Admiralty Tunnel runs for almost
a kilometre through the Rock of Gibraltar. In 1942, the tunnel was used to plan Operation Torch, an attack on north Africa led by Dwight Eisenhower.
Today, while military maps still hang from the walls, the tunnel’s many rooms serve a very different purpose. They now host the servers of Continent 8 Technologies, a data company which processes the transactions of internet gamblers around the world.
The tunnel embodies a profound shift in Gibraltar’s identity. A key strategic location, the British overseas territory has this millennium established itself as the unofficial capital of the online gaming industry.
The global industry has been booming: in 2014, it generated a gross win — total stakes minus winnings paid out, including bonuses — of just over €30bn, according to data from H2 Capital, up 11 per cent on the previous year.
Gibraltar was traditionally attractive to gambling companies because of its generous tax environment. Historically, they have benefited from lower corporation tax, no value added tax on marketing spend and exemption from gambling duty in the UK.
Over the past few decades, UK and international companies — among them Ladbrokes, William Hill, Bwin.party and, most recently, Bet 365 — have moved their online operations to Gibraltar. There are now 34 online gaming companies in the minuscule territory balanced off Spain’s southern tip.
At the end of last year, however, Gibraltar’s central position in the world of gaming came under threat.The UK’s “point of consumption” tax, introduced for remote gaming companies in December 2014 after years of planning, means that Gibraltar-based companies now have to pay 15 per cent on gross profits from customers based in the UK. Previously, those companies were taxed on the basis of where they — rather than their customers — were located.
Almost all of Gibraltar’s industry players agree the point of consumption tax will lead to consolidation. But while some predicted the tax would prompt the flight of major companies, there is little sign yet of the online gaming industry falling out of love with the region.
Boylesports, the Irish bookmaker, is the latest company to join Gibraltar’s online gaming community, officially gaining its licence this month. Continent 8 is expanding further into the Rock, adding new servers to accommodate “unprecedented demand” from the industry, while major listed companies insist they will continue to increase their presence.
“We are looking to grow in Gibraltar,” says Jim Mullen, Ladbrokes’ new CEO, who was visiting his Gibraltar team earlier this month just weeks after his appointment. “The new chief executive of Ladbrokes will be in Gibraltar every month,” he adds.
“There are now 34 online gaming companies in the minuscule territory balanced off Spain’s southern tip”
British betting company Gala Coral, which may launch an initial public offering after the general election, moved part of its business to Gibraltar while the UK tax change was occurring. Like many of its competitors, Gala — which now employs about 400 people locally — cites the rise of Gibraltar’s gambling ecosystem as a key factor in the decision to move, even after it became clear some of the region’s tax advantages would dissipate.
“It’s the best place to recruit people,” says Paul Meehan, finance director of its Gala Interactive arm.
The online gaming sector now employs about 3,000 in a population of 33,000, with many workers spilling over into bordering Spanish towns.
“Since 2011 to today, point of consumption has been the buzzword, but we’ve got over a thousand more jobs in the industry,” says Albert Isola, minister for financial services and gaming. “It’s not as though the point of consumption tax is a threat to the industry,” he adds.
Gibraltar’s online gaming industry is an anthropological case study of a densely packed corporate environment. The territory’s concrete office blocks — a throwback to grey 1960s architecture — host dozens of competing firms. Disgruntled employees need only walk across the corridor to find a new job.
A former deputy chief constable of West Yorkshire heads Gibraltar’s gambling regulator. But local rules are only a small part of the bigger picture for gaming companies, which operate around the world and apply for licences in different regions. Stan James, the online bookmaker, recently applied for a licence to operate in distant Delaware, for example.
“Every country has the right to regulate gambling in the way it sees fit,” says Scott Longley, editorial director at Regulus Partners, a consultancy specialising in the gambling industry. “That pressure is only going to increase not just in Europe, but also the US and even further afield in parts of Asia,” he adds.
Gibraltar has, so far, survived the introduction of a new UK tax, although Mr Longley says that “over time” some companies “might repatriate back to the UK”. But far beyond the UK, the online gaming industry — and Gibraltar — remains exposed to abrupt regulatory shifts and changes in legal status across different countries and states.
Mr Longley suggests that a golden era for the industry has come to an end. “The tax has caught up with them, the regulators have caught up with them — UK, France, Spain, Italy, the US,” he says.
For gaming companies forging ahead in new markets, national laws and boundaries sit uneasily with the fluidity of the online world. The UK’s point of consumption tax grappled with the difficulty of identifying whether the gambler was in the UK or not — a problem scarcely imaginable for bricks-and-mortar bookmakers.
“We don’t think in terms of one country now — I never think about what’s English law, I think about English, German, American, Chinese,” says Peter Howitt, head of the Gibraltar Betting and Gaming Association, which issued a fresh challenge to the new UK tax in court in March. “All my clients do business around the world, so what’s the law around the world?”
As legal frameworks evolve, Gibraltar’s gaming companies will keep a close eye on a shifting world map of regulatory risk. But online gaming has for now woven itself into the territory’s culture.
Gala Coral’s Mr Meehan points out that the majority of people in Gibraltar’s many bars and pubs seem to be from the industry. “I’m not sure what existed here before,” he says.
Feature published in the Financial Times, Tuesday 28 April 2015