eGaming Review met Bwin’s Norbert Teufelberger to discuss the regulatory outlook for European operators, what the industry needs to do to be understood and what will happen to operators that don’t join the regulatory push. Bwin has been at he forefront of the online gaming industry for the best part of the last 10 years, whether through its individual efforts to grow the European betting sector at a corporate level or thanks to its calls for fair access to Europe’s markets through regulation and licensing of online operators by EU member states such as France, Germany or Italy.
The company is also one of the co-founders of the European Gaming and Betting Association (EGBA) and it was at the 'Responsible Gaming Day – Integrity in Sport' seminar organised by EGBA in Brussels this February that eGaming Review met up with Bwin’s co-chief executive Norbert Teufelberger.
Teufelberger is chairman of EGBA and as we were sitting in the European Parliament, it felt apt that one of the first questions that was put to him should centre around regulation and lobbying. In addition, the fact that despite Herculean efforts to convince mainstream European politicians that the online gaming and betting industry was run professionally and could be trusted to contribute its share of taxes and income to many of Europe’s main markets, the legal situation in most of the continent was not favourable for the majority of operators in the space.
Indeed, one could even argue that the current situation in Europe was actually ideal, albeit for that fact that mainstream advertising is somewhat difficult (although clearly not impossible). Other than that, operators are able to work from jurisdictions with very low corporation tax, employees can enjoy minimal rates of income tax and the stupendous growth the industry has enjoyed so far can carry on unperturbed. Unsurprisingly, Teufelberger views those issues differently. “If you try to create a respectable industry, you need to have assurances,” he says. “Right now we can say we are legal, national monopolies will say we’re not. The outcome is unknown and one day there will be a verdict (in the European courts) about whether online gaming and betting is legal and compatible with EU law and we want to avoid a situation like the one that occurred in the US. The US says it’s illegal and some operators say ‘we don’t care’, but that’s not how we do it and we want to shape our destiny: where the rules are clear and we can do business safely.”
The obvious conclusion to draw from these comments is that Bwin and the other operators lobbying for regulation of the European online gaming sector want to be part of the process and at the centre of events. But beyond the issues of fair access to markets and being regulated, for Teufelberger, “the real issue revolves around how fairly state and private operators will be taxed. We believe we can ensure sports bodies get their fair share, but first the markets should be open: because if they aren’t, why should we contribute anything to the sports?”.
He continues: “From a legal point of view, we believe they (the EU member states against whom the European Commission has issued infringement cases) would lose any case against the industry, and there is already a lot of case law out there which goes our way. Are we willing to talk to the sports owners? Sure, because there’s a symbiosis between sports and betting operators.”
Since taxation is such a key debate, what level does Teufelberger think is appropriate for an industry which for all its growth represents only a fraction of the overall European gambling sector?
He says: “It can’t be 16% of turnover when my margins are 8%. There are customers out there who have been betting online for 10 years and will never go back to multiple bets and the like, no matter what happens. So if they don’t bet with us, they will go and find an operator in the Caribbean or elsewhere who will give them those products. So if governments put taxes too high, we may be forced to comply but then we would have to change the product, this would affect the consumer who would go elsewhere to place bets. The perfect example of this is the US. We all pulled out (after the Unlawful Internet Gambling Enforcement Act in October 2006) and US players overnight moved to PokerStars and Full Tilt. This is something the government and politicians don't yet understand. What such a scenario would mean for them. They think they can protect their monopolies through prohibition but they can’t.”
The other point that comes across from talking to Bwin’s co-chief executive is that clarity has to be brought to bear on regulatory proceedings. In other words, regulators and countries looking at regulating the sector must be willing to give private operators a fair environment in which they can work; rather than offering a working framework that is essentially a backhanded way of protecting monopolies.
TAXES FOR A FAIR MARKET
Looking at Bwin’s strongest market, Germany, what if the government there introduced legislation for online gaming and set the tax rate at 14% of turnover. What would Bwin do? Would it be a case of taking a hit for a year or two and then lobby the government to reduce the rate?
“I can’t say right now. It also depends on the European Court of Justice and their rulings with regard to cases like the one between us and the Portuguese lottery (Santa Casa da Misericordia de Lisboa). But if you look at Italy, the tax rate there was very high originally (above 12% of turnover) and is now down to 4.5%. We are also introducing more products into the market, poker is a huge success,” Teufelberger explains.
“We participated in that and we have a brand name in Italy, but when we went in early people laughed at us: we had to produce a reduced offering, taxes were high and player values low. But now it’s turned out to be the right move and other countries are looking at the Italian model and seeing the country generate more taxes, starting to be more compliant with EU law and I think other governments will look at it and get on the train.
"For us we are the standard and we are willing to pay taxes. If you want to be part of the fabric of a society and be established, that’s what you have to do.”
The key point for Teufelberger and Bwin is that if operators want to be considered seriously as law-abiding companies that act in a corporate and socially responsible way, all those onerous and time-consuming steps have to be taken to reach that stage.
He adds: “In terms of our dialogue with governments, we tell the French clearly what we think is fair. If they set the tax rate too high, will we do it? Sure, but we’ll tell them: ‘I don’t think we can compete with the black market’, and only if we can compete will we try it out. It’s that argument we will give them, we don’t know if they will listen, but we will certainly try.” France published its draft regulation of online gaming and betting in March, announcing 7.5% tax on sports bets stakes plus a 1% levy to go to a cultural fund and 2% tax on online poker.
PREPARED FOR THE FUTURE
As far as the economic downturn is concerned, Teufelberger says customers don’t seem to have been overly affected but he does add that the key period will probably be during the second half of 2009, when Spain will be hit very hard, as well as the UK, and consumers’ pockets will start to feel the material effect of the crisis.
To counter any negative effect brought on by the recession, Bwin will rely on its casual players, “we don’t have a VIP section”, Teufelberger says, and the 11 independent localised country sites that enable the company to target key markets. “People thought we were stupid for a long time because we spent heavily on the brand and the technology. We built a system where we could go regional whereas others just have a dot com and that’s it. Our competitors could not reach the same level of localisation even if they wanted to, they would have to change their infrastructure and IT and it would cost them millions. We have already taken all those steps and spent the development money: at a time when we didn’t need to, we did it while everybody was paying out dividends and now we are seeing the benefits: competitors who are not in Italy, and should be, want to join our Italian network for example.”
He concludes: “You can remain a very profitable company and make lots of money, but our dream is to create the number one consumer brand, and you can’t do that being underground.” Teufelberger and his counterpart at Bwin Manfred Bodner have always said that the brand was the single most important part aspect of the firm’s development; that is what all the lobbying in Brussels and talking to the press is about, making sure the general public knows Bwin as the betting brand.
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