THE GAMBLING SECTOR: Some History, Some Evidence and Some Thoughts

Prof. Leighton Vaughan WilliamsProfessor of Economics and Finance

Director, Betting Research Unit

Nottingham Business School

Nottingham Trent University

June 6, 1944: D-Day

•Harry Wragg came through in the Dip at Newmarket to win the first race of the day, the 5f. Bartlow Maiden Stakes for 2yo, on High Peak (drawn 8, carrying 8-11), by a head from Chiseller, at 4 to 11.

Before the Bronze Age

•Racetrack betting and ‘Tote’ betting were legal.

•Off-course cash bookmaking was not.

•No tax on betting.

Beginning of Bronze Age

•Dalton Budget, November 12, 1947 introduced higher taxes on the “essentials of life” (Daily Graphic and Daily Sketch, Nov. 13), including clothing, beer and spirits, and a new ‘Surprise Tax’ on greyhound Tote bets and on football pools.

Betting Tax Explained

•The Chancellor, Mr. Dalton:

•“The amount staked on Totes represents a large proportion of the total expenditure on betting … If we tried to collect tax on bets with bookmakers it would be necessary to divert a number of excise officers from the collection of other taxes. Too few tax collectors chasing too many bookmakers would be only a new version of the inflation merry-go-round”.

•“Football pools have grown since 1926 to most formidable dimensions. They now absorb too much labour and paper”.

Beginning of Silver Age

•Legalized in 1960.

•First licensed betting offices opened in 1961.

•No tax on betting with bookmakers.

In 1966, tax on betting with bookmakers introduced

Tarnishing of Silver Age

Tax on turnover introduced in 1966 at a rate of 2.5%, which eventually climbed

to 8%.

On-course taxation abolished in 1987.

NATIONAL LOTTERY INTRODUCED, 1994:SCRATCHCARDS, 1995

• Betting duty cut to 6.75% of turnover.

• Against all the dire predictions, betting with bookmakers was boosted by the introduction of the Lottery (even allowing for the tax cut). In other words, the Lottery had the effect of expanding the market and the bookmaking sector was a net beneficiary of this effect.

• Silver Age was regaining it shine.

Betting stands at £7 billion

•By 2001, betting turnover stood at £7 billion a year.

Government invites tender to advise on the options for taxing betting.

Economic Analysis of the Options for Taxing Betting: a report for HM Customs and Excise –

Leighton Vaughan Williams, August 2000.

Recommends switch from turnover tax to Gross Profits Tax and a significant reduction in tax.

Gross Profits Tax Versus Turnover Tax

•A switch to GPT represents an improvement because it encourages a high-turnover strategy instead of a low-turnover strategy.

International Competitiveness

•A switch to GPT enhances the ability of UK bookmakers to compete in a rapidly changing technological and global environment.

Maintenance and Sustainability of Government Revenue

•GPT protects tax revenue by removing some of the risk from industry and enabling it to compete more effectively with overseas competition.

Forecast of the Impact of the Switch to GPT

•Turnover to rise from £7.1 billion (2000-2001) to £32 billion in 2003-2004

•Tax revenue to fall to £290 million in 2002

•Tax revenue to rise to £440 million in 2004

Switch in October 2001 from Tax on Turnover (Quantity) to Tax on Gross Profits (Price)

•Introduced for Fixed-Odds Betting at 15% of Gross Profits.

•For betting public, tax effectively axed.

The Golden Age

•Ushered in on October 6, 2001.

National Audit Office Report

•National Audit Office in 2005 published a review of developments in the gambling sector since the introduction of Gross Profits Tax.

Impact of the Switch to GPT

Turnover rose from £7.1 billion in 2000-01 to £32 billion in 2003-04)

Tax revenue fell to £292 million in 2002

Tax revenue rises to £437 million in 2004

•In each case, almost exactly in line with the forecasts.

•Source: National Audit Office, 2005

British Bookmakers’ British Bookmakers’ turnover increasesturnover increasesdramatically dramatically

Betting industry secure

Bettors in tax paradise

Bookmakers’ revenue and profits soar, betting public pay no deductions, bookmaking industry is secure and the Chancellor of the Exchequer is happy as well!

GOLDEN AGE

»CONFIRMED

Budget 2006

Bookmaking will continue to be taxed on the basis of ‘gross profits’ and at a consistent rate (15%).

THE FUTURE SECURED BY TAX POLICY

Economic analysis forecast a massive boost in turnover following the abolition of betting deductions and the change to a GPT is 2001.

Practical experience has borne out the forecasts almost to the letter.

FUTURE SECURED

•The low-tax betting experience in the UK is here to stay?

•The future of the industry is not only secure but poised to continue its long-term healthy growth?

POLITICAL AND SOCIAL ENVIRONMENT

•Gambling Review Report, 2001

•A Safe Bet for Success, 2002

•Draft Gambling Bill, 2004

•Gambling Act, 2005

THE FUTURE OF THE GAMBLING INDUSTRY

•Some de-regulation, some tougher regulation

•Social responsibility

Economic Analysis of the Proposed Changes to the UK Gambling Industry: A Base Case Study

•For: HM Customs and Excise/HM Revenue and Customs

•For DCMS

ANALYSIS OF ALL GAMBLING SECTORS

•Gambling sector to continue to surge ahead?

•Productivity and profitability to soar?

IMPACT ON BOOKMAKING OF FUTURE DEVELOPMENTS

•Casino development, and expansion in other areas of gambling, may be complementary activities, not substitutes, in the same way as the National Lottery boosted the fortunes of bookmaking?

IMPACT OF GAMBLING DE-REGULATION

•Every sector of the industry gains?

SOCIO-ECONOMIC TRENDS

•Economic analysis reveals that leisure is a key growth area.

•Leisure pound will be a critical growth area for the economy.

•The retail sector is poised to reap huge gains from current social and economic trends?

THE CURRENT ENVIRONMENT

•Market size to continue expanding, productivity and profitability to continue increasing?

•All sectors of betting and gaming have a big future, based on a rapidly growing market? The competition is rally about grabbing a healthy share of that market?

REVOLUTION

•The betting sector had its revolution in 2001.

•In five years turnover increased almost seven-fold.

•Gross Profits also surged.

EVOLUTION

•From here on, the key is evolution and adaptation but will that be in a climate hospitable to expansion and change? Either way, those who adapt best and quickest will reap the biggest rewards.