Adios Betfred – The Exodus of UK Operators to Spain

Posted by Harry Kane on Tuesday, February 19, 2019

Let’s face facts; very few politicians are enthusiastic about the prospect of a no-deal Brexit, while even the UK Chancellor Philip Hammond has conceded that exiting the EU without an agreement will significantly damage the economy.

This is beginning to have a corporeal impact on industries and the machinations of business leaders, with James Dyson and Sony the latest to relocate part of their ventures overseas in order to retain access to the single market.

Unsurprisingly, a growing number of UK-based gambling brands are also looking to shift their operations overseas, as they look to escape the chaos and potential fall-out from Brexit. This is not the only reason for this exodus, however, with rising tax rates and the introduction of more stringent regulations also taking their toll.

The Story so Far – Who’s on the Move?

According to the most recent reports, UK betting operator Betfred is leading the charge overseas.

The Gambling Intelligence’s Spanish-language site confirmed that the brand was shifting its digital operations from Gibraltar to the autonomous city of Ceuta, which sits on the northern coast of Morocco.

Not only this but there a further four as-yet-unnamed operators who are preparing to announce similar relocations to Ceuta, as they look to restructure their business and meet the necessary criteria required for registration.

More specifically, they need to formally establish their tax base in the enclave (in order to ensure that they contribute directly to the Spanish economy), while also shifting at least half of their digital staff to the city.

As Betfred have already met these expectations, they’re the first British gambling operator to complete the move and show their hand in a strained and highly uncertain marketplace.

Why Ceuta and Why Now?

Ever since the UK electorate voted to leave the EU in June 2016, economists have speculated that the economy could be decimated by the mass exodus of brands to regions that retain single market access.

Industries like gambling the automotive trade were considered particularly vulnerable, as was the nation’s lucrative financial services sector.

While many of these concerns have been played down by Brexit-enthusiasts, they now appear to be coming to fruition particularly as the UK continues to inch towards a no-deal exit.

More specifically, companies that have been biding their time and waiting to see whether or not Theresa May could return from Brussels with a palatable withdrawal agreement have now been forced to act, with Parliament locked in a stalemate and only nine weeks remaining until the Brexit deadline date of March, 29th.

While the prospect of losing all access to the single market and may well be the catalyst for the decision of gambling operators like Betfred, however, it’s by no means the only factor behind the move.

Take the impending cap on fixed-odds betting terminals (FOBTs), for example, which will take effect in October and slash the maximum betting threshold from £100 to just £2.

While the initial decision to delay the implementation of this new regulation apparently signalled a £900 million windfall for bookmakers, the betting cap could ultimately slash profits by more than 50% and trigger the closure of 9,000 stores nationwide.

Not only will this move impact directly on bookmakers, but it will also restrict the amount of tax that operators pay to the government. The Chancellor’s response to these diminishing returns was to announce a significant hike in the rate of Remote Gaming Duty (RGD) payable by UK operators, which will increase from 15% to 21% in October.

In effect, this will create a compound effect in the gambling industry, with multi-channel operators like William Hill facing the prospect of declining revenues and increased tax liabilities. As a result, the high street icon immediately reduced their full-year profit forecasts by a hefty £15 million, while shedding 8% from their share price.

At the same time, Paddy Power Betfair PLC adjusted their full-year forecasts to account for the regulatory and taxation changes, despite recording increased earnings in the first quarter of 2018.

The issue here is clear; as UK operators are being forced to endure lower revenues and higher tax repayments in an increasingly volatile economic climate. In circumstances where a no-deal Brexit also restricts consumer spending and access to the single market, the situation facing gambling brands in the UK could quickly become untenable.

Even if we understand the challenges facing UK gambling operators, however, the question that remains is why Cueto is emerging as a viable solution for firms?

The simple answer lies with the Spanish government’s continued drive to create a safe haven for gambling operators across the globe. In July 2018, authorities cut the online gambling tax rate from 25% to just 20%, reversing the trend set by the British counterparts.

At the same time, the government officially authorised the twin Spanish enclaves of Ceuta and Melilla to offer online gambling tax rates as low as 10%. They’ve also been afforded the autonomy to offer lower corporate tax and VAT rates to gambling operators, in order to create a compelling proposition for international firms that are open to relocating their base.

This is undoubtedly part of a deliberate strategy by the Spanish authorities, who are looking to leverage Brexit and the upheaval surrounding the UK market to the advantage of their own gambling sector.

It’s also providing a viable alternative to the plethora of UK operators that currently base their digital operations in the British Overseas Territory of Gibraltar. While the UK and Spain previously agreed to sustain Gibraltar’s access to the single market until the end of December 2020 at least, this would be subject to a withdrawal agreement and could be undermined completely by a no-deal Brexit.

So, by having the opportunity to relocate their operations to a nearby Spanish enclave and benefit from lower tax rates, British firms are able to immediately safeguard their futures and avoid the fall-out from Brexit.

Will the Exodus Continue?

Ultimately, the growing prospect of a no-deal Brexit has served as a catalyst in the UK’s gambling sector, by compounding the tax and regulatory challenges in the marketplace and forcing them to take steps towards securing their future.

This has undoubtedly influenced the decision of Betfred and other operators to relocate their digital operations overseas, as has the emergence of Spanish enclaves like Ceuta as viable destinations.

But will this exodus continue? In truth, the answer to this question depends on whether or not the UK can strike a withdrawal agreement with the EU, as the stark realities of a no-deal Brexit will almost certainly send operators running for the hills.