Published on the Business Today, issue Wednesday, 25th August 2010
The writing has been on the wall for a number of years that the Italians will do their utmost to compete with other gaming jurisdictions in a bid to win over the lucrative European market. In my opinion it is now close to succeed. Amid the bureaucracy of Berlusconi’s administration, emerged a refined and competitive set of gaming regulations which are expected to be of direct competition to other jurisdictions including us.
It took the Italian government very little to realise that the state coffers can easily be filled if they can get their act together to reign in the world of “scommesse” (bets) which were lost to foreign owned websites. After a number of site blocking operations three years ago, the Italians are now ready to attract the cream of the top gaming operators to enter their turf and brim the state coffers with taxes. AAMS – the Italian gaming regulator has decreed that licensees (those operators already holding an Italian remote gaming licence) will be entitled to offer casino and cash poker games on their Italian online gaming platforms. These opportunities are open only to those operators with an Italian gaming license, since not only does Italian criminal law prohibit the offer of games to Italian residents without an Italian gaming license, but Italian ISPs are obliged to implement filters blocking access to non-licensed websites for Italian residents.
The Italian Gaming Authority has just notified to the European Commission of the draft law setting out an exciting new licensing regime for remote gaming. The draft law contains several provisions relevant both to potential new entrants to the Italian online gaming market and for current operators. The ‘mortadella’ guys have not wasted any time to exploit their countrymen’s propensity to gamble and now they can offer equal if not better home facilities regulated and moderately taxed by the Italian state. Gone are the days when the legislators in Rome were reputed to sleep on the job and lose the baby with the bath water. The opposite has happened here and rules are in place for the award of 200 additional online gaming licenses, including the important proviso that operators applying for an Italian online gaming licence will be entitled to locate its legal seat and technical infrastructure in any country of the European Economic Area. So can Malta sleep on the job when such competition is on its doorstep? One may well ask why the Lotteries and Gaming Authority has just advertised to fill a vacancy for the post of legal officer at a time when something more solid has to be done to revamp our legislation to combat such competition coming from Italy, UK ,Denmark and France.
All these countries have sharpened their pencils and written remote gaming laws to make full use of the open market which Malta had carved a major slice since 2004. Back to Italy the new guidelines will trigger considerable tax benefits as operators will be only obliged to pay Italian gaming taxes even if they are hosted in other E.U countries. Migrating to Italy, new applicants will be able to obtain a licence without moving their infrastructure to Italy, while also preserving the tax benefits of their current jurisdiction of establishment. Italy is undoubtedly becoming a maverick country for players with its regulations concerning online bingo and its promising-looking gambling market.
More than a few European countries intend to follow it. In other words, it is rapidly becoming the model of choice for regulating EU member states overtaking Malta unless we come up with a credible alternative. As a general comment one can say that much of the success of the licensing requirements through the EU of course rests upon the European Commission’s tacit acceptance of these regimes. This is ostensibly to appease key member states looking to capture tax from e-gaming within their borders from operators located in jurisdictions such France. The latter is keen to protect its local market and to defend its million dollar earning Française des Jeux and Paris Mutuel Urbain monopolies. In our case Malta has nothing to protect since it hastily privatised its own lottery business and to boot also granted a seven year monopoly to a Greek owned company. Not so the Italians who have maintained a number of State run lotteries which yield lucrative taxes to the commonwealth. With exciting regulations set to allow cash games and casino gaming, the onshore Italian regulated market is expected to generate gross revenues of approximately 630 million euros during 2010 rising to nearly 800 million euros by 2012.
Italy’s remote gambling market is experiencing real growth: online gaming in April, for example, collected over 440 million euros, 36.1 percent more than the same month in 2009 (323.3 million). The Mozzarella hyped market represents a huge opportunity for online gaming brands. In recent years, Italy has been one of the fastest growing gaming markets in the world, and is currently boasting to become the biggest gaming market in Europe in terms of turnover. The regulated Italian gambling market is expected to grow and be the biggest in Europe this year with online regulated poker expected to generate €2.2 billion in turnover. Overall, interactive gambling is expected to hit €3.7 billion this year, soaring by 240 percent over 2009. It is little wonder that the Berlusconi boffins have put the money where their mouth is to capture the best chunk of taxes . Thus we see how the daily average turnover in April has been 14.68 million euros, up from 14.77 million euros in March. According to data released by the AAMS, poker and other skill games turnover continues to provide very high volumes and in March alone the daily average was above 9 million euros. As we can see, the Italian market is still in state of maturity and not in saturation stage.
Nearly two million Italian players have gone online at least once in order to play a game of ‘opportunity’ surfing foreign Internet gambling websites. But this will slowly be changing as the sites will be all licensed in Italy .The Berlusconi government realised the huge potential of the Italian market is and how important to regulate it. Last year alone, the regulated activities generated just under 20 billion euros, making it by far the largest European gaming and betting market. The Italians are careful to avoid double taxation and will be of direct competition to other jurisdictions which like Malta have invested heavily to attract foreign operators to house their servers and personnel in Malta. Like Malta .the Italians have improved their regime to open the path for the certification of gaming platforms in relation to cash poker games and casino games, so adding the last piece of legislation necessary for the upcoming launch of such new games. They fine tuned their regulation involving in particular the gaming terminals, so-called “totems”, that are at the moment located in most of the Italian shops.
These will be finally banned with a consequential advantage for the new entrants in the market that could not rely on a network of totems. As expected it will adopt the so-called “card of services”, an agreement between operators and players aimed at ensuring a higher level of transparency. With all this competition in our backyard, can we ignore the Trojan horse that has entered our gates? Certainly not and in my opinion the powers that be need to take immediate action to recognise the threat from within. It is true that the nascent remote gaming industry in Malta was created overnight with little promotional costs but has generated three times the losses suffered by the ailing Shipyards without the incumbent carbon footprint. Little mention was made in the vision 2015 about this sector and the fact that it contributed handsomely to the extraordinary 3.4 % GDP growth in the first quarter.
The so-called Cinderella industry has thrived amid legal hustles with France and Italy since its inception and created over 5000 well paid jobs almost equal to the much hyped Smart City project without costing the Maltese public the letting go of vast tracts of prime land in the Ricasoli area. So what can be done to give our successful sector a fighting chance? Quite a lot. If we can start to replenish our incentive remote gaming legislation then these tools are expected to help us retain the present 300 licensees while attract new entrants to the market. Doing nothing is not an option not while Italy is smart enough to offer operators its vast gambling public and its lucrative football crazy supporters who like to gamble on the odds.
George M. Mangion gmm@pkfmalta.com The writer is a partner in PKF an audit and business advisory firm.