Spain hopes for online betting windfall

Reuters News
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Posted: Jun 11, 2012 9:58 AM
Spain hopes for online betting windfall

By Sarah White and Rosalba O'Brien

MADRID/LONDON (Reuters) - Spain is set to shake up internet gambling this week, helping it capture much-needed tax income as newly licensed firms slug it out to win over the country's growing crowd of online poker and sports betting fans.

The heavily indebted government will award licenses to internet betting operators for the first time on Friday. Revenues in the sector are estimated to be over 800 million euros ($1 billion) in 2014, according to gaming association Jdigital.

Online gaming has so far been dominated by foreign players, with Spanish companies, including betting giant Codere, only now set to enter the fray.

Unlike some other markets, Spain has not set a limit on the number of licenses it will award. So far, 59 companies have applied, with only a small handful who have not met all the requirements likely to be turned down, according to sources familiar with the process.

London-listed firms Sportingbet and Bwin.party digital, already active in Spain's unregulated market, are expected to be among the main contenders, as are Ladbrokes, 888 and Betfair.

"The sector is on fire, and it looks like if you are not online, there is no future. But we will have to see who makes it through, because online businesses can be expensive to get off the ground. The business is based on marketing," said Fernando Henar, president of CEJ, a Spanish organization for bingo companies.

Most online gambling will not attract taxes on individual bets but firms will instead face a gross profit tax of between 10 percent and 25 percent.

Spain's outgoing central bank chief warned on Wednesday that the country's tax income may fall short, as it struggles to refinance 98 billion euros of debt and fund a deficit of 52 billion euros.

Although the amount of tax likely to be raised from online betting will be small in comparison, it is still a useful source of income in a country where a love of sports and of football in particular has drawn gambling groups in the last few years, with participation fuelled by the growth of tablet computers and smart phones.

Across Spain's gambling sector as a whole, the amount of money played rose by more than 7 billion euros from 2008 to 2010, standing at 27.3 billion euros in that year, the most recent official data showed.

However, the economic crisis is making gamblers more cautious. Sportingbet, whose main European markets are in Spain and Greece, said on Wednesday that average bet size in the region had halved over the past two years to 9 pounds ($14).

TAX GRAB

Under intense pressure to rein in its deficit, the Spanish government has already raked in some cash by levying retrospective taxes on existing operators, citing decades-old decrees.

Keen to ensure they qualify for the new licenses, companies including Sportingbet and Bwin - sponsor of top Spanish football club Real Madrid - have agreed to pay around 70 million euros of back taxes so far.

For Sportingbet and Bwin, Spain represents a chunky slice of revenue, and even those with limited exposure to date regard it as an important market with growth potential.

That has helped ease the pain of the back-tax grab - a move Spain has described as separate from the licensing process, but which several sources familiar with the sector said left companies with no choice in order to qualify.

The tax demands landed after the Conservative party ousted Spain's Socialist government in a landslide election last November, just as the euro zone crisis deepened.

Companies had originally started paying tax in May 2011, when the new gaming law was first passed, but, under pressure from domestic operators, authorities later asked companies to cough up retrospective taxes, citing decrees from as far back as 1966 and 1977.

"It is a shame this was done to take advantage of the opportunity of licenses being launched," said Albert Agustinoy, a lawyer with DLA Piper in Madrid. "It damages the perception of Spain as a trustworthy place to do business."

Fighting the move would have led to lengthy court battles most saw as not worth waging, Agustinoy added, though analysts at Peel Hunt said this week that some groups could yet challenge the tax authorities.

Spain is also considering revising tax laws to encourage U.S. group Las Vegas Sands to build a 'EuroVegas' $35 billion casino complex in either Madrid or Barcelona.

Potentially half the size of the Las Vegas Strip, it is a project that has left Spanish politicians salivating.

(Additional reporting by Rodrigo de Miguel in Madrid and Keith Weir in London; Editing by Erica Billingham)