Place for bets

Online gambling is a massive global phenomenon, and as Nick Verardi explains, the Isle of Man is at the top of the game in providing the best environment for e-gaming operators

The statistics speak for themselves: over the past couple of years the number of people working in e-gaming in the Isle of Man has almost quadrupled and the total tax paid has increased sixfold with the number of licence holders more than doubling in the past 12 months.

The Isle of Man has always prided itself on creating a well-regulated, commercially attractive environment in which businesses are able to flourish. The zero corporate tax for e-gaming companies and the low income tax for employees (maximum 20 per cent) are real reasons for businesses choosing the Isle of Man to develop in, especially in a difficult world economy.

The relationship between government and the private sector is a partnership that exists and works. The resulting success of the online gaming industry on the Isle of Man has created a cluster effect of ­businesses that service the licensed operator, such as software developers, hosting ­companies, online affiliate marketing ­companies and payment providers that ­provide quality employment and income-generating opportunities.

Top score

The success of the Isle of Man’s gaming industry cannot be linked to one single ­factor, but rather many factors. The island is in its 26th year of unbroken growth, having averaged at more than 6 per cent per year in real terms over the past 26 years, and it has been able to maintain its AAA rating from both Standard & Poor’s and Moody’s.

In April last year the Isle of Man made the Organisation for Economic Cooperation and Development’s White List. The island also emerged particularly well from the Foot Report, the independent review of the UK’s offshore financial centres, which accepted the Isle of Man as an extremely well-­regulated jurisdiction. It has also been on the UK’s so-called ’white list’, under the UK’s Gambling Act 2005, since the list was ­introduced.

Hard act to follow

Clear and consistent regulation is a key requirement for any business. The island’s e-gaming legislation, the Online Gambling Regulation Act 2001 (Ogra), was one of the first pieces of legislation in this area ­anywhere in the world, and over the past couple of years the island’s regulator (the Gambling Supervision Commission) has worked hard at providing clarity to the ­legislation, both in the form of well-drafted guidance notes and secondary legislation.

Ogra allows the Isle of Man Treasury to prescribe in regulations certain activities that do not require licences. The most recent ­regulations that have been prescribed by
the Treasury are the Online Gambling ­(Exclusions) Regulations 2010, which came into force on 1 January this year. These regulations make it clear that a number of services, including marketing, market analysis and software development, may be carried out from the Isle of Man without the need for an Ogra licence. In addition, regulations in 2007 made clear that disaster recovery provided in the Isle of Man to off-island operators did not need to be licensed under Ogra.

In the loop

The Isle of Man offers a world-class telecommunications infrastructure and reliable power – essentials to any online business. Connectivity off the island is provided by two resilient fibreoptic rings, owned respectively by BT and Cable & Wireless, which connect the island with the North of England and Northern Ireland. These links employ ’self-healing SDH loop’ technology, which guarantees that, if a fault occurs in any part of the link, voice and data traffic is rerouted in the other direction. The total available capacity is three-million channels (240GB), with a current capacity utilisation of less than 0.2 per cent on the main cable alone. In addition, the Isle of Man government owns a third undersea cable connecting the it with the North of England and offers further capacity to support island businesses.

The Gambling Supervision Commission

Another reason for the island’s success in e-gaming is the Gambling Supervision Commission (GSC) – not many countries can claim that. The GSC is responsible for the granting of licences and also for undertaking post-licensing compliance. A licence typically takes somewhere within 10-12 weeks to process, there is a processing fee of £1,000 and the official fee for a full Ogra licence is £35,000 per annum (a sub-licence fee has a reduced rate of £5,000 per annum). In addition, online gambling attracts online gambling duty with a sliding scale from 1.5 per cent down to 0.1 per cent, except where the online gambling activity is considered pool betting, in which case the duty is 15 per cent.

Another unique aspect of Isle of Man ­regulation is the focus on player protection. The GSC require all players’ funds to be held on trust for the players to ensure that in the event of an insolvency of the relevant operator, its players’ funds will be ringfenced and separated from any debts and liabilities of the e-gaming company itself. This ­provision has now been set out in primary legislation in the form of the island’s ­Gambling Supervision Act 2010, which at the time of writing is anticipated to come into force by the end of the year.

In reality, rather than the end of the line for e-gaming in the Isle of Man, it appears that few jurisdictions – offshore or otherwise – can offer the same stable and well-­regulated environment for e-gaming.

Nick Verardi is local group head for the corporate and commercial team at ­Appleby in the Isle of Man