further 8 over the next 12 to 24 months.” such growth, Mr Brennan again UK is going in and put the necessary nightclub revenue, 8 days of rental for licence applications were being remarked upon the steady growth of provisions in place to minimise any the Villa Marina, and 350 well known Moving on to player protection, Mr considered or prepared this year in the sector and its increasing benefits business cost to Isle of Man players in attendance. This was very Brennan reemphasised its importance comparison to last year’s 4. “Our to the Exchequer. Revenue generated operators.” well run and we hope to repeat it in to the industry and described it as pipeline for new business is also from licence fees has increased from future years.” integral to the Island’s proposition. “It looking very strong”, Mr Greenhill “There has also been much talk about £1.7million in 2012 to £1.9million in can be seen as a business cost, but it reiterated to the Summit, “not only in what happens to the UK in terms of The Miscellaneous Provisions Bill 2013, while online duty has increased does satisfy a number of political terms of our application considerations operators that are already in EEA or offered the opportunity to consider from £2.9 million to £3.6 million. Other stakeholders and other sectors on the but also in terms of qualifications of white tisted jurisdictions,” Mr Brennan what Mr Brennan described as the taxes had again increased from £16.4 Island. We think it’s the right tool and it interest. We currently have 11 continued. “The terms ‘transitional future shape of the gambling industry million in 2012 to £17.8 million in 2013 has served us well, but we are looking companies that we’ve spoken to after licence’ or ‘continuous licence’ had on the Island. “It addresses issues as and local spend has increased from for cost effective solutions for our shows (compared to 6 in 2012), for been mentioned and the UK has diverse as casino licensing processes, £175 million to £198 million. operators to provide the necessary example, which are now past the point confirmed that any operators within a administrative procedures, technology Employment figures within the levels of protection to their players. We of casual interest and can be white listed jurisdiction will get a proofing and more. The consultation industry had also shown significant also want to develop a more considered formally interested in continuation licence to operate period is closed, there’s been a lot of growth from 775 in 2012 to 854 in comprehensive suite of measures for joining us here on the Island.” through the transition period. There are feedback, but it’s not too late to make 2013. “This is significant”, remarked Mr operators to protect their players’ Greenhill; “if we add in related some restrictions around the any further suggestions – we’re always Non-licensable funds.” businesses, the e-business sector continuation licence, but they are very open minded when it comes to “But it’s very important to recognise combined constitutes 13 per cent of keen to make sure that the process for industry feedback.” Finally on the subject of the last 12 that our industry constitutes a mixture the Island’s GDP, and that figure will Isle of Man operators is almost months, Mr Brennan explained that He went on to explain that anti-money of those companies that need a grow in coming years. This combined seamless. The UK thinks that the the GSC had become an integral part laundering will also constitute ‘a big licence to operate and those that sector plays a key role in our ambitions transition licence period will be fairly of GREF and IAGR, sharing its ticket’ for 2014, noting that the Island’s support the industry and don’t need a for 2020 because it’s important that short but I’m not so confident given knowledge and expertise in the many current code had, at the time of licence,” Mr Greenhill reminded the we don’t rely solely on eGaming for the number of applications they’re aspects of eGaming regulation and writing, recently been consolidated Summit. “We’ve seen some future revenue.” going to have to deal with. So I think supervision. “We find they are great

forums to enable us to share best growing the industry sideways from practice, put forward our thoughts and new eBusiness and non-licensed Dominic Atkinson ideas, and help shape the direction of companies as well as up.” Commercial Director policy. Most important of all for the Isle Mr Greenhill also emphasised the of Man, however, is that this sort of importance of the DED working in Tailorbet activity builds trust with other partnership with the GSC and the regulators, a prerequisite for sector to improve the Island’s formalising relationships through international relations and attract the cooperation agreements”. headquarters and major departments “During the last year our partnership of larger global operators. “Each of with the private sector also led to the these measures is complementary and development of our five year strategy,” vital to the industry, and one cannot be added Mr Greenhill. “Our discussion prioritised over the other,” he added. identified seven core areas that New markets Government needs to work on to create the right environment for In closing, Mr Greenhill briefly businesses to flourish and come here. discussed new market potential for the We’re along the way towards making Island, noting that discussions had some of those come to fruition and been opened with US Native American we’ll be meeting very soon to refresh tribes concerning extra-territorial reach those strategic objectives.” beyond the US. Concerning products, Mr Greenhill also remarked upon the Strategy for the next 12 months DED’s intention to grow the Island’s Concerning the Department of binary options market as well as non- Economic Development’s plans for licensable business. Finally, Mr 2014 and their position within the five Greenhill expressed his concern over year eGaming strategy, Mr Greenhill the future of social gaming and its identified certain key points which place within the world of online warranted further attention. Protecting gambling, describing it as a ‘disaster the Island’s licensed and non- waiting to happen’. “In an unregulated licensable base remained a priority and environment someone at some stage although an impact analysis showed is going to clamp down on this very that the UK’s Point of Consumption Tax quickly,” he explained. “It is a concern posed no major threat to the local and we will be looking at it internally in sector, Mr Greenhill emphasised that the future.” Dominic is the recently appointed 365, Gala Coral, Ladbrokes and “the Island must keep working to Commercial Director of Tailorbet, William Hill. In 2010 he was ensure that companies are protected. which provides a network solution appointed Head of Commercial, On top of that, we want to ensure for users to create, customise and Sports Betting before moving to growth in jobs, in new business and in share bets with others using their Satellite Information Services, or our eGaming environment overall, preferred sportsbook/sports portal. SIS, in 2011. There, as Head of Dominic began his career in Business, Dominic led discussions eGaming as Commercial Manager on strategic partnerships in an ever for sports betting with the Press consolidating marketplace. Association Group, where he was responsible for clients such as Bet © 2013-2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International 13 Cooperative 14 (“KPMG International”), a Swiss entity. All rights reserved. Mr Atkinson introduced his “In 2001, however, Britain was hit by Betting Duty, early pioneers such as bets, but last year the margin for in- presentation as an analysis of the Foot and Mouth Disease”, he Victor Chandler, today known as play bets came down from 4.8 per growth of the sports betting market continued. “There were restrictions on BetVictor, developed a strategy to offer cent to 4.2 per cent. “As a result of and the factors contributing to its animal movements and, as a result, better value for money to their this, algorithms are becoming a huge evolution from the blackboards and virtual betting became paramount in customers. In 1996 Victor Chandler part of bookmakers’ operations. audio visual systems of early retail betting shops which had to find new relocated to Gibraltar and by 1999 was They’re having to look at ways and betting shops to the sports books ways of staying open. For the the largest employer on ‘The Rock’ means of outsourcing elements of and betting exchanges of the digital uninitiated, many might find the appeal with some 350 employees, and their trading function. Services from era and, ultimately, the position of of virtual betting difficult to remains there today. “Almost as a companies such as BetGenius and social media within this most recent comprehend: (computer generated direct result, HM Treasury had to Sporting Solutions are now part of a category. races where the horses and the tracks adjust its Betting Duty”, said Mr book makers operation. It’s cost aren’t real,) but no one thinks anything Atkinson. “Another success story was effective and it allows the bookmaker An historical overview of the industry of purchasing a lottery ticket or the Coates family - Bet 365. In 2001 to extend their in-play markets a lot “Today, some 57% of followed, during which Mr Atkinson premium bonds. Nowadays, virtual Peter Coates’ daughter Denise quicker.” identified key milestones such as the betting is huge. It’s interactive and developed a sports betting platform gamers still use the opening of the first betting shops in The betting exchanges immersive; it’s a multi, multi-million and trading team to launch the Britain in 1961 with the introduction of dollar industry that continues to grow business online. Profits ballooned from Following on from the online sports lottery and 20% still the Betting and Gaming Act, the birth and more sports are being added all £3.8 million in 2005 to £148 million in books came the betting exchanges, Mr of rudimentary online betting in 1993 the time.” the last calendar year. Bet 365 now Atkinson explained. Betfair launched in purchase scratch and, at the turn of the last century, the turns over £20 billion annually and they June 2000 and turned over £1.5 billion advent of online betting exchanges. What’s changed? are now bigger online than William Hill in less than two years the end of 2004 cards, while 17% “Social media,” Mr Atkinson “Over the last five years, fixed odds and Ladbrokes combined.” in excess of £50 million per week was confirmed, “is already the next big betting terminals, or FOBTs, have had placed on matched bets. “There are a remain loyal to horse thing, and we at Tailorbet are providing In-running betting a remarkable effect on the retail number of fundamental reasons for a means of creating new betting betting market”, Mr Atkinson As Mr Atkinson remarked to the floor, the early success of Betfair. In 2004, a racing – a significant opportunities for new customers continued. ‘Legislation now restricts the traditional model of betting before survey found that a horse race punter working with a new generation of the number of machines permitted in the beginning of an event has now would be 10 per cent better off using a alteration.” betting platforms.” betting shops because they’re changed irrevocably. Sports that were betting exchange over a sports book, How we used to bet perceived to increase problem once a low revenue generator such as although I’m not sure the same figures gambling, but they are now extremely tennis and basketball now sit in the apply today”, Mr Atkinson added. “No “To delve a little deeper”, Mr Atkinson important to the survival of Britain’s top five most popular sports directly as wonder, then, that for ordinary mid- continued, “we need to explore the betting shops.” a result of them being more conducive week races in Britain matched bets rapid rise of ‘bricks and mortar’ betting to the in-running format. “No wonder were exceeding £400,000 per race.” shops in Britain.” He explained that Mr Atkinson explained that FOBTs in then”, he added, “that operators such within six months of the Betting and Britain now take as much yearly “Another early success factor was as Sporting Bet are now reporting that Gaming Act being passed, over 10,000 revenue as over the counter horse down to technology”, Mr Atkinson over 60 per cent of their revenue betting shops had opened in the UK. racing and sports betting combined. continued. “Betfair had no legacy; they comes from in-play betting. Football, Odds were published by hand on a “Betting shops will survive, however”, weren’t a betting company and they however, still provides the majority of series of blackboards and came via a he assured the Summit, “though this could do what they wanted to do with operators’ income. Running Ball, now speaker system, or the ‘blower’, as it may be at the expense of the their technology. Punters were able to owned by the Perform Group, offers was then known commentaries and independent. Very much like the British back and, more importantly, lay for the over 37,000 football matches per year, results of horse races. In 1995, supermarket and their local/express first time. Betfair saw themselves as a often directly from the stadium. They however, the Lottery Act gave rise to supermarket sector, many independent software house led by technology, not provide results on goals, free-kicks, the UK’s National Lottery which, Mr betting shops simply can’t compete led by betting.” corners, and more all within micro- Atkinson observed, had a significant with the Ladbrokes, Paddy Powers and seconds. Similarly tennis, which was Mobile adverse effect on the sports betting William Hills of this world. They don’t nowhere five years ago, has exploded: market. “Punters used to placing a have the marketing budget, nor do Mr Atkinson confirmed that the 2010 45,000 matches per year are now £2/£3 bet on a race in the hope of they have the capacity to offer the World Cup in South Africa finally available to bet on in-play, with scores winning £10 could suddenly win content that the larger bookmakers announced mobile as the next coming directly from the umpire’s millions with £1 down – albeit with provide.” platform for sports betting. Mobile is chair.” rather different chances of winning”, he expected to become the dominant The birth of the cyber-twin explained. “Today, some 57% of The margins on in-play betting are, channel for sports betting in the next gamers still use the lottery and 20% At the turn of the century, these however considerably smaller for World Cup in Brazil in 2014 and the still purchase scratch cards, while 17% betting shops had also developed what bookmakers, Mr Atkinson explained. reason for this, he observed, is uptake. remain loyal to horse racing – a Mr Atkinson described as a ‘cyber William Hill, for example, reported that “Around 4.3 per cent of iPhone users significant alteration.” twin’. Concerned about a 9% UK 8.8% is the margin for their ante-post have a sports betting App downloaded

© 2013-2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative © 2013-2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 15 (“KPMG International”), a Swiss entity. All rights reserved. (“KPMG International”), a Swiss entity. All rights reserved. 16 on to their mobile. Now this figure commodity. Bodies are putting out may not sound too impressive”, said requests for proposals to the sports Mr Atkinson, “but it’s only a matter of betting market with the result that time before we’re reporting a 10 or 15 companies such as SIS, or Satellite per cent rate of direct uptake. William Information Services, for example, Hill, for example, reported that 34 per paid £4.5 million to Horse Racing cent of all bets in Q1 2013 came from Ireland just to feature the Irish racing mobile – a staggering 298 per cent pictures in their betting shops. SIS increase on last year.” subsequently paid each racing track in Ireland several hundred thousand Another big trend to emerge, he pounds, with an additional £6,000 per continued, is known as the ‘second’ or race for these rights - and this is “As always, people’s ‘companion screen’. “At half time on a before we move online. Enetplulse televised football match in Britain, reportedly paid $40 million over five lives are changing nearly every single advert is a years for the ATP tennis rights and bookmaker pushing their in-play odds. Perform Group themselves reportedly and betting is Indeed, the smartphone and tablet paid Football Data Co. £5 million over gambling market is expected to reach three years for the betting data of the changing with it.” £100 billion by 2017, and as Paddy English and Scottish football leagues.” Power’s Chief Executive Patrick Kennedy forecast, we expect 90 per Conclusion “Flexibility is key to meeting the challenge cent of industry growth over the next “In many ways”, Mr Atkinson remarked six years to come from mobile.” in closing, “it could be said that the for all, not just in the sports betting industry, Governance betting industry has more or less gone full circle. Betting shops are having to and we at Tailorbet, are at the forefront of Moving on to the development of attract a younger generation: fixed industry partnerships, Mr Atkinson odds and self service betting terminals that process of evolution.” informed the floor that sports are having to be introduced as a governing bodies now play an means of offsetting in-play and online important part in shaping the betting trends by inviting customers to industry largely by deciding what’s migrate away from online and into the available to bet upon. “Once upon a betting shop. Many bookmakers are time they were reluctant to be launching their own television associated with sports betting, but this channels, or becoming content is now changing, and for two reasons,” aggregators in their own right. So he added. “Firstly, high-profile what’s next? As always, people’s lives incidents of match fixing have forced are changing and betting is changing the governing bodies to work with with it. Flexibility is key to meeting the sports betting; they know that challenge for all, not just in the sports gambling is going to take place.” betting industry, and we at Tailorbet, “The second part of the changing are at the forefront of that process of environment for governing bodies is evolution.” that they realise for the first time that they’re sitting on a commercial

“Enforcement is a critical issue within worthwhile, you want to make sure Panel 1 – the online gambling industry”, Ms you keep those bad actors out. There Stewart-Jones began. “The online is increasingly, therefore, a cry for gambling industry is probably the most more enforcement muscle to be successful end-to-end digital retail exercised on behalf of those who have The importance of keeping crime out of experience. But of course, what we’ve paid their fees and want to protect seen over the last ﬁve to seven years what they’ve spent so much money is an increasing drive to regulate. This getting. The days of a licensing hub, gambling; the challenges of enforcement in is something that we’re all in favour of; whereby you can license in one people will always gamble and it jurisdiction and access the rest of the remote gambling would be folly for governments to world are, however, over. How has this push customers into unregulated Balkanisation, or fragmentation, of the markets. But, particularly within regulatory landscape affected Europe, the cost of getting those enforcement within the industry, and Moderated by Hilary Stewart Jones licences is incredibly high and in some what are the subsequent challenges cases, a thinly disguised means of a for the Isle of Man sector? Partner monopoly keeping its position of power. The problem is, in order to DLA Piper make those operator licence fees

Hilary Stewart-Jones is a partner in the firm’s London regulations for offshore governments and has drawn up office and part of the Intellectual Property and industry codes of practice. She sits as a trustee for the Technology Group. She focuses solely on gambling Responsible Gambling Trust and has recently taken up a related issues. NED position for Playtech. Hilary will maintain her association with DLA Piper when she moves to a Having spent five years as in-house head of the consultancy role in 2014. Chamber in 2010 referred to gambling division at Ladbrokes, Hilary returned to Hilary as a “first class lawyer who has gambling in her private practice in 2000. Hilary has played a role in most blood”. She is the only practitioner to be awarded a star of the online sector floats/acquisitions since 2000, but in the gambling category (denoting exceptional continues to advise bricks and mortar businesses from recommendations in the sector). tracks to casinos. She has written legislation and

© 2013-2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG 19 International Cooperative 20 (“KPMG International”), a Swiss entity. All rights reserved. “Regulators tend to focus on criminal activity by operators but there’s also an obligation on behalf of the whole industry to ensure that criminal activity is also nipped in the bud vis-à-vis the players.”

Paul Leyland – Mr Leyland explained “Now, 13 or 14 years later, we’ve only one licence’, they said ‘yes, but Paul Leyland – prosecution, extradition, budgets and “This is the internet, that one of the key challenges faced come a long way and the industry has that’s like robbing a bank and only priorities,” added Ms Stewart-Jones. “There are two principal stakeholders from an operator’s perspective is the very much turned around. But robbing one teller’. They do rather “Unless you have the enforcement that present themselves in a regulated there’s no stopping difficulty of predicting what the shape responsibility for protection now understand that breaking the law is muscle of the US Department of market that don’t get factored into a and profitability of a market is before it lies as much with the operators and binary. So wanting licences in Justice, which also has fear on its side, dot com market”, Mr Leyland agreed. the industry, but what regulates. “It’s quite easy adhering to providers because, at this point, it is jurisdictions that recognise extra- most governments just give up “The most obvious is government, so a compliance programme”, he needed. If there are ‘bad actors’ in the territorial probity, which is principally because it’s too much hard work to you have tax coming out where government remarked; “you involve yourself in player section and an operator system the US and increasingly parts of catch a comparative handful of rogue historically you didn’t. The second, and markets where you can make money is being abused by a single player who Canada, is one of the reasons why a customers. So, with this in mind; this is often forgotten, is that you have regulation can offer and you do as you’re told within them. may have a whole team of computers company may decide to shut down domestic incumbents who have what tools need to be made available The problem is having an economic supporting him, then the rest of the some of its spicier dot com cash flow historically not had a remote presence to governments or operators to keep players is the compliance programme. If you’re players and the operator need to be from elsewhere.” operating sports betting in France, and develop one very quickly. They the bad actors out? protected. I think the legislation to do For listed organisations, Mr Leyland confidence to you’re probably not making money. typically get a decent market share so properly, however, is still a long explained that the stock market is Paul Leyland – “To take a very broad If you don’t have a top three market either by knowing their market very way off.” beginning to understand that some brush, because this is a complicated share in Spain or Italy, you’re probably well or by making sure that the differentiate between jurisdictions carry more risk than subject,” Mr Leyland began, “I think not making money, and if you’re going “This is a very good point”, Ms regulation suits them down to the there are two principal issues that into a country like Denmark with a low Stewart-Jones agreed. “Regulators others while many jurisdictions are ground. I think that’s something that the operators available also no longer as economically viable governments could address to make population, operating to a profit is a big tend to focus on criminal activity by the dot com operators haven’t factored as they once were. “Finally”, he added, things much easier.” The first, he stretch, particularly for companies that operators but there’s also an obligation in sufficiently well to create a healthy, to them.” “there are also an increasing number explained, is there tends to be too are juggling all sorts of issues on behalf of the whole industry to well regulated commercial of senior executives who want to be much focus on the operator, which can concerning technology and the ensure that criminal activity is also environment.” involved in the whiter, rather than grey, be made to be a very thin piece of the prioritisation of growth. So the biggest nipped in the bud vis-à-vis the players.” value chain. single issue is discerning if a market is companies.” Peter Kjaer – “This is the important “Going back to the creation of a joined driving force,” Mr Kjaer added. “You profitable without first being in there “This ‘long shadow of Nevada’ is an A significant amount of the total up, pan-jurisdictional compliance can’t have regulation without cost but and losing money for three or four interesting trope”, Ms Stewart-Jones gambling chain can, therefore, be programme; there’s a growing trend if you don’t have regulation as an years to find out.” added, “because the view coming out entirely unregulated, which can cause for companies to shut jurisdictions operator you can be cheated as much of the US at the moment is very much myriad problems with compliance: Peter Kjaer – “When we first met at a and markets down. What do you as you’re able to cheat. I would rather that there wasn’t a prayer of arguing “So there needs to be more regulatory conference many years ago, one of my think are some of the reasons for pay a government to help protect me that an activity may be legal in some focus on the pieces of the value chain key points as a speaker was that it these decisions?” against troublesome players. For the jurisdictions but not others. It does that are also important.” The second, was criminal for any government or industry to move forward we need to Mr Leyland continued, surrounded regulator not to legalise and license Paul Leyland – Mr Leyland explained seem to be something of a key have this regulation across the board. that there are four predominant performance indicator at the moment; governments’ over-reliance upon the online gaming simply because all of There are no free lunches, you have to criminal prosecution of individuals, the money goes offshore to places reasons for these recent occurrences, a measure against which a prospective spend the money, but it works for both each of which are, in his opinion, licensee can say ‘we take x which can prove to be dangerous: with no regulation, with no citizen sides.” “People can make the mistake of protection and no player protection of interrelated. “The most obvious percentage of our revenue from concerns the public domain,” he said. regulated markets’, and so on. “But in “Certainly from a European assuming they’re safe while, for years, funds,” Mr Kjaer added. “This is the someone is plotting to arrest them, but internet, there’s no stopping the “Nevada was one of the reasons terms of the cost of regulation, it is a Commission perspective, they talked a William Hill had to close in Australia. valid point that its increase is going to lot about harmonisation through only when they’re ready. Whereas industry, but what government more focus on the companies regulation can offer players is the In fact, the Nevada Gaming Control put some out of business, but that cooperation and enforcement, and Board described it rather elegantly: must be factored in. What are your there was recently a tender paper put themselves could help to create a confidence to differentiate between more compliance-driven culture.” the operators available to them.” when William Hill’s lawyer said ‘it’s opinions?” out to provide the answers at a cost, but it’s very complex in terms of

Peter Kjaer – “Tax or bond, it has to I think it was Paul [Leyland] who said If operators need be paid for”, Mr Kjaer remarked. “we will all end up as operators with “Whether you pay upfront in the initial the regulators we deserve to have”, Moderated by Archie Watt protecting as well, licence fee, you pay it annually, or you and I think there has been a reluctance pay it based on activity; it’s ultimately on the industry’s part to information Head of eGaming how would one set true that a jurisdiction that licenses share. What effect has this had in online gaming will only survive if they terms of our ability to lobby for or KPMG Isle of Man about achieving that? have regulation that can and does against significant changes to enforce its conditions, either by giving regulation? Archie joined KPMG Isle of Man instrumental in the public listings of How do you draw the themselves or the operators the tools Paul Leyland – from KPMG London, where he was 888, Playtech and PartyGaming, to do so. We need to change the recruited as an IT Advisory Director amongst others. Archie is a regular line between regulation in all jurisdictions, possibly Mr Leyland explained in closing that in the Information, Communication contributor to sector publications, by adding a non-human intervention there is an inherent conflict in large and Entertainment practice, with a including working as co-author on someone who is element, to say that if you cheat an countries which means that, on the particular focus on online gaming the report Online Gaming: operator you will be charged. That line one hand, the taxing side of clients. A Gamble or a Sure Bet?, and was playing well and alone would enable us to chase an governments “really don’t want to be recently consulted for the Remote individual, approach the regulator or bothered with the detail and just turn Archie worked on the Gambling Association report on the someone with more EU and say ‘that person has definitely the tax tap on, whereas another part bwin/PartyGaming merger and a UK Government’s planned changes broken the law; I would like to file of government just wants to regulate. number of acquisitions in the on taxation of online gaming. sinister ambitions? charges’. That’s the deterrent, and the This means that they regulate all day gaming sector. He was also cost of arranging that legislation is and employ as many people as they Are all customer nothing compared to the money being can so that they feel safer when stolen from the industry every year.” government later wants to cut back. What that then creates is a huge betting syndicates If operators need protecting as well, amount of unnecessary red tape and a Panelists how would one set about achieving huge amount of duplication across bad, for example, or that? How do you draw the line jurisdictions.” between someone who is playing well should they announce and someone with more sinister “Of course, it’s easier said than done,” Malcolm Berg ambitions? Are all customer betting he continued, “but one of the very themselves as syndicates bad, for example, or should powerful lessons that can come out of Director of Merchant Services - Ukash they announce themselves as the Isle of Man is to first establish the syndicates and be syndicates and be regulated? regulation, then sort out the tax and Mark Anthony Spiteri the player protection, then sort out any Peter Kjaer – “Ultimately it’s a case of regulated? other particularities that apply to the Business Unit Manager - Ixaris (representing the Entropay brand) letting the other side know who they jurisdiction. That way, the wrong are dealing with,” said Mr Kjaer. people don’t need to get involved in “Operators can often prove without the minutiae, because it’s all done.” Dan Starr any doubt that someone has used a machine to cheat. Operators “My approach to lobbying would be Chief Marketing Officer - Optimal Payments themselves should be able to be the guerrilla approach”, Mr Kjaer added aggressive and the provider can work in closing. “If we can identify a Paul Davis with them to stop that, just like the criminal, identify grounds for a criminal banks. These systems can even be put charge and get the backing of a Managing Director - Counting House into the hands of the regulators. It’s a reputed legislator such as the Isle of trillion dollar industry we’re in now, yet Man, then the others will follow. It’s How can payment processors help be by bringing incremental business or an operator can still go bust due to not about creating more red tape to retain and reward online gaming by retaining existing clients. It’s about criminal activity. We should be able to because the systems are there. It just customers? understanding what our merchants are do the same and have the same laws takes that first case to create a looking for, it’s about understanding to prosecute in a jurisdictional capacity Malcolm Berg - “The reality is this is deterrent for the criminal and their client base and demographic, and as other industries of this scale.” inspiration for other gaming at the core of what we do”, Mr Berg it’s about actually putting joint jurisdictions.” began. “If we’re to add any value to “This is fundamentally the problem; marketing plans together to retain, our partnerships, and if we’re to help these restrictions are in the terms and reward, and reinvigorate.” conditions rather than the legislation. drive businesses forward, it can only That’s why we have such trouble in terms of enforcement,” added Ms Stewart-Jones.

© 2013-2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG © 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 23 International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 24 (“KPMG International”), a Swiss entity. All rights reserved. “It’s about understanding what our merchants are looking for, it’s about understanding their client base and demographic, and it’s about actually putting joint marketing plans together to retain, reward, and reinvigorate.”

So does that mean you’re actually move large amounts of money across turn on that wallet again for that the moment, which makes it all the Paul Davis - Mr Davis explained that mining the data you have from the borders. The gaming specific wallet is identity – pretty much any payment more important to understand the end there has been movement in this players who are depositing with you very geared to the gaming market and system which takes deposits on behalf user. It would be naïve for an operator respect but noted that one aspect that and then sharing that with the we do mine data, although we don’t of a customer will do that. We do also to go into a market like Africa without characterises the three US markets is operators? share it with operators because our see a lot of aggregate data across- this degree of market consideration. their particular aggression in customers won’t thank us for it. We sites and any interactions that we There is no one silver bullet to solve establishing a full infrastructure. Mark Anthony Spiteri - “I think it’s do, however, do a lot of promotion, don’t like or that may create a problem the user problem but it is the payment “There’s a terrific pace and an critical that the information stream is such as jointly marketing with a for an operator will also be nipped in providers that can help to optimise enthusiasm to get things up and two way,” Mr Spiteri agreed. “The particular operator, so we’re able to the bud as soon as possible. It’s bad operator entry in this respect.” running, but they are still very much operator has certain critical information determine what our particular prize business for payment providers and committed to the traditional payment about the user, and we have the pool contribution should be because good corporate social responsibility for Paul Davis - Mr Davis emphasised the methods of ACH, Mastercard and Visa. payment information to complement we know the yield we’re going to get the industry.” importance of considering that the The gaming sites have a view of how that.” Mr Spiteri added that this from particular players. We can also experience gained by payment they want to operate but the banks are reciprocal relationship was critical for How are you adapting to provide see how promiscuous players are processors in new markets is not very nervous. What we’ve seen two reasons: firstly, due to the entry in to new markets and new between the different operators so necessarily through eGaming. “There recently is a slew of banks that were imperative to monitor, evaluate and territories? we’re able to put together tailored are markets where operators are prepared to do gaming business two improve services and products and, marketing plans together with Malcolm Berg – Mr Berg explained awaiting gaming regulation, but while months ago and have since changed secondly, in order to strengthen the operators to help reactivate that this process is partly one of that’s happening we can go in and take their mind. So right now, there’s a basis for that relationship. customers. These are things you could identification and alignment with the on other markets and establish a world of operators licensed in the US “Unfortunately, however, these never do with a bank and it allows operators to identify new market payments network. This often then and ready to conduct testings and partnerships are still not so common money to move across borders very opportunities, but emphasised that this translates very well into eGaming transactions with no payments within the market.” quickly.” was solely with a view to entering when the regulation is ready.” structure in place to allow them to Malcolm Berg -“It’s key to our properly regulated markets. “If it’s do so.” On the reverse side of the equation, In terms of the US, I keep hearing success that we meet the needs of already a predominantly credit card however, Mr Davis added that the that people are having trouble “In terms of merchant coding for Visa the customers in terms of the based market, however, then we can’t unique position that a payment depositing money on legitimate and Mastercard there was a methods with which they want to pay”, offer very much in the way of processor has is the ability to mine events. Why is it that you can’t get workaround in place for horse racing Mr Berg agreed. “This is especially so additional value. If it’s a heavily cash data across its operators. Whereas an cash onto sites for a legal event? and totalisers, which was code 9753 across borders. Cash is still king, based market – Mexico, for example, operator can look at the behaviours of and was supposed to alert the issuer however, and this has been quite a where more people have mobile Dan Starr - “Ultimately, it’s up to the a player, payment processors can look that something was an internet driver for us over recent years. Equally, phones than bank accounts – then that card issuer to decide where they allow at trends across the industry as a transaction but not an illegal gambling it’s important to understand the then becomes appealing to us, as long that card to be used. Even if it’s a non whole. “This allows operators to transaction,” he continued. “That was country you’re in, and if it’s a cash as it’s properly regulated and we can 7995 transaction [the Merchant recognise and block dangerous, a very tough thing to get, because based consumer market, that needs to put the proper controls in place.” Category code under which internet fraudulent or non-compliant behaviour. most issuers and acquirers wouldn’t be recognised. It’s our job to gaming transactions fall], a lot of So there’s an opportunity on the risk Dan Starr - “What a payment provider process them. There has been talk of understand the markets we’re in and issuers will block the card. In the US, prevention and compliance side as can do is lay down the tracks for the that code being extended to online to put the plans in place to increase therefore, you need a good acquirer, a well.” gaming operators to then go into these gaming. There’s also been talk of a the take-up.” good partner and a whole raft of other new markets legitimately, to new code altogether, and there’s even Could this equally be used to permissions that will allow payments Dan Starr - “Clearly the product for understand the people they’re doing been talk of a new code for individual identify problem gamblers; those into the market. I think card will remain gaming operators is money”, Mr Starr business with and understand the gambling sites, as with the airline and that are struggling to get cash on to very difficult in the US for the added. “So the various methods are legitimacy of the funds that are being hotel industries. None of this has sites or who are getting rejected? foreseeable future.” stacked high on every check-out page. transferred,” added Mr Starr. come to pass, however, so we’ve gone People’s first inclination is to reach for Dan Starr - “We do take our obligation What about the potential for a new live in three states and the payment Mark Anthony Spiteri - “Legitimacy is their credit card, debit card, or conduct seriously, as all payment companies Merchant Code specifically for environment is an absolute mess.” certainly key when entering these new a bank transfer, and the eWallet, or do,” Mr Starr added. “If a customer is online gaming? Has there been any markets”, Mr Spiteri agreed. “If we digital wallet, grew up in the late asked to turn off their payment wallet progress? take the case of Africa as an example, 1990s because it’s very difficult to because of a gaming issue, we’ll never everyone is doing their own thing at

© 2013-2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 25 (“KPMG International”), a Swiss entity. All rights reserved. 26 Neill Whyte Head of Product Channels Microgaming

The Growth and Challenges now walk into a stadium, there’s a QR code on the seat in front, you Neill Whyte download the stadium App, read the of Mobile Devices To close; do you see the role of QR code and have a drink or team banks disappearing and payment jersey delivered to your seat. You can Neill has worked for Microgaming How have global businesses services providers being the way of have a drink waiting for you at half for over seven years, rising through embraced mobile? the future? time, so how long until you can place a the ranks to his current position as In January 2013 Facebook announced bet? The channel conversion that Head of Product Channels. Neill is Dan Starr - “We provide a raft of that, for the first time in its history, mobile is driving is being driven by responsible for product strategy & technologies to the banks that are also they had more mobile users than PC retailers and not the gaming market. A performance for the business. He rolling out digital wallets, but they are visitors. Amazon now generates US$3- lot of the pure play operators are going graduated with honours in Business taking a long time to get to market. So 5 billion annually in sales originating to have to find physical partnerships to & Economics and gained his Post I think it won’t be the banks or from mobile devices, and 38% of visits put their brand in the relevant places. Graduate Diploma in Information telecommunications payment to LinkedIn also came via mobile – and Indeed, I think the gaming industry Technology Systems. providers – the latter because they even more interesting, these users are needs to be aware that they’re no don’t understand the market in its “Believe it or not”, Mr Whyte began, also 2.5 times more active in their longer leading payments. The next five entirety.” “Microgaming has actually been in the visits than desktop users. More than years is going to be PSPs and digital mobile arena for almost a decade now. 550 million photographs are uploaded “I think the biggest innovation that will wallets, not the banks and not the Back in 2004, we were one of the first every day from mobile devices and come in the future is tablet and telcos.” casino games providers of Java games PayPal in 2012 announced that it mobile,” Mr Starr concluded. “Also, The to the industry. In those days Nokia, transacted almost US$14 billion gaming industry has led payment Motorola and Sony Ericsson were the through mobile devices. Most recently, innovation for the last ten years but it’s main manufacturers of handsets and Google announced in its latest results actually the retailers that are now Symbian was the main operating that mobile ad clicks grew 26%, taking over. In Starbucks, for example, system. App stores were unheard of thereby offsetting the decline in PC ad you can load cash onto your mobile, and 3G was just a concept.” clicks which had fallen for the first time waggle it in front of the point of sale in history. and make a payment. Just this Since then, he continued, the onset of morning we announced a deal with a the Smartphone boom led by Apple in Closer to home television channel which does all of the 2007 has resulted in players’ Looking closer to home, and at programming for the top wholehearted engagement with digital Microgaming customers in particular, entertainment organisations – NBA, services on their devices, so much so Mr Whyte explained to the Summit NFL and so on. With them, you can that they are now demanding content that William Hill’s mobile gaming in context on any device and to any revenue grew 198% during H1 2013 location. “Putting this into perspective”, and now accounts for 14% of online Mr Whyte explained while referring the gaming net revenue. Furthermore, floor to his presentation; “mobile “I think the biggest innovation that will come in the William Hill predicts that this will grow devices now represent 25 per cent of to 45% in 2014. Betsson’s mobile all emails and internet searches today. future is tablet and mobile, the gaming industry has gaming revenue in Q3 2013 grew 1 in every 3 minutes spent playing 100% compared with the same period online games today is via a mobile led payment innovation for the last ten years but it’s for 2012 while a surge in mobile device and, more interestingly, 91 per betting helped BSkyB’s gambling cent of people who say they own a actually the retailers that are now taking over .” business to grow revenue by 37% last mobile phone actually keep it within year alone. Most recently, 32Red arm’s reach 24 hours a day.”

© 2013-2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 27 (“KPMG International”), a Swiss entity. All rights reserved. 28 “Within the next 5 years there won’t be any seasonal trend line, just constant engagement throughout the year.”

reported in H1 2013 that mobile now going to decline for the first time from continues at a rate of 150% annually, At Microgaming we use what’s called sometimes resulted in poor graphics “Mobile devices generates 17% of its total online next year. Indeed, tablet sales are we can see that by 2016 mobile the game development eco-system, and poor functionality, and there’s the revenue, resulting in 110% growth expected to outperform PCs in 2016.” devices will surpass PC. This means which is a collection of variables that second option, which is what are catching, if not against 2012. “So you can see that Digging further, he continued, sales mobile devices are catching, if not make up a mobile experience. We Microgaming does. We take the top even in our industry there are numbers from Q3 2013 indicate a 45 passing, PCs in all aspects and all need to make sure that each variable is five screen sizes in terms of market passing, PCs in all businesses that are adopting and per cent rate of growth to 251 million facets of life.” covered when we’re developing our share and we build every single game embracing mobile devices”, added Mr units over the quarter – the first time games and each one has its own that we produce in those different More freedom aspects and all Whyte, “and they’re very successful in ever that Smartphone sales have challenges.” Mr Whyte explained that screen sizes. Then, using our device that.” surpassed one quarter of a billion units “All of this means people have more one of the most common questions detection, we serve up the best facets of life.” in a quarter. freedom to use their phone,” he asked within the industry surrounds content that we possibly can. We have The impact for Microgaming continued. “Traditionally we see the benefits of HTML5 vs Native as a spent years perfecting the art of “The second big driver of this growth Moving on to the repercussions of seasonal trends when players play on development language, noting that in creating graphically appealing, surrounds mobile subscriptions and these developments from the PCs, so during the summer months his opinion there is no correct answer, immersive and compelling games for broadband data. This is almost as perspective of Microgaming, Mr we actually see a decline in players. which is why Microgaming develops PC, so why would we give the mobile important as sales volumes for the Whyte explained that it is quite rare for But with mobile devices people can games for both. HTML5 is commonly player a different experience?” devices themselves, simply because the company to share its own insights actually access their games on the go, regarded as being able to provide a of access.” International Operating systems into the market. “But today, I’m willing whether they’re in the car or lying on quicker, easier and more accessible Telecommunications Union data to share some stats with you the beach. So what we’re also seeing user experience, whereas Native is “These, effectively, are the heartbeat indicates that by the end of 2013 there concerning how successful mobile is a flattening of the seasonal trend considered to provide a more detailed of the phone and with these operating will be around 6.2 billion mobile devices have been for our company”, line and we predict that within the next and immersive experience. “But as far systems come third party APIs subscriptions active in the world, he revealed. “Our operator base has 5 years there won’t be any seasonal as the features of each are concerned [application programming interfaces], representing almost a single active grown from 28 customers in 2011 to trend line, just constant engagement – user experience, performance, cost which we need to use in order to subscription per person. “We know 128 customers today, and they throughout the year.” of development, ease of distribution develop our content”, Mr Whyte that’s not the case in reality, but these specifically use our mobile products. In and web-standards”, he observed; “the remarked. With reference to Apple’s figures show the vast acceleration of The challenges terms of online bets, mobile generates two are difficult to tell apart from a iOS system and Android Mr Whyte growth in mobile subscriptions today,” 20% of those and they’ve grown Moving on to the challenges faced by development perspective.” then explained the importance of he added. 160% over the last year [Q3 2012 to Microgaming in the mobile arena, Mr operating system fragmentation, Resolution Q3 2013]. We’re now also seeing the “Moreover, there are 2.1 billion Whyte noted that Microgaming’s early which describes the extent to which emergence of a new type of customer, mobile-web users in the world; those prediction of the growth of mobile has In October this year there were over various operating system updates where 27% of all registrations who have actually subscribed to positioned them well to accommodate 1,000 different screen sizes and remain active across the consumer happening on a mobile device only mobile broadband. This is huge. We increased demand over the past resolutions that accessed at least one markets. “We can see that iOS has a ever continue to play on a mobile can see that from 2012 to 2013, global decade. “We’ve invested heavily in of Microgaming’s HTML5 games. very small ‘tail’ in terms of operating device; they don’t cross over onto growth was at 25.9%, which actually restructuring the business to ensure “Now that might sound impressive”, systems. iOS 7 was released a few other platforms. More importantly, shows that there remains a lot of room that we’re at the forefront of mobile Mr Whyte remarked, “but it does give months ago and we can see a 76% we’re seeing that our customers’ for growth in term of broadband development and, to date, we have us something of a headache in terms adoption rate. That means that, of 100 player values are increasing by 30% on subscriptions. Growth for the last dedicated development teams in all of time and cost. Referring the players who sat on iOS 6 prior to the average as a result of players playing three years is at 40% and we’re now facets of the business that audience to a diagram of Apple screen launch, 76 now sit on iOS 7. This is on both PC and mobile.” also seeing that mobile broadband is accommodate mobile development, sizes, Mr Whyte noted 4 variations, brilliant for us because it means that outstripping fixed line by 3 including registration, banking, and compared to over 100 for Android we can develop games for the latest What has been driving this growth? subscriptions to 1. This means that games development, IT support and devices which is an open operating software knowing that there is a very “Quite simply, the explosion in mobile web adoption is growing 8 testing.” system. “Therefore we have a massive short tail of operating systems for us popularity of Smartphones and tablets times faster than PC web adoption did discrepancy in screen sizes and to remain compatible with.” HTML5 vs. Native has been the reason for the rate of back in the 1990s and early 2000s.” resolutions that we as a company have “Android, on the other hand, has a long growth which saw sales outperform Indeed, upon closer analysis, Mr “As players play more and more on to try to be compatible with. There are tail,”, he continued, “so when we’re desktop for the first time in 2011”, said Whyte observed that around 20% of their mobile device we need to look two ways of dealing with this; there’s asked to develop complex games for Mr Whyte, “and if you believe what all online traffic now comes from further than just the interface when the one-size fits all option that a lot of Android we have to stay mindful of the experts say, PC sales are actually mobile devices, “and if the trend line we’re designing our games. the industry has adopted, which

© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 29 (“KPMG International”), a Swiss entity. All rights reserved. 30 “We don’t see An economic review of the mobile devices as a proposed change in UK platform; we see them as a product legislation for online gambling line.” taxation

remaining compatible with operating “Finally, there’s Koomey’s Law, a systems that may have been around recognised trend in the tech industry Sue Rossiter for five or six years. Only 1.5% of whereby for every 100 units of data people switched to the latest Android that need to be processed the battery Director of Projects and Policy system, Kit Kat, which presents quite a power required will half every two headache. Indeed, many game years. So for Smartphones and tablets, Remote Gambling Association developers don’t develop for Android Koomey’s Law offers an interesting which, to me, is a massive mistake. opportunity when coupled with Sue joined the Remote Gambling Association as Director of Projects and Policy in Not only is Android the market leader Moore’s Law in that as processing January 2012 where she is responsible for policy development, government in terms of operating systems, but power doubles every two years, the relations and special projects. Previously she was Head of Policy at the UK Samsung is also the market leader power required to accommodate that Gambling Commission and headed up the Gordon Moody Association, which amongst the device manufacturers.” will half. This presents a lot of supports problem gamblers to overcome their addiction. opportunities for us to produce bigger, Preparing for the unknown more complex and more immersive “So the future is definitely not going to games. All of this is why we don’t see get any easier,” Mr Whyte remarked in mobile devices as a platform; we see closing. “Regulation is here, it’s going them as a product line.” Bill Robinson to stay and we need to make sure that all of our products are compliant with Chairman the markets our customers want to go KPMG Economics & Disputes into.” Tablets, he explained, will continue to grow in popularity, with sales growing to 46 million units in Q3 Bill Robinson is the founder member, and now chairman, of KPMG’s economics 2013; a growth of 7% over Q2 and practice. He is a tax policy specialist with a unique perspective on gambling 46% over Q1. Despite these sales taxation derived from his past experience as Director of the Institute for Fiscal figures being lower than those for Studies and three years as a Special Adviser to the Chancellor of the Exchequer, Smartphones, Mr Whyte observed that with responsibility for the Budget tax measures. His knowledge of the gambling tablet players are more valuable as industry is based on 20 years’ advising Camelot, and he has been very active in consumers; “so tablets as a growth the recent debate on the pitfalls surrounding the taxation of online gambling. area present definite opportunities for the future.” Further fragmentation amongst Adam Rivers operating systems Mr Whyte described as ‘a given which must be Assistant Manager adapted to as and when it is required’. ‘while developing country adoption KPMG Economics & Disputes rates present a further challenge. Manufacturers are releasing cheaper Adam Rivers is an Assistant Manager in the economics practice at KPMG, models to consumers in these working across gambling regulation and competition policy. He took the role of countries while broadband uptake is lead analyst for a recent study into proposed changes to the UK online gambling rapidly increasing, which presents tax regime, and has previously advised clients on optimal taxation in Italian sports significant but surmountable issues for betting. Prior to joining KPMG, he published studies on the future of mobile industry growth into these areas. gambling (2011) and an econometric study of UK land-based sports betting (2010).

© 2013-2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 31 (“KPMG International”), a Swiss entity. All rights reserved. 32 “With remote gambling, it can be supplied from anywhere in the world and you consume that product from where you are sitting – whether that be on a mobile phone, laptop, or at the end of a telephone.”

By way of introduction to one of the “The Remote Gambling Association”, also very well respected within the last Exchequer Secretary to set out its which is that online gambling is unlike substitutes, therefore, as the tax rate day’s most anticipated discussions, Mr Ms Rossiter explained, “felt it needed industry and Government itself. concerns over the proposed tax rate, almost any other industry that I can rises beyond a certain point, the tax Robinson outlined the joint to undertake an in-depth analysis of with meetings booked with the next think of, in the sense that gambling base shrinks and the tax revenue yield RGA recommendations presentation as providing an industry the proposals. One of the reasons we Exchequer Secretary in the new year. services are largely provided from shrinks in turn. This is described with view on the Point of Consumption Tax felt we needed to do this was because As a result of its analysis, the RGA outside the UK, and that the new an ‘n’ shaped curve, The Laffer Curve, Ms Rossiter then alerted delegates to and the imperatives for its analysis, the we warned, back in 2009, that this was recommends to the UK Government regime does pose a threat to at the vertex of which is the revenue a formal consultation on the tax results of KPMG’s analysis of the likely to happen. We warned that if the that it: compliant offshore providers, relative maximising or optimal tax rate. proposals at the Autumn statement effect of taxing at the point of Gross Profits Tax rate continues at to non-compliant.” consumption and, finally, an 15%, people will go offshore. This was • Urgently reviews the rates of (5th December 2013) and to its This issue is further compounded, examination of consumer demand and not solely about the tax rate itself, betting and remote gaming duty so intention to meet with Ministers in By way of illustration, Mr Robinson however, by the availability of supplier competition from unlicensed however, but rather the tax structure. that no remote gambling products Treasury to discuss the regime. The referred the floor to a Venn diagram substitutes; unregulated offshore operators. The Gross Profits Tax (GPT) in the UK is are subject to a rate of more than RGA is also engaging with the UK which posited that, whilst in theory a suppliers in the case of eGaming. The not a true GPT, because it doesn’t 10%. Government on various detailed 15% rate of tax would be paid by UK availability of these substitutes, and Ms Rossiter then took over with a brief aspects of the regime such as poker suppliers, licensed offshore providers the ease with which players can switch allow all of the costs attributable to the • Ensures that all bonuses and introduction to the proposed shift to a networks and pool betting and had and unlicensed offshore providers to to them means that revenue initially business to be deducted before the incentives provided by operators to Point of Consumption Tax on Remote lobbied over the tax rate at the Second the UK, the reality is that only UK rises more slowly, reaches the true profit is known and the true tax consumers are excluded from the Gambling, which she described as Reading and at the Public Bill based and licensed offshore providers optimum taxation rate at a much lower given.” tax base. “quite simple. In the land world you Committee. It will also continue to would pay the tax, while unlicensed point, and tails off more quickly as the have to go somewhere to be supplied “Secondly, there are only certain prizes • Ensures that effective enforcement participate in implementation working offshore providers simply would not tax base shrinks – essentially shifting with your gambling and you pay your that are allowed as deductible costs, measures are put in place. parties. comply. As such, unlicensed offshore down and to the left. Moreover, as Mr tax there. With remote gambling, it can and we believe that the way the suppliers severely limit the Robinson observed, if a 15% rate “But at the back of all of this is the be supplied from anywhere in the industry has come to be structured in • Acknowledges that if the tax regime government’s ability to raise taxes. drives people to unlicensed operators, work that has been done,” Ms Rossiter world and you consume that product the UK, with a sophisticated group of is not right, British consumers will they are unlikely to return. “So there is explained in closing, “because without The Rate of Tax: the Laffer Curve from where you are sitting – whether customers looking for a range of use overseas sites with lower a magic high point, where you just get that be on a mobile phone, laptop, or standards of social responsibility the detailed economic theory in place incentives, was not helpful. We felt Mr Robinson then referred delegates that balance right”, he summarised; “a at the end of a telephone.” and protections than they currently and without a decent analysis of how that true customer behaviours should to a line graph depicting the high enough rate to pull in revenue enjoy. the market is likely to develop, the She explained that the UK be presented to HM Treasury, and that relationship between the rate of from each bet, but which is still low industry will find itself moving Government, via HM Revenue and it was important not to repeat the taxation and the potential revenue enough to not scare customers into Next Steps backwards towards an unregulated Customs and HM Treasury, has, mistake of forcing customers to an gained as a result, which is known as going offshore to unregulated market which is counterproductive for however, decided to change the tax unregulated sector.” Ms Rossiter then explained that the the Laffer Curve. Popularised in 1974 operators that make no contribution to the industry, and dangerous for its from a place of supply to a place of RGA has also proposed a number of by American economist and advisor to UK tax revenue. So a high tax rate is Why KPMG? customers.” consumption basis. Rather than a new steps and measures designed to help the Reagan Administration, Arthur not just bad for tax revenue, it is bad taxation regime, the UK Government Ms Rossiter explained that KPMG had clarify and disseminate its message to Economic analysis Laffer, it finds an optimal rate of for compliance.” has described this as a revision of undertaken a number of economic the government. She explained that taxation to gain revenue from supplied Mr Robinson then took over from Ms Which is the best tax rate? general betting duty, pool betting duty, analyses for the RGA which the KPMG report is not its only products. Rossiter to explain the economic and remote gaming duty. As a result, recommended a taxation rate and engagement with HM Treasury, “We are in a world of great reasoning behind the conclusions Placing the tax rate on the y axis the current 15% rate of tax will remain structure to new and existing HMRC, or politicians and that the RGA uncertainty,” Mr Robinson remarked. drawn by the RGA. “I have to say, (horizontal) and tax revenues (tax rate in place. It is also claimed that the tax jurisdictions. KPMG had also had also issued a response to HM “This means that all we can attempt in however, that when I first learned the x tax base) on the x axis (vertical), the will easily tie in with current developed a model which explained Treasury’s tax policy proposals in terms of establishing the optimal rate UK’s intentions to implement a point of line graph shows that a zero rate of tax developments within the world of the way in which tax works in the UK, summer 2012, and to the information is by trial and error and this is the consumption tax it appeared to be provides zero revenue. Conversely, social legislation. This will affect almost and demonstrated an optimised model consultation on the tax regime in second, very important part of our pretty sensible: we tax most things at however, when the tax rate is too high, every operator supplying into the UK, for gross profits taxation. KPMG was summer 2013. The RGA has also conclusion. Based on our analysis, if the point of consumption, whether it’s this again generates zero revenue as well as those that are currently also able to collect commercially explained its concerns on tax to the you go in too high a lot of people may coffee or VAT, so why not the same for because the consumer becomes out based in the UK. Overall, it is expected sensitive data on behalf of the RGA Department of Culture, Media and move offshore, but if that rate is then gambling? Well, there is a fairly priced and the tax base shrinks. to take over £300 million out of the which, as a Membership Organisation, Sport Committee during its scrutiny of lowered, we can’t guarantee they’ll important answer to that question, Depending on the availability of remote gambling industry. it was unable to do directly. KPMG is the gaming bill, and had met with the come back. If you go in at a low rate,

© 2013-2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 33 (“KPMG International”), a Swiss entity. All rights reserved. 34 however, some may understand that a maximise its price/payout ratio and at are search costs; how easy it is for Product-type variations know from the examples of Germany, “This, I find tax is inevitable and stay with their keep it stable. Under a true gross the customer to find the best price.” France, Czech Republic, Italy, Turkey, “A common oversight in gambling known provider. If you then inch it up profits model, therefore, and with the Norway and the US that we can’t “With land based betting, for example, policy documents is that online incredibly troubling: to the point at which you hit that right tax rate, the tax base could be control online media, price comparison the cost to the consumer of finding gambling is treated as one thing, when maximising rate then you’ll get there. kept largely the same and the revenue sites, search engine optimisation the best odds is the time or expense in fact there is a whole raft of different we are going from a We don’t at this point want to cite a which is gained easily optimised. practices, affiliate offerings, forums, or of walking or phoning between betting consumer traits across and within number, but we do recommend that payments.” Key Conclusions shops – perhaps a matter of fifteen different product types that will alter market with just 5% the government goes in low and minutes or so. But with online we customers’ interaction with the market Treasury expectations increases, rather than go in high and Before introducing Mr Rivers, Mr simply don’t have this anymore. We if there are better priced alternatives of activity happening decrease, because by that time they’ll Robinson offered a series of key “All of this, to its credit, is somewhat have sites like Oddschecker and we out there. If you look at sports betting have already lost those players and the conclusions from this analysis: reflected by HM Treasury. They expect have affiliates providing the best bet the main competitive variable is price. with unlicensed potential revenue with them.” 80% of UK citizens gambling online to 1. The potential for customer rate deals or bonus structures In casino it’s somewhat different, be doing it with license holders, with Which is the best tax base? migration to unlicensed providers available. If, therefore, a tax is there’s almost a binary relationship providers, to 1 in 5 the remaining 20% gambling with means that the higher the tax rate, implemented that forces regulated with price, so operators compete on Historically, Mr Robinson explained, unlicensed, untaxed operators. This, the less the government will know, providers to raise their prices, then things like bonuses. In bingo we transactions, if not gambling was nearly all taxed as a tax I find incredibly troubling: we are going or be able to do about problem consumers will be able to find a typically see consumers who are less on turnover, or stakes (tax revenues = from a market with just 5% of activity gamblers. cheaper, often unregulated alternative price sensitive, but there are other more. This tax rate x stakes). If a tax is imposed happening with unlicensed providers, very easily.” variables such as marketing and on stakes, however, the operator has 2. If this migration cannot be reversed, to 1 in 5 transactions, if not more. This advertising spend which influence fundamentally an incentive to raise its prices, i.e. offer setting too high a tax rate will lead Switching costs fundamentally undermines social consumers. All of this makes a great worse odds. to a permanent loss of revenue. policy and consumer protection in Switching costs, Mr Rivers continued, difference to regulated operators, so undermines social general, which really is not a very good A gross gaming revenue tax (tax 3. The revenue maximising tax rate are the costs to the customer of the question now is; how easy is it for thing.” policy and consumer revenues = tax rate x (stakes – prizes)), can only be found by experiment. moving to a provider offering better unregulated operators to access which is often misnamed as a gross 4. Starting low and increasing the tax prices. Again, for online gambling this British consumers?” profits tax, does not provide operators cost is much lower than land-based. protection in general, rate will deliver more revenue than Mr Rivers observed that, currently, with the chance to offer products such Customers can switch to operators starting high and then cutting. around 95% of UK consumers are as player bonuses which, again, is a offering better prices within a matter of which really is not a gambling with UK duty paid and disincentive due to the potential for a 5. The tax base should exclude the minutes, will often be offered a bonus licensed offshore providers, with the lost revenue base. costs of acquiring and retaining to do so, and their trust can be quickly very good thing.” remaining 5% gambling with customers established. In an efficient, At the other end of the spectrum, unlicensed and untaxed providers: competitive market a small price however, is what Mr Robinson Consumer demand and unlicensed “so with the current state of play, the disadvantage therefore causes a large described as a ‘true gross profits tax’ operators unregulated providers haven’t been loss of business, in this case to a (tax revenues = tax rate x (stakes- able to compete. Indeed, we know Mr Rivers opened the final portion of potentially unregulated market that prizes-costs)), which is the model that that some of the licensed offshore the joint presentation by observing would be at a significant cost has currently been adopted and which, jurisdictions are the gold standard. But that online gambling is among the advantage. from an economic perspective, Mr this is all subject to change. The Robinson described as “the right way most efficient and competitive of all markets, and is one which is barriers to entry for unregulated forward”. A gross profits tax is a tax on operators are very low and entry can gross gaming revenue less the other fundamentally different from its land- based equivalent, most visibly in the be very quick. Moreover, although operating costs that help to retain a there is the potential for government customer, such as bonuses and free behaviours of its customers. to make it illegal for customers to use bets. There is, therefore, no incentive “Customers in online gaming are very these operators, at the end of the day for the operator to increase its prices sensitive, both in terms of price and we haven’t seen this kind of prohibition to the customer and no reason for the non-price factors,” he explained. “So work for tobacco or alcohol, and we operator to cut its bonuses, so the tax far, the UK has been very lucky in that see no reason why it would work for base is retained. The gross profits it has historically offered great value model is also the least distortive, online, and consumers are used to online gambling. We can control which means the operator can easily that. So one of the first things we look advertising in traditional media and domestic event sponsorship, but we

© 2013-2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 35 (“KPMG International”), a Swiss entity. All rights reserved. 36 Into the Gamescape:- what does 2014 hold

If I can start with you Bill, what are Nick, the challenges of processing These emerging economies that will you seeing in the market in terms of that volume of data must be of become a viable market over the for online? changing customer behaviours and central concern to Continent 8, next 12 to 24 months, do you think what are the challenges they are would you agree? they will bet differently? For presenting to your business in example, what are your views on Nick Nally: Mr Nally agreed, stating particular? the US? that Continent 8 is seeing some Moderated by Russell Kelly Bill Mummery - “Without doubt, changes in terms of data processing Nick Nally - Having recently spent technology has been a major factor requests from platform providers. some time in the US, Mr Nally Director over the last two to three years,” Mr “What we’re now seeing is a trend explained that it is an attractive Audit & Advisory – KPMG Isle of Man Mummery began. “My business is which means we are having to change prospect for a lot of larger operators. sports betting, which invariably means our model quite drastically. Whereas in He asked the Summit to bear in mind soccer, which in turn means in-play the past, all of our customers provided however, that at that point just three Russell joined KPMG Isle of Man in 1993 and has also undertakes transaction services and ISAE3402 work, which betting and the technologies that are their own processing equipment to States were implementing online worked for KPMG in London and Jersey. He is head of includes acting for clients with respect to acquisitions, being used to deliver that. We as a deal with activity spikes and so on, gaming, equating to just 12 million out audit for KPMG Isle of Man and KPMG in Gibraltar. disposals and flotations; in particular he has advised on business generate as much as 65% of we’re now seeing requests for of a population of 317 million people. His client experience encompasses financial services, flotations on the LSE, AIM, Luxembourg and New York stock our revenues from soccer during play, integrated stacks, cloud architecture “So it’s still a very small footprint and I telecommunications, real estate and eGaming. Russell also exchanges. which is a massive demonstration of and pay-as-you-go type services, think it will take a long time for the contribution that technology has whereby we invest in the technology companies to make any money there made. In turn, that requires a lot of first, and at some risk. That technology when you consider the number of investment, both in terms of our ability is then made available for test and licences that are being handed out. to offer those services, and also development, say, and might sit in the There’s also still a lot of politics and no Panelists volume. Typically on a Saturday UK, Ireland, or a low cost jurisdiction, uniformity in state offerings, so there afternoon league game we would be but we also now have the issue of will be a number of problems for processing between 600 and 800 having to do that in a regulated anyone licensing in the US.” transactions per second, so there are environment for their primary and Peter Greenhill Nigel Birrell - “I agree with Nick some pretty big challenges there.” production needs. So we are seeing totally,” added Mr Birrell. “This is not some changes; our business does IOM Government “That said”, Mr Mummery continued, going to be the panacea for all have to deal with more risk and “the technologies are still only new operators, but if the analysts are right operators are getting smarter with the channels to market. They are not yet in there’s going to be a lot of money ways in which they position and themselves products. I think the real there. Analysts at Deutsche Bank, for Nick Nally process their data requirements.” challenges that are coming through example, predict a turnover of USD Continent 8 Technologies now, because the consumer is So this could actually change some 400 million gross gaming revenue in becoming more aware and more of the dynamic for start-ups. If 2014, rising to USD 500 million the savvy, surround content, in-depth data, you’re now taking the risk on some year after. If an operator was to and pictures, and how to navigate the of the technology and infrastructure capture, say, 15% of the market, those Bill Mummery related IP issues. I think we’re still only costs, is that changing some of the are not unreasonable figures at a 40% scratching the surface and that there is dynamic as to where they spend the margin. One of the biggest concerns, Celton Manx a lot more to come. If there is a million dollars that they raise in the however, is what has changed since potential threat it is the unpredictability first instance? 2006 [the year of enactment for the of the regulatory landscape. This is Unlawful Internet Gambling Nick Nally - “Indeed, this is something something we will deal with, Enforcement Act]. Zynga’s presence, we have to address because low cost Nigel Birrell however.” for example, has taught a million operators coming into the market now people to play poker. So there’re a lot are looking for cheap solutions to Adviser & former Group Director to Bwin.Party of uncertainties but this is an address their market.” interesting market.“

© 2013-2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 37 (“KPMG International”), a Swiss entity. All rights reserved. 38 “We’re starting to see the green shoots of people looking to the Island from other jurisdictions so we have to make the most of that.”

What is the route into the US for today, the situation we’re facing with this is testament to the strength of our outside of the EU. They’re not operators based in the Isle of Man, the US is not too dissimilar to that public/private partnership on the concerned about issues in Europe and for example? which we faced 25 to 30 years ago Island. The quality of power and the VAT problem is largely diminished when businesses were looking at bandwidth is also an absolutely crucial because of the way in which they’re Peter Greenhill - “I think there are a dealing with the People’s Republic of deciding factor for companies looking generating their revenue. We have a few European companies that do have China. It was perceived as a massive at other jurisdictions, companies for proven business model and there’s still the firepower to take over a US opportunity, but was actually which even the slightest glitch could massive growth potential in Asia. I business,” Mr Greenhill observed. deliverable only to the very limited few, represent a large compromise in appreciate that Peter and his team “Mergers and acquisitions are always a and those few had to have very long perceived credibility. I think the quality have to make these absolutely vital, topic of interest but we have never term horizons and very, very deep of our infrastructure is a huge asset to incremental steps in Europe, but Asia seen the wave of activity that we’re pockets. I think, due to the size of the the Island and something that we is a market we know works.” seeing now with Bwin.Party and markets, and the inability to create really must protect.” Playtech for example, or William Hill. If Questions from the floor liquidity across state boundaries, it’s you look at the market at the moment, We’re seeing significant investment going to be a long haul.” Are you talking to any interesting it’s ripe for that. As Warwick said, in our data centres, particularly from jurisdictions with which we should we’ve got £300 million that could Moving a bit closer to home; where Asian operators, is there expect Memoranda of potentially be lost to the Point of do you think the Isle of Man has to competition in that respect that we Understanding next year? Consumption Tax. We’ve also got an move quickly and where do you should be aware of? incredibly complicated regulatory think we have to take action to Steve Brennan - Speaking from the Bill Mummery - Mr Mummery environment in Europe which is maintain this position in the floor as the representative primarily explained that Peter Greenhill and his sucking up costs to the extent that it is industry? responsible for such engagement, Mr team, and the Isle of Man, have a almost not viable for companies to Brennan explained that these are not Peter Greenhill - Mr Greenhill difficult act to balance. “On the one operate. The industry is now at a stage, discussions which are ordinarily emphasised the importance of hand we are close to Europe but we 15 years on, when this sort of activity publicised prior to their completion. continuing to engage with start-ups are not a Member State and we know naturally happens and we also have the “We don’t always get the response whilst still working to grow the that we would never be the first lowest interest economic environment we’re looking for,” he explained, “but employment base of existing concerns jurisdiction of choice for those brands we’ve had for years. One would say, we still do endeavour to try and we are which, in turn, will help to increase that are UK and European-centric, from a macro perspective, that we talking to some of the bigger European further inwards investment in the although we know that there are other expect M&A, but if you look at the US members at the moment. We do Island. “We’re starting to see the things that we could help them with. there is a very protectionist policy believe that these MOUs build on trust green shoots of people looking to the My view is that the low hanging fruit there and it would be very difficult to and part of openness and transparency Island from other jurisdictions so we for growth over the next 3 to 5 years is buy some of these companies. So I within the industry is that regulatory have to make the most of that. But Asia, simply because the two think the only way, and one which a lot authorities can talk to each other and non-licensed businesses are a great underlying impediments that we’ve of companies are adopting, is going share best practice. We are still asset to the market and this is historically faced – lack of passporting into partnership.” moving forward in that direction, we something that we’re also looking to into the EU and non-recoverable VAT – are still lobbying the EU directly and as Bill Mummery - “My perspective is develop. The government’s eGaming those fall away if you’re a business soon as I can share, I will share.” that, for the vast majority of operators strategy is progressing very well and whose market revenues are generated

© 2013-2014 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative 39 (“KPMG International”), a Swiss entity. All rights reserved. 40 “We were joint founders of the eClub, Closing Words have gaming experience in spades and deliver a diamond service. In short, KPMG are the whole pack and we look forward KPMG eGaming Team to working with you all in the future.”

Micky Swindale Associate Director, Advisory KPMG Isle of Man

Micky joined KPMG Isle of Man in 1997, and is Head of Advisory for the Isle of Man and Gibraltar practices, as well as Offshore Head of People and Change for KPMG. She is instrumental in the organisation of the eGaming Summits and also runs the online remuneration and beneﬁts survey for the sector in the island, Gibraltar, the UK and Ireland.

To conclude the day’s proceedings, Continent 8 since we began, for which throughout. To achieve what they have Archie Watt KPMG’s eGaming team Micky we are very grateful. As you heard achieved in such a short amount of Swindale, Archie Watt and Russell Kelly today, we also publish reports in time deserves a round of applause Head of eGaming took to the stage to provide a joint conjunction with the Remote Gambling (and the audience obliged). Peter presentation, and recognise the year’s Association, a key partner within our Greenhill and Chris Corlett of the KPMG Isle of Man quite unique circumstances. “This has industry. Department of Economic been a year of change and challenge, Development also emailed us straight “We are at the heart of the sector,” Mr Archie joined KPMG Isle of Man from KPMG London, where but the Isle of Man continues to be at away to offer to assist us in providing Watt added with a smile. “We were he was recruited as an IT Advisory Director in the the forefront of the industry,” Mr Kelly another venue and Clare Milne of joint founders of the eClub, have Information, Communication and Entertainment practice, began. “It has an excellent reputation, Appleby stepped up straight away to gaming experience in spades and with a particular focus on online gaming clients. Archie with high calibre operators and offer her company’s support. Last but deliver a diamond service. In short, worked on the bwin/PartyGaming merger and he has also suppliers to the sector. We at KPMG not least, and we thank them this year KPMG are the whole pack and we look worked on a number of acquisitions in the gaming sector are very proud to be associated with it particularly, Ashgrove Marketing for forward to working with you all in the and the public listings of 888, Playtech and PartyGaming, and it has been great to have you all doing an extraordinary job in moving future.” amongst others. Archie is a regular contributor to sector here today to discuss those issues things so quickly. We are enormously publications. He co-authored the report Online Gambling: most pertinent to its future success. “As many of you know, this year we grateful to you all, thank you.” A Gamble or a Sure Bet, and was recently consulted for the However, we do not represent the also faced some unusual challenges “Finally, we would like to offer our Remote Gambling Association report. entirety of KPMG’s eGaming offering; and I have a few particular thanks to thanks to our speakers, panelists and, there are pockets of expertise all over offer,” Ms Swindale said in closing. “It of course, our delegates, for their Europe and we soon hope to see that was quite humbling last week to see contributions today. You are all very extend to North America as well.” how quickly people stepped up and welcome to join us for the KPMG Russell Kelly how our sponsors rallied round us to “I would also like to take this eGaming Summit in Gibraltar on April offer their support. The Mount Murray opportunity to thank our sponsors – 3rd 2014, and indeed we look forward Director: Audit & Advisory were extraordinarily cooperative given Continent 8 Technologies, Celton to seeing all of you on the Isle of Man the issues they faced at the time and Manx, PokerStars, Jumio, Manx next year.” KPMG Isle of Man ensured everything went very Telecom, Paddy Power, Call Credit, Isle smoothly with our replacement of Man Post Office and Microgaming,” Russell joined KPMG Isle of Man in 1993 and has also venue.” added Mr Watt, “without which today’s worked for KPMG in London and Jersey. He is Head of Summit would not have been possible. “The Claremont hotel was the first Audit for KPMG Isle of Man and KPMG in Gibraltar. We endeavour to act as thought company to step in and try to do as His client experience encompasses financial services, leaders fro the eGaming sector; since much as they could to help us out telecommunications, real estate and eGaming. Russell also the report ‘Online Gaming: A Gamble quickly. The Regency was also very undertakes transaction services and ISAE3402 work which or a Sure Bet?’ in 2010 we have supportive in moving our catering and includes acting for clients with respect to acquisitions, regularly published articles and was instrumental in providing us with disposals and flotations; in particular he has advised on commentary, and we also publish an replacement accommodation for our flotations on the LSE, AIM, Luxembourg and New York stock account of each Summit. The Summit visitors and, of course, the Palace exchanges. report has been sponsored by Hotel, which has been extraordinary

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