What will Brexit mean for Gibraltar’s online gaming sector?

His competitors in what was then the telephone betting market had little choice but to follow suit or face going out of business, creating what became known as the Chandler effect. Almost 18 years later, The Rock is now the online equivalent of Las Vegas – and the 30-odd gaming companies based there control 60% of the global gambling market, generating 3,252 jobs and an estimated €30 billion a year, according to consultants H2 Capital.

But last year’s Brexit vote, which saw people in the UK voting to leave the European Union, raises doubts over their future, and may force them to abandon this British Overseas Territory.

If Spain had a more attractive regulatory framework  we could attract new companies Miguel Ferrer, Jdigital

The advantages of The Rock are indisputable: it offers good communications in a strong financial environment with a basic corporate tax of 10% plus a 1% gaming tax on profits. It is exempt from the taxes imposed by other countries, such as Spain, where 25% is slapped on to all house winnings.

Gibraltar’s online gaming glory days began in 2004. After BetVictor (Chandler’s company’s name) came the UK’s Gala Coral, William Hill, and in 2014, Bet365. Other European players have also set up here.

There are now 33 online gaming companies registered in Gibraltar, a much smaller number than on Malta or the Isle of Man, but with far greater clout. Not only do they control 60% of the global market, they continue to create jobs, with between 10% and 20% of employees coming from the surrounding region of the Campo de Gibraltar, in Spain.

Between April 31, 2015 and May 31, 2016, authorities in Gibraltar issued three new gaming licenses – though it should be pointed out that The Rock keeps a close eye on which companies it invites in. “The idea is to attract only the best companies in the market,” says James Tipping, Finance Centre Director of the Government of Gibraltar. “Despite what people think, we keep a tight control on things here. The regulatory arm works closely with the sector and this legal framework makes the companies feel comfortable.”

This type of collaboration with the authorities is unusual. In the United Kingdom, a 15% tax on winnings was only introduced in 2014, and Spain upped its tax rate in 2012. “This British regulation was particularly damaging to the Gibraltar-based companies because it meant they had to have a UK license to operate there,” says Carlos Lalanda, a lawyer specializing in online gaming. In fact, such was the impact that the Gibraltar-based companies took the matter to court.

They argued that their services were on loan to the United Kingdom, as to any other member state of the EU. Maciej Szpunar, Advocate General of the EU’s Court of Justice, overruled the appeal, arguing the UK and Gibraltar were one and the same place regarding the freedom to provide services. “It is interesting that such an internal matter went as far as the European Court,” says Lalanda in reference to the sector’s muscle.

Tipping says despite the inconvenience of Brexit, few companies will probably walk away from the table: “When you have such a strong core of companies and professionals, something very big has to happen to make them pack their bags, adding: “As many as 80% of customers are British and there is no single European ruling on online gaming. Each country has its own legislation,” he argues.

Meanwhile, Gibraltar’s gaming companies are playing their cards close to their chest: EL PAÍS was unable to talk to the Gibraltar Betting and Gaming Association.

The Rock is now the online equivalent of Las Vegas

Carlos Lalanda believes that some companies may well seek out other EU countries. If Brexit happens without a treaty with the United Kingdom, the companies established in Gibraltar will automatically lose their licenses in Spain, as the Spanish authorities require them to be registered in the EU or in the European Economic Area. “Their permits will become void just as they will in any EU country with similar legislation,” says Lalanda. “If they want to keep operating in these places, they will have to shift their headquarters.”

Miguel Ferrer, spokesman for Jdigital, the Spanish online gaming association, believes Spain could take a more proactive role toward companies looking to relocate. “If Spain established a more attractive regulatory framework for international licenses, we could attract new companies,” he says.

For the moment, the cards are still on the table, and only time will tell if Gibraltar’s winning streak will hold up.

English version by Heather Galloway.