What Would A "Brexit" Mean For Online Poker?
Online Poker Report

The Hidden Impact Of The Brexit Vote On Online Poker

Brexit vote online gambling UK impact
23 June 2016 could go down as one of the most historic days in British history as the country goes to the polls to vote for or against being a member of the European Union.

Poker isn’t a subject that has reached the political debate, but the vote could have impacts that are not immediately obvious.

If the U.K. votes to leave the EU, regulation, gaming taxes and online poker liquidity could all be affected. Operators may decide to relocate their business either into or out of the EU.

Impact on regulatory jurisdictions

As an EU member state, The U.K. is home to not one, but six jurisdictions which regulate online gambling:

  • The U.K. itself through the UK Gambling Commission (UKGC)
  • Gibraltar – The Gibraltar Regulatory Authority
  • Alderney – Alderney Gambling Control Commission
  • The Isle of Man (IoM) – Gambling Supervision Commission
  • Jersey – Jersey Gambling Commission
  • Guernsey – Guernsey Gambling Control Commission

Of these, the UKGC, Gibraltar and the Isle of Man are the most important, although Alderney, which was once the regulator for Full Tilt, also has a significant number of licensees.

In fact, the U.K. has 12 overseas territories. These include Bermuda, which has its own gambling regulation, but which isn’t a player in the online gaming regulation world.

All citizens of the British overseas territories, except those residing at Britain’s sovereign bases in Cyprus, were granted full British citizenship by the British Overseas Territories Act 2002, and are consequently citizens of the European Union.

The UKGC

The U.K. laws insist that operators must obtain a UKGC license and pay a 15 percent point of consumption tax on all their revenues from U.K. customers.

U.K. customers play in the same international liquidity pool as the rest of the world so have access to the largest tournament prizes available online.

A vote for Brexit—a British exit from the EU—would have no immediate impact on U.K. regulation or on the sites where British players can play. The EU will not suddenly drop a barrier across internet poker.

However, within the world of EU gambling legislation, the UKGC stands out as a beacon of common sense. The U.K. laws are clearly legal under EU treaties, and the U.K. is one of the main voices within the EU Commission demanding the same level of compliance from other jurisdictions.

The U.K. regulatory philosophy (paywall) is different to that in most EU countries.

The UKGC is a voice of sanity in the EU Expert Group. In opposition to political posturing it argues for tax levels which channel customers to regulated poker rooms rather than to cheaper offshore sites. It is a strong voice for regulation that allows international poker liquidity, rejecting segregated markets as self-defeating.

The U.K. philosophy of regulation is principled rather than bureaucratic. It expects customers to be treated fairly without defining what fairness is, but if it or a court decides that an operator is acting unfairly, it has the necessary power to act to solve the problem.

The European model of regulation is more didactic. It relies on setting specific rules, and if a company follows those rules, then it is compliant, regardless of whether the principles behind the regulation are obeyed.

As part of this philosophy, European regulators tend to work more closely to support their licensees. When introducing a new product in a European jurisdiction, operators can get advice from the regulator as to whether it will be compliant.

In the U.K. the regulator generally allows operators to get the product on the market quickly, and doesn’t interfere unless it has a reason to believe that a product is not compliant.

If Britain leaves the EU, its influence on the philosophy of European online poker regulation will disappear.

Brexit could see Bet365 reconsider its U.K. location

After the 2005 Gambling Act was passed, almost all online operators headquartered in the U.K. left the country in order to avoid the new gambling taxes. The notable exception to this exodus was Bet365 which maintained its corporate headquarters in Stoke-on-Trent, a British city where Bet365 is the largest private sector employer.

The new U.K. laws which came into effect in November of 2014 aimed to bring back some of those operators, but have failed to do so.

A vote for Brexit could exacerbate the problem. Most EU online gambling regulations specify that license applicants must be members of the EU or the European Economic Area (EEA).

If Bet365 suddenly finds itself outside the EU and EEA, it may well be forced to reconsider its loyalties and move much of its headquarters back inside the EU.

Gibraltar

When the U.K. laws came into force in 2005, one destination that benefited greatly was Gibraltar. The small peninsula on the Southern tip of Spain has become a European powerhouse of online gambling, playing host to some of the biggest names in online poker.

Partypoker and 888poker both run their online operations from Gibraltar as do another 25 poker rooms.

Gibraltar is not an individual member of the EU, but is treated as a “special case” as the result of its history. It has certain membership rights to free trade, but is not subject to other aspects of the EU treaties. Gibraltar is outside the EU customs union and VAT area and is exempted from the Common Agricultural Policy.

Spain continues to claim sovereignty over Gibraltar and has opposed giving the territory any additional benefits of EU membership.

Even if the U.K. manages to negotiate membership of the EEA as part of its EU exit, Gibraltar might not be included.

All the rights of access to EU markets which Gibraltar-based operators have are at risk of being ended. The risk is neither large nor immediate, but it is not small enough to dismiss out of hand.

Isle of Man

PokerStars may have more national online gambling licenses than any other operator, but it is headquartered and licensed for its rest of the world business in the Isle of Man.

Like many other businesses, the combination of low taxes and access to EU markets has proved to be a major reason for PokerStars locating itself in the windswept island off the west coast of England. Paying higher salaries to induce staff to live on a small island with a poor climate is seen as a cost worth paying.

PokerStars operates its EU facing business through its Malta license. Players play at PokerStars.eu unless their own national jurisdiction insists on a national domain name.

This brings certain tax advantages to players. In November last year, the Amsterdam Court of Appeal ruled that Dutch players are not liable to pay any taxes on their winnings on PokerStars.eu. The decision was based on the free trade provisions in the EU treaties.

In the event of a Brexit, PokerStars may be able to retain its current corporate structure, but it might also begin looking at a relocation to a jurisdiction where it has free access to the EU market. Malta would appear to be the natural beneficiary of any such decision.

Impact on poker taxes

The big question argued by supporters of both sides of the vote is whether the U.K. will benefit economically from leaving the EU.

Naturally, campaigners for a vote to leave argue that the economy will improve, while believers in maintaining membership forecast disaster. If economic conditions do decline, there could be political pressure to raise gambling taxes.

The Organisation for Economic Co-operation and Development (OECD), which is a strong advocate of Britain staying in the EU, has published estimates indicating a possible three percent reduction in GDP.

The OECD describes the economic impact as “a permanent “Brexit tax” on households.” If it is correct, then as always, calls to raise gaming taxes to fill budget gaps will be heard from politicians.

Impact on U.K. players

Much of the new European gambling regulation restricts not just licencees to being resident in the EU or EEA, but players too.

U.K. players can’t play at sites in some EU jurisdictions because the operators can’t afford to be subject to two sets of gaming taxes. However, they can play on nationally regulated sites in other EU member states.

In the event of a Brexit, some poker rooms would probably be closed to U.K. players. The impact may not be large, affecting only a small proportion of players.

Is poker liquidity at risk?

Britain is one of the EU members most in favor of free trade, both within the EU and with the rest of the world.

There is a strong political will (paywall) in many other EU countries to protect home industries and to allow a free market only within the EU borders and even then only in regard to certain market sectors.

Without Britain, there is little doubt that the EU will become more protectionist. If this philosophy is followed there is always the possibility that not only will the segregated markets of Italy, Spain, France and Portugal be allowed to remain in place, but that ultimately the EU could opt to segregate its own poker market from the rest of the world.

The EU Court of Justice could change its political color

In recent years the EU Court of Justice (CJEU) has increased the legal pressure on countries to comply with EU treaty provisions. In gambling law, the CJEU has made it clear that restricting online poker by legislation and regulation can only be legally sustained under very specific circumstances.

By demanding that a poker room licensed in one EU member state is required to get another license to operate in another EU member state, countries are imposing trade restrictions.

The CJEU allows such restrictions, but they must be justified on consumer protection grounds or on the basis of countering crime. It isn’t enough for politicians passing new gambling laws to say that the law is for consumer protection. The CJEU demands that they prove it, with evidence.

Given the experience of the other 20 or so jurisdictions in the EU which have managed to introduce online gambling regulation without segregating their nation’s poker pool, it looks likely that nations which do segregate will have great difficulty justifying their position.

France for example, would have to explain why allowing EU players to play at Winamax but not allowing French players to play at PokerStars.eu is essential to consumer protection. And then it must show scientific evidence that the measure has the necessary effect and is the minimum restriction on trade that it can employ to produce that effect.

The CJEU exists to enforce the treaties, but inevitably, the court makes its judgments from a political perspective. The British influence on that perspective has been to ensure that free trade is prioritised over local political factors.

The opinion of the UK Advocate General to the CJEU, Eleanor Sharpston QC, on the Austrian Pfleger case made it clear that the court needed to see real justification for online gambling laws, not just political argument.

The loss of the British commitment to free trade would certainly have an impact on future CJEU decisions. Perhaps segregated markets will remain unchallenged.

What happens tomorrow?

The immediate outcome of the vote will be minimal.

Nothing will change until the negotiations start regarding how the U.K. will exit, and what form its new relationship with the EU will take. This process could take years, and even if there is a vote to leave, the government may not act on it.

One poker player who will see an immediate and massive financial impact is Antanas “Tony G” Guoga. The famously outspoken cash game and tournament player is the owner of the TonyBet poker and online gambling site.

A few days ago he offered the leader of the UK Independence Party, Nigel Farage, a €1 million bet that Britain would vote to remain in the EU. Farage did not accept, not being a rich poker player, so Tony G guaranteed to offer the best possible betting odds on the vote result, even offering Brexit bettors their money back—up to £20—if the result is to remain in the EU.

TonyBet spokesperson Warren Lush said:

“They say a week is a long time in politics – a day is a long time in the betting markets. Leave would be a bad result for us – we really have gone all-in that Remain will prevail. In fairness though we expected to be losing way more than £1 million at this stage so maybe with the well known accuracy of betting markets in politics this doesn’t bode well for Leave.”

Tony G has a vested interest in the vote. He is a Member of the European Parliament (MEP) representing Lithuania. His job as a politician may bring him the benefits of the “EU gravy train,” but that won’t compensate for losing over a million by putting his money where his mouth is.

Image credit: 1000 Words / Shutterstock.com

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Joss Wood
- A former editor of Poker Industry Pro, Joss Wood is a graduate in English from the University of Birmingham. Joss also holds a master’s degree in Organisational Development from the University of Manchester. His career path has taken him from the British Army, through business and finance to seven years as a successful professional poker player.