September 2016
Regulation of online betting market in Poland Considering alternative scenarios to define the best regulatory model for Polish online betting
Regulation of online betting market in Poland
Contents 1 Executive summary 2 Introduction to online betting 2.1 Online betting as part of the gambling market 2.2 Regulatory and taxation regimes 3 Polish online betting market 3.1 Online betting regulations 3.2 Key market enablers and drivers 3.2.1 Market enablers 3.2.2 Market drivers 3.3 Market development 3.4 Regulatory changes proposed in the Amendment to the Gambling Act 4 European online betting markets 4.1 Online gambling regulations in EU countries 4.2 Lessons learned from online gambling markets regulations in EU countries 5 Polish market development scenarios 5.1 Scenarios for the Polish online betting market 5.1.1 Scenario 1, Current policy – Description and modeling results 5.1.2 Scenario 2, Restrictive regulatory approach – Description and modeling results 5.1.3 Scenario 3, Controlled liberalization – Description and modeling results 5.2 Conclusions from the scenario analysis Glossary Table of figures Disclaimer
4 7 7 8 11 11 12 12 13 16 18 19 19 22 26 26 27 29 31 33 35 36 37
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Regulation of online betting market in Poland
1
Executive summary The provision of gambling services in Poland is governed by The Gambling Act of November 19, 2009 (amended on May 26, 2011). The current regulations for online gambling can be perceived as very restrictive compared to other European regulatory regimes. Online betting is the only permitted gambling activity on the Internet. It is taxed with a 12% turnover tax rate that is applied directly to the stakes/bets made by the players. Gambling services can only be rendered by licensed operators that have to meet a number of requirements, e.g. corporate registration in Poland. The Polish online betting market is less developed than the Western European one but also less than the Central European markets. Gross Gaming Revenue (GGR) from betting (i.e. the revenue calculated as a sum of stakes minus the sum of returns of Polish customers generated on websites of, both licensed and not licensed, operators in Poland) per adult in Poland, which was EUR 2.5 in 2015, is substantially lower than in not only the countries with more liberal regulatory systems like the UK (EUR 40.3), Denmark (EUR 41.9) and Czech Republic (EUR 20.1) but also substantially lower than in jurisdictions with restrictive regulations such as France (EUR 14.7). Furthermore, the great majority of the betting stakes are at not locally licensed (offshore) operators rather than at locally licensed (onshore) providers. The channeling rate, which illustrates the market share of licensed operators is a meager 10% when measured on betting turnover (total stakes), and when measured by GGR it is estimated at 30% (onshore operators achieve higher margins) as compared to c. 95% for the UK and c. 90% for Denmark. A survey of online gambling participants1 indicates that the best odds and highest bonuses for customers are key factors when choosing the services of betting operators. Despite sponsoring and promotion restrictions for offshore providers Polish players are well aware of the alternatives to licensed onshore operators and are able to compare odds, returns and winnings using odds comparison websites. The method of the 12% turnover tax implementation 1 Illuminas, Online gambling survey [UK]
4
in Poland – directly subtracting 12% from player stakes and therefore decreasing the basis to which the odds are applied – results in much lower returns (the total amount back) and much lower winnings (the return less the stake) for the Polish consumer. For typical bets with odds of 1.60, 2.00 and 4.00, the winnings on not locally licensed (.com) sites will be 47%, 32% and 19% better than on locally licensed sites. Specific examples of this are given in Section 3. This very large difference in the possible winnings is a major factor for consumers who are predominantly looking for value. Furthermore, offshore providers fare better on a number of important factors related to the ease of usage of the website, such as registering and money depositing. On July 17, 2016 the Council of Ministers proposed and channeled to the Polish Parlament an Amendment to The Gambling Act, which planned to come in force in January 2017. Regarding online betting the amendment maintains the turnoverbased taxation with the tax rate of 12%. It does however propose the introduction of blocking access to non-licensed operators websites by internet service providers, as well as banning payment service providers from offering their services on blacklisted websites. Additionally, online betting operators will be required to publish responsible gambling rules meeting the requirements set forth in the new law. The Government intends to accomplish the three following goals through the amendment: •
Reduce the size of grey zone, by eventually capturing up to 60% of the offshore market by onshore, licensed operators;
•
Increase player protection through the implementation of responsible gambling rules;
•
Increase tax revenue as a result of higher channeling i.e. a greater share of betting turnover through onshore / locally licensed operators.
We find these objectives broadly in line with the objectives of other EU member states when regulating their online betting markets. However, an
Regulation of online betting market in Poland
analysis of selected examples of European markets and regulations shows that the means envisaged in the Amendment may be inadequate and that the Government may run the risk of not achieving the specified targets. The proposed blocking of offshore operator webpages is viewed as largely ineffective (as there are multiple means to circumvent the blockade) as well as labor intensive for the regulator (as it involves manual search of offshore websites to be included on the so called “black list”). Italy serves as an example that DNS blocking can be relatively easily bypassed by players by applying some fairly simple adjustments to their computer systems. What is more, offshore operators are able to rename their betting sites within minutes after the “black list” is made public by the regulator, while banners and links to the sites are also updated live. More general concern is that blocking also impinges on fundamental idea of the Internet freedom. Multiple countries have considered blocking measures, related to both access to websites and payments. Some, like the Netherlands, decided not to introduce blocking into the law at all, others introduced it but never implemented (e.g. payment blocking in Germany). Those regulators that introduced blocking admit that it fell short of expected results (e.g. Norway) and achieved channeling rates no greater than 60% (e.g. France, which started with 40% GGR channeling before the implementation). Importantly, the c. 95% channeling rate in the UK has been achieved without any IP and only limited payment blocking and the c. 90% channeling rate
in Denmark has been achieved with no payment blocking and very limited need for webpage blocking. These very high channeling rates have been achieved because those regimes provide a sufficiently attractive environment for the player i.e. a GGR tax on the operator rather than a turnover tax on the consumer, and no other restrictions for the player apart from measures aimed at safeguarding high level of customer protection and responsible gambling. Furthermore, examples of countries like the UK and Denmark (as well as the Czech Republic in the CEE region) indicate that fundamentally changing the approach to regulations towards a more liberal but controlled system can both encourage fast growth of the online betting market leading to higher tax income and contribute to higher channeling and thus greater player protection (as players are betting on locally licensed sites). In fact, applying alternative (more liberal) regulatory approaches can potentially contribute to overachieving the goals indicated by the Council of Ministers in a justification for the Amendment. Taking the example of Denmark, which in 2012 introduced regulations creating an attractive market from player’s perspective (including GGR-based taxation and open licensing program for betting operators), channeling rates of c. 90% and much higher market development (based on GGR per adult), can be achieved, while still maintaining the required level of player protection (e.g. introduction of national self-exclusion system, which is not yet considered in Poland).
Figure 1 Overview of online betting markets in Poland, France and Denmark Poland
France
Denmark
Regulatory regime
Turnover tax
Turnover tax
GGR tax
GGR channelling rate
30%
60%
90%
Responsible gambling measures
Responsible gambling rules
Responsible gambling rules, national self-exclusion system
Responsible gambling rules, national self-exclusion system
GGR, 2015 [EUR m]
83.2
781.0
192.5
GGR per adult, 2015 [EUR]
2.5
14.7
41.9
Betting tax, 2015 [EUR m]
11.2
206.0
34.7
Betting tax per adult, 2015 [EUR]
0.3
3.9
7.5
Source: Roland Berger analysis 5
Regulation of online betting market in Poland
In simple terms, the Danish model (confirmed also by examples of the UK and other countries) not only makes it possible to achieve a 90% channeling rate and a much higher level of tax revenue than in Poland now, but also its success with those factors (achieved largely without blocking) greatly exceeds the results anticipated from implementation of the Amendment to the Gambling Act in Poland. In order to illustrate that those alternative regulatory approaches should be seriously considered by Polish Government we have modeled 3 online betting market scenarios for Poland that reflect the impact of current policies (assuming no change in regulation), proposed new regulatory measures (assuming changes proposed in the Amendment) as well as the controlled liberalization (based on the experience of Denmark) on the market size, channeling ratio, tax income as well as benefits for sports organizations. Key scenario assumptions and outcomes are presented in Figure 2 below. As we can see the proposed new measures (Scenario 2) will indeed contribute to a better achievement of the Government’s goals as compared to the current policies (Scenario 1). However, results of the modeling clearly show that introducing controlled liberalization (Scenario 3), e.g. based on the Danish experience, would be a superior option resulting in:
•
faster market development as illustrated by GGR per adult in 2025 of PLN 60 as compared to PLN 22 in Scenario 2 due to broad accessibility to a competitive offer of licensed betting operators
•
higher channeling rate of up to 90% as compared to up to 56% in Scenario 2 (GGR based) due to an incentive for operators to license on the Polish market by enabling them to offer players internationally competitive odds and winnings under Polish regulations
•
greater player protection as a result of a higher proportion of players betting on locally licensed and regulated sites (90% as compared to up to 56% in Scenario 2) as well as responsible gambling regulations
•
greater tax take due to a bigger market size and higher channeling rate over-proportionately increasing the taxable base, (PLN 361 m in 2025 compared to PLN 178 m in Scenario 2)
•
greater benefits for sports due to larger GGR generated onshore, portion of which would be available for sponsoring and promotional activities
Figure 2 Key assumptions and results of scenarios for the Polish online betting market Assumptions
Results
GGR per adult [PLN]
GGR channeling rate [%]
Tax revenues, yearly [PLN m]
Sponsoring revenues of sport organizations, yearly [PLN m]
Offshore Tax regime blocking
Licensing Benchmark policy country 2020 2025 2020 2025 2020 2025 2020 2025
Scenario 1 Current policy
12% turnover tax
No
As-is
18
22
33%
32% 87
106
7
9
Scenario 2 Restrictive approach
12% turnover tax
Yes
As-is
17
22
54%
56% 131
178
11
15
Scenario 3 Controlled liberalization
20% GGR tax
Yes
Open
37
60
88% 90% 217
361
60
99
Source: Roland Berger 6
Regulation of online betting market in Poland
2
Introduction to online betting 2.1 Online betting as part of the gambling market Overview of online betting Betting can be defined as placing money on the result of a sporting event such as a football match or a horse race. Together with gaming (e.g. casino games, slots, poker) and lotteries (e.g. lotto, keno, bingo) betting is one of the three key types of gambling – an activity that involves placing money on an event with an uncertain outcome with a goal of winning additional money. The betting market can be distinguished depending on where and how the bet is placed with the broad distinctions being land-based (offline) betting and online betting. Land-based betting uses brick and mortar points and shops that offer betting services, including making deposits and receiving payouts. Online betting involves rendering services by means of electronic access via the Internet, mobile devices or interactive TV. Online betting is primarily available via webpages and more recently through mobile applications that give access to a player account and offer similar features as a website. Gambling markets globally are increasingly being transformed by the ongoing expansion of the online channel. Online gambling has been developing rapidly, supported by increased access to the Internet and new technologies, fast payment systems allowing for rapid processing of deposits and payouts as well as an increased offering and innovation of online betting services. In the UK, a relatively mature market, where 73% of the adult population participated in some form of gambling (including the lottery) in the previous year, online gambling accounted for 41% of the total market in 20152 with a major proportion of the online revenue and tax coming from the betting segment. Providers of online betting services Two types of online betting providers can be broadly
distinguished: locally licensed (onshore) and not locally licensed (offshore) operators. Onshore betting refers to betting services offered by operators licensed in a particular country such as Poland, while offshore betting refers to betting services provided by providers operating under licenses provided by other jurisdictions. Onshore operators typically pay taxes and other fees on what is called a “point of consumption” basis i.e. pay the Polish State for bets placed by Polish customers. Offshore providers, who are not locally licensed, do not normally pay these local fees and taxes but do usually pay fees and taxes to their offshore jurisdiction. When a country changes its legislation and gambling regulation, the offshore providers are faced with a decision as to whether to apply for a local license or not. From our research and interviews the key factors that those providers take into consideration are: •
What products can be licensed. Operators prefer to be able to offer the complete range of gambling products i.e. gaming as well as betting, but the major betting operators are most focused on that product.
•
What the tax rates are. Operators are greatly attracted to a GGR tax at a reasonable level (e.g. the 15% in the UK or the 20% in Denmark). This may seem counter-intuitive as the GGR tax is a tax on the operator unlike a turnover tax which in Poland is a tax on the consumer. However the operators know that when they become locally licensed any turnover tax rate (especially at the level of 12%) will make their offering very much less competitive and they run the risk of their existing customers leaving them and transferring to other offshore operators.
•
Whether or not there is a transition period
2 UK Gambling Commission, 2015
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Regulation of online betting market in Poland
between the new legislation passing and requirement to obtain a license. For reasons of practicality typically 6-12 months are needed to facilitate the transition to new regime, depending on the speed of the licensing process, the clarity of the rules and the attitude of the regulator. Economic benefits and social challenges Online betting, as part of a wider gambling market, has the potential to generate substantial economic benefits to the State and other stakeholders such as sporting clubs and the media. The scale of an overall benefit varies across countries depending on the gambling traditions, market maturity as well as gambling regulations. The most important benefits of online betting are as follows: •
•
•
Additional industry revenue and employment generated directly by providers of online betting services; State budget income from online gambling taxation and operator license fees, regular corporate income tax paid by operators (where applicable) as well as benefits (e.g. subsidies for NGO organizations, sport organizations) of further fund distribution by the State; Marketing revenue generated by operators through substantial promotional outlays across the various media;
•
Sponsoring outlays by operators, which frequently support various sports and disciplines, in particular football teams.
Although gambling has become widely accepted as a recreational activity a portion of players may display problem behavior. In general, the risk of becoming addicted to gambling is assessed as low compared to other potentially addictive activities. Among gambling activities betting is considered the least addictive compared to other forms. Proportion of addicted gamblers vary across the countries, nevertheless, studies show that the rate of problem gamblers typically amounts to 0.2%-3.0%3. For example, the most recent UK gambler study from 2014 found the share of problem gamblers to be 0.9%. For those individuals a gambling addiction can cause a number of potentially harmful consequences4: •
Material (e.g. financial losses, indebtedness, bankruptcy, stealing, loss of employment);
•
Social (e.g. family breakdown, social isolation);
•
Health (e.g. addiction to playing, emotional burnout and fatigue, depression, suicide);
•
Emotional (e.g. addiction to extreme emotions).
Studies conducted in different countries also suggest that problem gambling among adolescents tends to be significantly higher than among adults.
2.2 Regulatory and taxation regimes The main objectives for gambling regulations in general and online betting in particular include: protection of players against adverse consequences of gambling, creation of additional stream of budgetary inflows from gambling taxation and prevention of criminal activities such as fraud and money laundering. Regulatory regimes A broad spectrum of approaches can be implemented in order to regulate the online gambling market. The Government and the regulators generally decide on what level of channeling they want and how to best
achieve it, what the permitted range of gambling services is and what other measures are necessary i.e. in terms of allowed advertising and promotion. Regulators can also determine whether they want certain products (e.g. the lottery) to remain the province of the State Monopoly. Online gambling regulatory regimes can generally be categorized into controlled liberal regimes and restrictive ones. The controlled liberal regulatory regimes are generally based on the belief the best way of channeling consumers into locally licensed sites is to make the locally licensed offerings sufficiently
3 ALICE RAP Policy Paper Series Policy Brief 2, Gambling - two sides of the same coin: recreational activity and public health problem, 2013 4 CBOS report on pathological gambling (Oszacowanie rozpowszechnienia oraz identyfikacja czynników ryzyka i czynników chroniących w odniesieniu do hazardu, w tym hazardu problemowego (patologicznego) oraz innych uzależnień behawioralnych), 2012
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Regulation of online betting market in Poland
attractive i.e. competitive betting winnings, such that consumers are not motivated to look for alternatives offshore. In this scenario, offshore operators (though only those with the necessary probity, financial resources and experience) are encouraged to apply for a license. This is the case in Western European countries like the UK, Denmark, Spain, Italy, Ireland and in CEE countries like the Czech Republic, Romania and Bulgaria. Generally, these countries either do not have blocking measures at all or use them very rarely as they are not necessary to achieve regulatory goals. These more liberal regimes tend to allow for a wider set of gambling services to be provided online and allow controlled sponsoring, promotional and marketing activities. This approach tends to create attractive market conditions from players’ perspective resulting in more licensed providers, a larger market size and a faster albeit controlled growth of demand. These factors translate into increased market attractiveness for operators, encouraging them to operate under local regulations (licensing) and contribute significant budgetary inflows to the State through gambling taxation. Intense competition among operators also leads to greater innovation and level of customer service and satisfaction. Restrictive regulatory regimes can have either a form of a state monopoly that only allows state-owned companies to offer all or some gambling services or a full prohibition of gambling. Most restrictive regimes do however allow private companies to become licensed in certain sectors i.e. as with the betting sector in Poland. Restrictive regimes take a different approach to how to achieve the channeling goal. They focus on restricting operator supply through measures such as obliging telecommunication providers to block access to websites that belong to offshore operators or restrict payments providers’ servicing offshore operators. The range of gambling services allowed to be provided online tends to be narrower under restrictive regimes. Some regulators prohibit individual types of online games due to the perceived potential higher risk of consumer addiction and harmful effects. The restrictive regimes are less focused on making the locally licensed products attractive to the consumer. The restrictive approach argues that stricter control may to a greater degree mitigate the risk of social
harm (addictions, fraud etc.), however this only applies on locally licensed sites. As they tend to be less attractive from the players’ point of view, they usually result in a significantly lower market size and growth rates as well as contribute to a continued and large ‘grey zone’ due to a more competitive and innovative offer of offshore operators. Therefore, restrictive regimes may potentially lead to significantly lower budgetary inflows from the gambling tax. Taxation regimes The type and level of taxation significantly influence the size of the online betting market and is one of the important drivers of the market growth and structure, including the rate of channeling. Its level also impacts behavior of both customers and operators as the tax level directly bears on the price of gambling. The price of gambling is a transactional cost paid by customers composed of an operator’s cost, margin and amount of governmental fees (including a tax) paid. Therefore, it can be concluded that an increase of taxation will, to same extent, directly impact the price of gambling and decrease the size of the market, defined as a total amount of monies gambled. Reversely, a decrease of taxation increases a market size. Moreover, a reduction of taxes can be partially captured by operators as additional profit, not entirely transferred to customers, and simultaneously increase attractiveness of a market for operators, both in terms of profits and barriers to entry. Most importantly, it is not only the level of the tax but the structure of the tax that influences behavior. A wide range of taxation schemes can be applied by regulators and fiscal authorities both in terms of what is taxed and the level of taxation. Both impact the level of potential tax income. The most common approaches applied include: •
A tax on stakes (or turnover tax), i.e. total amount of monies gambled. A tax on stakes is considered as commodity tax (levied as a proportion of the stakes). The burden of the tax is borne by the player5 as it impacts on the value a player gets from a bet. Three schemes are commonly applied – either the tax reduces a player’s actual stake on a bet (e.g. Poland), it is applied on a player’s return (in Germany), or it is paid from setting different (and much less attractive) odds (as in France).
5 In some countries (e.g. Italy) turnover tax is paid by an operator and not a customer (e.g. historically in Italy before introduction of GGR-based taxation), however, market practices show that operators transfer the tax burden to the customer in the form of worse odds or reduced bonuses.
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Regulation of online betting market in Poland
•
A tax on gross gaming revenue (GGR), which is defined as stakes less returns. A tax on GGR is considered as a more justified one, unlike turnover tax, it is based on the actual revenue of the operators. Various analysis indicate an optimal rate of GGR tax to be around 20%.
Figure 3 Calculation of tax on stakes (turnover) and tax on GGR
Turnover
Tax
tax
Stakes
Stakes that play
GGR tax
10
Returns
Tax
Stakes Source: Roland Berger
GGR
Stakes that play
GGR
Returns
Regulation of online betting market in Poland
3
Polish online betting market 3.1 Online betting regulations As of August 2016, gambling activities in Poland are regulated by The Gambling Act of November 19, 2009, amended on May 26, 2011 (hereinafter referred to as the “Act”). The Polish law definition of gambling games extends to games of chance, games on slot machines and betting. With the exception of betting, providing online gambling, as well as participating in it, is prohibited. Similarly to other games of chance, online betting is allowed for individuals over 18 years of age only. Operators require a license granted by the Polish Minister of Finance in order to offer online betting in Poland. Licensed operators have to offer online betting via an Internet website with a Polish top level domain (.pl) while all money transactions (online payments and payouts) between a player and an operator must be processed by a Polish bank, a Polish branch of a foreign bank or a credit institution conducting its activity through a branch or through a trans-border activity. The share capital of such a company must be at least PLN 2 m.
The costs of entering the online betting market in Poland include a fee for a license to provide betting services, a fee for a license to organize online betting, a fee per each webpage used for online betting and a security deposit. Locally based operators are also subject to a 19% corporate income tax. The provision of online betting is subject to a 12% tax on stakes (turnover tax), which is calculated as 12% of the sum of stakes placed by a player. The tax decreases the player’s stake before it is multiplied by the odds to give the final return and the winnings of the player as illustrated in Figure 4. In simple terms if a player places a bet of EUR 10, then 1.20 goes in tax and 8.80 is actually placed as the bet. Additionally, a player is obliged to pay a 10% income tax in case of a one-time winning of more than PLN 2,280 (EUR 544). The tax is deducted from the player’s return and transferred to the State by the operator.
Figure 4 Calculation scheme for establishing the tax, return and winnings in Poland
12% tax
Stake
odds
Actual stake on a bet
Return
Winning
Source: Roland Berger 11
Regulation of online betting market in Poland
As a rule, advertising and promotion of online betting is prohibited but the regulator allows for two exceptions: •
Advertisement of online betting on the website used to organize those online bets;
•
Publishing information about sponsorships of an entity by betting operators by showing operator’s name or other symbol associated with the operator.
Currently, all key betting operators have sponsoring contracts with football teams: Milenium (Zagłębie Lubin), STS (Lech Poznań and the Polish National
Football Representation), Fortuna (Legia Warsaw, Cracovia, GKS Katowice, TS Podbeskidzie), E-TOTO (Piast Gliwice), Totolotek (Lechia Gdańsk and Jagielonia Białystok). Polish citizens may be exposed to legal advertising and promotion activities of offshore operators in spite of them not actively targeting gamblers from Poland. Logos and banners of operators are visible e.g. during football matches broadcasted by Polish TV broadcasters and betting commercials are broadcasted on foreign-based stations available on Polish TV platforms.
3.2 Key market enablers and drivers 3.2.1 Market enablers A number of market enablers can potentially accelerate the long-term growth of the Polish online betting industry provided that regulatory framework does not impede their positive impact. Internet and smartphone penetration Over the last 10 years, there has been a constant increase in the number of Polish residents having access to the Internet. As of January 2015 Internet penetration was 67%, which is broadly in line with EU-27 average, while being still lower than in more mature markets such as the UK and Germany (both 89%)6. Similarly, smartphone penetration has been growing constantly among Poles. In May 2015, it stood at 58% as compared to the Western European7 average of 59%8. Confidence in online payments The confidence in online transactions is growing
in line with the market size of B2C e-commerce in Poland. The e-commerce market, which accounted for EUR 2.5 bn in 2009, reached EUR 6.2 bn in 20149, while the share of Poles purchasing online has grown from 20.2% in 2010 to 24.1% in 2015, according to the Central Statistical Office of Poland. Popularity and availability of sport events and TV broadcasts Both the popularity and availability of sports events and TV broadcasts is growing in Poland. For instance, the average number of stadiums visitors during Ekstraklasa matches increased from around 5.5 thousand for seasons ‘08/’09 and ‘09/’10 to ca. 8.3 thousand for seasons ‘13/’14 and ‘14/’1510. Also, the popularity of TV broadcasts has spiraled over last 4-5 years – from almost 4 million to 39 million of total number of TV viewers over a season between ‘11/’12 and ‘15/’16 seasons11.
6 Mobirank, National Internet penetration figures, January 2015, World Bank 7 Spain, UK, Netherlands, Portugal, Germany, France 8 TNS Polska, May 2015, World Newsmedia Network, Global Digital Media Trendbook, 2015 9 Gemius, 2014 10 Ekstraklasa reports, stadiony.net 11 Ekstraklasa reports; Canal+ was the only platform with TV broadcasts of Ekstraklasa matches until 2012 while matches in the ‘15/’16 season were available on both paid and open platforms (Canal+, NC+, TVP1)
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Regulation of online betting market in Poland
Betting tradition In Poland, the knowledge of betting remains modest and it is often not perceived as entertainment. However, in the long-term demographics should give a boost to the online betting market, as for example most online gamblers are aged 18-24 (60%
according to Central Statistical Office of Poland ICT survey 2012). Popularity of betting is also reflected in a number of land-based betting points. As of December 2014, 2,503 betting shops were available in Poland.
3.2.2 Market drivers Aside from general market enablers, the Polish betting market is significantly driven by a diverging approach to market regulations (e.g. level of taxation, operator licensing) and therefore a different competitive offering of onshore and offshore operators. In this respect, a competitive position can be defined as an ability to fulfill players’ needs and requirements. From the economic point of view, operators that are able to meet those needs in a better way than their peers gain a higher competitive position on a market.
A study of gambling players identified several key factors considered when choosing one online gambling operator over the other. These factors, which can be divided into financial and nonfinancial ones, as well as their importance are presented in Figure 5.
Figure 5 Summary of key factors impacting choice of online gambling site [%] 51%
The best odds 45%
Ease of use of depositing 40%
Special offers/ bonuses A brand recognition Ease of use of registering The range of sports Financial
38% 37% 36%
Non-financial
% who gave a score of 9 or 10 (very important) Source: Illuminas, Online gambling survey [UK] 13
Regulation of online betting market in Poland
From the financial perspective, the survey determined that players strongly prefer operators with better odds that also offer special offers and bonuses. Particularly on the Internet, players aided with odds comparison websites search for best offers12 (highest returns and winnings). Offshore operators are able to offer greater returns and winnings to Polish players primarily due to the negative effect of the 12% turnover gambling tax in Poland. The very significant difference on the winnings comparison between onshore and offshore operators’ sites is illustrated in Figure 6. Moreover, offshore operators typically work on lower margins, which allow them to offer additional bonuses in order to attract more players and stay competitive on largely deregulated international markets. To clearly illustrate the difference let’s firstly consider a bet placed on offshore site, where the player stakes EUR 10 on Poland winning with Northern Ireland in their Euro 2016 game. Polish football team was a favorite in this match, therefore the odds of Poland winning were set at 1.60. When Poland won 1-0, the players’ “return” (what they got back from the bet including their EUR 10 stake) was EUR 16.00 (EUR 10 stake multiplied by 1.60 odds). Their winnings
(what they ultimately earned from the bet) was EUR 6 (EUR 16 return less EUR 10 stake). In a 12% turnover tax environment, the calculation is different. The player still stakes the EUR 10 but EUR 1.20 is automatically taken away from that amount as the turnover tax. The player’s actual bet is therefore EUR 8.80. Assuming that the odds of 1.60 are the same on the Polish site, the return is EUR 14.08 (EUR 8.80 actual stake multiplied by 1.60 odds. Their winnings are EUR 4.08 (EUR 14.08 return less EUR 10 stake). Put simply, if a Polish consumer bet EUR 10 on Poland to win on a Polish licensed site they would win 4.08 and if they bet the same amount on a .com offshore site they would win EUR 6.00, some 47.06% more. This difference clearly explains the consumer’s motivation. If the odds are bigger than 1.60 then, as per Figure 6 below, the difference is less significant. If the odds are shorter (less) than 1.60 then the difference is even more significant. Bets with odds of less than 1.12 cannot be placed at all as even if your selection won the player would get back less than they put in.
Figure 6 Comparison of winnings of Polish players on onshore and offshore sites
Player's stake
Winnings with different odds 1.60
2.00
4.00
EUR 10.00
4.08
7.60
25.20
EUR 10.00
6.00
10.00
30.00
1.92 47.06%
2.40 31.58%
4.80 19.05%
Onshore (.pl)
Offshore (.com)
Offshore better by
[EUR] [%]
Source: Roland Berger
12 Kursy1x2.pl, wybierzkurs.pl
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Regulation of online betting market in Poland
Offshore operators are consistently able to offer similar level of odds and therefore much higher winnings than onshore operators. Figure 7 presents an example of winnings on a bet on Legia Warszawa in their home match against Dundalk on August 23rd, 2016 as offered by both types of operators. Although the 12% turnover tax is not born by the locally licensed Polish operators but by the players, the locally licensed operators are, we believe,
very conscious of this disparity in returns and winnings and have on occasion tried to mitigate it through short term measures. In a “match of the day” campaign recently, one operator offered new players betting on Legia Warszawa’s away match vs FC Dundalk on August 17th 2016 higher odds than those offered to already registered players (2.15 vs 1.90) effectively making the potential winnings competitive compared to those at offshore operators’ sites.
Figure 7 Example of range of odds and winnings as advertised by onshore and offshore operators for Legia Warszawa vs FC Dundalk on August 23rd Range of winnings [EUR] Range of odds (stake EUR 10) Onshore (.pl) – examples
1.40-1.52
2.76-3.38
1.44-1.46
4.40-4.60
Offshore (.com) – examples
Source: Betting operator websites
In terms of non-financial factors illustrated by the study, some offshore operators offer a wider range of online gambling services (e.g. including casino games), making their offer more comprehensive and attractive to Polish players. Furthermore, offshore operators tend to offer a higher level of service in terms of ease of registering (e.g. time to open an
account) and ease of money depositing (e.g. range of payment options available) as compared to Polish onshore operators, both due to their offer being targeted to a wide audience at competitive markets across Europe and due to fewer legal restrictions that are otherwise attached to the Polish license e.g. regarding payments processing.
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Regulation of online betting market in Poland
3.3 Market development The total betting market in Poland (both onshore and offshore) was estimated at PLN 348 m in gross gambling revenue (GGR) in 2015. The market of both
onshore and offshore operators has been growing with an annual rate of 28% between 2012 and 2015.
Figure 8 Historical development of the Polish online betting market (onshore and offshore) – Gross Gambling Revenue, 2007-2016e [PLN m] 443
CAGR: +28%
348
265 206
78
107
129
136
2010
2011
163
29
2007
2008
2009
2012
2013
2014
2015
2016e
Source: Roland Berger analysis based on operators’ reports, industry expert interviews, H2GC
Despite a constant growth of the market, Poland presents a lower GGR per adult value than the EU benchmark countries. GGR per adult stands at EUR 2.6 which is considerably lower than on more mature markets such as the UK, France or Germany
13 UK, France, Denmark
16
and even the CEE countries, such as the Czech Republic. The European benchmark13 countries present a range of EUR 14.7-41.9 of GGR per adult, including countries with the turnover tax such as France (GGR per adult of EUR 14.7).
Regulation of online betting market in Poland
Figure 9 Estimated structure of the Polish betting market – GGR, turnover and tax, 2015 [PLN m] Share of onshore players [%]
30%
10% 3,860 3,470
348 Offshore
243
Onshore
105
GGR
390
Tax paid to the State by online operators
Turnover (sum of stakes)
47
Tax
Source: Roland Berger analysis based on operators’ reports, industry expert interviews, H2GC
The structure of the Polish betting market changes frequently. Players tend to switch between operators depending on the competitiveness of an offer – odds and promotions (including bonuses offered to players). The market is dominated by offshore operators with 90% of the market in turnover and 70% in GGR. In total, more than 15 offshore betting operators can be identified providing betting and other gambling services in the Polish language. The largest operators in the market appear to be Paddy Power Betfair, Bet-at-home, Betclic, Bet365, Bwin and Expekt. Majority of offshore operators provide a wide range of gambling activities (sport betting, poker, casino) but simultaneously they tend to focus on sport betting.
Onshore operators have only 10% of the market in terms of turnover and 30% of GGR. As of August 2016, 6 out of 7 licensed operators were active in the online betting market: Milenium, STS, Totolotek, Fortuna, E-TOTO and ForBet. As a result, Poland with 30% of channeling based on GGR has a significantly lower channeling rate than EU benchmarks both in the countries with GGRbased taxation and a turnover-based tax. Liberalized and competitive markets reach channeling levels of 90-95% (e.g. the UK, Denmark), while even countries with restrictive regulations and turnover-based taxation boast rates of above 50% (e.g. France).
17
Regulation of online betting market in Poland
Figure 10 Comparison of GGR channeling rates in Poland and selected EU countries, 2015 [%] 100%
95%
90%
90%
80%
75%
70%
60%
60% 50% 40% 30%
30%
20% 10% 0%
Poland
Benchmarks with GGR tax
Benchmarks with turnover tax
Source: Roland Berger analysis based on H2GC, available regulator data and industry expert interviews
3.4 Regulatory changes proposed in the Amendment to the Gambling Act In July 2016, the Council of Ministers submitted an Amendment to the Polish Gambling Act. The objectives of this amendment as declared by the Government are to: •
reduce the scale of the “grey market”;
•
provide a high level of consumer protection against the effects of gambling;
•
increase the tax revenue.
The key changes relevant for the online betting market include: •
blocking of websites of not locally licensed gambling operators by internet service providers;
•
blocking of payments on sites of not locally licensed gambling operators by payment service operators;
•
introduction of responsible gaming regulations by operators to increase the protection of players from the negative effects of gambling.
18
The amendment also proposes changes to regulations of other gambling activities such as, among others, an extension of the portfolio of online gambling activities to casino games and lotteries, an introduction of state monopoly for online casino games and lotteries, as well as an introduction of higher sanctions for breaching gambling laws. The announcement does not change the current taxation regime based on a 12% turnover tax, which makes onshore sites uncompetitive in terms of winnings from the players’ point of view when compared to offshore sites. In order to analyze potential effects of the amendment as well as the effectiveness of the proposed changes in comparison to other approaches we will investigate examples of European countries with different legal and taxation regimes in order to test and recommend the most beneficial regulatory approach for Poland.
Regulation of online betting market in Poland
4
European online betting markets 4.1 Online gambling regulations in EU countries Although the EU has taken some action to set some unified standards in gambling markets, there is no sector-specific EU legislation for gambling services. In 2012, The European Commission adopted the Communication ‘Towards a comprehensive European framework on online gambling’ setting out an action plan to enhance clarity on gambling issues for the national authorities, operators, related industries and consumers14. EU member states are, in principle, free to set the objectives and measures of their policies on online gambling, including,
among others, tax regimes, permitted gambling activities, licensing requirements for operators and the blocking of illegal providers. However, they should ensure compliance of national laws with EU law, aim at protecting consumers, including vulnerable groups such as minors and those addicted to gambling, prevent and deter fraud and money-laundering as well as safeguard the integrity of sports. The different regulatory approaches in EU markets are summarized in a table below.
Figure 11 Overview of legislation concerning online gambling in the EU countries, 2016 Country (UE 28)
Permitted online gambling activities
Tax on online betting
Betting Online games
Turnover
Austria
✓
✓
Belgium
✓
✓
Bulgaria
✓
✓
Croatia
✓
✓
Cyprus
✓
x
Offshore blocking
GGR
2%
Number of GGR Comments Licensees channeling rates in online gambling15
No
N/A
N/A
11%
ISP + Payments
40+
High
20%
ISP
10
High
No
N/A
N/A
ISP
N/A
N/A
5% 13%
New law effective January 2014 – tax system changed from 15% on turnover to 20% on GGR No online betting licenses have been granted. Online games not permitted
14 COM(2012) 596 final 15 Low – 0-33%, Medium – 34-66%, High – 67-90%, Very high – above 90%
19
Regulation of online betting market in Poland
Country (UE 28)
20
Permitted online gambling activities
Tax on online betting
Betting Online games
Turnover
Offshore blocking
GGR
Number of GGR Comments Licensees channeling rates in online gambling
Czech Republic
✓
✓
23%
No
N/A
N/A
Denmark
✓
✓
20%
ISP + Payments
38
Very High
Estonia
✓
✓
5%
ISP + Payments
16
Medium to High
Finland
✓
✓
12%
No
N/A
N/A
Monopoly, no licenses for private operators issued
France
✓
✓
9.3%
ISP + Payments
16
Medium
Number of licenses dropped from 35 in 2010 to 16 in 2015
Germany
✓
x
5%
ISP + Payments
N/A
Medium
New regulations and turnover tax introduced in 2012
Greece
✓
✓
35%
ISP + Payments
24
Medium
Tax on GGR increased from 30% to 35% beginning 2016
Hungary
✓
✓
15%
ISP
N/A
N/A
Ireland
✓
✓
No
60
N/A
Italy
✓
✓
22%
ISP
100+
High
Latvia
✓
✓
10%
ISP + Payments
6
N/A
Lithuania
✓
✓
10%
ISP + Payments
6
N/A
New law came into force beginning 2016 – All games offered offline can be also offered online by operators, which have land-based establishments in the country. GGR tax introduced
Luxembourg
✓
✓
N/A
N/A
No
N/A
N/A
Monopoly, no licenses for private operators issued
Malta
✓
✓
0.5%
No
500+
N/A
1%
New law to be effective beginning 2017 – new tax rate of 23% on GGR for betting (20% before) GGR tax and offshore blocking introduced in 2012. Blocking largely unused
Tax form changed beginning 2016 – from 2-5% on turnover to 22% on GGR for betting
Regulation of online betting market in Poland
Country (UE 28)
Permitted online gambling activities
Tax on online betting
Betting Online games
Turnover
Netherlands
✓
✓
Poland
✓
x
Portugal
✓
✓
Romania
✓
✓
Slovakia
✓
x
Slovenia
✓
✓
Spain
✓
✓
Sweden
✓
✓
United Kingdom
✓
✓
Offshore blocking
Number of GGR Comments Licensees channeling rates in online gambling
GGR
29%
No
N/A
N/A
12%
No
4
Low
816%
ISP
2
Low
ISP + Payments
23
Medium to High
No
N/A
N/A
5%
ISP + Payments
N/A
N/A
25%
ISP + Payments
51
High
N/A
No
N/A
N/A
15%
No
200+
Very High
16% 5.5%
N/A
New law was approved by parliament in July 2016 and will be in force mid-2017 – tax to be lowered from 29% to 25% after three years of activity on the local market. Currently, online betting and gaming are not yet regulated New, higher tax rates for betting since 2015. Tax rate depends on the turnover New tax rate in place since 2015 Monopoly for online betting
Monopoly, no licenses for private operators issued. New regime under development
Source: Roland Berger analysis based on countries gambling authorities, expert interviews
The diverse regulatory frameworks for online gambling mean that some EU countries have established monopolistic regimes (e.g. Finland, Sweden16). An increasing number of EU countries, however, have established licensing systems that allow more than one operator to provide online gambling services on the market (e.g. the UK, Denmark, Estonia, Italy, Lithuania, Spain). Some EU countries prohibit the offering of certain online
gambling products, casino-type games in France and casino-type games, including poker, in Poland. Tax on online betting in 17 of the 28 EU countries where online betting by private operators is allowed is calculated based on GGR. The majority of EU countries that have revised their online gambling regimes have introduced tax regimes based on GGR: Bulgaria, Denmark, Lithuania, Czech Republic and
16 Sweden is currently considering changes to its regulatory regime
21
Regulation of online betting market in Poland
Italy. Italy moved from a turnover tax to a GGR tax quite recently with intent to increase their tax take and improve the channeling. We are not aware of any country that has moved from a revenue tax to a turnover tax. A number of EU countries have introduced regulations aimed at blocking access to the services of non-locally licensed operators. Regulations in 11 countries foresee both ISP and payments blocking, while 5 countries only allow for ISP blocking. 33% of the countries with turnover taxation can apply blocking as compared to 77% of the countries with GGR taxation. However, even where blocking is allowed, it is often not implemented (e.g. payments blocking in Denmark and historically in Italy) due to technical and legal difficulties, as well as limited efficiency. Some of the largest jurisdictions with highest channeling rates, e.g. the UK, do not have blocking at all.
EU member states further vary in terms of the number of licenses issued. The number of licenses is a result of a regulatory regime in place and is an indirect indication of market attractiveness for onshore operators and channeling rates. Countries with controlled liberal gambling regulatory systems, such as the UK and Italy, have a high number of licenses issued. In contrast, countries with restrictive regimes, for example Poland and Portugal, have a very limited number of licensed operators. For those countries where estimations are possible GGR channeling rates in online gambling vary considerably. Countries with GGR tax usually have medium to high channeling rates, whereas those with turnover tax have low to medium channeling rates.
4.2 Lessons learned from online gambling markets regulations in EU countries Effectiveness of offshore operator blocking Gambling regulators in many European countries have either considered introducing regulations to block access to websites of or payments to non-locally licensed offshore operators. Our analysis of both argumentation of various stakeholders regarding the introduction of blocking and actual examples of results achieved when blocking is introduced leads to a conclusion that such measures have limited impact on channeling customers toward locally licensed operators. Blocking access to offshore operators’ websites can be implemented using DNS filtering or IP blocking by Internet Service Providers. Both approaches have been considered or implemented by selected EU gambling markets. The Netherlands was planning ISP blocking through DNS filtering but after consultations and hearings decided not to implement the blocking measures. The Dutch Internet Provider Association pointed out that a suspended DNS can be replaced within minutes at a very low cost by an operator. Customer can easily use non-filtered DNS servers located in third countries by using a proxy abroad or by changing 22
DNS settings to get the requested content. Moreover, the association indicated that ISP blocking would require frequent update of the black list, which would entail substantial workload. This is in line with the experience of the Italian regulator after introduction of DNS filtering. Compiling updates of the black list involved a laborious process of manual search for new domain names of offshore operator sites. However, within hours of publishing an updated black list offshore operators changed their domain names rendering the whole process grossly ineffective. Similar arguments are applicable to IP blocking. European Association of European Internet Providers Associations argues that IP blocking is inefficient, as it can be bypassed by users through VPN tunnels. Moreover, in comparison to DNS filtering, when introduced it runs the risk of blocking other legally operating sites that share the same IP address and are not the actual target of blocking measures, making the whole procedure open to legal challenge. Experts also point out that blocking measures are against the fundamental idea of internet freedom
Regulation of online betting market in Poland
and may result in protests of internet users.
data, including MCC, German payment providers would not be able to distinguish between legal and illegal gambling activities. Collection of additional necessary data would most likely not be in line with the German data protection law. They also state that such measures to be successful require cooperation with many payment service providers, including foreign credit and financial services institutions, which are not subject to national laws. The success is then dependent on their willingness to cooperate.
Access to gambling services provided by offshore operators can also, theoretically, be blocked through hindering payments between an operator and a customer. Payment blocking can be performed through Merchant Category Codes (MCC) which are four-digit numbers assigned to a business (such as gambling operations) by MasterCard or VISA. However, according to the European Gaming and Betting Association, it is virtually impossible to block other popular electronic payment solutions (direct debit, e-wallets), as they do not bear an MCC code. Germany is an example of a country where payment blocking is allowed but not in use. German experts from Melchers Law and New Gaming Attorney point out that in the EU and German law there are no specific provisions on payment blocking in connection with gambling. They also state that based on currently collected
Norway is an example of a country where payment blocking was implemented but turned out to be inefficient. The Norwegian regulator concluded that payment blocking has been a lot less effective than originally hoped and targets have not been achieved. The multitude of payment solutions and gambling operators’ use of third-party payment solutions made it very difficult for banks to enforce the ban on transactions.
Figure 12 Estimated increase of online betting channeling in France and Denmark after introduction of new legislation (including blocking) [percentage points in subsequent years as compared to year before implementation] 56
55
49 42
15
19
20
9
Year of implementation France
One year after
Two years after Three years after
Denmark
Source: Roland Berger analysis based on H2GC, national regulator data and industry expert interviews
The example of France in comparison to Denmark illustrates that the effectiveness of blocking measures is rather limited when not accompanied by regulation that makes the market attractive for the players. France introduced ISP blocking in 2010
to try and force more players to the onshore market, which the players perceived as less attractive due to lower winnings than on offshore sites (as a result of the 9.3% turnover tax rate). As presented in Figure 13, two years after implementation of blocking, 23
Regulation of online betting market in Poland
channeling increased by 19 pp, though the blocking was not the only factor. Denmark also introduced the possibility of blocking into its new gambling legislation in 2012 (GGR based taxation, with 20% tax rate). However blocking measures were implemented to support a regulatory environment, which was designed to be attractive to overseas operators and, more importantly, an attractive market for players. As a result, already in the first year after the change in law, channeling improved by over 40 pp. This comparison shows that when blocking is not accompanying regulatory change to make the market more attractive for players, it is effective to a much more limited extent. It seems clear that many customers faced with an incentive of better odds and a broader catalogue of gambling services offered on offshore websites will indeed take actions to circumvent the blocking.
countries with turnover tax tends to choose offshore operators, as they offer higher odds and winnings. For this reason, private operators considering entering a market with turnover tax often decide not to apply for a local license as they would not be able to maintain a competitive offer for the local players. They choose to offer their services to local users from another country with a more competitive tax regime instead. In contrast, GGR taxation is considered attractive both by players and operators. Thus, the tax regime impacts the number of players using locally licensed websites and the number of operators generating GGR locally on a given market, which further translates into the observed channeling rate. Further factors that contribute to higher channeling include a broad portfolio of allowed online gambling services as well as lower tax rates.
Impact of taxation regime on channeling rate
The chart below shows GGR channeling rates for online betting in selected EU countries in relation to implemented taxation regimes (both in terms of what is taxed and how high the tax rate is). We included three countries with a turnover tax and three with a GGR tax where reliable data was obtained.
Tax regime can influence the market attractiveness both from players’ and operators’ perspectives. For players, tax regime has a direct impact on potential winnings from betting on a locally licensed platform compared to offshore platforms, which are usually taxed based on GGR. A larger proportion of players in
Figure 13 GGR channeling rates for online betting in relation to tax regimes in selected EU countries, 2015 [%]
Countries with turnover tax
Countries with GGR tax 90%
95%
75% GGR channeling rate for online betting
Turnover tax rate GGR tax rate
60% 47% 30%
Poland
Germany
France
12%
5%
9.3%
Spain
Denmark
United Kingdom
25%
20%
15%
Source: Roland Berger analysis based on H2GC, GamblingCompliance, national gambling regulators, industry expert interviews 24
Regulation of online betting market in Poland
The markets with turnover-based taxation have lower channeling rates than markets with GGR-based taxation. As discussed above the former markets are less attractive for the players, which results in them betting on offshore sites. Thus applying for a local license is less attractive for betting operators in the markets with turnover tax. The UK has the highest channeling rate and at the same time, it also has the lowest GGR tax rate out of the presented countries. A GGR tax, combined with a liberal gambling law, also attracted many operators to obtain a local license in Denmark, which resulted in the channeling rate of around 90% in 2015.
Impact of taxation regime on tax revenue A taxation regime also has an influence on tax revenue collected by the State. Applying a higher effective tax rate, especially that in a form of a turnover tax, does not necessarily generate higher taxation revenues. The examples show that a GGR tax, although usually effectively lower than a turnover tax, can result in a higher tax revenue for the State. The chart below shows four EU countries and their online betting tax revenue per adult, where reliable data availability was the key selection criteria.
Figure 14 Online betting tax revenue per adult in relation to tax regimes in selected EU countries, 2015 [EUR, %]
Countries with GGR tax GGR per adult [EUR]
41.9
40.3
Countries with turnover tax 14.7
2.5
7.5 5.7 Tax revenue per adult [EUR]
3.9
0.3 Denmark
United Kingdom
Turnover tax rate GGR tax rate
20%
France
Poland
9.3%
12%
15%
Source: Roland Berger analysis based on national regulator data (Spillemyndigheden, UK Gambling Commission, ARJEL), local operators’ information, H2GC, industry expert interviews
Countries with a GGR tax, as exemplified by Denmark and the UK, can have a higher or similar online betting tax revenue per adult to countries with a turnover tax (as shown here by France and Poland). As already described, a tax regime has an influence on attractiveness of the market as perceived by players, which is usually reflected in both an overall betting market size as well as the number of operators generating turnover and GGR
locally. A higher local turnover and GGR may result in a higher taxation base and although the actual tax rates are lower in countries with a GGR tax, tax revenues in these countries can be higher.
25
Regulation of online betting market in Poland
5
Polish market development scenarios 5.1 Scenarios for the Polish online betting market Having analyzed international experience within offshore operators blocking as well as the impact of taxation regimes on channeling rates and taxation revenues, we will apply the lessons learned to three development scenarios of the Polish online betting market. The aim of the scenario forecasting is to show how different regulatory frameworks might contribute to key objectives of the Amendment to the Gambling Act, namely a reduction of the grey market, better consumer protection and higher tax revenues. On top of that, we are going to present the effect of simulated market developments on sponsoring revenues for sport organizations in Poland. We developed a model simulating three market scenarios up to 2025, each based on different assumptions for the regulatory framework in Poland. Figure 15 summarizes the key assumptions for each scenario. In the Current policy scenario (Scenario 1), we estimate the market development assuming the status quo in regulations (i.e. no legal changes related to online betting). The main objective is to present how the Polish market might develop in the reference case. The second Restrictive regulatory approach scenario examines the impact of provisions connected with offshore blocking proposed in the Amendment to the Act. The key assumption in this scenario is that access to offshore providers’ websites can be, at least to some extent, blocked by Internet Service Providers (ISPs). To estimate effectiveness of blocking, calculations are based on data from the French market. Both the tax regime and the tax rate remain unchanged at the level of 12% of turnover. The last Controlled liberalization scenario shows the impact of changing the taxation regime and rate – from current 12% on turnover to 20% on GGR. Certain estimations in this scenario 26
are based on the data from the Danish market. Offshore blocking is still assumed even though such measures would largely be unnecessary. For each scenario legal changes are assumed to be in place as of January 1, 2017. We further assume, based on international benchmarks, that sponsoring revenues of sport organizations are approximately 25% of the whole marketing spending of gambling operators, who allocate about 25-30% of the GGR (after tax) to marketing. The sponsoring revenue of sport organization presented in the scenarios is a proportion of the total revenue financed from online betting GGR and should not be seen as the total sponsoring revenue. Impact of scenarios on Corporate Income Tax (CIT) paid by operators is not analyzed in detail, as its value in relation to gambling tax is disproportionately low and it does not fundamentally differ in Scenarios 2 and 3.
Regulation of online betting market in Poland
Figure 15 Key assumptions of Polish online betting market scenarios Tax regime Scenario 1 Current policy Scenario 2 Restrictive approach Scenario 3 Controlled liberalization
Offshore blocking
12%
turnover tax
No
12%
turnover tax
Yes
20%
GGR tax
Yes
Licensing policy
Benchmark country
As-is
As-is
Open
Source: Roland Berger
5.1.1 Scenario 1, Current policy – Description and modeling results The aim of the Current policy scenario is to show how the online betting market might develop in the future, if no legal changes were implemented. The scenario also provides a baseline, which other scenarios can be compared to in order to calculate the benefits resulting from changes in regulations. The tax regime and tax rate in this scenario remain unchanged (i.e. 12% turnover tax). Current requirements apply to the licensing of operators. No offshore blocking is assumed. GGR margin of offshore operators is typically at 7%, which is an average margin for a sample of international operators. Onshore operators in Poland have an estimated GGR margin of 27% (includes turnover tax of 12 pp, based on publicly available data from listed operators). Due to lack of major regulatory changes and market adjustments we assume both margins to remain constant in the simulation period. Both onshore and offshore markets growth (as applied to both turnover and GGR) in 2016 is projected at double digit rates comparable to previous year’s results, where onshore market
develops somewhat faster as evidenced by the available data. In further years the overall growth slows down as the effect of market opening in 2011 diminish and the market gradually matures in the proposed regulatory context. A higher growth rate of the offshore market in the long-term, when compared to the onshore one, can be expected due to lower asymmetry of information in maturing markets enabling an increasing number of players to find more attractive betting alternatives provided by offshore operators. The key outcome of the modeling is a moderate market size increase (on average 7.8% annually, measured in both turnover and GGR) combined with low and relatively stable channeling rates of 10-12% and 30-33% calculated for turnover and GGR respectively, as illustrated in Figure 16. The channeling rate calculated on a GGR base is higher compared to the turnover channeling rate due to a higher GGR margin of the onshore operators compared to the offshore providers.
27
Regulation of online betting market in Poland
Figure 16 Scenario 1 – Forecasted onshore and offshore online betting turnover and GGR in Poland, 20152025 [PLN m] Turnover development
GGR development CAGR 2015-2025
CAGR 2015-2025
5,486
5,925
6,215
6,518
6,837
7,111
7,395
7,691
7,998
7.6%
508
3,860 89%
89% 89% 89% 89% 89% 89% 89% 89%
7.4%
7.4%
32% 32% 32% 33% 33% 33% 32% 32% 33% 33%
8.5%
348
67%
67%
67%
67%
68%
68%
68%
68%
70%
11% 11% 11% 11% 11% 10% 11% 11% 11% 11% 11%
8.5%
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Onshore
Source: Roland Berger
The tax revenue from online betting is projected to increase gradually along with the development of onshore GGR, resulting in a cumulative figure of PLN 0.93 bn for the years 2015-2025. Tax revenue per adult increases to PLN 2.6 in 2020 and PLN 3.2 in 2025, while the cumulative sponsoring revenues for sport organizations from online betting in the years 2015-2025 reach PLN 80 m, as illustrated in Figure 17.
28
655
708
7.8%
68%
67%
90%
Offshore
574
629
443
4,803
89%
549
601
681
736
30%
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Regulation of online betting market in Poland
Figure 17 Scenario 1 – Forecasted tax and sponsoring revenues from online betting in Poland, 2015-2025 [PLN m] Tax revenues 1.4
1.9
2.2
74
Sponsoring revenues 2.4
80
2.5
84
2.6
87
2.7
90
2.8
94
3.0
98
3.1
102
3.2
Cumulative tax CAGR revenue 2015-2025
Cumulative sponsoring revenue
106
6
7
8
8
9
9
6
64 926
47
7
7
8
8.5%
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
4
80
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Tax revenue per adult [PLN]
Source: Roland Berger
5.1.2 Scenario 2, Restrictive regulatory approach – Description and modeling results The Restrictive regulatory approach scenario simulates the development of the Polish online betting market under the new law proposed in the Amendment to the Gambling Act. It assumes that the tax regime and tax rate remain at the current level (i.e. 12% on turnover) but blocking of offshore operators’ websites and restrictions for payment service providers are introduced. Similar to the Current policy scenario, a GGR margin of offshore operators is at the level of 7% and remains stable thorough the forecast period. The margin of onshore operators is also expected to be at current levels, as it is assumed that an extremely limited number of new operators will acquire a license and enter the Polish market, which may lead to higher competition and local operators tightening up the
margin. The overall turnover decline in 2017 is a result of players switching from offshore to onshore operators, where the same amount of money used for betting generates less turnover because proportionally less money is paid back to players onshore each time a bet is made. The offshore market (as measured by GGR) is projected to decline by -15% in 2017 and -5% in 2018 in accordance to the development of the French market in the first two years after the introduction of blocking. For the remainder of the forecast further growth is assumed. The onshore market in 2017 and 2018 is projected to double the current growth rates, as it is expected to capture some players’ stakes from blocked offshore operators and one or two more onshore operators will most probably receive licenses. After 2020 the 29
Regulation of online betting market in Poland
development of the onshore market stabilizes with similar growth rate compared to the offshore market. The GGR channeling rate is modelled to grow around 20 pp till 2018, which is comparable to the
French market results after the introduction of blocking. The offshore market declines, as some players transfer to other gambling service and some others move to online or offline licensed operators, increasing the onshore market.
Figure 18 Scenario 2 – Forecasted onshore and offshore online betting turnover and GGR in Poland, 20152025 [PLN m] Turnover development
GGR development CAGR 2015-2025
4,803
4,424 4,363 4,431
4,707
4,964
5,198
5,431
5,675
3,860
89% 82% 79% 77%
77%
76%
76%
76%
75%
5,930
75%
4.4%
443
2.5% 348
469
54%
70%
24% 24% 25% 25% 21% 23% 23% 24% 18% 10% 11%
548
581
614
645
678
712
7.4%
44%
2.5%
56% 56% 55% 55% 54% 54% 51% 54%
14.3%
489
49%
514
46%
46%
46%
45%
45%
44%
67%
90%
14.3%
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Offshore
CAGR 2015-2025
30%
33%
46%
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Onshore
Source: Roland Berger
The cumulative tax revenue from online betting in the years 2015-2025 in the Restrictive regulatory approach scenario is projected to reach PLN 1.37 bn and is by PLN 0.44 bn higher than in the Current policy scenario. Tax revenue per adult increases to
30
PLN 3.9 in 2020 and PLN 5.4 in 2025. The cumulative sponsoring revenues from online betting for sport organizations in the years 2015-2025 are PLN 117 m and are PLN 38 m higher compared to the Current policy scenario.
Regulation of online betting market in Poland
Figure 19 Scenario 2 – Forecasted tax and sponsoring revenues from online betting in Poland, 2015-2025 [PLN m] Tax revenues 1.4
1.9
2.9
Sponsoring revenues 3.3
3.7
122
3.9
131
4.2
140
4.5
150
4.8
159
5.1
168
5.4
Cumulative tax CAGR revenue 2015-2025
Cumulative sponsoring revenue
178
11
12
14
15
9
110 96
11
13
14
1,365
8
14.3%
117
6
64 4
47
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Tax revenue per adult [PLN]
Source: Roland Berger
5.1.3 Scenario 3, Controlled liberalization – Description and modeling results The Controlled liberalization scenario assumes that the Polish Government decides to follow the footsteps of Denmark and liberalize the market by introducing a GGR tax of 20% in place of the current 12% turnover tax and relaxing the licensing requirements for operators (e.g. a need to register corporate presence in Poland). Offshore blocking is implemented in the law to support the switch to onshore operators by limiting the access to not locally licensed websites when necessary. As in two previous scenarios, the GGR margin of offshore operators is at the level of 7% throughout the whole modeled period. The margin of onshore operators is expected to go down from 27% (including turnover tax at 12 pp) to around 10% (exluding turnover tax) in 2017 due to a higher competitive
pressure on the market resulting from offshore players deciding to acquire a license in Poland, as they see the new regulations as guaranteeing a level playing field for all market participants. The GGR margin goes down further in the following years as more offshore players receive a Polish license. The offshore market is projected to halve in 2017 compared to the year before and stagnate later with few players deciding to play offshore compared to onshore. It is expected that the onshore market will grow by 39 pp more in 2017 than in previous years, similar to the Danish market after the introduction of a GGR tax. In the subsequent years the growth slows down but the growth rate is likely to remain much higher than in the two previous scenarios, as the onshore market is attractive for both players and 31
Regulation of online betting market in Poland
operators. It is important to emphasize however that due to differences in disposable income and propensity to gamble the GGR per adult in Poland in 2025 only reaches only approximately 34% of the current GGR per adult in Denmark. Overall turnover and GGR grows dynamically in 2017 due to the fact that new users are attracted to play in the liberalized market with a wide range of licensed operators. The GGR channeling rate is supposed to reach 90% in the modeled period, i.e. the current levels from
liberal markets such as Denmark or the UK. The channeling rate on turnover could go up to 68% already in the first year after a GGR tax is introduced, as a result of players and operators moving to the onshore market. The total turnover and total GGR is also assumed to increase dynamically in 2017 in accordance with the Danish case.
Figure 20 Scenario 3 – Forecasted onshore and offshore online betting turnover and GGR in Poland, 20152025 [PLN m] Turnover development
GGR development CAGR 2015-2025
CAGR 2015-2025
20,789
19,612 13% 18,502 13% 16,642 13%
18.3%
1,997
-2.4%
1,778 1,596 10%
12,897 14%
1,229
10,897 16%
3,860 90%
4,803
32%
89% 68%
80%
82%
84%
86%
86%
87%
87%
87%
851 708 15%
46.8%
-2.4%
348
443
1,032 13%
90%
32.9%
25%
67% 75% 70%
85%
87%
11%
12%
88%
89%
90%
90%
90%
30% 33%
10% 11% 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Offshore
1,884 10% 10%
1,433 10%
14,975 14%
9,050 18% 7,829 20%
19.1%
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Onshore
Source: Roland Berger
The cumulative tax revenue from online betting in the years 2015-2025 in the Controlled liberalization scenario is projected to reach PLN 2.33 bn and is by PLN 0.96 bn higher than in the Restrictive regulatory approach scenario and by over PLN 1.40 bn higher than in the Current policy scenario. The tax revenue per adult reaches PLN 6.6 in 2020 and PLN 10.9 in 2025, which corresponds to the current rates in France or Spain. The cumulative sponsoring revenues for sport organizations from online betting in the years 2015-2025 reach PLN 0.62 bn 32
and are nearly 7 times higher than in the Restrictive regulatory approach scenario. This is due to the fact that a much higher volume of GGR is generated onshore compared to the Scenario 2.
Regulation of online betting market in Poland
Figure 21 Scenario 3 – Forecasted tax and sponsoring revenues from online betting in Poland, 2015-2025 [PLN m] Tax revenues 1.4
1.9
3.2
Sponsoring revenues 4.4
5.4
6.6
7.7
8.7
9.7 10.3 10.9
322
341
Cumulative CAGR tax revenue 2015-2025
Cumulative sponsoring revenue
361 88
71
256 60
217 2,326
49
22.7%
619
40
145 29
106 47
99
79
287
180
94
64 4
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
6
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Tax revenue per adult [PLN]
Source: Roland Berger
5.2 Conclusions from the scenario analysis Three simulated market development scenarios produce different results in terms of key objectives of the Amendment to the Gambling Act, i.e. a reduction of the grey market, better consumer protection and higher tax revenues. They also vary in terms of overall market development and sponsoring revenues which should be also seen as relevant considerations for the online betting market regulations in Poland. The Current policy scenario produces the worst results in all criteria and the main objective of the Polish regulator is not achieved. The channeling rate remains at a low level of 32-33%, which results in a low player protection, as the majority of them still plays on offshore sites. The second Restrictive regulatory approach scenario with blocking of offshore providers reflecting the measures proposed in the Amendment to the Gambling Act produces
better results. The channeling rate increases to 54-56% which is c. 23 pp higher than in the first scenario. Furthermore, cumulative tax revenues in years 2015-2025 are higher by PLN 0.44 bn and the sponsoring revenues are higher by PLN 38 m compared to the Current policy scenario. However, the last Controlled liberalization scenario turns out to be superior to the two previous ones in all aspects. In this scenario, the vast majority of players (up to 90%) would use licensed providers, resulting in the elimination of almost the entire grey zone and thus better customer protection. The cumulative tax revenues for the years 2015-2025 reach PLN 2.3 bn which is PLN 1.4 bn more than in the first scenario. The market grows fastest out of all the scenarios with GGR per adult reaching PLN 60 in 2025 (comparable to current figures for France) due to the fact that market conditions are attractive both 33
Regulation of online betting market in Poland
for the players and operators. On top of that, the cumulated sponsoring revenues from online betting of sport organizations amount to nearly PLN 0.62 bn, i.e. PLN 0.54 bn more than in the first scenario.
This would positively contribute to the condition and competitive situation of the Polish sport.
Figure 22 Results of scenarios for the online betting market in Poland
GGR per adult [PLN]
GGR channeling rate [%]
Tax revenues, yearly [PLN m]
Sponsoring revenues of sport organizations, yearly [PLN m]
2020
2025
2020
2025
2020
2025
2020
2025
Scenario 1 Current policy
18
22
33%
32%
87
106
7
9
Scenario 2 Restrictive approach
17
22
54%
56%
131
178
11
15
Scenario 3 Controlled liberalization
37
60
88%
90%
217
361
60
99
Source: Roland Berger
Modeling results indicate that the Controlled liberalization scenario with a 20% GGR tax, selective offshore blocking and viable licensing criteria is most suitable one to fulfill and exceed the objectives of the Polish Government. As presented in the report, such tax and regulatory environments already successfully function in a range of other countries (e.g. Denmark and the UK) and indeed produce similar results to these shown
34
in our third scenario. In contrast, jurisdictions that have imposed a turnover-based tax such as that in our second scenario (Restrictive approach) channel fewer customers into the locally licensed market, provide less protections for consumers and raise significantly lower tax revenues for their governments than those where the basis of the tax is GGR.
Regulation of online betting market in Poland
Glossary In this study, a number of terms were used for which the following definitions should be assumed:
Term
Description
Betting
Activity of placing money on the result of an event, sports competition or horse race
Channeling
The proportion of the local online market that is locally regulated (and therefore locally taxed)
Gambling
Activity Placing money on the outcome of an uncertain event (includes sports betting and other gambling activities)
GGR tax
Tax calculated with tax rate in relation to GGR
Grey zone
Online or offline gambling activity offered by operators not licensed or regulated in local jurisdiction
Gross Gaming Revenue – GGR
Sum of stakes less sum of returns for games in which the operator accepts risk
Locally licensed operator
See onshore betting
Not locally licensed operator
See offshore betting
Offline betting
Betting activity in land-based shops, casinos, gaming or bingo halls, lottery or other gaming outlets
Offshore betting
Gambling activities provided by operators with no license in country of operations (but usually holding a license in another country)
Online betting
Betting activity through remote channels e.g. the internet
Onshore betting
Betting activities provided by operators with a license in country of operations
Operator
A company providing gambling activities
Player
A person that takes part in gambling activities
Regulator
A body that regulates gambling law
Return
The amount that people get back (including their stake) if their selection wins
Stakes
The total amount of money spent on gambling
Turnover tax
Tax calculated with tax rate in relation to turnover
Winnings
The amount that players win i.e. the return less the stake
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Regulation of online betting market in Poland
Table of figures Figure 1
Overview of online betting markets in Poland, France and Denmark in 2015
5
Figure 2
Key assumptions and results of scenarios for the Polish online betting market
6
Figure 3
Calculation of tax on stakes (turnover) and tax on GGR
10
Figure 4
Calculation scheme for establishing the tax, return and winnings in Poland
11
Figure 5
Summary of key factors impacting choice of online gambling site [%]
13
Figure 6
Comparison of winnings of Polish players on onshore and offshore sites
14
Figure 7
Example of range of odds and winnings as advertised by onshore and offshore operators for Legia Warszawa vs FC Dundalk on August 23rd
15
Figure 8
Historical development of the Polish online betting market (onshore and offshore) – Gross Gambling Revenue, 2007-2016e [PLN m]
16
Figure 9
Estimated structure of the Polish betting market – GGR, turnover and tax, 2015 [PLN m]
17
Figure 10 Comparison of GGR channeling rates in Poland and selected EU countries, 2015 [%]
18
Figure 11 Overview of legislation concerning online gambling in the EU countries, 2016
19
Figure 12 Estimated increase of online betting channeling in France and Denmark after introduction of new legislation (including blocking) [percentage points in subsequent years as compared to year before implementation]
23
Figure 13 GGR channeling rates for online betting in relation to tax regimes in selected EU countries, 2015 [%]
24
Figure 14 Online betting tax revenue per adult in relation to tax regimes in selected EU countries, 2015 [EUR, %]
25
Figure 15 Key assumptions of Polish online betting market scenarios
27
Figure 16 Scenario 1 – Forecasted onshore and offshore online betting turnover and GGR in Poland, 2015-2025 [PLN m]
28
Figure 17 Scenario 1 – Forecasted tax and sponsoring revenues from online betting in Poland, 2015-2025 [PLN m]
29
Figure 18 Scenario 2 – Forecasted onshore and offshore online betting turnover and GGR in Poland, 2015-2025 [PLN m]
30
Figure 19 Scenario 2 – Forecasted tax and sponsoring revenues from online betting in Poland, 2015-2025 [PLN m]
31
Figure 20 Scenario 3 – Forecasted onshore and offshore online betting turnover and GGR in Poland, 2015-2025 [PLN m]
32
Figure 21 Scenario 3 – Forecasted tax and sponsoring revenues from online betting in Poland, 2015-2025 [PLN m]
33
Figure 22 Results of scenarios for the online betting market in Poland
34
36
Regulation of online betting market in Poland
Disclaimer This report has been produced by Roland Berger Sp. z o.o. (“Roland Berger” or “RB”) for Remote Gambling Association (“User”) in connection to the project “ Regulation of online betting market in Poland – Considering alternative scenarios to define the best regulatory model for Polish online betting”. This report is confidential to, and for the sole benefit of, the User. Neither the whole nor any part of this report may be distributed, reproduced, disclosed to, used or relied upon by any other person or used for any other purpose without the prior written consent of Roland Berger. Roland Berger’s principal tasks during this project have been to review and comment on the current and forecasted status of the online betting market in Poland. Roland Berger shall not be liable for any loss or damage arising out of our work on the project except to the extent caused by our willful misconduct or gross negligence. The information contained herein was prepared expressly for use herein and is based on certain assumptions and information available at the time this report was prepared. In furnishing this report, Roland Berger reserves the right to amend or replace the report at any time and undertakes no obligation to provide the User with access to any additional information. In this notice the term Roland Berger include its Partners, Directors, employees and agents.
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