England's Next Legal Challenge

Offshore British betting sites may be facing a crackdown on their advertising in the United Kingdom now that the betting tax is no longer in existence.

The Daily Telegraph of London reported on Oct. 11 that Customs and Excise will soon begin a campaign to put a stop to the £50 million a year that is lost when offshore betting Web sites advertise to the British audience.

One bookmaker said the crackdown is part of an agreement between the government and the country's biggest bookmakers. Bookmakers, said Andy Drinkwater of Victor Chandler International, made a deal to repatriate their business and move back onshore in exchange for the change in the tax regime.

"As part of the deal, one must suspect that certain guarantees were given by Customs and Excise to make sure that people weren't breaking the law in terms of the way they were advertising their offshore businesses," said Drinkwater, Victor Chandler's director of communications.

On Oct. 6 the British government ended the 6.75 percent betting duty and replaced it with a 15 percent tax on bookmakers' profits in an effort to stop the stream of bets to offshore companies. Advertising offshore betting services is illegal under Section Nine of the Betting and Gaming Duties Act, but prior to the betting tax being removed, big bookmakers sometimes pushed the limits of the law.

A spokesman for Customs and Excise told The Daily Telegraph that the agency is keeping an eye on the situation. "We are monitoring the situation to see who returns form offshore and who advertises offshore services and decide what the appropriate action is under Section Nine," he said. "Do not confuse no action (to date) with inaction."

Ed Pownall, a spokesman for Blue Square, an onshore betting operation, said his company's stance was to stay put while Victor Chandler, William Hill and Ladbrokes began moving overseas last March. He said the government probably wasn't going to sit by and watch potential betting tax revenue disappear offshore forever.

"If they get a crackdown on people going offshore and encourage people to come back, then the key is to turn the screw on people offshore," Pownall said.

The tax on onshore companies was halted to make them competitive with offshore betting businesses, he said. The clamp on advertising comes as no surprise to Blue Square.

"Obviously from our point of view we're thrilled," Pownall said. "It's what we hoped would happen--it protects us, it protects customers and investors, and it gives the offshore competition less of an advantage in the marketplace."

It is not clear how many companies will be affected by Customs and Excise monitoring offshore advertising. A fact that confuses the situation is that many bookmakers have both onshore and offshore businesses.

Sportingbet.com, for instance, has a wholly owned subsidiary onshore, said its deputy chairman, Mark Blandford. The subsidiary is called Interactive Sports Ltd, but the Web site it trades under is Sportingbet.co.uk.

"We do hold a U.K. bookmakers permit, so we are able to advertise within that subsidiary," Blandford said. He said Sportingbet put the subsidiary in place in January because it no longer wanted to operate in a gray area.

"What it actually means is that that subsidiary company is paying the U.K. duty," he said. "I suspect you may see one or two others doing something similar."

Drinkwater said it is Customs and Excise's job to monitor the marketplace anyway, and that his company is not aware of a crackdown happening. Victor Chandler also has an onshore subsidiary.

"We have a dialog with customs and excise," he said. "We also have a thriving U.K. business, and that is the business that we advertise in the U.K., so our position's quite clear on this. We're a legitimate U.K. business that makes a significant contribution to the U.K. treasury."

Both Pownall and Blandford predict new legislation will be needed to solve the onshore-offshore advertising problem. Pownall said even though the crackdown hit the media almost two weeks ago, most offshore sites will probably continue to advertise in the U.K.

"I doubt they will (stop) until they're physically sort of cut off because, obviously, every day that they can potentially grab customers off the U.K. market, then they may as well try to."

Customs and Excise may take a test case forward for now, Blandford said. He said that, at some stage in the future, the law about offshore bookmakers advertising will need to be modified to include the existence of the Internet. For now, he sees a potential problem in European Union legislation concerning freedom of information that would allow offshore operators to e-mail sports scores and team updates to U.K. customers.

"Is that an advertisement?" he said. "I don't know--that's the kind of question that's going to be asked at the moment, and I would expect to see the U.K. tighten up on Section Nine of the betting duty gaming act."