Post-whitelist, post-point of consumption tax and now post-Brexit - the Isle of Man’s eGaming sector proves its resilience and continued thirst for growth whatever the world throws at it. KPMG’s Russell Kelly and Micky Swindale review the developments of the past 12 months and look forward to the year ahead.
It has become traditional to remark on each passing year as one of great change for the eGaming industry – both in the Isle of Man and the wider world. For so long the pace of development, the growth of the market and the increasing competition amongst operators has been so intense that it has been difficult to contain a review of activity to just a couple of pages.
While, in many ways, 2016 has been no less hectic, it’s interesting to reflect that much of it can be viewed as a period of readjustment. Key turning points such as the removal of the UK’s Whitelist and the introduction of Point of Consumption (POC) Tax in late 2014 have now had time to play out more fully and for businesses in the sector to decide on an appropriate response.
To some degree the licensing figures tell the story. By the April year end in 2016, the Isle of Man saw the loss of 17 licencees with only seven new licenses issued during the same time. The majority of those lost were smaller operators who were UK facing and struggled with the additional costs associated with POC, acquiring UK licencing or gaining the necessary investment for scale.
Larger operators and those who have diversified to global markets were less exposed to the changes from the UK and, now that the dust has settled, the downward trend has been reversed with seven new applications for licenses being approved since April and no further losses.
The Isle of Man’s excellent reputation as the premier jurisdiction for eGaming precedes it and new licensees continue to be drawn by the proactive and supportive regulatory environment, robust and extensive telecoms infrastructure and established, experienced professional services.
Such is the Island’s appeal, the eGaming sector now accounts for some 20% of GDP and the Manx Government is committed to supporting further business development in the Island. The launch of a £50m enterprise fund for new businesses, double duty relief tariffs and the relaxation of the Island’s work permit rules for certain IT and eGaming-related skills are examples of the pragmatic and practical approach new operators can expect.
Unsurprisingly businesses are taking full advantage of these measures and eGaming related employment has shown a very healthy growth of some 12.5% over the past year, an increase on the impressive 9.9% experienced during 2015.
This has been particularly encouraging given the consolidation that has been seen in some parts of the industry. The £5bn merger of Betfair and Paddy Power took place in March, with Ladbrokes and Gala Coral completing their £2.3bn deal in November. Meanwhile William Hill has struggled to agree a deal with Amaya, owners of Isle of Man based PokerStars, and twice rejected bids by smaller rivals Rank Group and 888 Holdings, as it continues to try and de-risk its business by diversification and greater online exposure.
Of course 2016 hasn’t been all about adjusting to the past. The year has delivered its own political bombshells that have reverberated on a global scale across all economies – namely, the UK’s decision to leave the European Union and the election of Donald Trump as US president.
While the impact of the latter is still unknown – both on eGaming (likely to be minimal) and the world in general (anyone’s guess) – there has now been time for people to recover from the shockwaves of the Brexit vote and apply a more analytical mindset to what it will actually mean.
This subject was the leading item of discussion at KPMG’s seventh Isle of Man eGaming Summit, held in September at the Villa Marina in Douglas, and the focus of a panel session featuring Steve Brennan from the Isle of Man Gambling Supervision Committee, Mark Robson from the Isle of Man Department for Economic Development, Ashley Sandyford-Sykes from newly-launched eGaming company AdoptIt Publishing and Philip Vermeulen of the Isle of Man’s International Centre for Technology Nunnery Campus.
The good news and the general consensus was that, whilst it had been largely unexpected, Brexit was not a major factor for eGaming on the Isle of Man.
As Steve Brennan commented: “Our analysis shows that Brexit won’t really have a significant impact on our jurisdiction and there are a number of reasons for this. The obvious one being that the Isle of Man is not part of the EU. We don’t enjoy any of the benefits of EU membership. The Island never had anything to offer in this regard and therefore we’ve got nothing to lose.
“The EU is unquestionably a big market: seven million of their citizens gamble online. But it isn’t the main market for the Isle of Man: we’ve taken a much broader, more globally-focussed approach. A concerted outreach to and understanding of the Southeast Asian market has brought significant market diversification.”
Mark Robson argued that Brexit would actually reinforce the Isle of Man’s eGaming proposition: “It certainly has strengthened our position, because there are jurisdictions where operators will be severely impacted by the effect of the Brexit vote.
“Those operators will start considering new territories. In some respects, it’s focused their thoughts on business - what are they going to do now? We have seen an expansion of some operators looking to diversify their global footprint and perhaps have some elements of businesses in some jurisdictions, and other elements elsewhere. So we have benefitted certainly from the pragmatic approach.
“Businesses accept that you have to have multiple licences these days, and we’re seeing businesses relocating elements of, for example, their Asian business to the Isle of Man. Also, as a direct result of the public and private sector partnership and investments we’ve made in the infrastructure here, we’re seeing a lot of operators now hosting their disaster recovery functionalities from the Isle of Man. We benefit from that too.”
As a representative of a newly-formed business on the Island, Ashley Sandyford-Sykes was clear that proximity to the EU played little part in his decision to locate in the Isle of Man: “Why you come to the Isle of Man is not really to do with the EU at all. Fundamentally, what’s relevant to me is that we have a Tier One jurisdiction with a very agile infrastructure, and that allows a huge amount of opportunity. Now that’s important whether you’re in an EU or non-EU country, in fact anywhere in the world.
“What’s happening here on the Isle of Man has a far greater impact on a business level, especially for smaller companies, and right now I think the Government and the infrastructure of the Isle of Man presents a very receptive environment for any sort of business; it’s very agile and responsive to building businesses and creating them.”
Philip Vermeulen agreed, adding that “On Brexit I see a fantastic opportunity for the Isle of Man. Change is good, if you have the ability to move fast. I think it is a very exciting time.”
The ICT campus which Mr Vermeulen is developing is a direct response to the need for additional ICT skills to support all eBusinesses on the Island and will offer degree courses in computer science, business management, cyber security, and finance and accounting as well as shorter tech courses. The college favours a collaborative approach where businesses will form partnerships with the college, helping to create and draw on a talent pool.
“For us in the Isle of Man we’d like to centralise that talent pool of human capital. So we don’t need a massive migration of people leaving the Isle of Man to obtain the right qualifications. We can develop the people that we have as well attract new people,” said Mr Vermeulen.
This focus on building capability for the future is key to the Isle of Man’s long term strategy for growth and, looking ahead, there are clear opportunities for further investment.
These include the further development of Daily Fantasy Sports and eSports. Already Brazilian fantasy sports business Sporaga has moved its operations to the Isle of Man prior to planned new market launches in Russia, India and China, with Sporaga Chief Executive Carlos Rodriguez saying the Isle of Man is “the mecca of Gaming”, praising the Government for its commitment to small businesses, and their understanding of eGaming industry rules and regulations.
“In making the decision to base Sporaga on the Isle of Man, I took into account the transparency, tax regime and overall peaceful nature of the Island and its beauty. For me this was exactly the type of place where I would base my businesses and raise a family,” he said.
Other areas for growth include lottery resale services and non-licensable niche businesses who benefit from being aligned to a Tier One eGaming jurisdiction. But, above all, it is the can-do attitude of the Island that is its greatest asset, as explained by Mark Robson at the eGaming summit panel session: “We’re seeing a lot of very active entrepreneurs coming through. The very nature of the gambling industry is based on risk, and people recognise the expertise that the Isle of Man has built up in this sector and look to us for thought leadership, it’s not just a place to establish their businesses.
“Entrepreneurs are looking for partnership to help grow their business, not just come here, set up business, and the Government never deals with them - as you might get elsewhere. That’s certainly not the case here. We’re seeing the private sector responding very favourably towards that. Watch this space – we will continue to grow!”