The whole gambling industry has been hit with a series of large scale mergers and acquisitions recently. The trend looks set to continue as well. But until now the causes of this sudden mobile casino merger activity has been unknown, assumed to anything from higher taxes, such as Place of Consumption (POC), to a sudden growth in international markets.
John Hagan and Bahar Alaeddini, from the gambling specialist law firm Harris Hagan, confirmed with Gambling Insider, that the recent bout of mergers and acquisitions is mostly down to POC.
What is Place of Consumption Tax?
Place of Consumption tax, also known as Point of Consumption (POC), is a 15% tax levied against remote gambling operations. Remote gambling is the technical term for online or mobile gambling.
It was bought in as a method to tax and regulate offshore casinos, which were not within UK borders, but still operated gambling services within the UK. On December 1st 2014, the POC tax was bought into legislation, meaning that for the first time, non UK based casinos were now being taxed and regulated by the UKGC.
POC’s Effects On The Gambling Industry
POC has had a huge impact on the gambling industry. Mergers and acquisitions are evidence of this. Paddy Power and Betfair had the largest gambling merger of all time with a £5 billion deal to create Paddy Power Betfair. GVC Holdings followed suite in the acquisitions front by beating 888 Holdings in a billion dollar bid for Bwin Party.
Ladbrokes casino blamed a recent 36% profit drop in Q2 2015 on the new tax law.
Hagan explained that “The European trend towards point of consumption licensing, regulation and taxation is the single most important factor underlying all the M & A activity we have seen recently”.
Hagan identified that the main concern for casinos was simply “increased costs for operators” with the only effective response to be “consolidation and the greater efficiencies of scale which that brings”.
Further Mergers In The Future
Further mergers look to be inevitable into the future. So many mergers and takeovers have been happening in 2015, with tens of billions thrown around to secure new casino connections.
But the real threat at the moment is if taxes increase. Casinos are already in panic mode. Any increase in tax may put them into overdrive.
“The new tax is painful for operators, but like all taxes it is probably here to stay and the political challenge will be to ensure it does not go up from 15%”.
For the stability of our hobby, we can only hope that this remains the case.