eGaming and eSports

Gambling – the UK licensing regime

The Gambling (Licensing & Advertising) Act 2014 (Act) came into force on 1 November 2014. It amended the Gambling Act 2005. Remote gambling by consumers living in Great Britain became regulated on a 'place of consumption' instead of a 'place of supply' basis.

Prior to 1 November 2014, the Gambling Act 2005 required each operator offering its services in Great Britain to be licensed or regulated by one of the jurisdictions approved by the UK’s Gambling Commission (Commission) – the 'white listed' jurisdictions. Licences issued in these 'white listed' countries were treated as having been issued in Great Britain.

However, the government became concerned that without specific requirements imposed by overseas jurisdictions, operators were not compelled to report certain information, such as instances of suspicious betting activity, to the Commission. Although some operators voluntarily shared information with the Commission in addition to their home regulator, it was often of insufficient detail to be used in an investigation.

As such, the government asserted that the regime needed to change to a 'place of consumption' basis because it is "essential for the Gambling Commission to have a greater degree of oversight in respect of the gambling offered into Great Britain."

To that end, there is now an obligation on overseas operators which sell into the British market to obtain a licence from the Commission. Operators are required to abide by the provisions of the Gambling Act 2005 and its regulations, as well as the social responsibility and technical standard requirements issued by the Commission.

This means that operators based abroad are under a legal obligation to notify the Commission in respect of suspicious betting patterns involving British consumers to help combat illegal activity and corruption in sports betting. Remote licensees will also have to introduce new age verification procedures from May 2019.

Duty on profits derived from customers in the UK

Crucially, the new licence regime removes the tax benefit of being registered in a low-taxation jurisdiction. Since 1 December 2014, all companies which have an operator licence from the Commission have needed to pay the same remote gaming duty on UK gross profits, no matter which jurisdiction they are registered in.

Whether this was a fortunate by-product of the government’s wish to address problem gambling or the driving force behind the changes (the tax raised £443m in 2017-18) has been the topic of much debate within the industry. The current rate is 15%, increasing to 21% for accounting periods starting on or after October 2018.

Taxation of regulated eGaming activities

The UK imposes a number of taxes specifically chargeable on the gross profits of regulated eGaming activities such as bingo and bets placed.

As noted, UK gaming taxes operate on a 'place of consumption' basis which means that all operators which provide regulated gaming activities to UK customers are required to charge and account for UK gaming taxes regardless of where their business is established. Consequently, operators are required to verify whether their customers are 'UK persons' as defined under the Finance Act 2014.

For the purposes of UK gaming taxes a "UK person" will be:

• An individual who usually lives in the UK.
• A body corporate which is legally constituted in the UK.

eGaming operators which intend to carry on a regulated activity with UK customers must register with HMRC for relevant taxes, submit regular returns and pay the required tax. If an operator fails to comply with the tax regime, is late making payment or makes mistakes, HMRC may charge a penalty and/or interest on unpaid amounts.

eGaming advertising

The Act requires that only gambling operators licensed by the UK’s Gambling Commission (Commission) are allowed to advertise to consumers in Great Britain or offer eGaming services to them.

Licensed operators which offer eGaming are under an obligation to show a link (on all web pages that are used to access gambling services) to their licensed status with the Commission. This provides consumers and those who feature gambling-related advertising with the option to check whether operators are properly licensed.

The Commission requires under its licence conditions and codes of practice (known as the LCCP), that eGaming operators wishing to advertise must comply with the advertising rules. These rules are written and maintained by the Committee of Advertising Practice (CAP) and enforced by the UK’s Advertising Standards Authority.

They cover the content and placement of marketing communications and ensure that gambling related advertising is socially responsible, with particular regard to the need to protect children, young persons and other vulnerable persons from being harmed or exploited. The rules provide, for example, that noone who is or seems to be under 25 years old may be featured gambling in a gambling communication.

Additional standards have recently been published by CAP to prevent online adverts targeted at those "likely to be under 18" based on data about their online activities. The updated standards prohibit the use of sports stars, celebrities, cartoon characters and fairy tale themes. eGaming businesses will be required to avoid placing adverts on parts of websites likely to particularly appeal to children, and to use available technologies to prevent targeting of children on social media platforms.

There is also a voluntary code developed by the gambling industry which supplements the CAP Code. It sets certain minimum industry standards in the following areas:

• Social responsibility messaging.
• Display of licensed status.
• Broadcast media – messaging.
• Television advertising – watershed.
• Ban on children’s merchandising as part of sports sponsorship.

eSports

As the interest in and commercialisation of eSports (competitive video gaming) grows in the UK, so too has the regulator’s interest in how the gambling environment deals with this growth. eSports are obviously an attractive and emerging proposition for licensed gambling operators to offer bets on the outcome of matches, events and leagues.

Following the Commission’s publication of its 'Virtual currencies, eSports and social casino gaming – position paper' in March 2017, the position is now partially clearer on how the UK regulatory regime applies to eSports in the UK.

In summary, the Commission has positioned that:

• Applying the existing regulatory framework allows for proportionate control of the risks associated with betting on eSports.
• Maintaining public confidence in the integrity of eSports as an entertainment and betting event relies upon those seeking to benefit commercially from it applying the best practice available from other sports.
• There is a lack of contemporary or directly applicable case law, so interpreting legislation is ultimately a matter for the courts.
• It will employ an appropriately targeted and proportionate use of regulatory or criminal powers in dealing with unlicensed gambling facilities, in which evidence of a risk of harm to children is and will remain a significant aggravating factor.
• Adopting a zero-tolerance approach to small scale or ad-hoc secondary markets for in-game items (thereby bringing activities conducted in games themselves or on games platforms within the definitions of gambling) may not be practical or proportionate to the risks posed to the licensing objectives. On occasions where serious concern exists under those criteria the Commission is clear that primary responsibility lies with those operating the unlicensed gambling websites. However, the Commission will also liaise with games publishers and/or network operators who may unintentionally be enabling the criminal activity.

There is almost a 'wait and see' feel to the Commission’s approach until the technological and social environment becomes clearer and/or more settled. At this stage the Commission says the existing regulatory structure can be brought to bear on eSports, with a particular focus on risk of harm to children.

Match-ups/bet on yourself

A specific risk called out by the Commission is where the underlying eSports game is considered a game of skill (so not caught by the definition of "gaming"), but a commercial entity provides facilities which allow eSports players to play against one another in match-ups and bet on themselves to win. These situations may be caught under the definition of betting, either as fixed odds, pool betting or acting as a betting intermediary.

The Commission has acknowledged that drawing a distinction between arrangements caught by the definitions of the different forms of betting and genuine competitive tournaments is not straightforward.

As with gaming, there is little in the way of modern directly applicable case-law. While the Commission has admitted that the new environment can be uncertain, the existing regulatory position in relation to betting, providing facilities for betting, and pool betting, will continue to apply.

In particular, the Commission has found no basis in legislation to support the conclusion that a person cannot be considered to be placing a bet by virtue of the fact the bet is on themself to achieve a desired outcome, in this case to win an eSports contest or tournament.

The Commission has stated that "setting aside betting integrity rules which routinely disbar participants from betting on themselves, if a professional sportsman staked money with a bookmaker, or through a betting exchange, on themselves to win a contest, that transaction would readily be recognised as a bet."

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