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As the UK Readies for a Brexit Online Gaming Companies Stay Pat

26 December 2016, 19:47 CET

In the run-up to the historic Brexit referendum, Brexiteers and Stay-Campaigners were touting the merits of their respective positions.

UK - EU

In the run-up to the historic Brexit referendum, Brexiteers and Stay-Campaigners were touting the merits of their respective positions. The historic referendum – dubbed a Brexit – is a reference to the British exit from the European Union. It came hot on the heels of the highly charged Grexit (Greek exit) campaign. Politicians, talking heads and business leaders were convinced that Britons in Wales, Ireland, Scotland, and England would vote overwhelmingly in favour of remaining in the European Union. They had good reason to believe this, given the close political and economic ties between Britain and the 28-nation bloc. However, as the votes started to trickle in it became clear that Britain had little interest in remaining in the European Union. The points of contention were related to immigration, centralized governance in the United Kingdom, jobs, cultural identity, protection from terrorist threats and the like. On the one side of the debate, Prime Minister David Cameron and his Chancellor of the Exchequer, George Osborne were championing the Stay Campaign.

On the other side of the aisle, former London mayor Boris Johnson became the face of the Brexit. The referendum became one of the most highly contested affairs in the history of European politics, and it remains a contentious issue to this very day. It should be pointed out that the Brexit referendum is not a legally binding judgment or construct. It is merely an advisory referendum that Members of Parliament have decided to adhere to. Upon learning the results, Prime Minister David Cameron wasted no time and announced his resignation. The conservative party – the Tories – quickly appointed Theresa May to head the government.

The actual vote breakdown is particularly interesting, given that England – the most populous country in the United Kingdom – voted 53.4% for and 46.6% against a Brexit. In Wales, the Brexiteers gained 52.5% of the vote. Not surprisingly, Northern Ireland and Scotland voted to remain part of the European Union. These countries have significant ties with mainland Europe, and a Brexit would severely dent their economic and political relationships with the EU. Scotland is an interesting case in that it also recently voted to remain part of the United Kingdom when the Scottish referendum on independence was held.

How is a Brexit affecting the UK and specific industries in the UK and Europe?

UK Leave

On paper, Britons have cast their ballots and the country is on track for a Brexit. Precisely what form this takes remains unknown. There are two possible options that Prime Minister Theresa may can opt for: a hard Brexit and a soft Brexit. A hard Brexit would be a dramatic cut of relationships (economic, political, military and so forth) as quickly as possible. A soft Brexit favours the maintenance of economic and political ties, within the ambit of a graduated process of disentanglement. Both concepts are practically complex and logistically daunting. We have seen some major effects of the Brexit referendum since June 23, 2016. For starters, the sterling plunged to a 31-year low against the USD. Nobody anticipated the British pound (GBP) weakening from 1.48 to the greenback to as low as 1.21 – 1.23.

This economic shock helped to drive UK export potential dramatically. The premier UK index – the FTSE 100 – rallied to all-time highs on the back of a weak pound. It should be remembered that the FTSE 100 index is comprised of companies that are predominantly based abroad. Some 75% of listed companies on the index derive their income from overseas operations. When this money is repatriated back to the United Kingdom, it is worth more in GBP. To combat the ill effects of the Brexit, the BOE cut interest rates to 0.25%, down 25-basis points. This was the first rate cut since the global economic recession in 2009. Not surprisingly, the monetary stimulus fuelled a massive rally in the UK. Both the FTSE 100 index and the FTSE 250 index hit record highs.

The Online Gaming Industry Digs in Ahead of Article 50

Online gaming

At an industry level, the Brexit saga is weighing heavily on how European-licensed organizations, or British-licensed organizations can interact with one another post-Brexit. We already saw the British Banking Association (BBA) pen a letter to Prime Minister Theresa May, asking her to put a framework in place to allow British banks to continue their partnerships with European customers. Much the same is true with all other industries that operate within the UK and the EU. A classic example is the burgeoning online gaming industry. As it stands, the United Kingdom is a huge market for popular online casino operators like 888casino and other big brands, thanks to the United Kingdom Gambling Commission (UKGC) and a liberal licensing and regulatory framework.

The bulk of UK and EU online casinos are licensed in Gibraltar, by the Gibraltar Gambling Commissioner and the Government of Gibraltar, or the MGA. Gaming companies in Gibraltar and the United Kingdom have made it clear that they intend to continue offering their services to all European Union countries and the United Kingdom, despite the Brexit vote. More importantly, the Brexit remains a theoretical concept – it has not taken place yet, and likely will not take place for quite some time. For starters, Prime Minister Theresa May attempted to address the Brexit issue but was struck down by the British High Court. According to the High Court, May needs to present the issue to MPs and they must vote on it. Theresa May as Prime Minister has now gone to the Supreme Court to gain authority to invoke Article 50 of the Lisbon Treaty to begin Brexit proceedings.

The Brexit saga is a lengthy, expensive, and incredibly intricate topic. The Prime Minister's office has appointed a Minister for Brexit, and tens of thousands of government workers will need to be put on to the payroll to navigate the political, social, and economic minefield that is a Brexit. There is widespread consensus among major European Union countries – France and Germany – that Britain needs time to prep itself for the Brexit. With regards to the gaming market in the European Union, the 2015 figure was estimated around €85 billion. Online gaming accounts for 15.3% of that figure, or €13 billion. The UK is a major online gaming country and comprises €3.5 billion of that figure. For this reason, there is tremendous interest about the implications of a Brexit on the online gaming sector for both Europe and the UK.

Many ideas are being floated about how best to deal with a Brexit and how it will affect the EU and the UK vis-à-vis online gaming. Some ideas pertain to individual states determining their own course, but no 'passporting' system currently exist as it does with online trading company such as binary options operators, CFD providers and the like. In other words, online gaming is specific to each individual country. No mutual recognition exists in the EU for licensing. Individual operators will require multiple licenses and regulatory approval to offer their services across the EU. The European Union Court of Justice perceives online gaming to be in the same mould as financial trading enterprises, and is pushing for TFEU Article 49.

What About Online Gaming Companies Located in Gibraltar and the United Kingdom

Gibraltar flag

The relationship between the European Economic Area and the UK and Gibraltar has become a tenuous one. Non-UK online gaming companies will still require a UK license to operate post Brexit. The big problem comes from the other end: UK companies and Gibraltar-based companies wanting to operate in the European Union. Issues that are likely to come up include privacy, data protection, unfair commercial practices, cybercrimes and the like. Taxation will play a big part in whether UK and Gibraltar are online gaming companies can operate effectively in the EU. If Britain and Gibraltar are denied fair treatment in the EU and the EEA, they may have recourse with the WTO (World Trade Organization). This happened when Antigua was trying to offer gaming to the US, and the US revoked that right and paid the penalty to Antigua. This is not a slam-dunk, and it creates additional complications in an already highly volatile mix.

What Is the Best Approach for Online Gaming Companies in the UK and EU Moving Forward?

The most important consideration is the following: Article 50 of the Lisbon Treaty has not yet been invoked. This means that Britain is by all accounts part and parcel of the EU. No changes have yet been made to the relationship between these countries and the economic and political bonds that currently exist. High-level discussions will need to take place, licensing issues will need to be hammered out, and relationships need to be cemented. There is a lag of at least 2 years before Article 50 will get things moving. By that stage, there will be greater clarity about how best to proceed with the online gaming industry and its functionality in Europe and the EU. If Gibraltar proves to be an unfavorable destination, the Malta Gaming Authority (MGA) is a quick-fix solution to obtaining licensing for online casinos.

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