Betting tax and funding issue

Last Thursday evening’s dinner at the headquarters of The Irish Field must have been a pool of cool water in a week of fire and brimstone for An Taoiseach Brian Cowen. One minute you are being accused from the far side of The House of being the primary fiddler while the economy burned, the next you are the guest of honour at a congenial dinner, imparting good news and being received by wide-mouthed grins and heartfelt applause.

And the news was good. An Taoiseach’s public recognition of the national importance of the Irish racing and breeding industries was significant, as was his acknowledgement that a more sustainable system of support had to be put in place to ensure that they continue to thrive. The precariousness of their current reliance on the whims of the government of the day is there for all to see.

We have been over this ground before. The Horse and Greyhound Racing Fund was set up in 2001 to provide the resources through which Irish horse racing and Irish greyhound racing would be funded. At that time, annual betting turnover was around €1.3 billion, with tax revenue amounting to €68 million. In 2009, annual betting turnover increased to an estimated €4 billion, but the tax take dropped to €31 million, representing a decrease of a staggering 54% in tax take from an increase of over 200% in turnover. The discrepancy was largely down to the exponential growth of internet and telephone betting, a development that was largely unforeseen in 2001.

Horse Racing Ireland have been anxious for a while now that racing get its hands on the revenue that the taxing of on-line and telephone betting would generate, an apparent virtual pot of gold sitting in cyberspace awaiting collection. HRI estimate that the total pot is worth €1.7 billion, although a bookmaker-commissioned PricewaterhouseCoopers report suggests that its worth is no more than €800 million. Specifically, Paddy Power say that there is no pot of gold, that no more than €6 million would be generated in revenue from taxing internet and telephone betting.

Whatever its value, accessing it is not so simple, and therein lies the difficulty. An Taoiseach was quite definitive in his speech on Thursday. “(All) forms of betting must be brought within the tax net,” he said. “The Government will introduce legislation to ensure that overseas betting providers comply with a licensing regime that will permit them to sell their products into our jurisdiction.”

How?

The difficulty with on-line betting, not just in Ireland but throughout the world, is that legislation generally pre-dates the advent of the internet. Current Irish gambling legislation was written at a time when you bet almost exclusively on horse racing or greyhound racing, and in order to do so you walked into a betting shop or went to the races and handed your money to a bookmaker.

Historically, efforts to regulate or to prohibit on-line betting all over the world have failed miserably. Different methods have been implemented in different jurisdictions. In the USA, they have passed legislation and they have regulated the banks, yet the illegal betting industry was estimated to be worth $150 billion in 2008. In Germany, despite legislation, it is estimated that there are two million on-line gamblers. In Italy and in China, they block certain IP addresses, but the resources involved in policing it are significant and greatly reduce the net benefit to the Exchequer of so doing.

In the UK, with a betting landscape similar to Ireland’s, bookmakers pay a 15% tax on their gross profits as well as a 10% levy on their profits from British horse racing, and betting operators who are not registered in the UK are not permitted to advertise there. That seems to work in the UK, but it is debatable if a similar model could work in Ireland with the proliferation of overseas media that have become part of Ireland’s sporting culture. It is probable that a betting firm that was not permitted to advertise in the Irish media would still have little difficulty targeting and attracting Irish bettors.

There is another issue. Horse racing and betting have historically been inextricably linked, but we are treading on dangerous ground in assuming that Irish racing has an automatic right to the tax revenue that is generated from all betting going forward. It is estimated that no more than between 10% and 15% of all betting in Ireland is on Irish racing.

It may be that we need more carrot than stick here. Betting operators, with boards of directors and shareholders, need to be provided with an incentive to register in Ireland.

There is also a chance that we are missing a bigger picture. There may be an opportunity now for Ireland to present itself as an international betting hub, to implement changes to betting legislation that would make it financially attractive for the major international betting operators to base their headquarters in Ireland. Boylesports employ 250 people in their head office, Paddy Power employ 700 people in their head office alone, who contribute an estimated €40 million to the Exchequer. If the taxation of all telephone and on-line betting would yield no more that €6 million to the Exchequer, you don’t need to have a Masters in Finance to figure out that we need to turn the kaleidoscope around fairly quickly and look through the other end.

An Taoiseach said on Thursday that he had left instructions that he wanted this matter sorted as soon as possible, and that it would definitely happen this year. We wait with bated breath.

© The Racing Post, 18th May 2010

Back