COMMENT: Across Australia, state governments are preparing to follow the lead of South Australia and levy a ‘Point of Consumption’ tax on racing and sports wagering operators.

The POC will see bookies pay an additional tax - currently 15 per cent in SA – on profit on all accounts for residents of that state

But the phrase ‘Point of Consumption’ does not do justice to the threat this tax has on the everyday betting habits of the Australian punter.

The truth is, this is a tax on punters, pure and simple, which instead of having the intended impact of distributing gambling taxes to the states, will simply result in all of us finding it harder to make our punting dollar go further.

While the initial impact will be felt by the bookies themselves, the reality is the cost of that tax will end up impacting us as Punters in the form of poorer betting percentages and a reduction in competition.

Anyone with a brief knowledge of how the economy of the wagering system works will tell you that upping tax on bookmakers is a sure way to making the whole caper less profitable or more expensive for everyone.

Richard Irvine from Fair Wagering Australia, an advocacy group formed to fight for the rights of the punter, has long cautioned about the perils of a 15% levy by the states.

He has written a detailed editorial for us here at Punters, looking at the reasons why a punters tax at the current slated rate would be disastrous for an industry which is already undergoing massive change. - (Bren O'Brien, Editor, Punters.com.au)

 

A POC Tax will be a tax on punters

by Richard Irvine

It’s a foregone conclusion that the point of consumption tax (POC) that the South Australian Govt. unilaterally introduced in July 2017 will be adopted nationwide, but the question of its structure and cost to bookmakers is an important discussion.

Currently the industry is in great shape with punters, bookies, administrators and government all being able to share equally in its benefits. An onerous POC tax will end this equilibrium though.

 

Background

Up until 2000 bookmakers paid between 1 and 2% turnover tax. Usually 1% to their respective state government and 1% to race clubs. In the early 2000’s when the GST was introduced and bookmakers began paying 10% of their gross profit to the Federal Govt, state governments abolished the 1% tax they were collecting as GST is a tax on consumers, not business, so if bookies were forced to pay GST, they had to get taxation relief in other ways.

But at that time bookies fled to the Northern Territory where they were shielded from product fees and paid negligible tax to the NT Govt. They gained huge market share very quickly by drastically undercutting TABs on the odds they offered, and the royalties state governments received from TABs began to diminish. Which has led us to the current situation.

 

Diminishing marketplace value

In 2014 Racing Victoria were the first jurisdiction to drastically increase the fee they charge bookmakers to bet on their product. Racing Victoria’s wagering revenues were declining due to the migration away from tote betting to fixed odds so they had to act and had every right to.

They doubled their fees, and all other state racing jurisdictions followed their lead within a year.

It felt like ever since the fees went up the fixed odds market became a little less competitive and always had higher percentages.

I went and looked at Sportsbet’s financial results for the 4 years before the big product fee increases and for the 4 years after. From 2010 to 2013 Sportsbet’s net sportsbook revenue (what they win over a year off punters bets) consistently averaged 8.8%, from 2014 to 2017 they consistently averaged 10.9%.

Clearly the extra product fees that they were being charged were passed on to the punter. Which is fine and is what should happen. But this highlights the impact that the emerging POC tax will have on punters; the bookies will tweak their businesses and pass most of it onto us, the punter.

A 15% on profit POC tax will translate to roughly a 2% increase in fixed odds markets. Simply put it makes it harder for us to win or makes us lose more. And this is where I think racing regulators and state treasurers need to be careful.

The marketplace has never been better for punters, there is so much choice via the 20 or so online bookmakers, you can get set for a bet in most jurisdictions via minimum bet laws, and racing regulators continue to increase prize money for owners.

But the industry has done this off the back of a 2% decrease in marketplace value, but if we have to cop another 2% decrease in marketplace value I believe it will have a net negative effect and slow the industry down and lead to reduced turnover simply because you are taking too much off the punter.

Pro punters need to keep winning in order to reinvest, and recreational gamblers need to be entertained by the punt as cheaply as possible or they will look elsewhere. Of course industry funding and growth is more important than both of these but the industry is doing great so why mess with it especially when it is such a major employer and driver of the state economies?

 

Betfair

Betfair have the most at stake in the POC tax debate. They already pay 50% of their gross revenue in product fees and taxes whereas Sportsbet pay 25%. A 15% POC tax would take Betfair up to 65% of their revenue gone in fees and taxes, and that’s before they’ve paid any of their operating costs.

The mechanics of the way they charge their customers don’t lead to huge profits for themselves or large revenues for the industry, but they are the beating heart of the industry at present due to the value they give punters but also the market transparency they provide by punters being able to see bettors and layers be matched in the market in real time.

This notion drives the market and creates speed and vibrance. If Betfair left the Australian marketplace the markets would freeze up become stagnant and boring, and punters would never get the same value they get now.

I think Betfair can withstand a small POC tax on profit, but the NSW Govt. have mooted a 2% on turnover POC tax. If this happened it would mean Betfair would have to pay over 100% of their racing revenue and over 200% of their sports betting revenue in fees and taxes. So it would be LIGHTS OUT!

 

The rise of the SP bookie

With a ban on credit betting, stringent advertising controls and unprecedented levels of taxation why would you want to be a bookie?

And yes, their predicament is mostly due to their cavalier behaviour over the last 15 years. But the more bookmakers who can prosper in a fair and balanced industry the better value and service punters will get due to the forces of competition.

A POC tax of 15% on profit or a POC turnover tax of 2% will only lead to bookies giving the game up which obviously then lessens marketplace competition.

Further to that it invigorates people becoming SP bookies where they are unencumbered by costs and regulation. And that’s the last thing the industry wants or needs.

 

A fair POC tax

I think a fair POC tax would 7.5% on net wagering profit. It will mostly get passed onto punters but I don’t think it would be a shock to market value like a 15% on profit or a 2% turnover tax would be.

All parties would then be fairly compensated and the market could continue to rip.

 

 

 

 

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