Favourable odds for UK gamblers

The Gambling Act 2005 introduces the concept of remote gambling. Players can participate via the internet, telephone or television and by 'any other mind of electronic or other technology for facilitating communication' which includes mobile phones and also allows the legislation to keep up with any other newly introduced communications.

Section 33 states that a person commits an offence if he provides facilities for gambling unless one of the exemptions in the 2005 Act applies. However, s36(3) (territorial applications) states: 'Section 33 applies to the provision of facilities for remote gambling only if at least one piece of remote gambling equipment used in the provision of the facilities is situated in Great Britain (but whether or not the facilities are provided for use wholly or partly in the United Kingdom)'.

'Remote gambling equipment' is electronic or other equipment use by or on behalf of the supplier providing the facilities for remote gambling, but does not include equipment used by the end user (the player's computer keyboard and screen) provided that the player's equipment is not supplied by that supplier.

This means that organisations can provide remote gaming facilities from jurisdictions outside the UK (from common remote gaming destinations in the EU such as Malta or Gibraltar) for use by players inside the UK, provided that those suppliers do not provide the equipment for players (servers or computer equipment storing or processing information) in the UK.

Section 41 relates to gambling software and states that a person commits an offence if in the course of a business he manufactures, supplies, installs or adapts gambling software unless he acts in accordance with an operating licence. Note that the 2005 Act generally extends only to England and Wales and also Scotland (with a few exceptions) so parties falling outside the territorial scope of the 2005 Act will not be affected.There is also an exception in s41(3) so that a communication service provider, who enables someone to download or send gambling software to another person, is not treated as himself supplying or installing that gambling software. This is an exception for 'mere carriers' of the software.

Key purpose of the Act

Advertising is key to gambling to promote the services of suppliers. Under the Gaming Act 1968 it was acceptable for remote gaming operators to advertise their services in the UK but they had to comply with strict restrictions in s42 of that Act. In particular, s42(1) stated that 'no person shall issue, or cause to be issued any advertisement. . . (c) inviting the public to subscribe any money or money's worth to be used in gaming whether in Great Britain or elsewhere, or apply for information about facilities for subscribing money or money's worth to be so used.' Section 42 applied to non-remote and remote gaming advertising and advertising of overseas facilities. 'Inviting' was interpreted to mean inducing or encouraging although factual information (such as the name of an operator's website) would not have been in breach of this section.

Because s42 was so wide ranging gaming operators were limited to fairly narrow advertising such as advertising the names of their websites. Gaming operators generally believe that one of the main benefits of the 2005 Act is that advertising will now be liberalised, albeit subject to various restrictions such as some adverts being after the television 9pm watershed to protect young people from harm. Section 327 is very wide and states that 'advertising' about gambling is anything which is done to encourage people to take advantage of facilities for gambling including bringing information about gambling facilities to people's attention with a view to increasing the use of those facilities.

It is for Ofcom to consult with the Gambling Commission to ensure that the standards of broadcast gambling advertising comply with the regulations. All non-broadcast gambling advertisements must comply with the Committees of Advertising Practice code and all broadcasting advertisements must comply with the Broadcast Committees of Advertising Practice code. These codes embody rules to ensure that gambling advertisements are socially responsible.

Foreign advertising

Section 331 refers to foreign advertising and makes it an offence to advertise non-European Economic Area (EEA) (or 'foreign') gambling. Foreign gambling is gambling which either physically takes place in non-EEA state (like a casino in Australia) or gambling by remote means which is not regulated by the law of any EEA state.

Gibraltar is treated as if it is an EEA state and therefore gambling operators based in Gibraltar will be able to advertise their services in the UK. It is important to note that s 331 also allows the secretary of state by regulations to provide that a specified country or place is to be treated for the purposes of s331 as an EEA state. These are commonly referred to as 'white list' counties and at present the Isle of Man and Alderney are on the white list.

An operating licence is required if gaming facilities are to be carried out from the UK. In particular, a remote operating licence can be obtained which authorises an activity to be carried on in respect of remote gambling or by means of remote communication from the UK.

To obtain remote licences in the UK, an operator would have to pay remote gaming duty levied on remote operators' gaming profits. The gaming industry had generally hoped that this would have been set by the UK government at around 2 per cent to 3 per cent (or less). However, in the March 2007 budget this was set at 15 per cent. Compared with much lower remote gaming duty taxes in offshore jurisdictions such as Gibraltar and Malta (and now the Isle of Man and Alderney) it is not surprising that many remote gaming operators are based in those jurisdictions.

However, HM Revenue and Customs claims that the UK will remain an attractive destination for companies with small gaming yields. However, this still means that the larger operators are more likely to remain based in other EEA jurisdictions.

US changes to online policy

Many people will be aware that US government policy is generally not in favour of online gaming. The Unlawful Internet Gaming Enforcement Act of 2006 (UIGEA) made it illegal for banks and financial institutions to process transactions for online gaming sites for US customers.

However, this act did not apply to cash or cheques so there are now operators in the US trying to work around the UIGEA.

Prior to the UIGEA, the US Department of Justice maintained that online gaming of all types was illegal in the US under the 1961 Wire Act.

This provides that: 'Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest . . . shall be fined . . . or imprisoned'.

However, it has been held that, in plain language, the Wire Act does not prohibit internet gambling on a game of chance and it has also been held that 'the object of the gambling must be a sporting event or contest' and online poker should not be classed as a sporting event. Debate still continues over the Wire Act but it appears that the effect of UIGEA has effectively prevented large numbers of US customers participating in online gaming. It will certainly take some time for the 2005 Act to bed in and for rules and regulations to be generally understood and consistently implemented by the gambling industry and those associated with it. Because of this it is difficult to assess the overall impact that the 2005 Act will have on the UK.

However, it is possible that:

(a) Gaming operators facing legislative hurdles in the US may begin to focus more of their operations in Europe where the legislative framework is generally more favourable.

(b) Operators in so-called 'white list' jurisdictions (for example the Isle of Man and Alderney) and certain other EEA jurisdictions (for example Gibraltar and Malta) will continue to be based there if the current tax regime regarding on-line gambling in the UK continues.

(c) Operators based in jurisdictions that are in the EEA but are a long way from the UK (for example Malta) may be tempted to set up in the Isle of Man or Alderney which are closer to the UK if this leads to cost savings.

(d) Gaming operators will focus upon spending more of their money advertising their services via television and radio.

(e) The number of television programmes sponsored by gaming operators may decrease since those operators can now take advantage of being able to advertise their own services directly to the public via television and radio advertisements and other advertising channels.