High French Taxes Strangling Sports Betting Market

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Friday, June 16th, 2017 | Written by Charles Washington

Last month, ARJEL, the French regulator for online games, released its financial results for the first quarter of 2017, and the news shone a positive light on the industry. For the first three months of the year, the market had risen by 23% to €633 million, compared to the €585 million collected during the same period of time in 2016.

While the Q1 figure marks a high point in the country’s history, ARJEL was quick to point out that it was only online sports betting that actually showed any significant growth, with the organization pointing a finger at the restrictive tax burden placed on gaming companies operating in France. As a statement issued by ARJEL subsequently warned:

“In this context maintaining a fiscal arrangement that taxes operators on stakes when they pay out so much to their players in winnings along with a very restrictive licensed offering that doesn’t take into account the expectations and habits of the new generations, puts an increasingly heavy burden on the licensed market in the face of an illegal offer which, despite the efforts of ARJEL, is intensifying.”

Q1 of 2017

In Q1, online sports betting dominated the market, and noted an impressive 23% sales growth, with player participation amongst both males and females increasing by 21 percent to 829,000, and 40 percent to 79,000 respectively. Overall, sports betting revenue soared by 16 percent to €94 million during the quarter, while even online poker noted a slight 3 percent improvement in revenue to €64 million.

High Tax Burden

During the 2015/2016 period, sports betting online also reported significant growth, with ARJEL reporting that sports betting had risen risen by 30 percent, while gross gaming revenue was also up by 19 percent. Even with such a trend continuing into 2017, however, taxes in France are making it hard to earn a profit. In fact, online sports betting has generated major losses for operators, with their profits in 2015 negative by €7 million, and since the new taxes and laws were introduced in 2010, these operators have experienced a combined loss of almost €222 million. Furthermore, out of the 11 total licensed sports betting operators, five of them cannot make any profit at all, and while this situation may seem bad, those in the online poker world have it far worse, with only two of the total of nine licensed betting operators able to turn a profit in 2015.

Up until now, France has been able to argue plausibly that the higher taxes have indeed done their job in topping up the country’s coffers, especially with regulated online gambling tax revenues hitting €382 million in 2015, and generating €1.946 billion for the French treasury since 2010. During that period (2010-2015) sports betting spending has also risen almost 39 percent.

Lobbying for Change

Sports betting, cash game poker and horse race betting taxes on gaming are calculated according to the amount that was bet, and not as a percentage of gaming revenue. This system results in a higher overall tax rate, and is the main factor behind the losses by operators. ARJEL’s former president, Jean-François Vilotte, tried to get this gross revenue basis changed, but politicians in France did not want to consider his arguments at that time. According to Vilotte, unlicensed websites have no fees or taxes to pay and so offer bettors a more desirable alternative to the standard, licensed sites. Due to his efforts, thoguh, there is currently lobbying going on for changes to be made to the tax system, with credit having also been given for the changes that were made in 2016 which allowed for greater opportunities for sports betting, new varieties of poker, and daily fantasy sports regulation.

Lobbists are also proud of having managed to get shared international poker liquidity into the Digital Bill, and have been arguing further that ARJEL needs to be given more power to decide which activities should or should not be regulated. Nevertheless, sports betting online continues to lack important protections for consumers, and while lobbyists may achieve some success in this area in the next few years, politicians in France do not appear ready just yet to accept the argument, and until they do, then profits in the regulated sports betting market will continue to be low in France.