European online gambling firms are scrambling to make a back-tax payment being demanded by the cash-strapped Spanish government, which effectively raises the cost of market entry ahead of an expected new licence round. By Rosalba O'Brien
Internet gaming firms said on Monday that they have been in talks with the Spanish tax authorities in recent weeks over the payment of retrospective taxes for January 2009 to May 2011, a period in which they were in the market without a clear legal framework.
Sweeping new gambling reforms, set to tackle online gambling for the first time and give the state a way into taxing profits in the lucrative sector, have been planned in Spain for some time, and first licences are due to be issued in June.
But the government – struggling with a stagnating economy and making deep spending cuts to hit deficit targets – contacted the major online operators last month to say that two historic laws that had previously not applied to them would now do so.
Although the award of licences is not explicitly linked to the back-duty, companies keen to secure the licences are expected to pay up.
Bwin.party digital, the world’s largest listed online gaming company, said in a statement on Monday that it would pay 33 million euros ($42 million) after carrying out a tax self-assessment.
“Having taken these steps, we believe we have now fulfilled all requirements and look forward to receiving our licence and entering the Spanish market,” said the Gibraltar-based company, which already has a considerable Spanish profile via its sponsorship of soccer team Real Madrid.
About 60 companies have applied for licences.
Smaller British online gaming firm Sportingbet Plc said it was in talks with the Spanish authorities but gave no further details.
Analysts at Peel Hunt and Barclays Capital estimated that Sportingbet would proportionally be harder hit and is likely to see a tax bill of up to 20 million pounds ($32 million).
Online casino and poker operator 888 is in talks with the Spanish authorities and taking legal and tax advice, a source close to 888 said, adding that any payment was likely to be considerably less than Bwin’s $40 million.
Peel Hunt estimates 888’s exposure at less than $20 million.
Rival online betting operator Betfair – which earlier this month won one of the first online gambling licences issued in Germany – could not be reached immediately for comment .
As European countries move to regulate what was once a grey area, the risk to betting companies derives mainly from the possibility of others copying Spain’s move, analysts said.
But short-term pain could be a long-term gain for the larger operators, who benefit from well-regulated markets, analysts said.
“While this is an initial cash outflow, if it aids the licensing process and leads to more clarity in a key European market, this could be viewed as a positive in the medium term,” said BarCap analysts.
Shares in Sportingbet were down 6.2% at 12:40 GMT, while other online gaming firms were largely flat. DM
Photo: Spain’s Economy Minister Luis De Guindos attends a conference in Madrid May 21, 2012. The Spanish economy is likely to contract by around 0.3 percent in the second quarter of the year, De Guindos said on Monday. REUTERS/Andrea Comas
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