Impact of Brexit on the Gaming Industry

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Thursday, September 8th, 2016 | Written by Shane Larson

Europe is still reeling from the announcement that the UK will be departing from the European Union. The British exit or Brexit was put to a vote on June 23, 2016 and passed by a narrow margin of just 53.4% to 46.6%. The move will impact every industry in the country, and gambling is no exception, leaving the UK, the rest of Europe, and the world at large left to wonder exactly what will happen once the UK eventually does triggers Article 50 and ends up on its own.

Here are some potential consequences of Brexit on the UK and Europe’s gambling industry:

Drop in Revenues for EU-based Operators

The UK currently grants online gambling licenses to operators located in Europe in order to comply with EU guidelines regarding free trade. At present, roughly €3.5 billion is generated from online gambling accounts based in the UK, which is approximately 30 percent of the €13 billion in total gross gaming revenue generated in Europe each year by online gaming sites. Many operators in mainland Europe who are currently receiving revenue from UK players wonder if they will still be able to count on this source of income after Brexit occurs. It’s possible that the UK could amend their laws to put British operators at an advantage, leaving European operators with no recourse under EU law.

Changes to Security Requirements

While EU rules allow member nations to adopt their own laws regarding gambling, all EU member states are required to have provisions in their legislation that combat money laundering. Some experts have noted that the UK will no longer be bound by these requirements, and may modify the security requirements for online gambling sites. While the UK will certainly continue to require steps to prevent money laundering, the specific requirements may change.

Possible Departure of Gibraltar

Another important consideration when predicting the potential impact of the Brexit is what will happen to Gibraltar, a territory of the UK that has become a major hub for online gambling over the past decade. About 20 to 25 percent of Gibraltar’s GDP comes from gaming, as there are roughly 30 business to business (B2B) and business to consumer (B2C) gambling companies located there. Consequently, speculation exists that the companies that do business there may subsequently consider relocating now that Gibraltar will no longer be governed by EU rules.

Complicating the matter even more is the fact that about 3000 people who live on the island work in the gambling sector, and an estimated 1,000 more are employed by businesses that are indirectly impacted by gambling. Some of these individuals are actually residents of Spain who are able to commute back and forth daily due to the ease of travel allowed by EU arrangements. After Brexit, it may become difficult for these workers to get to and from their jobs.

Because gambling is of such importance to Gibraltar, some experts have even speculated that the territory will try and part from the UK and either move for independent status as a nation or become a territory of Spain to remain in the EU.

Conclusion

Brexit will inevitably throw up numerous challenges for the country, as well as the gaming firms that operate in the EU. With a possible two year period left before the UK is required to trigger Article 50 of the Lisbon treaty, the time should be used efficiently by companies to build business plans which take account of the potential impact it may cause. A key point in this regard is deciding whether their licensing strategy are solid enough to withstand the potentially negative impact of the UK and Gibraltar separating from the EEA.

Nevertheless, the companies will also have to wait and see what relationship model and trade arrangements the UK intends to adopts post-Brexit. This should become somewhat clearer by early 2017, and in the meantime affected companies should spend time promoting their interests amongst lobbyists, while trying to influence Brexit negotiations in their favor. Needless to say, they should also continue to closely monitor developments, and identify ways in which to limit their risks in areas likely to be impacted by Brexit.