Thursday 19th April 2012 - KPMG International€¦ · Europe India Gateway submarine telecoms...

Thursday 19th April 2012

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Kindly sponsored by

© 2012 KPMG Limited, a Gibraltar limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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Over the past fifteen years, Gibraltar

has established itself as one of the

world’s leading on-shore European

jurisdictions for eGaming

businesses wishing to establish

themselves within a well-regulated

and tax-competitive commercial

environment. Its reputation as a

secure and robust, first-class

gaming jurisdiction has resulted in

its becoming host to many of the

world’s major gaming operators, all

of whom have benefitted

significantly from the positive

approach to eGaming taken by the

Gibraltar Licensing Authority.

On the 19th April, 2012 at the CaletaHotel, the KPMG eGaming Summitsought to compound and elaborateupon Gibraltar’s demonstrablyexcellent reputation for cross-industrydiscourse by providing a forum withinwhich businesses and representativescould meet and discuss the currentand future global presence of theeGaming sector.

Gibraltar’s Minister for Education,Financial Services, Gaming,Telecommunications and Justice, theHon. Gilbert Licudi, kindly opened theSummit with a welcome addresswhich outlined Gibraltar’s ongoingcommitment to providing a safe andtransparent operational jurisdictionwith internationally competitiveregulatory and supervisory legislation.The morning session then focusedpredominantly on the issue ofregulation within the eGaming sectorboth from a local and Europeanperspective. Highlights included amuch anticipated address by Maria

Brennan of HM Treasury and AndyGrimsley of HM Revenue and Customson the UK’s regulation and taxation ofeGaming, with particular reference tothe UK Government’s recentlyannounced Point of Consumption Tax.KPMG’s Archie Watt then opened theafternoon session with a presentationwhich commended the remarkableresilience of the eGaming sector overthe past decade, upon which note heintroduced the focus of the remainingsession as being concerned with thefuture of the eGaming industry. TheSummit closed with a four-delegatepanel session, moderated by KPMG’sRussell Kelly, entitled ‘eGaming andBeyond’.

This report seeks to summarise theday’s events with a view to sustainingthe impetus and enthusiasmgenerated by the Summit. KPMGwould like to take this opportunity toonce again thank the speakers anddelegates who attended, all of whomcontributed to its great success. Thiswas the second such event held inGibraltar, with a view to more in thefuture as the industry continues toflourish.

KPMG employs a number of eGamingindustry specialists both in Gibraltarand globally and is committed tocutting through the complexity of thisconstantly evolving industry.

Introduction

A word fromthe SponsorAt Continent 8 Technologies, our

investment in Gibraltar’s eGaming

sector is testament to our belief that

Gibraltar represents a globally

competitive jurisdiction built on

solid foundations of technological

innovation, co-operative regulatory

practices and a robust political and

economic environment.

The Continent 8 Technologies Gibraltardata centre is the latest addition to thecompany's expanding global datacentre footprint. We believe itrepresents the perfect accompanimentto both Gibraltar’s flourishing eGamingindustry and continued investment inan increasingly diverse technologicalinfrastructure set to become a globalplatform for e-commerce.

We focus on the delivery of market-defining Internet technologies,products and services for global onlinegaming and this year’s KPMG eGaming

Summit was the perfect opportunity todemonstrate our commitment tostaying at the cutting-edge of thisexciting industry.

Continent 8 Technologies was proud tosponsor the day’s events and we lookforward to next year’s KPMG eGamingSummit in Gibraltar.

Richard Ebbutt

Continent 8 Technologies


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The Hon. Gilbert Licudi QC is

Gibraltar’s Minister for Education,

Financial Services, Gaming,

Telecommunications and Justice.

As well as his extensive role with

the Gibraltar Government, Mr. Licudi

is a Barrister specialising in

commercial and trust litigation and

has been admitted to the Bar in both

London and Gibraltar since 1992.

Mr. Licudi opened the Summit byreassuring the floor that Gibraltarremains committed to licensing onlythe world’s best operators; “therebysustaining a critical mass of like-mindedcompanies, which are like-minded withthe Government, like-minded with eachother and dedicated to providing safeand secure remote gambling serviceswithin and beyond Europe.” As such,Mr. Licudi reminded delegates that theGibraltar Licensing Authority “expectsand requires its licensees to be asprecious about their reputation as weare about ours.”

Key Challenges

The key challenge concerning many inthe industry is the UK’s recent proposalto introduce a Point of Consumption Taxin the UK in December 2014, along witha licensing and regulatory regime forforeign operators. The proposal has

disappointed the Gibraltar Governmentand is a matter which has beenprioritised within the LicensingAuthority. Mr. Licudi confirmed that hehad already engaged and will continueto engage with the UK Government onthis issue and that it was, in fact, thesubject of Mr. Licudi and Chief MinisterFabian Picardo’s first meeting withofficials in London following the 2011elections. Mr. Licudi also confirmed thatboth he and The Hon. Mr. Picardo metwith John Penrose, the UK Minister forthe Department of Culture, Media andSports as well as the UK Minister of theTreasury Chloe Smith. Maria Brennan ofHM Treasury, who was due to speak atthe Summit later that morning, wasalso present at the meeting with ChloeSmith.

Mr. Licudi confirmed that the GibraltarGovernment will continue to lobby and topresent its arguments to the UKGovernment and claimed that thedecision was, in essence, a politicalproposal. The Gibraltar Governmentbelieves there is scope for the UKGovernment to re-consider its positionand will make sure, as Mr. Licudi stated,that the UK Government understandsthat “what they call a fairer system oftaxation would operate withdisproportionate unfairness to Gibraltar.”

It had also been suggested that one ofthe reasons for the licensing andregulatory regime is the need to protectthe UK’s customers. Mr. Licudi agreedthat online gaming is a leisure activitywhich involves some risks: “somecustomers may exercise poor judgmentand control and some customers maycommit or seek to commit crimesagainst the operators. Yet Gibraltar hasshown that such risks are best managedwhen the providers are small in number,high in quality and tight in theirregulation,” he stressed. As the industryhas developed, remote gamblingcustomers, both good and bad, havebecome increasingly astute and in theirsearch for the best odds and deals aresometimes drawn to sites which serveas a platform for illegal markets.However, Mr. Licudi maintained that “theblack market has been squeezed out ofthe UK by low cost but properlyregulated regimes like Gibraltar’s.”

Mr Licudi warned that the emerging UKmodel provides a climate within whichthe black market will re-emerge assurely as it has elsewhere, perverselycreating a regime which, despite beingbilled as necessary to protect UKcustomers, may have precisely theopposite effect. The new regime couldin fact drive those customers to

The Hon. Gilbert Licudi QC

Minister

ConferenceOpening The Hon. Gilbert Licudi QC


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unlicensed and unregulated operatorsbased in less reputable jurisdictionswho will have no intention of paying theproposed Point of Consumption Tax inthe UK.

“But”, as Mr Licudi concluded, “this isnot the first threat that we in Gibraltarhave faced”. In each case, Gibraltar hasbeen able to meet challenges withresilience and determination and, aftermeeting those challenges, the eGamingindustry has moved on and grown. It isimportant that the GibraltarGovernment remains perceptive andresponsive to these changes and is ableto demonstrate sound judgment andthe ability to act and adapt wherenecessary: “I have no doubt that theGovernment of which I form part will doprecisely that and we will do so bytalking and listening to, and working inpartnership with our operators.”

“some customers may exercise poorjudgment and control and somecustomers may commit or seek tocommit crimes against the operators.”

Phill Brear was appointed as Head of

Gambling Regulation for Gibraltar in

October 2007 following two years as

Director of Operations with the

British Gambling Commission. In

July 2011, he was appointed as

Gibraltar’s Gambling Commissioner

in addition to his existing

responsibilities. He played a key part

in the roll-out of the UK Gambling

Act and Gibraltar’s new Gambling

Act and has steered through a series

of changes to the regulatory regime

whilst working closely with

operators and their representatives.

Mr Brear is also responsible for

liaising with such bodies as US

regulators and the European

Commission.

Mr Brear opened his presentation byfirst addressing a number of domesticissues which had been touched uponduring last year’s KPMG GibraltareGaming Summit. Last year, Gibraltar’sthen Chief Minister, Peter Caruana,announced a change of structureconcerning the management ofgambling in Gibraltar, which resulted inthe co-joining of Mr Brear’sdepartment with the Government’sGambling Division. Mr Brearsubsequently became Gibraltar’sGambling Commissioner.

Mr Brear also commendedGibTelecom for its work in

commissioning the recently completedEurope India Gateway submarinetelecoms cable; describing it as “yetanother demonstration of Gib Plc’scommitment to eCommerce and theGambling industry.” He then outlinedhis presentation as being a reprise offour issues of particular relevance tothe eGaming sector: emerging UKpolicy, the European CommissionGreen Paper, ‘Black Friday’ and issuessurrounding integrity.

Key Challenges

“UK Policy”, as Mr. Brear began,“remains the biggest cloud on theindustry’s horizon and encapsulates, toa large extent, Gibraltar’s regulatoryagenda.” It had been two years sincethe Department for Culture, Media andSport issued its White Paperconsultation document concerninglicensing and remote gambling in GreatBritain and Mr Brear maintained thatthis was always seen as a gateway tothe taxation of eGaming in the UK.

Gibraltar, Alderney, Malta and the Isleof Man were named specifically as theprincipal suppliers of remote gamblingto residents in the UK and heconsidered this be a fair assessment.However, Mr Brear was keen toemphasise that, in terms of theaggregate balance of supply, Gibraltarprovided approximately 60% of theUK’s demand and is, therefore, likely to

experience the most disruption as aresult of the proposed changes.

Mr Brear reminded the Summit thatthe DCMS White Paper asserted thatthere were five key reasons for theexisting regime to change, all of whichwere and remain, in his opinion,unfounded. The first and mostdamaging alleged that the technicalstandards in jurisdictions like Gibraltarare not as reliable as those found inthe UK. However, Mr Brear stressedthat even if this were true, the realissue is the monitoring andenforcement of regulatory issues byboth operators and regulators. Thestrongest technical standards in theworld, he continued, are inevitablyneutralised if the system itself is notproperly applied by the regulator and inclose co-operation with the operator; asituation which looks inevitable underthe proposed UK regime.

The second allegation focused onconcerns surrounding the provision ofintelligence and information. In 2011,GREF, or the Gaming RegulatorsEuropean Forum, conducted an exercisewith the intention of measuring theability of regulators to obtain andrelease customer data to each-other.Gibraltar experienced little or nodifficulty in releasing properly qualifyinginformation. Indeed, the difficultysurrounding exposure rested with the

GibraltarLicensing andRegulatoryUpdatePhill Brear

Head of Gambling RegulationGibraltar Regulatory Authority


Phill Brear

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biggest and most bureaucraticregulators, many of whom claimed thatthey had neither the power nor authorityto obtain and release the requesteddata. Contrary to the claim, therefore,Mr Brear assured the Summit that“there is no evidence for a lack of data-flow out of the jurisdictions identified inthe White Paper.”

Mr Brear then turned his focus towardsthe alleged non-reporting of suspiciousincidents, to which his response wasthat such events are in fact reported tothe UK by external regulators. Mr Brearassured the Summit that he could notrecall a single case that a UK regulatorhad brought to the attention ofGibraltar’s Regulatory Authority withoutits being already aware of the incident.“Moreover”, Mr Brear continued, “weare aware that the UK regulatorsalready cannot accommodate andprocess the existing reports that theyreceive, they simply fall into a blackhole. This serves only to perpetuate themisconception that this is a significantproblem in terms of its scale ratherthan just in terms of its principle.”

The fourth issue was that of customercomplaints and the apparent lack ofvisibility of those complaints once theyare processed outside of the UK. TheDCMS claim that licensing andregulation within the UK will offer UKcustomers and non-UK customers bettercomplaints management despite theGambling Commission not, generally,investigating consumer complaints. MrBrear took this opportunity to raise animportant statistic: that the number ofcomplaints the GRA receives from thejurisdiction’s ten million customers totalsjust 30 to 50 cases per year, all of whichare investigated but only a handful ofwhich are found to have any substance.

The fifth issue was one of moregeneral regulatory co-operation and MrBrear explained that, amongst hiscolleagues and indeed the majority ofthe Gibraltar eGaming industry, thereis a shared objective in its pursuit. Forthe past 12 months, Gibraltar hasunsuccessfully sought to establish aregulator-to-regulator liaisonarrangement with the UK for the rapidreporting and examination of anysuspicious betting activity during the

London 2012 Olympic Games.Likewise, Gibraltar has also beenseeking to establish and maintain ageneric memorandum ofunderstanding with the UK. Mr Brearstressed the importance ofestablishing this relationship in orderto be able to provide a rapid responseto any reports of suspicious gamingactivity due to its potentially virulentmedia and political connotations.

Mr Brear then moved on to the verylatest announcements that concernedthe industry, the most recent of whichconcerned UK Chancellor GeorgeOsborne’s Budget Brief announcingthat “the taxation of the remotegambling industry would be a goodthing for the UK, would protect UKjobs and increase revenues.” Mr Brearresponded by explaining that, in all thekey jurisdictions, he doubted thatmany more than 2,000 jobs wereoutside of the UK due to the absenceof tax and licensing regulations. Thereare, he argued, many more thousandsof jobs within the UK preciselybecause of the current arrangementand there are many more industriesbased in the UK which gain leveragefrom jurisdictions like Gibraltar andwhich reinvest their profits into the UKeconomy.

Mr Brear reinforced his contention bydescribing the modern business modelfor eGaming operators as being one ofdispersion to places where languagesand IT skills reside in the interests ofefficiency. The UK model that isemerging is one which wouldencourage further fragmentation of theindustry away from the UK. “Ourforecast”, he explained, “is thatlicensed operators will seek to reducetheir operating costs in an effort toremain competitive with both aregulated market and the unregulatedmarket that will surely emerge tochase the price gap that the new taxand levy charges will create.”

“We would move from a stable,sophisticated and well-supervisedindustry to one that would bechallenged by the proliferation of start-ups,” stated Mr Brear, “so I ask thequestion: is this the model to protectUK customers and increase the

revenues of the UK Government?”

Concerning the Green Paper, Mr Breardescribed the European Commissionas being “caught between a rock and ahard place.” Their rate of progress insuch matters is unavoidably glacial dueto a legally dense landscapesurrounding the most contentiousareas of public policy, which nowincludes gambling: “they develop theirpolicies based on bilateral andmultilateral engagements and, likeglaciers, they can sometimes appearto be moving backwards because theclimate has turned against them.”

Mindful of time restrictions, Mr Brearthen moved briefly onto the issue of‘Black Friday’, the anniversary of whichtook place just one week before theKPMG Summit. Mr Brear explainedthat, post-UIGEA, it was commonknowledge that the only way remotegambling could work in the US wasthrough the manipulation of thepayment system, a technique whichveered dangerously close to or waslikely to be deemed illegal activity.Some of the parties implicated, as MrBrear remarked, “were always going tostruggle to pass political due diligence ifnot objective due diligence” and theimplications of licensing them weresomewhat predictable.

To close, Mr Brear also expressed hiswish to briefly touch upon the subjectof ‘integrity’; “a topic which is in andout of the news and which isfrequently misunderstood.” He wishedto stress to the Summit that integrityhas only become an issue of suchsignificance to the majority of theindustry because of a tiny minority of‘punters’ with no regard for regulatoryprocedure. Mr Brear did, however,implore regulators and the industry at-large to do more to co-operativelynegate the risk of further challenges toits collective integrity: “We remaincommitted to addressing anysignificant attempts to corrupt orunfairly exploit betting events and, let’snot forget, other betting customers”,he concluded; “because it is they whoeventually lose out from suchpractices.”

“there is no evidence for a lack of data-flowout of the jurisdictions identified in theWhite Paper.”

6© 2012 KPMG Limited, a Gibraltar limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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Russell Kelly

Peter Montegriffo qualified as a

Barrister in 1982 and became a

partner of Hassans in 1988. Over the

past few years, he has been

instrumental in drafting numerous

changes to Gibraltar’s legislation

concerning trusts, financial services

and gaming. He is a prolific

publisher on the jurisdiction’s legal

system and is a regular speaker at

international conferences. Peter was

also Gibraltar’s Minister for Trade

and Industry with responsibility for

economic development and

financial services between May 1996

and February 2000.

By way of introduction, Mr Montegriffofirst explained to the Summit thoseaspects which make Gibraltar uniqueas an on-shore licensing jurisdiction.Mr Montegriffo chose the image ofGibraltar’s trinity of flags as beingsymbolic of the opportunity Gibraltarpresents to licensees and businessand of its ability to build a firm andstable economy. “It is these threerealities”, he explained: “our links to theUK, our fiscal independence and ourlinks to Europe, which have been thebasis of how Gibraltar has defined itseconomic development over the lastthree decades.”

New Tax System

Mr Montegriffo then explained that thebiggest development within theeGaming sector concerned Gibraltar’srecent completion and adoption of anew tax system which, now enteringits first calendar year, has served to

transform Gibraltar from what mighthave been described as an off-shoretax centre to an on-shore centre.

As Mr Montegriffo remarked, “wehave seen the development within theindustry of much more B2B business,far more sophisticated White Labelarrangements and we are seeingdiversity in the complexity ofarrangements which are developingbetween local operators and globalmarkets. That is likely to continue: asmarkets open up and the regulatorylandscape becomes morecomplicated, we will see increaseddiversity and different permutationswithin the industry but will, of course,have to address the regulatory andlegislative complications which arise asa result.”

2011 Elections

Mr Montegriffo described the electionswhich took place in Gibraltar last yearas being perhaps the biggest changelikely to affect the eGaming sector.Having been in power for sixteenyears, the previous GibraltarGovernment had built an excellentrelationship with the eGamingindustry. However, Mr Montegriffowas keen to emphasise that, despitehaving to absorb very quickly theknowledge base that has beenestablished over those years, the newGibraltar government is committed tomaintaining this relationship and tosupporting the industry throughout theprocess of acclimatisation.

Peter Montegriffo

Partner

Hassans

Sector Update - Gibraltar Specific


The Gibraltar Model

Before dealing specifically with theissue of threats, Mr Montegriffo firstwanted to remind the Summit of the‘Gibraltar model’, which, he explained,“has always been one that requiresoperators to have a substantive, bricks-and-mortar presence in Gibraltar: it hasalways been one that encouragesoperators to be part of the mainstreameconomy.” He stressed that it iscritical, when understanding thechallenges faced by the sector, tomaintain that Gibraltar’s is not arevenue raising exercise and that itresponds equally to regulatoryaccountability and the ways in whichthe eGaming industry impacts uponother industries.

Threats to the Industry

Mr Montegriffo then continued on thesubject of threats, identifying threethat are of particular relevance toGibraltar’s economy. The firstconcerned the European debate andhe emphasised that the real threat tothe industry was inertia at a pan-European level. He explained that thelegal and technical complexities of thesector create the risk of stultifying theEuropean Commission into beingunable to act with any clear sense ofdeliberation.

For a time, the European Court ofJustice did begin to open up adiscourse which promised to offersome direction to the industry.However, it ultimately found itself

creating such a qualified and nuancedarticulation of the relevant principlesthat it became impossible for lawyers,let alone operators, to make any senseof Europe’s view on a variety ofdifferent issues. The main problem atthe European level is, therefore, a lackof incentive and Mr Montegriffo urgedthe industry to push the Commissionto proactively engage in this matter.

The second threat concerned theindividual reactions of member statesand Mr Montegriffo was keen toexplain to the Summit that none ofthese states, as opposed to the UK,came to the issue of regulating onlinegambling because they suddenlydecided that it was a great opportunitythat must be approached co-operatively and responsibly. Instead,Mr Montegriffo explained, all, or at-least the majority of these states,arrived at the issue of regulationbecause they were facing infringementproceedings due to their operatingtotally at variance with single-marketconcepts. “These were all closedmarkets where darkness reigned”, MrMontegriffo continued, “after a lot ofpressure, an accommodation wasreached with the EuropeanCommission which effectively allowedfor a qualified, open European market.So from the darkness, some lightemerges.”

Mr Montegriffo described the UK asbeing a very different situation, “in theUK, light has reigned for manydecades and the UK is a liberal, open

and mature market. Indeed, all policyconsiderations were exhaustively dealtwith many years before this decisionand the 2005 UK Gambling Actcrystallised the UK’s position after itspolicy administration had been takeninto account.” The UK’s currentproposals, by contrast, would in factserve to “drag the UK, a leader inregulation and free-market principles,back into the dark with other Europeancountries.”

“It is quite wrong, therefore,” MrMontegriffo concluded, “to draw asimilarity between what the UK isproposing to do and what otherEuropean countries have acquiescedof the Commission. What we are, in fact, facing is a tax announcement ina policy vacuum and I think that isregrettable,” he explained. “As Hassanssees it, these measures are legallyopen to challenge, unlikely to work andare contrary to both UK and Gibraltarbroader interests. We remaincommitted to redressing these issuesin the future.”

Peter Montegriffo


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Clive Hawkswood has been Chief

Executive of the RGA since its

establishment in August 2005.

Before that, he was the General

Secretary of ARGO and was head of

the Betting & Racing Branch at the

British Department for Culture,

Media and Sport (DCMS). Earlier in

his career, Mr Hawkswood spent

several years in the bookmaking

industry. He is also a trustee of the

Responsible Gambling Trust.

Mr Hawkswood sought to provide aforecast of how the regulatory andpolitical situation in Europe is likely todevelop. As such, his presentation beganby providing a visual overview of thecurrent status of Europe through aseries of colour-coded maps, whichillustrated the cultural differences ofvarious states and the consequentaccessibility of their sports betting,poker, bingo, table games and slotsbetting licensing and regulatory regimes.

Mr Hawkswood noted that, althoughthere is no clear degree of consistencyin state attitudes, an obvious patterndoes begin to emerge. “As a whole”, heexplained; “across Europe, regulators,governments and politicians are morecomfortable with sports betting andgambling where there’s an element ofskill, and the further you move downthat spectrum towards what we call‘pure-gaming’, or ‘pure-chance’, the morenervous they become.”

EU Level Issues

EU level issues included the EuropeanCommission’s role as ‘Guardian of theTreaty’, the Green Paper process, theroad to harmonisation and the Court ofJustice of the European Union (CJEU).

In Mr Hawkswood’s opinion, despiteits official role as ‘Guardian of theTreaty’, the European Commission hadfailed to uphold its position in terms offree market services. The Commissionhas had some small successes such asthe Danish State Aid Case but largely,as Mr Hawkswood remarked, “theyhave been impotent.” He was,however, keen to remind the Summitthat this situation is the fault ofpoliticians rather than EU officials.

He added that the Green Paperprocess has given the EuropeanCommission another excuse forinaction on infringement proceedings.However, Mr Hawkswood confirmedto the Summit that Gibraltar wasexpecting further communication withthe Commission on these and otherissues later this year and that thiswould hopefully give the industrysome idea as to its future direction.

“One of these issues”, Mr Hawkswoodremarked, “concerns harmonisation,and my personal view is that with thecurrent climate, the current make-up,and the current balance of power inEurope;

Clive Hawkswood

Chief Executive

Remote Gambling Association

The Future for Europe Clive Hawkswood


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harmonisation could be verydangerous for our industry.”

In Mr Hawkswood’s view, the CJEU,formerly the European Court ofJustice, had dealt successfully with anumber of high profile cases, many ofwhich were encouraging for theindustry and were “sending the rightsignals.” However, Mr Hawkswoodstressed that, in the majority of thesecases, the CJEU worked from anadvisory position and not from one inwhich European member-states hadhad to comply with the ruling,rendering their input only marginallyrelevant.

Politics and the UK

It was Mr Hawkswood’s opinion thatthe proposed regulatory imperative didnot hold much water and that theissue of taxation also did not providemuch incentive for regulatory changein the UK. Instead, Mr Hawkswoodbelieved the decision to be purelypolitical. He noted that theConservative Party heavily attacked theLabour Government for allowing theoffshore gambling industry to develop.When the Conservatives came intopower, therefore, they were compelledto do something about it. MrHawkswood also noted that thesemeasures enjoy cross-party support,“and for a government in power, youdon’t get that chance very often.”

Mutual Recognition

Mutual recognition between regulatorsis, in Mr Hawkswood’s opinion,unlikely to happen for a variety ofreasons. However, he also noted that“what we could look for, and indeedare starting to see, are ad-hoc bilateral

agreements, which are perhaps thebest short-term hope. Denmark islooking to sign them; France has comeinto agreement with Italy, and Spainwith France. There’s a sort of spider’sweb developing which may cometogether to form a series of quasi-networks over a period of time. Whenyou actually look at these MOUs, thereis in fact not much substance behindthem but they are something that, asan industry, we can be cautiouslyoptimistic about.”

Mr Hawkswood warned the Summitthat there are, however, potentialdownsides to the move, one of whichconcerns France “who have used theseagreements to coerce other regulatorsinto helping them close their markets.”Governments do, therefore, need towork increasingly together if they are tomove towards something resemblingthe Point of Consumption Tax “becauseit is crucial that we as an industry avoiddual taxation.”

Regulatory Co-operation

In the absence of mutual recognition,Mr Hawkswood described regulatoryco-operation as the next best thing theindustry could hope for, particularly thenewer operators. “If they can go toexperienced regulators who can helpthem to get off the ground, for us, thatwould be a good thing: it encouragesregulatory consistency and reducesthe risk of duplication and that maylead us towards a softer version of EUharmonisation.”

So where does that leave us?

“I think that, whether we like it or not,we’re moving into a world wherecompanies are taking out more and

more licenses”, explained MrHawkswood. “Unfortunately that leadsto market fragmentation, but we’regoing to have to make the best of it. It will also lead to companies perhapsbeing more selective; I think there isgoing to be a much greater degree ofcherry-picking for companies based onwhere their traditional markets are orwhere they see the bestopportunities.”

“I also think there will be a slowermove towards common standards andtowards harmonisation of some kindsimply because common-sensedictates it. It is also helpful that, aspart of the Green Paper process, theCommission has brought togetherregulators and it is no small job gettingthese guys in the ring together toagree an agenda.”

To conclude, Mr Hawkswoodexplained that the saving grace for theeGaming industry is that there isinevitable growth. “We are riding thecrest of the e-commerce wave; online-gambling is part of that demographiclinked to societal change where moreand more people are using the Internetfor more of their activities. It isimportant to remember just how wellthe online sector is doing compared toother industries around and indeedother sectors within the gamblingindustry itself. We end, therefore, on afairly hopeful note.”

“it is crucial that we as anindustry avoid dual taxation.”



Lucky Multani is a highly

experienced Risk Management

Professional. During his time with

Cassava, operators of 888.com, he

has held several Risk Management

related roles and has built-up

significant expertise in such areas as

Anti-Money Laundering, Regulatory

Compliance, KYC protocols and

various areas appertaining to Fraud

and Financial Crime.

Mr Multani opened his presentation byfirst advising the Summit that, in hisexperience, the success of any pokerroom depends on its ability to instil inits players the confidence that theplatform they play on is both fair andfree from fraud. Unless they experiencethis trust factor, the platform willultimately fail. “Confidence”, as MrMultani repeated throughout hispresentation, “equals profit.”

Mr Multani then explained that 888.comemploys a dedicated Fraud and RiskManagement department, the primaryobjective of which is to minimise pokerfraud on its tables. They are tasked withanalysing algorithmic data and playerbehaviours in order to spot any actions

that could be considered suspiciousgaming activity. Those employed areoften expert players who know thegame very well and are aware of thesorts of actions that would ordinarily betaken in any given circumstance. It is forthem to decide what sorts of behavioursconstitute unusual or fraudulentgambling. In achieving this aim, 888creates a safer environment for itsplayers, thereby increasing playerconfidence and, in turn, player retention.

Things to Look Out For

Player fraud in poker room tables cantake a variety of forms, all of whichhave an adverse effect on playerconfidence. Common examplesinclude payment fraud, game-playfraud or the use of artificial intelligencesoftware, which are commonly knownwithin the industry as ‘bots’ or robots.

Payment Fraud

Mr Multani described payment fraud asbeing, in simple terms; “the use of apayment method by a person orpersons not authorised to do it”. It canmost commonly be linked to identitytheft. Information is often obtained by

Lucky Multani

VP, Head of Fraud and Risk Management

Cassava Enterprises

Player Security and FraudPrevention: successfully managingrisk on the poker table

Lucky Multani

12

“It is crucial for poker-roomoperators to havestrict controls inplace, to have limitson funding for anygiven player andlimits on the amountof money placed ona given table.”

phishing, scamming or through the lossof payment credentials to fraudsterswho will then use them either towithdraw funds or to fraudulently re-invest those funds back into the pokerroom. Payment fraud represents asignificant danger to the industrybecause it results in money that is notlegal being on the table: legitimateplayers lose confidence and fraudstersillegally withdraw money from thesystem, resulting in often complex,retroactive chargebacks and disputes.

Game-play Fraud

This often takes the form of one of twonorms: ‘dumping’ or ‘collusion’. Asimple way to describe ‘dumping’, asMr Multani explained, is “when one ormore players deliberately tries to losemoney to another, regardless of theirhands.” Chip-dumping can take place fora variety of reasons, the most commonof which is to pass money from onegeographical location to another, often ina bid to clean or launder money gainedfrom illegal activities. “This”, as MrMultani explained, “is where theimportance of establishing game-playparameters comes into play. It is crucial

for poker-room operators to have strictcontrols in place, to have limits onfunding for any given player and limitson the amount of money placed on agiven table. Once these measures arein place, it becomes a lot easier forpoker-room operators to recognisefraudulent activity and to limit itsoccurrence.”

Mr Multani described collusion as atype of fraudulent activity in whichplayers share information over variousexternal media, such as Skype,messaging services or SMS, in order tocheat another player. As an activitywhich gives unfair advantage to otherplayers, it risks damaging the integrityand reputation of the operator. “Onceagain”, as Mr Multani stressed, “playerconfidence is the key here.”

Bots and Robots

These represent a relatively new butsignificant danger to the eGamingsector. Bots, or Robots, as Mr Multaniexplained, “are very sophisticatedpieces of software designed to act as aform of artificial intelligence which notonly play a game for the user, but will

often open a gaming account on theuser’s behalf using theirs or stolencredentials.” Over the past few years,the industry has witnessed aproliferation of these various kinds ofsoftware and has responded with thedevelopment of equally sophisticatedbot detection processes.

Our Aim

To conclude, Mr Multani once againreiterated the importance of maintaining ahealthy user experience within a givenpoker room. Increased competitionthroughout the industry means that theerosion of player confidence represents abigger danger to operators than everbefore. “To summarise”, stated MrMultani, “when you’re talking about playerfraud from a player security point of view;once you as an online poker companyensure that strict controls are in place,that you are identifying player-fraudbehaviour and have made sure that youhave implemented the relevant processesand controls; you will guarantee a safeenvironment in which players can interact.Only once you do that will you be able toachieve your stated goal which, I think, isprofits for everyone.”

The Current Regime

Ms Brennan opened the jointpresentation by first providing theSummit with an overview of thecurrent taxation regime in the UK,which includes seven differentgambling taxes. Depending on thetype of activity involved, as MsBrennan explained, remote gambling issubject to one of three of theseexisting taxes: remote betting issubject to General Betting Duty (GBD),remote gaming, such as poker andbingo, is subject to Remote GamingDuty (RGD) and remote pool-betting issubject to Pool Betting Duty (PBD). Allof these taxes are currently charged ona gross-profits basis and the tax liabilityis based on operator location, meaningthat UK based operators, at themoment, pay tax based on world-wideprofits, whereas anyone based outsideof the UK does not pay UK gamblingduties.

Proposed Changes

In the 2012 UK Budget Report, UKChancellor George Osborneannounced that remote gambling is tobe taxed on a place of consumptionbasis, meaning that tax is effectivelygoing to be linked to where thecustomer, rather than the operator, isbased. Any operator, based anywherein the world, Ms Brennan confirmed,will now be taxed on the profits theygenerate from any customers based inthe UK. This also means that UKoperators, who are currently taxed ontheir worldwide profit, will effectivelypay less tax because they will only payon the profits generated fromdomestic customers.

Ms Brennan then turned the attentionof the Summit to a few key pointswhich appear to have caused someconfusion within the industry. Firstly,she emphasised that the UK is notplanning a wholesale replacement ofthe seven taxes currently in place butis “planning a reform of the existingtaxes and effectively moving them to aplace of consumption basis, leavingthe existing taxes in place.” Secondly,and of particular interest to theindustry, Ms Brennan confirmed thatthe assumption, so far, is that the 15%rate of taxation currently applied toremote gaming duty, pool betting dutyand general betting duty will remain.However, she also said that this ratewill be kept under review following theongoing consultation.

Policy Rationale

Ms Brennan reminded the Summit thatthe reasons for the UK’s proposedtaxation were threefold. The first isprimarily concerned with fairness andcreating a level playing field betweenUK and overseas operators in terms ofthe UK duty liability: “obviously nowthere is a very big difference in terms ofthe amount of UK duty an operator isliable to pay depending on where it islocated” she remarked. The secondconcerns improving thecompetitiveness of the UK tax system,and Ms Brennan was keen to remindthe Summit that “at the moment, UKoperators pay tax on their world-wideprofits. As the new system isimplemented, the amount they pay willdecrease, thereby removing thedisincentive for being located withinthe UK.” The third, as Ms Brennan


Presenting on behalf of HM Treasury and HM Revenue and Customs, Maria

Brennan and Andrew Grimsley’s much anticipated speech concerning the

UK’s now confirmed plans to tax the gambling industry on a place of

consumption basis represented the highlight of the morning’s proceedings.

Maria Brennan

Branch Head of Gambling Taxes

Her Majesty’s Treasury

Andy Grimsley

Branch Head of GamblingExcise Duties

Her Majesty’s Revenue and Customs

UK Gambling Taxation: a place of consumptionbased regime


explained, “is quite simply to improvethe sustainability of the UK’s tax baseand to ensure that remote gamblingmakes a fair contribution to publicfinances.”

The Process

Ms Brennan confirmed that, in theautumn of 2011, HM Treasuryconducted a policy review that includedmany key members from the eGamingindustry and which culminated in theUK Government’s decision to proceedwith the reform. She reiterated that“the decision has been taken toproceed; meaning that the consultationprocess is not now concerned withwhether or not to implement but howbest to design the characteristics of thereform.” Ms Brennan said that the exactdates of some of the next steps hadnot yet been set, but confirmed that,sometime after the consultation period,a summary of responses will be issued.It is then intended that draft legislationwill be prepared and, as per the normalstandard practice for tax policy making,will also be exposed to technicalconsultation. Ms Brennan took thisopportunity to remind the Summit thatthe implementation date is planned for1 December 2014, but that this datewill be kept under review. She also saidthat the Government will definitely notbe legislating in this year’s Finance Bill.

Taxation vs. Regulation

Ms Brennan said that, in manycountries, taxation and regulation areeffectively legislated as a whole butemphasised that this is not the case inthe UK: “taxation is legislated within taxlaw and social legislation is covered by

the Gambling Act.” Ms Brennan alsoconfirmed that, in addition to theproposed taxation changes, the UK’sDepartment of Culture, Media andSport announced in July 2011 that it willbe making changes to the regulatoryframework surrounding remotegambling. This means that operatorsbased anywhere in the world with UKcustomers will be required to hold aregulatory licence. Ms Brennanstressed that the motivations behindthe tax and regulatory changes aredifferent. “Likewise,” she continued,“the processes by which they will betaken forward are also different: thetaxation changes will be legislated for inthe Finance Bill and the regulatorychanges will be legislated for in aseparate regulatory bill. Having saidthat, they are both moving towards acustomer based approach, so in thatsense they are complementary. Inorder to ensure consistency betweenthe two and minimise burdens forbusinesses, we are working veryclosely with the DCMS and will belooking to implement both within asimilar timescale. We are also planning

some links between taxation andregulation legislation for enforcementpurposes.”

The Ongoing Consultation

Mr Andrew Grimsley of HMRC thentook over the presentation in order toprovide an overview of the ongoingconsultation and design process of thereform, the administration of the dutiesand some of the key points which arelikely to impact the industry as a whole.

Mr Grimsley began by explaining thatthe consultation will be a joint Treasuryand HMRC initiative. “For those whodon’t know”, he continued, “theTreasury currently leads on taxationscope; what is liable to tax, and HMRCleads on the administration andenforcement of taxation so, effectively,both departments have an interest in allof the consultation but are leadingdifferent aspects.”

The consultation itself, he explained, isall about the detailed policy design andnot whether to implement the reform.Mr Grimsley confirmed thatconsultation began on 5th April, is due

16

to finish on 28th June, and is designedto pose a number of significantquestions whilst also inviting moregeneral feedback. Mr Grimsley alsowanted to stress to the industry atlarge that “the responses to theconsultation will inform the design ofthe regimes and so, to that end, weurge you to respond. You’ve all got apart to play in the process and we wantyour feedback. Final design decisionshave not yet been made.”

Of the seven taxes, Mr Grimsleyexplained that Bingo Duty, Lottery Dutyand Amusement Machine LicensingDuty, which is being replaced byMachine Games Duty and GamingDuty, are effectively already subject toplace of consumption taxation and,therefore, will not be required toundergo any significant changes.However, he confirmed that “we dothink changes will need to be made toGBD, PBD and RGD.”

Mr Grimsley also explained that theconsultation documentation outlines inmore detail the operational changesthese measures will precipitate,including that the UK Government willexpect operators to take reasonablemeasures to determine where in theworld customers are betting from.However, he confirmed that theconsultation also expects operators toprovide feedback as to how these aimsare to be best achieved.

Mr Grimsley then went on to contrastthe current charging provisions for theexisting duties, the significance of theoperating licences and the potential forchanges. He also outlined the need forfurther industry involvement on theissue of critical partner liability totaxation, both of which subjects are,again, further elaborated upon in theconsultation document.

Enforcement

As with all taxes, Mr Grimsleyexplained that there will be a range ofsanctions enforced in the event of non-compliance, including a civil penaltyregime and criminal sanctions in theevent of serious failings. For theseparticular reforms, however, he notedthat consideration is also being given tolinking the tax legislation to theregulatory regime and that these linksmay enable or possibly require thewithdrawal of a regulatory licence in theevent that non-compliance to taxationreaches a certain threshold. However,this is again subject to furtherconsultation over coming months.

Accounting

Mr Grimsley confirmed that thedecision has yet to be taken overwhether HMRC will introduce newaccounting systems for the duties thatare affected by these reforms.Depending on that decision, there isthe possibility of harmonising theregistration process concerning taxesand the accounting periods for thosetaxes, one possibility being a movetowards quarterly returns and quarterlyaccounting periods. “Whatever we do”,he predicted, “I expect that there willbe a facility for special tax period endsto reduce burdens on business. Theremay be a case for e-filing returns and e-registration and I particularly welcomeyour views on this.”

The Transition

“This subject may be minimal in theoverall context but it is still quiteimportant,” stressed Mr Grimsley:“essentially it may be that, after theimplementation date, both stakes dueand winnings paid out can be includedin the new arrangements. In otherwords, if you receive stakes before thetime of change but those winnings are

paid out after the time of change, it maybe that you are entitled to use thewinnings to offset the tax liability eventhough the stakes were not subject toduty.”

Double-Tax Relief

Mr Grimsley expressed his desire totouch upon the subject of double-taxrelief (DTR). It had been mentionedearlier in the Summit that arrangementsfor DTR had been introduced in thisyear’s Finance Bill, the reason being sothat UK businesses did not suffer bothUK and foreign taxation liability. “Thereis an argument that thesearrangements would no longer beneeded if a place of consumption taxwas introduced”, explained Mr Grimsley,“so it is likely that the procedures forDTR could be relatively short-lived.”

Data Information

To conclude, Mr Grimsley highlightedthe questions in the consultation aboutthe size of the remote market andfuture growth rates.

“You’ve all got a part to play in theprocess and we want your feedback.Final design decisions have not yetbeen made.”



Mr Watt is a specialist in the leisure

sector, with a particular focus on

online gaming clients. He has worked

for KPMG since 2006, and before this

worked on the public listings of 888,

Playtech and PartyGaming, amongst

others.

Mr Watt opened the afternoon sessionby observing that the messages of themorning’s session clearly put acrossthat the sector is truly global and isonly going to be more so, albeit in aregulated and fractured manner. “But”,as he continued, “this sector isremarkably resilient. It has shown, forthe past ten years, that not only can itweather storms; it can come out ofthose storms much, much stronger.”Mr Watt recalled that, in 2006, heworked very closely with a number ofeGaming companies, a significantportion of which lost up to 80% oftheir customer base as a result of USimplementation of The UnlawfulInternet Gambling Enforcement Act of2006, or UIGEA. “But you have now,as an industry, recovered to farsurpass those levels,” he confirmed.“Why? Because you focused on whatyou’re good at. You focused onmaximising returns, identifying withyour customer base and providingthem with what they want.”

“This morning’s session,” Mr Wattsummarised, “covered all of that. Whatwe’re looking at for this afternoon’ssession is where we are going in thefuture.”

The Speakers

Mr Watt went on to admit to theSummit that he is of an age “wheresocial media is something I read about

and something that my children do. Iwas discussing the future of theindustry with a couple of delegates,James Lowery and Duncan Fisher, justearlier,about social media and aboutsocial games and,” he continued, “Ihave to admit, I don’t do any of those.But I told them that I know a number ofpeople who do and that I recognise thatwe are now in an age where ‘silversurfing’ is where it’s all at and thatpeople of my age are the fastestgrowing demographic of Facebookusers. As such, I am very much lookingforward to hearing about how thisindustry can capitalise on thatdemographic and target markets thathave never before been reachable.”

Mr Watt then drew the attention of theSummit to Joanne Lawrence’sforthcoming presentation concerning‘Payment Solutions’. “Barclaycard”, asMr Watt explained, “are one of theforerunners in contactless technologyand, as we move into new territories,new countries, new jurisdictions;innovative payment solutions are whereit is all going to be at. I am sure we areall looking forward to Ms Lawrence’spresentation later on this afternoon.”

Following on from Ms Lawrence, as MrWatt continued, was Warwick Bartletton the US & Asia. “As we’ve all seenwith the US”, he remarked, “it seems tobe one step forward, two steps back attimes. We’ve had very positive viewscoming out of the Department ofJustice just before Christmas; the ‘WireAct’ doesn’t apply to casinos anddoesn’t apply to poker but quite whatthat means for the likes of Pokerstarsand the rest of our industry, we’ll justhave to wait and see.” Mr Watt

explained that the Asian gaming marketis already beginning to have asignificant effect on the Isle of Manindustry and that a number of localoperators are already beginning tofocus successfully on the Asiansportsbook market. “We hope thatWarwick’s extensive insight can alsohelp companies based in Gibraltar bemore successful in Asia than they arealready.”

Mr Watt then moved on to the subjectof John Kamara’s much anticipatedpresentation concerning social mediaand customer acquisition in a changingmarketplace. “I had the pleasure ofspeaking to John last month”, heremarked, “and he came across to meas being one of the most enthusiasticand energetic public speakers I haveever met. This is a man who is reallyexcited about the business he is in andI am sure that he will be able to shareand convey some of that enthusiasm tothe Summit this afternoon.”

“To close the day’s proceedings, thepanel session this afternoon is going tobe focusing on eGaming and beyond”,explained Mr Watt. “This reflects backon some of the issues that the Hon.Minister and Peter Montegriffo weretalking about this morning: what elseGibraltar can do; how else it canbroaden its market base, not just ineGaming but in other industries equallyas important and yet stillcomplementary to our sector.” Mr Wattinvited the Summit to submit anyquestions they may have for the panelon the question cards provided. Hethen introduced Mr James Lowery ofLatitude Group as the first speaker ofthe afternoon.

Archie Watt

Head of eGaming

KPMG Gibraltar

Introduction to the Afternoon Session

18© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

“this sector is remarkablyresilient. It has shown, for thepast ten years, that not onlycan it weather storms; it cancome out of those stormsmuch, much stronger.”

19

Mr Lowery opened his presentation byremarking that his five years as Headof SEO with Latitude Group havecoincided with an extraordinary step-change in the way people interactonline. “Over the last five years”, heexplained, “the Internet has returnedto its conversational and social roots.Social media channels have madehuge changes to the ways in whichbusinesses have had to representthemselves in order to recognise andengage with their audience.”

The ‘Brutal Truth’

Social media gaming from theperspective of the eGaming industry, MrLowery explained, “is a particularlyinteresting subject because, on thewhole, gambling and betting online is atypically asocial activity: people don’tnecessarily talk about it. There are stillcertain social stigmas and culturaldifferences surrounding the subject,which result in players not publicallygaming and gambling.” However, MrLowery was keen to emphasise thatalthough people play alone, immersed inthe activity, they do not play on their own.

The main social stigma surroundinggambling online concerns losing –“losing is the primary reason whypeople don’t talk about their onlinegaming.” However, Mr Lowery

reiterated that online gaming is not anunsocial activity: people interact withina social framework via the Internet:they swap ideas, strategies and lookfor tips. Indeed, there is a culture oftribalism surrounding most sports-betting in general. People engageclosely together and want to be a partof something and, as part of thatinteraction with the game, people willbet on the outcome: “It lets them takean additional reward in the win.”

Communities

At any period of any given day, explainedMr Lowery; we form part of a number ofdifferent social communities, all of whichhave a common shared experience, acharacteristic and an objective. However,it is the process of translating thatcommunity structure into an onlinemedium for use in business which isimportant.

There are three aspects which create acommunity, he continued: “acommunity needs an objective; the‘group-think’ that delivers the structureand reason why the community exists.A community also needs to identify theneeds of the members so that they getsomething out of it, and it needs tohave an incentive for membership; anobjective and a goal which is set by themembers themselves.”

James Lowery has been a consistent innovator within the SEO or Search

Engine Optimisation industry and leads one of the UK’s largest SEO teams

at Latitude Digital Marketing. He has 11 years’ experience across many

sectors, including work on award-nominated campaigns for the

Independent and Haven Holidays. Mr Lowery is also a regular speaker on

the industry circuit and blogs on leading industry websites.

James Lowery

Head of SEO and Social Media

Latitude Group

Social Gaming –Identifying Influencers,Creating Communitiesand Measuring Impact


Influencers

Mr Lowery then turned the attention ofthe Summit to the work of thetheoretician, Dr. Jakob Nielson, whocreated a theory known as‘Participation Inequality’, founded uponthe ‘90-9-1 Principle’. This dictates thatthe vast majority of any group - the90% - do not participate within acommunity. Instead, “they consume,they are the audience and they areessentially the customers who youwant to reach within a givencommunity.” The 1% are responsible forthe majority of the content within agiven community, “but it is the 9% whoedit this content and who are often themost influential.”

Moreover, Mr Lower explained that,within gaming, the people who are themost influential are the winners; theyconstitute the percentile that peoplelook up to, respect and want toemulate. Influencers within the gaming

market are public winners and they arealso the people that the industry wantsto identify to their customer base.

But it is, of course, the clarity andcoherence of their message thatmatters most. Businesses don’t justneed to identify those who speakpredominantly about a subject, but alsowhether or not people pay attention totheir opinions. “This is important”,explained Mr Lowery, “because ifsomeone is the most intelligent pokerplayer in the world but no-one truststheir opinion, then they are not going toshare the information to others. Peopleneed that validation in their ideas, whichthey share as a badge in social media.”

Measuring Impact

As Mr Lowery explained to the Summit,“most of the time in eGaming, we’relooking for new, funded accounts andnew users but what we should also befocusing on is delivering bettercustomers. The success of most

marketing campaigns is oftenmeasured on how many new accountsthey generate but, with social media,this isn’t always the case.” Incentivisedad-campaigns, he demonstrated,become, over time, increasingly limitedin value. But one of the main thingswith social media is that it is about theongoing conversation; how often youcan get people to return to your siteand how happy they are to recommendit to other people. “Word of mouthmarketing is a lot more important thanwe give it credit for.”

“The most important thing about socialmedia, therefore”, Mr Lowery concluded,“is that it is about people and it is aboutrelationships. You can’t necessarilymeasure it at the point of a click; you canonly measure it over the lifetime value of agiven customer. It is hard to do and I thinkthat’s why a lot of companies strugglewith social marketing.”

© 2012 KPMG Limited, a Gibraltar limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 20

Joanne Lawrence is the Primary

Gaming Relationship Manager for

Barclaycard Global Payment

Acceptance. Jo has worked in

Acquiring for twelve years,

specialising in Gaming for the last

six. She also has extensive

knowledge of the eCommerce and

cardholder-not-present transaction

environments. Jo previously worked

as Fraud Relationship Manager for

Barclaycard Credit Risk Operations,

building particular specialisms in

Credit Risk and the delivery of Fraud

Prevention/Training and Education.

What is an Acquirer?

“An Acquirer is a bank or financialinstitute that processes credit and debitcard payments via the Visa andMastercard card schemes”, began MsLawrence. “An Acquirer can interfacedirect with a business and offer an end-to-end solution or via a third party, sothere is a multitude of different wayswe can work with businesses.”

The Customer Journey

As Ms Lawrence explained; from theperspective of an Acquirer, the

customer journey first involves theirbeing driven to a business’s site,whether it is an online or ‘bricks-and-mortar’ location. Following that, anAcquirer will assist in attractingcustomers to play, not only in comingto a site but also making a transactionor purchase. Upon registration, anAcquirer tends to assist primarily withthe depositing of funds, after whichthe operator is then concerned withcustomer fulfilment. The Acquirer willthen assist with the withdrawal ofwinnings. Customer retention andloyalty is dependent upon the

Joanne Lawrence

Relationship Manager

Barclaycard

Gaming PaymentAcceptance & Solutions


smoothness and efficiency of thatentire process, which in turn dictateswhether or not they will return to agiven operator.

Accepting Payments

Ms Lawrence took this opportunity todispel the misconception that Visa andMastercard purely operate credit anddebit cards. In actual fact, sheexplained, there are a number of layersto card schemes and, over the pastdecade in particular, these havesignificantly increased in number. Creditand debit are still predominant,however, the likes of ‘pre-pay’,‘premium’, ‘business’ and ‘purchasing’schemes are becoming more prevalent.All have the code-badge of Visa andMastercard and if a company has anAcquirer, they can process any of thesecard-types. “But in the gaming sector”,explained Ms Lawrence, “what yourAcquirer should be looking to do iseducate you about the different card-types because each comes with itsown unique restrictions.”

As an Acquirer, Barclaycard has gainedyears of extensive experience intransaction management andwitnessed substantial pitfalls, finesand penalties, causing the company toremain cautious in its approach totransaction types. As such, MsLawrence explained, “what you shouldbe looking for your Acquirer to do inhelping with payment solutions is helpyou build a business case to manageyour authentication process. There aredifferent tweaks and bespokesolutions that, as an Acquirer, we canhelp you to accomplish.” For example,she continued, “in the environmentthat you are in or with sportsbook; ifthere was an event taking place suchas the Grand National, you need thecapabilities internally as well as froman Acquirer to switch rules. Whetherthey be fraud rules or acceptancerules; they need to be able to movewith the market that you are in.”

Payment of Winnings

“For years now, Visa has been thecard-scheme that is ‘gaming friendly’with regards to payment winnings,card-present and card-not-present”,explained Ms Lawrence.Predominantly, issuers throughoutEurope and globally accept payment ofwinnings without issues. “But we thengo into the slightly newer world ofMastercard and Maestro payment ofwinnings or ‘Payment Transactions’,which have a slightly different way ofworking,” she warned. “Barclaycard asan Acquirer introduced this on May31st, 2011 as part of a schemereleased in conjunction with Maestromigrating. This scheme is notmandated. Although from ourexperience it can be used, it is costlyand not widely supported compared tothe Visa alternative at the moment.Some issuers do not have thecapability to process payment ofwinnings by Payment Transaction andthe payment is often returned. Thisdamages customer experience.”

Fraud in Gaming: Protection in

Every Direction

As a business, Barclaycard hasrecognised the need for a fraudsolution or tool. As an Acquirer,Barclaycard has partnered with variousthird-party solutions such as SilvertailSolutions in a bid to assist the gamingmarket with multi-layered, non-intrusive and effective approaches tofraud prevention.

Protection, Detection and

Management

Barclaycard works with a substantialportion of the gaming market and, in abid to demonstrate to the Summit whatBarclaycard sees, Ms Lawrence provideda snapshot of the types of fraud whichhave taken place since March, 2011.‘Card-not-present’ was by far the mostfrequent type, followed by ‘stolen’ and‘counterfeit’. A line-graph demonstratingthe ‘monthly fraud to sales ratio’ over the

past thirteen months also showed that,compared to all other sectors, fraud isrife in gaming. However, Ms Lawrencestressed that “this does not necessarilymean that gaming is showing a loss fromfraud but that reported incidents of fraudare disproportionately frequent within theindustry.”

Online Fraud in Gaming

As with all other aspects of financialtransactions; the public is now bettereducated than ever before on the finerpoints of ‘Charge-back Rights’. This hasresulted in the proliferation of types offraud relating to customers pretendingthat a transaction was not their own ina bid to recuperate lost funds. Thesetypes of ‘friendly fraud’ often result incomplex charge-back cases, which, asan Acquirer, Barclaycard aims to equipgaming operators against. This alsoapplies to money laundering andidentity theft, which, again, is nowmore common than ever before.

Similarly, Bot-gaming continues topresent a significant danger to theonline-gaming industry. Ms Lawrenceexplained that Barclaycard has seen avariety of sophisticated identity-fraudfacilitators, including websites whichoperate almost as a supermarket foridentity theft: “funnily enough, theydon’t accept credit card payments”, sheremarked.

What Can We Do to Stop Fraud?

To conclude, Mr Lawrence againemphasised that “no device or personcan work on its own: speak to oneanother but also speak to otherorganisations,” she advised. “Gamingdoes touch base with a lot of othersectors so really do pick people’sbrains and make use of it. Fraud costs,but with just a few simple steps youcan work to reduce this loss. Thereisn’t a ‘silver bullet’ out there but thereare measures that will help you reduceyour own fraud.”

22

23

Duncan’s remit includes planning,

strategy, delivery and innovation for

clients across all paid digital

channels. Recent innovations within

the industry have been heavily

focused on the emergence of mobile

and Duncan’s team have produced

White Papers on this subject. As well

as providing regular industry updates

to clients, Duncan has also delivered

product insight presentations at

external national events.

The Importance of Mobile

Mr Fisher opened his presentation byconfirming to the Summit that, despitevarious commentaries claiming thesame of previous years, 2011 wasindeed what the Gaming sector wouldrefer to as ‘the year of mobile’. Hewent on to qualify his statement byexplaining that, by 2013, LatitudeGroup is expecting customer volumesto gaming sites through mobile andsmartphone devices to exceed thosethrough desktop, meaning thatoperators who have not done soalready should seriously considermobile as a marketing device.

“Mobile is bridging the gap betweenonline and offline worlds”, Mr Fisherassured the Summit. “It is important tounderstand that there is a very realsynergy between mobile and TVadvertising, for example, so it really isbecoming a very important area fordigital marketing as a whole.”

The Rise of the Smartphone

“The reason why we’re seeing suchmassive trends, in terms of an increasein volume, is ultimately affordability,”explained Mr Fisher. “In terms of howwe consume data, mobile is muchmore affordable and, as devicesbecome much cheaper, these volumeswill continue to increase.”

Mr Fisher then drew the attention ofthe Summit to a chart, which showedthe market penetration of variouscommunication channels in both Europeand the UK. Smartphone usage in theUK now constitutes 52.6% of themarket whilst in Europe, particularly inItaly, Germany, France and Spain,average smartphone usage enjoys45.2% of the overall market-share. Themajority of this usage involves the useof browsers and ‘apps’ or digitalapplications, although social media isswiftly becoming one of the key chosenmethods of communication via mobiledevices.

In terms of mobile operating systems,iPhone continues to enjoy the majoritymarket share, with a 71% rate of uptake.Google’s Android OS continues to enjoya significant portion of the market,although it has undergone a decline inpopularity over recent months due to therecent release of the iPhone 4S.

What does this mean for

advertising?

“Ultimately”, explained Mr Fisher, “if thecurrent rate of uptake continues; weexpect to see a billion pound spend inmobile marketing by 2015. We havealready seen a 157% rate of growthyear-on-year since 2002 and areconfident that we will see similarfigures next year.”

Tablet Growth

“Tablet usage is becoming more andmore widespread,” explained Mr Fisher,“in the UK, there are now over 3 milliontablet users and this figure could rise toover 6 million by the end of this year.There has been a 72% rate of growth intablet sales over just the past 7-months,which makes them a great opportunityfor advertising.”

Duncan Fisher

Digital Media Director

Latitude Group

Mobile Marketing: what does 2012 hold?


24

The Four-Screen Approach and

Responses to Media

“We are now seeing a significantincrease in TV advertising for gamingclients, particularly during and aroundmajor sporting events,” explained MrFisher, “and it is important, whencompanies take part in this activity, thatthey maintain a sense of representativeconsistency across all messages andacross all devices. Ultimately, what acompany does not want to be doing isencourage users to search for theircompany following an advertisement,not be able to find your site online andgo to the competition - it’s commonsense really that you do maintain ajoined-up approach.”

Display Advertising

“This is an area that is going to growand grow”, Mr Fisher assured theSummit. “As mobile sites become morepopular, more advertising opportunitieswill present themselves. There is alsogoing to be increased opportunity forinteractivity with mobile banner ads.This, when coupled with the fact that ofthe £60 million spent on advertising lastyear, 29% was spent on mobile, makesthem a significant area that should befocused on.”

Paid Search Data

66% of all mobile ‘adspend’ was spenton paid search in 2011, while close to20% of all online spend came tocompanies through a combination oftablets and mobile. This growth is still

continuing and, as Mr Fisher remarked,“by the end of this year, we expect tosee an increase in these figures to 30%.”

Sector Insight

Mr Fisher explained that Latitude Groupworks with a number of industries,although gambling constitutes asignificant portion of its client base. As such, he took this opportunity tocompare the cost-per-click for paid searchactivity for gambling with other sectors.Some key search terms such as ‘casino’and ‘gambling’ were shown to be veryexpensive by comparison to other keysector terms. However, Mr Fisherreminded the Summit that “costs per-click can be driven down significantly bythe strength of your brand.”

Best Practice

Best practice for paid-search activityconsists primarily of conductingthorough research into key word use,explained Mr Fisher. Different keywords perform differently on mobileand tablet devices compared todesktop and understanding where toposition these key words, at what timeand on which platform can givecompanies a competitive advantage. “It sounds obvious”, he continued, “butit is also important to write specificmobile ads and to send traffic tooptimised pages. These should includecompelling copy, which includes displayURLs, mobile specific USPs and mobilespecific calls to action. It is thenimportant to continually test, measureand refine,” emphasised Mr Fisher.

2012 Focus

To finish, Mr Fisher turned the focus ofhis presentation to market projectionsfor 2012. “Further device releases, suchas the launch of the iPhone 5 are goingto continually drive the market”, heassured the Summit. “Advertisers arelikely to spend up to 30% of theirbudget online through mobile, andmobile advertising optimisation is goingto quickly become a priority.Technologies such as Near FieldCommunication, or NFC, will alsochange the way in which people usemobile as it increasingly becomes yourconstant companion.”


“Mobile is bridging the gap between online and offline worlds...”

Duncan Fisher

25

Warwick founded Global Betting and

Gaming Consultants (GBGC) in 1998.

Originally from an operational

background, Mr Bartlett now has over

40 years’ continuous experience in the

gambling industry and continues to

chair and present at numerous UK and

international gambling conferences.

He is regarded as one of the industry’s

top experts.

Overview

Mr Bartlett opened his presentationwith reference to the last time he hadtravelled to Gibraltar in 2008 to presenta message he described as being quitegloomy: “We looked at our economicforecasts, looked at what happenedafter Lehman Brothers and we saidthat, basically, the industry was goingto go through quite a torrid time.”

“But the good news is”, he continued,“although times have been really tough,the industry has consolidated; theyhave reduced their costs, all of theunknowns are now known and I thinkthat the growth story is back on theagenda. Add to this the prospect thatthe industry may be able to gain accessto the US market and you can clearlysee why prospects have improved.”

“I also think we’ve reached a tippingpoint in taxation”, explained Mr Bartlett.“I think, depending on which countryyou are looking at, governments haverealised that you cannot tax theindustry to death without giving rise toillegal gambling.”

Politics and Gambling in the UK

Mr Bartlett then drew the attention ofthe Summit to a timeline of legislative

and taxation changes that have takenplace in the UK since 1961, whengambling was first legalised. It waspunctuated throughout by changesmade by the Labour, Conservative andCoalition governments.

“Betting Tax was first introduced to theUK at 2.5% in 1966 by the LabourGovernment, which started the rate oftaxation very low because they werepre-conditioned by history,” heexplained. “When the UK introduced arate of tax at 5% on turnover in the1930s, bookmakers found ways toevade the tax and in the end it wasscrapped, much to the embarrassmentof Government. Fast forward to 1966and Labour Chancellor, JamesCallaghan introduced betting tax at thelow rate of 2.5%. This time thebookmakers paid but made themistake of absorbing the tax and notpassing it on to the gambler. The resultwas that in the next budget the taxwas increased to 5%! If there’s onelesson you take from history, it isalways pass the tax on.”

Betting tax increased again to 6% in1970, 7.5% in 1974 and again, in 1990,to 8% under the Conservatives. “Butwhat the Government did was test thesystem to destruction,” Mr Bartlettsurmised. “Bookmakers suddenly hadfalling turnovers and compensated bymaking the deduction from thecustomer 10%. That set off illegalgambling.” Gambling tax was eventuallydropped to 6.75% in 1996, “so thisprocess of testing the system took 30years and, eventually, we ended up with15% Gross Profits Tax.”

So which Government suits the

industry the best?

“It seems like Labour likes to tax themost” explained Mr Bartlett. “TheConservative Party has always beenquite cautious on gambling matters butin 1972, they reduced on-course racebetting tax to 4%. Why? Because theywanted to encourage people to go torace courses to support the horseraceindustry. They then abolished it lateron, so you had this differential of notax on the race course and tax off-course. The Conservative Party hasalways favourably treated the horse-race industry – and still does.”

“But the interesting thing,” as MrBartlett pointed out, “is that from 1963through to the 2001 Budd Report,there were relatively few changes.Since then, the industry has had tocontend with changes almost everyfour months and what this tells you, inmy opinion, is that with the 2005Gambling Act, they got it wrong. Withthe 1963 Act, they got it right.”

The Timeline for Italy

Mr Bartlett then drew the attention ofthe Summit to a timeline correlatingvarious legislative changes with Italy’sGross Gaming Yield since the GambelliCase of 2003. He noted that over thepast 9 years, Italy’s GGY has increasedfrom €6.3billion to €18.9billion peryear. “But the interesting thing is thatturnover has gone up” he remarked,”GGY has gone up, the tax has goneup, but the percentage of tax to GrossGaming Yield has actually gone down,and I think that’s a case for optimism.”

Warwick Bartlett

Chief Executive

Global Betting and Gaming Consultants

The US & Asia

Warwick Bartlett


What are the prospects for the USA?

The USA is the world’s largestgambling market, explained MrBartlett, “and on the 23rd December,2011, the US Department of Justicegave the lotteries a huge Christmaspresent by saying that there is nownothing to stop them selling tickets onthe Internet. So far, Illinois andMassachusetts are to go ahead, butwhat of the rest?”

GBGC finds that most simply are notinterested. “People will queue blockafter block for a rollover lottery ticketso why aren’t states taking advantageof online? Is it because to do so, theywould have to open themselves up toother forms of online gaming and arereluctant to invite competition or thatthey just want everything to stay thesame? This remains to be seen. In themeantime, operators are betting bigmoney that the market will open up byforming strategic partnerships,mergers and acquisitions” heconfirmed.

How will the US market open up?

What is the timeframe?

Mr Bartlett explained to the Summitthat gambling is still a politically toxicsubject in the US, which poses thequestion; will the market open upthrough state or federal legislation?Due to the politically sensitive natureof the subject, “federal law changeswill only happen during the first twoyears of a given presidency and, if theRepublicans win, legalisation ofInternet gambling is unlikely tohappen,” he predicted. “Mitt Romneyhas already stated that he is opposedto gambling.”

“But if we do accept that the US willeventually allow Internet gambling andcontinues to be the largest gamblingmarket in the world,” explained MrBartlett, “we have to ask; where is thebest place in which to serve the globalmarket and in which to base yourheadquarters? Which state or countryis likely to give operators the bestprotection when they trade overseas?The most likely place to base yourheadquarters would be the US and themost likely state would be Delawarebecause of its tax advantages andclose proximity to Washington andNew York. Given that the US is theworld’s largest market; were the US tofollow the UK example of adopting aplace of consumption tax where profitson all foreign income would be taxedin the US; this would not bode well forthe offshore jurisdictions. However,this is very long-term, ten years atleast” he reassured the Summit.“Sports betting drives Internetgambling and the US is a long wayfrom legalising sports betting.”

Looking to the future

“I envisage lower taxes and a moreopen market in France and Italy,particularly during the next 5 to 10years” predicted Mr Bartlett. “But thereal growth story, of course, is Asia.”

European operators have, historically,had little success in Asia, explained MrBartlett. But domestic sites are all verysuccessful in their own markets.Indeed, some are making £6million netprofit per month. These sites, hecontinued, understand the Asiangambler and perhaps moreimportantly, have the payment

solutions to operate in those un-banked markets. Most also operate oncredit, making it very difficult forEuropean operators to penetrate thatmarket because they do not have theconnections in place.

Looking Forward

“I’m more optimistic than I have beenin the past because all of theunknowns are now known. As we’vealready demonstrated, changes do nothappen as quickly as we would likethem to because they move ahead atGovernments’ pace and not our own.So I think we’re looking at a 5 to 7 yearcycle for taxation where Governments,due to necessity and a lack ofunderstanding, begin tax at a higherrate only to move down later. We’re ata high stage of the cycle at themoment in Europe but I’m prettyconfident that it will come down torealistic levels. All this is predicated onthe Internet remaining as free as wasoriginally intended,” Mr Bartlettconcluded, “thank you.”

Since the Summit, Mr Bartlett kindlysubmitted to the report the news that onMay 15th, 2012, Italy lowered the rate oftax on slot machines from 12.6% to12.1% of turnover due to revenue fallingas a result of high taxation.

© 2012 KPMG Limited, a Gibraltar limited company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 26

“I think, depending on which country youare looking at, governments have realisedthat you cannot tax the industry to deathwithout giving rise to illegal gambling.”

John Kamara is the Co-founder of

Spadesocial, the largest video based

social network for casino, poker and

sportsbook. The site aggregates and

categorizes gaming related content

for users and helps operators to

increase their direct customer

acquisition using content, social

engagement and precise marketing.

Customer Acquisition

and the Marketplace

An energetic and enthusiastic speaker,Mr Kamara opened his presentation byfirst noting that one of the mostinteresting aspects of the gamingindustry was encapsulated by themorning’s session on regulatoryenvironments. “If we were to put it [theindustry] to a map”, he enthused, “wewould see that the landscape ischanging because of regulation and thateverything centres on it. But this willchange and one of the things thateffects change is social media.

“A question I am asked all the time,however”, he continued, “is: ‘Can Iconvert people from social into realgambling?’ My answer is: don’t try to, itis a process that will happen organicallyby itself, if you do the right things.”

Changes in Consumer Behaviour

Mr Kamara went on to explain to theSummit that the industry’s customersare getting younger. “The winner of thePoker World Series last year was just 24years old and the top 8 competitorswere aged between 21 and 23 yearsold. They each won between $1millionand $8million. Online, these people areeven younger: the average profile of

bingo players in the UK is aged 23,single mother in Sunderland,” heexplained. “So the people are changingand if we as an industry don’tunderstand this, we will have aproblem.”

Social Media

“The bottom line is the traditionalmarketing we engage in will still live,but a lot of that traditional marketingwill do so within social networks”predicted Mr Kamara. “Facebook isbecoming the Internet on its own. InChina, their social networks are alsobecoming the Internet on their own. Asthe market changes: player behaviourchanges. They get younger, they getmore Internet savvy and they will havebeen taught from an early age thatsocial media is where they live.”

“If I go to Facebook or another socialnetwork I can collect data about whatpeople like, what they do; theirinterests” Mr Kamara told the Summit.“If they like casino or poker I canengage with them before I start servingthem products and I have the datasitting in my database that I can matchwith this.”

“But if I receive an email offering me$100 credit on my first visit, I will justdelete it because I’ve seen a million ofthose. People are changing,” Mr Kamarastressed. “There is a very, very uniqueinteraction between social games andonline gambling. But the problem is, youcannot try to justify one with the other.As an industry that enjoys innovativetechnology, intelligent staff and highprofits – you can develop social gamesthat actually make money.”

John Kamara

Director

Spadesocial

Customer Acquisition in a Changing Marketplace


Social Games

Mr Kamara then went on to explain thatsocial games are built predominantly toappeal to the casual, friendly player. “Agrinder, an addicted gambler orsomebody who loves to play casino orpoker will find the best site for themregardless of what you do or do not do,so we’re not really worried about thosepeople” he explained. “But what weshould be concerning ourselves withare those that play maybe $20 everytwo weeks. They don’t really care aboutwinning, they come for an experience,they come to see if there is somethingnew that you are creating for them andthose are the people you want to createthat social experience for.”

The Change in Behaviour

Mr Kamara implored the Summit torecognise that there is now an adequateenough amount of data available throughsocial media to chart how customerbehaviours are changing and that it cannow be acquired more cheaply thanthrough traditional channels.

“We also cannot keep not providingcustomers with the social experiencesthey need,” he added. “You need toengage with the user and try to

understand their foot-pattern, bothonline and offline. Angry Birds mademore money from virtual goods salesthan any gambling company could in ayear. How many gambling companiescan say that, within six weeks, they canacquire one-million users who pay aminimum of $1 each? These companiesare doing these things because theyare appealing to something that is verysimplistic; they are not solving anyproblems, they’re just creating thesocial experience and entertainmentthat we want online, on-mobile,everywhere around us, because that’swhat we do as people.”

Entertainment: acquiring and

retaining users

Mr Kamara drew upon the subject ofvideo as an example of the value ofentertainment to the online marketingindustry. He explained that customerswatching an online video-marketing toolwill consume information both morequickly and thoroughly. Whereas, if youask a customer to read two paragraphsof text; their attention will quicklydiminish. The success of socialentertainment, he contended, is basedon a company’s ability to convince thecustomer that the reality of their being

asked to take in information is not areality. “Video-marketing,” he explained,“is one of the most effective ways ofacquiring and retaining users in thecurrent web and online marketingspace. As an industry, we have to find adifferent way of reaching these people:they are still there but what they areconsuming is changing. The way theyare interacting with us is changing.”

Innovation

To conclude, Mr Kamara touched uponthe topic of innovation. “We are a veryinnovative industry. But with the socialpart of it, we are just sitting on thefence. As an industry, we have the toolsalready and are in the right place. Wehave the right types of products for usto go back and think about the rightkinds of social experiences that we aregoing to create for our users. Based onthat, we can begin to innovate with newproducts that bring users closer to us.We’re talking about a huge chunk of themarket here. Social gaming brings to uspeople that we would never haveotherwise been able to talk to andthese people will feel more comfortablewith sharing the experience of playingon your site with others.”

“The bottom line is the traditionalmarketing we engage in will still live,but a lot of that traditional marketingwill do so within social networks”

John Kamara


29

Tim Bristow - “Speaking to an educated audience,” MrBristow began, “I think everyone knows that 4G will be ableto handle mobile gaming much better than 3G.” Gibraltarcurrently supports both 2G GSM and 3G with HSDPA, orHigh-Speed Downlink Packet Access and, although like manycountries throughout Europe Gibraltar has not yet licensed4G, it will eventually do so.

On infrastructure generally, Mr Bristow explained thatGibtelecom is a leading telecoms provider in Gibraltar. Hereminded the Summit that a decade ago, when the eGamingindustry first began to flourish in Gibraltar, availability of

international bandwidth was an issue but this has since beenresolved many times over. Gibtelecom is currently using lessthan 10% of its overall international capacity and is a foundingshareholder in the submarine cable project, the EuropeIndiaGateway. Some 90% of the extra capacity generated throughthis partnership will now be sold globally, making Gibtelecoma global carrier of international connectivity. “I think theinternational connectivity issues that existed a while back inGibraltar are now a thing of the past,” Mr Bristow assured theSummit.

What additional capability will the 4G network provide formobile gaming and mobile platforms?

Archie Watt – “Gaming companies are already outsourcinga significant part of their marketing efforts. All of those that Ihave dealt with here and on the Isle of Man have dedicatedmarketing teams who historically have focused on onlinemarketing but I think where they are struggling is withsocial media.” Mr Watt also emphasised the importance ofcompanies first recognising what it is they are trying toachieve before choosing the right outsource partner todeliver a strategy.

Jason Bird – Mr Bird agreed that outsourcing provides anexcellent way of benefitting from the experience of others,particularly when many outsourcing companies already haveexperience with larger concerns. However, he recognisedthat many companies may be reluctant to outsource due tothe risk of losing specialist skills and employee focus: “no-one really takes your business as seriously as you do”, heremarked.

In the current economic climate, where cost-control is ofparamount concern; could companies benefit from outsourcingactivities such as social media, marketing and staff training?

Panel Session

The panel session was moderated by Russell Kelly. The panelconsisted of Tim Bristow (Gibtelecom), Archie Watt (KPMGGibraltar), Dominik Kofert (Poker Strategy) and Jason Bird(Silvertail Systems)


30

Dominik Kofert – Mr Kofert explained that there are twoaspects that the industry should be concerned with. Thefirst concerns the complexity of the activity, i.e. is it an easyor complicated game to play? If it is easy, education is notnecessary as a conversion tool, however, if it iscomplicated, then education through social gaming isdefinitely beneficial to the industry. Secondly, as Mr Kofert

explained, the industry needs to consider whether or notthe game itself is open to education. Poker, for example, isa very complicated game but a player’s enjoyment may bederived from the process of education itself. Bingo,however, does not lend itself to education but may be moreopen to social entertainment as a complementing factor.

Staying with the theme of social media, education andentertainment: at what point on the spectrum of socialgaming do you think gambling would best fit?

Dominik Kofert – “With regards to the US, everybody isindeed trying to ready themselves for regulated poker, so thechallenge that these companies are facing lies in buildingtheir competency in operating poker and in building theirdatabases,” explained Mr Kofert. “With regards to the

educational and social components, if a company operates apoker room alongside a social community and alongside agood poker-school, they will get ahead even before themarket opens. It is this kind of positioning game that USoperators are playing at the moment.”

There are already quite a lot of social gambling and pokersites operating from the US: do you think these sites are atan advantage with the US opening up?

Russell Kelly – Having been furnished with a series offigures by Maria Brennan of HM Treasury, Mr Kelly explainedto the Summit that, based on a 15% rate of taxation and a2014 date of implementation, HM Treasury expects to raise£70million in additional revenue per year by 2014/15, rising to£250million by 2015/16.

Speaking from the floor, Maria Brennan again emphasisedthat all figures are subject to review during the ongoingconsultation process and that, consequently, “these figuresshould not be taken as a given.”

How much revenue does HM Treasury feel that they willgenerate from the place of consumption tax?

Building on the tax points, the Minister and Phill Brear thismorning seemed fearful that, if the UK gets its way on the taxregime, many operators would leave Gibraltar. Do the Panellistsshare these fears?

31

Tim Bristow – “I think it is a difficult question because thelicence holders in Gibraltar are all very different companies.Some are predominantly UK orientated, meaning the place ofconsumption tax could have a dramatic effect, but for othersthe UK market is a relatively small part of their business.” MrBristow explained the importance of considering the entire‘package’ that Gibraltar offers to operators. As a territory,Gibraltar enjoys stable governance, good fiscal arrangementsand is well regulated: “there are many things in the mix thatwould make for the decision of a particular company”, heexplained, “so I don’t think any changes would be as dramaticas it might first appear.”

A delegate from the floor also added that Gibraltaroperates a system that does not include charges on VAT,meaning spend on other industry aspects such as advertising

and marketing, I.T. and telecoms “are going to go 20%further than they would do in the UK.” Whilst a point ofconsumption tax in the UK is a pressing concern, from a taxperspective there are many other compelling reasons foroperators to remain in Gibraltar.

Archie Watt – Mr Watt reminded the Summit that it is alsoimportant to maintain that the costs of employing people inGibraltar are significantly lower than in the UK. “Payroll taxes,for example, are high in the UK. Indeed, the UK is,comparatively, a high-cost place in which to do business,which is another incentive for operators to remain in smallerjurisdictions such as Gibraltar, the Isle of Man and Malta. Theemphasis on education here can also only be beneficial tothe industry and Gibraltar itself,” he remarked.

Questions from the Floor

Jason Bird – “Infrastructure is a key part of Gibraltar’sattraction to operators, as is the added value the jurisdictionoffers around security and services and, of course, the lowerrates of charges for employing personnel. These are alladvantages that Gibraltar currently enjoys and would do wellto maintain,” Mr Bird remarked.

Dominik Kofert – Mr Kofert expressed his desire to seemore tax treaties between other countries and Gibraltar. Healso noted that, although there are plans for improvement, iftelecoms infrastructure is to become a major selling point ofGibraltar’s, then globally competitive Internet connectivitymust become a part of everyday life and be available in everyhousehold. Finally, Mr Kofert noted that, although it would of

course be very difficult to resolve, Gibraltar’s borderarrangement and the subsequently limited availability of livingspace does provide a disincentive for employers to relocate.

Archie Watt – Mr Watt raised the issue of providing a securepower supply to operators as his first concern. Secondly, headvised the Summit that the issue of work permits is somethingGibraltar needs to be conscious about if it is to continue to attracthigh-calibre staff.

What three things would each member of the Panel do toimprove Gibraltar’s situation as a whole for e-business, to make ita more attractive destination for new e-business, to improve thelocal talent pool and to improve Gibraltar’s reputation globally asan e-business hub?


32

Tim Bristow – “Absolutely vital to your question istechnology,” began Mr Bristow, “without any shadow of adoubt, none of the eGaming businesses in Gibraltar would behere if the telecommunications network was not up toscratch.” Mr Bristow also thought it necessary to respond tothe Panel’s concerns surrounding Internet speeds, notingthat, unlike in Gibraltar, actual broadband speeds in othercountries rarely meet those advertised. “We are alsocurrently installing the technology to deliver 40Mb broadbandaccess to every household in Gibraltar”, he added. Secondly,Mr Bristow explained that, although Gibraltar enjoys a very

successful education system, traditionally a lot of youngpeople tend to go on to train as lawyers and accountants. He suggested that, in order to meet the demands ofGibraltar’s increasingly diversified employer base, particularlywithin the e-commerce world, it needs to diversify itseducational resources. “Third is the government generally,”explained Mr Bristow. “Although they are very supportive ofthe eGaming industry, I think that they too have to be more‘e-wise’ because that is the world we now live in.”

Archie Watt – “I think this question comes down to thedefinition of ‘effective’”, began Mr Watt. “If you are trying tosay that you are protecting people, preventing under-ageplaying and so on, then the French system has been verygood. In terms of controlling the flow of cash deposits andgoing through a ‘suck it and see’ process of releasing newtypes of gambling to their population, the Italy model hasgone down very well indeed. The UK model has also beengreat because it took the spirit of the Treaty of Rome toheart and allowed for the free movement of goods andservices. As a Libertarian, my view is that the UK model, as it was, was the best one. I am, therefore, somewhatdisappointed to see that protectionist principles are nowbeing employed by what was previously a liberalgovernment in the UK.”

Tim Bristow – “Well I think the answer is that the perfectEuropean model is Gibraltar’s” remarked Mr Bristow. “I thinkanother good model was the UK but I think they may now begoing to lose the plot. I think they will find that they had a goodmodel and that the problems that they are trying to remedy willnot be resolved by taxation.” Mr Bristow explained that it is theoverall package and climate in which to do business that wouldattract companies to the UK. “The UK is a great place; it ishighly regulated and very well respected but I don’t think theircurrent taxation solution is going to meet their ultimateobjective. So, my vote would be with Gibraltar, a world-leadingonline-gaming community.”

Dominik Kofert – Mr Kofert agreed with the sentiments ofMr Watt and Mr Bristow, adding that, from an online pokerperspective and indeed the Internet in general, he wasstrictly opposed to regulatory models that serve to ring-fence a single country to its market. “These kinds ofdevelopments are strictly against the nature of the Internet”,he stressed, “and I think that they are measures that nogood regulator should take.”

Jason Bird – “I think the more you drive those regulationsand force people into playing on sites that are based in non-regulated territories or those that are based underground,the more dangerous it is to the industry” warned Mr Bird.“We see thousands of attacks on Internet-consumers dailywithin regulated sites, let alone those where there is lesscontrol, so I think anything that helps drive that security andkeep people within a regulated environment where we cankeep them safe and protected has got to be a great thingand should be encouraged.”

Tim Bristow – “I just want to add that, in this industry, thetechnology is ahead of the politics and the politics is alwaysgoing to be catching up. It may take many, many years but Ibelieve that the politics will eventually find a way ofembracing all that the industry has to offer.”

Which of the European regulatory models do you think hasbeen the most effective over the last 3 years?


Russell Kelly

33

On behalf of KPMG, Mr Kellyexpressed his delight at being given theopportunity to run the second KPMGeGaming Summit in Gibraltar and tosee the fantastic levels of supportKPMG received from speakers,sponsors and all those in attendance.KPMG were proud to see an excellentturnout from a very broad cross-sectionof the eGaming community and wereglad to hear the reassuring messagesoffered by both Government and keyindustry figures throughout the Summitconcerning the future of the industry asa whole.

“Gibraltar’s commitment to remainingat the forefront of the eGamingindustry and to being the premierjurisdiction within Europe is fantastic,”

Mr Kelly enthused, “and this is due, toa large extent, to the solid foundationslaid by Gibraltar over the past 10 to 15years by the previous government andby the businesses that were first in tothe jurisdiction. It now falls to thesector to build on that infrastructureand to take things forward.”

“I would also like to thank all of ourspeakers and also our sponsors -Continent8, Silvertail Systems, PeopleDimensions, Chesterton, Barclaycard,GibTelecom and Callcredit InformationGroup - for making the day possible.Finally, I would like to confirm that KPMGwill be hosting its third eGaming Summitin Gibraltar next year and we hope to seeyou all again soon. Thank You.”

Russell Kelly

Director, Audit & Advisory

KPMG

Closing Address

“Gibraltar’s commitment to remaining atthe forefront of the eGaming industry andto being the premier jurisdiction withinEurope is fantastic...”

Russell joined KPMG in 1993 and has since worked for KPMG in the Isle of

Man, Gibraltar, London and Jersey. His client experience encompasses

financial services, telecommunications, real estate and eGaming. Russell

also undertakes transaction services and SAS70 work, which includes acting

for clients with respect to acquisitions, disposals and flotations. In particular,

he has advised on flotations on the LSE, AIM, Luxembourg and New York

Stock Exchanges.


All of the speaker presentations from the day are available for download athttp://www.kpmg.com/GI/en/IssuesAndInsights/ArticlesPublications/Events/eGaming-2012/Pages/Summit-Programme.aspxIf you have any further queries regarding the Summit or the topics covered, you can contact KPMGGibraltar on +350 200 48600

KPMG LimitedTel +350 200 48600

www.kpmg.gi

© 2012 KPMG Limited, a Gibraltar limited company and a member firm of the KPMGnetwork of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The information contained herein is of a general nature and is not intended to address thecircumstances of any particular individual or entity. Although we endeavour to provide accurateand timely information, there can be no guarantee that such information is accurate as of thedate it is received or that it will continue to be accurate in the future. No one should act onsuch information without appropriate professional advice after a thorough examination of theparticular situation.

All of the speaker presentations from the day are available for download athttp://www.kpmg.com/GI/en/IssuesAndInsights/ArticlesPublications/Events/eGaming-2012/Pages/Summit-Programme.aspxIf you have any further queries regarding the Summit or the topics covered, you cancontact KPMG Gibraltar on +350 200 48600

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