• Global market expected to be worth $127 billion in 2027
• High tax on online operators encourages some to go unregulated
• A balanced and pragmatic approach is needed to protect players

There is a saying that people who complain about taxes can be divided into two classes: men and women. Taxation is how Governments bring in revenues and how they can apply the brakes to undesirable behaviour like smoking, drinking, driving gas-guzzling cars. And gambling.

Increasing alcohol duty or tobacco tax won’t force smokers and drinkers into a strange world of illicit booze and unregulated cigarettes. Instead, many give up their habit or take the financial hit on the chin and carry on as if nothing happened. It’s only when something is banned, like alcohol in the US during the prohibition of the 1920s, that it goes underground.

But online gambling operators do have a choice to walk away from the tax system. While online casino, sports betting, poker and bingo operators clearly prefer to join up with a regulatory body like the UK Gambling Commission (UKGC) or the Malta Gaming Authority, since it gives them respectability and trust, they don’t have to. Instead, they can just operate independently in a black or grey market, where they pay no gambling-related taxes at all.

Online gambling player protection

The huge problem of online gambling sites operating in a murky black economy is not so much about missed taxation revenues; it’s about how much it puts customers at risk.

Unregulated sites do not have to sign-up for stringent checks from bodies like the UKGC. There is no standard for how funds and player data are managed or the fairness of games. Gone, too, are any official monitoring of checks for problem or underage gambling or anti-money laundering measures.

Not all black-market operators are shady, far from it. Most would sign up to every regulatory body in a heartbeat if it were not for punitive taxes. It’s really a question of scale. If you are big, with a large customer base generating large gaming revenues, then paying gambling taxes becomes part of your still-profitable offering.

But smaller, new operators with high start-up costs need to generate cash flow fast – and handing over a significant portion of their revenues in taxation could be the difference between sink or swim.

How much are gambling operators taxed?

Every country (or US state) will charge different taxes on online gambling operators. In the UK, one of the most widely respected online gambling models, operators face a 15% tax on revenues. However, if you look at France, online poker companies are charged 40%.

Land-based casinos fair much worse. In Germany, for example, a land-based casino can be charged up to 80% of its revenues in tax. This list shows just how unattractive tax rates can be for online gambling operators in certain areas:

• France, sportsbooks 52.2%, online poker 40.8%
• Denmark, online casinos 20%, sports betting 20% – rising to 28% in 2021
• Austria, online gambling 40%
• Italy, online sports 24%, online gaming, 25%
• Michigan, US, online sports betting 8.4%

Just those few examples show the huge disparity from one country to another. Would you want to launch an online gambling company in Austria and hand over 40% of all revenues? France, with a bigger market, just about sustains its online gambling presence with similar rates (even higher for sports betting).

What is worth noting is the lower rate in Michigan. As the latest US state to legalise online gambling, its tax rate is seen as a sensible balance between checks and regulation and raising cash for good causes in the state. We reported how, during the first ten days of online play alone, $4.4 million was raised in tax revenues.

Then there is Argentina. There is no federal online gambling regulation in place. Instead, local provinces such as Buenos Ares can legislate and charge taxation. The government last year proposed a 5% online gambling tax. It’s an operator-friendly rate and begs the question, why not just legalise it country-wide?

Online gambling is only going to grow

Those countries that remain opposed to online gambling regulation and, therefore, taxation face a growing force. It’s like holding your finger over a hole to plug a leak: sooner or later, it’s going to give way.

According to Grand View Research, the online gambling market will be worth a staggering $127.3 billion by 2027. Assuming an average tax of 20%, that’s a potential $25.46 billion in tax revenues, more than Zimbabwe’s gross domestic product.

Growth will be fuelled by new technology and better games, and the continued roll-out of legalisation in various parts of the world. Although the ball is rolling, gathering pace downhill in the US, it has yet to swallow up high-population states like California, New York, Texas and Florida. Pennsylvania, Michigan, West Virginia, New Jersey and the like are a good start, but more needs to be done.

Michigan’s tax rates are sensible. It encourages operators to make a go of offering the best and safest gaming experience possible.

But elsewhere, taxation rates need to be more realistic.

Don’t fund the black market

Some of the business’s biggest names recognise the danger of players signing up with black market operators. Earlier this month, William Hill Chief Executive Ulrik Bengtsson said: “The gambling black market is a growing problem that we must confront.

“The reason is that unlicensed operators do not offer the same protections as licensed companies. They do not have any of the safer gambling protocols in place that we use, there is no age verification checks, no anti-money laundering precautions, or any of the consumer protections that are now standard in the industry.”

In 2019/20, the UKGC carried out 59 enforcement actions against unlicensed operators. In 2020/21, with a few months still to go, that number was at 74.

Bengtsson points out that the same technology improvements that make gaming better also make it easier for black market operators to exploit the unwary.

It’s well known that a significant review of the gambling industry in the UK and how it is marketed is underway. Operators hope more is done to deter black market operations, as hiking up taxes just encourages the problem.