SA Point of consumption tax – my view

$117,000,000.00. That’s just Sportsbet’s profit for the last financial year. That is after paying all taxes, product fees, wages, so on. Where does that $117 million mostly end up? not in Australia’s economy, but back in the UK. Sportsbet is owned by the Paddy Power/Betfair company. We can add to that Bet365, Ladbrokes, William Hill, & Unibet as other corporate bookmakers that send all their profits offshore.

These bookmakers are making a killing from Australian punters and the government has done very little about it. They are now sucking hundreds of millions out of our economy each year. Is it too much to ask them to pay their fair share of tax? it seems so.

How much burden do gambling companies place on the economy?

First you have to understand that these companies profit isn’t the only thing that is costing Australia money. These corporate bookmakers only allow losing gamblers to bet with them and push the really big losers to bet even more. This causes major problems for each state which then has to spend your tax dollars dealing with problem gamblers. Problem gambling not only affects the individual, but also their families and the community they live in. Sportsbet made a profit of $117 million, but it cost the government 10’s of millions in social issues.

The corporate bookmakers are actually taxing the government AND making a massive profit. Now that a state government want’s to get some of that cost back, the bookies are up in arms about it.

There is a direct link between smoking and cancer. If you smoke, you’re more likely to get cancer, if you get cancer the government subsidies your treatment. Cigarette companies made a total profit of $1 billion last year, but research has shown that smoking causes a $31.5 billion dollar loss to the economy of which $318 million is directly paid for from the health system. So for every dollar that cigarette companies make, they are costing the Australian public $31.50.

Now, gambling is not the same as smoking. All smokers are at risk of cancer, but all gamblers are not at risk of gambling issues. But there is still a percentage that are. It’s also not a new thing to tax companies that make a profit from gambling. Since 1995, Star city has had to pay a 2% levy on their revenue to the “responsible Gambling Fund”. This works out to about $12million a year and the money is spent on counselling, research and other services to help people with gambling problems.

It’s a pretty simple idea and makes sense. If your product contributes to costs elsewhere, you should be responsible for those costs.

The South Australian Place of Consumption Tax

If you live in South Australia and have a betting account you would have recently received an email from your bookie trying to scare you into thinking that you will be bonus banned, receive worse odds and lose even more money. Let’s have a look at what the SA government are proposing.

The place of consumption tax is a 15% tax on net wagering revenue from all betting companies offering service in SA. Any bets placed in SA from January 2017 onward will fall under this tax.

The SA government expect to generate about $9.2 million in tax per year. That means bookmakers are currently making about $62 million from SA residents.

There is a tax free threshold of $150,000, which means smaller books making under $1 million profit from SA residents will not have to pay anything. The first $500,000 generated will go towards the Gamblers Rehabilitation Fund.

What the bookies say

stoppuntersThe offshore corporate bookmakers (Sportsbet, Bet365, Ladbrokes and Unibet) created the Australian wagering council (AWC). It’s the same thing as bringing a British bulldog into Australia and renaming it an Aussie bulldog. There is nothing Australian about this council. The council speaks on behalf of these bookmakers and have released a statement and a banner to try and stop this tax.

In the statement they continually refer to the consumption tax as a PUNTERS’ TAX (and always put it in capitals to overemphasis it) and go on to say

“this new 15% PUNTERS’ TAX will target South Australians, worsen their odds, and ultimately damage Australia’s uniform responsible gambling initiatives by pushing punters into dangerous and unregulated offshore betting sites.”

Their scare tactics include telling SA customers that they will receive worse odds, less promotions and “less money in your pocket”. They beg their customers to get in contact with their local MPs and have also set up a facebook page. As I write this article there are 57 people who have liked the page (and 99% of them are bookmaker employees).

These bookmakers are terrified of this tax being passed. They know that it won’t be long before every other state government comes knocking at the door wanting their cut of the pie. SA is low down on their list of profitable states. If NSW and VIC ever implemented the same tax, it would be very expensive for the bookies.

AWC Chairman & Sportsbet CEO Cormac Barry also said they would be happy to cover the $500,000 to the gamblers rehabilitation fund directly if they tax was stopped. This is classic corporate bookmaker strategy. They have never been proactive with problem gambling, only instituting programs when they are forced to by the government. They are only ever reactive as issues arise and not proactive. I would give them a little credit if before any of this came up they all banded together and gave money to the fund because it was the right thing to do. But that was as likely to happen as it is for a winning punter to get a bet on with them.

These corporate bookmakers do not care about the punter at all. Their only concern is how much money they can make from the punter. If a punter will not make them enough money they simply stop letting that punter bet with them. They have sent this email to all SA members, and a high percentage already receive worse odds, are bonus banned and can’t even bet with them, yet they expect these people to help them pay less tax.

What will really happen when the tax is passed?

Nothing at all. You will see zero change to the odds you receive, and if anything you will probably receive even more bonus offers. Let’s address each scare tactic from the AWC’s campaign.

1.Worse odds:

The bookmakers are trying to say that any extra tax they have to pay will be passed onto their customers in the form of worse odds. Currently for a 50/50 chance you will receive odds of $1.91 from most corporate bookmakers. They are saying SA customers might have to deal with $1.85 odds or less.

Now this has already been done by William Hill to members who they do not want betting with them. When Racing NSW implemented the minimum bet law, William Hill drastically lowed prices for members who did not lose enough money. So a losing punter would see odds of $2 on a horse and a break even or winning punter would see the same horse but with odds of $1.70.

Luckily for us, the gambling industry has a lot of competition. This competition results in better prices for everyone. Lower prices could be implemented IF every single bookmaker in Australia agreed to do it. But competition being the way it is, it would only take 1 bookmaker (maybe a smaller one not paying much consumption tax) to keep their prices as is and all SA punters would move across to them, making all other bookmakers follow suit or lose even more money.

So there is no way the odds will get worse, and bookies know this. They just want to threaten their customers into doing what they want.

2. Less promotions

The bookies are saying that they can’t offer SA customers the same sort of promotions if the tax is implemented because they couldn’t afford to. Here’s a dirty little secret the bookies don’t want you to know, if it wasn’t for promo bets, they would barely make any money at all. They need to offer these promotions because their target customers rarely bet unless pushed to do so. If they stopped offering promotions to SA customers, they would lose even more money then they will pay via the tax.

We also go back to the competition issue mentioned before. It only takes one and the rest will follow. They might be showing a united front right now, but as soon as the law is passed, it is back to every bookie for himself.

There’s a third reason and this is why it is likely that bonuses will actually get better. The tax they will pay is based on net revenue, which means profit AFTER all expenses have been taken out. This means by paying out SA residents more in bonuses and promotions they will be paying less tax. So by being more generous to SA customers, they not only increase the likelihood of them betting more, but they also pay less tax. As mentioned earlier, bookies only care about one thing (profit) and they will do anything that results in making more profit. In this case it means being even more generous to customers.

So if you are a SA resident and do bet, you should be emailing your local MP and pushing for him to make sure this new tax goes through. Because it will mean the same odds, but better promotions and therefore MORE money in your pocket.

Conclusion

Don’t get me wrong, this is a cash grab from the SA government and the fact that only 5.4% of the money collected will go to help problem gamblers is a joke. We all know how poorly state governments use taxpayers money and allocate it to some extremely stupid things (a topic way beyond the scope of this blog). But the point is that these bookmakers are taking money out of each state and redirecting it offshore.

I believe a point of consumption tax is the correct way to tax bookmakers and needs to be implemented Australia wide. I’m tempted to create a VPN service that shows bets coming from SA so punters can know that 15% of their losses are being put back into the economy.

Your thoughts

There are many of you that are much smarter, more informed and generally better looking than me. I’d like to hear your thoughts on the matter in the comments below.

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  • Jimmy27

    Good article Steve!

  • Ken

    very insightful.. lots of good points. the biggest thing is them being able to pick and choose their customers. if you’re going to offer bets u shouldn’t beable to deny winning players

  • agreed, and the only way this will happen (for sports betting) is via government intervention. I’m in talks with a few gov agencies to try and make this a reality (but it’s a slow process).

  • wah

    Funny I have only been sent these emails from bookies that won’t let me bet and not one has responded to my emails to them requesting that they allow me to bet so I can help them

  • Flash

    The comment I was posting turned out too long, so I posted it on my blog:

    http://winnerswinonsports.com/2016/08/04/sa-point-of-consumption-tax-my-2p/

  • Great article Flash, good to see others point of view. From your article I assume you are from the UK (might be wrong).

    The UK has the exact same tax (RGD) since 2014. So that is a good place to look for what might happen if every Australian state introduces it (which they eventually will).

    Advertising went up and promotions/bonuses stayed the same. But there was a lot of M&A happening to streamline costs. We have already seen a lot of mergers and acquisitions here, but I think eventually we will end up with 5-6 really big players and a few boutique bookies.

  • Flash

    Thank you Steve. Yes I am based in the UK.

  • Luke Anders

    Hi Flash, I just had a read of your blog post.

    I don’t really buy into the “They take money out, but it’s not so bad because they pay peoples wages” line. They aren’t bringing that money into the Australian economy, it was already there, provided to them by losing customers.

    Also, just because they offer a service or product that people desire, that doesn’t make them or their practices okay. You know who else offers a service/product that people want? Drug dealers. And like drug dealers, they push their product onto anyone willing to try it with the hope they’ll become hooked and are more than happy to allow (and even encourage) addicts to continue using their product with absolutely no regard for the customers well being.

    Corporate bookmakers have become a massive burden on the rest of society and as a punter who can’t get a bet on with any of them, I’m more than happy for the Australian government to tax them for everything they’ve got and send them packing back to the UK.

  • borisranting

    Dangerous precedents being set here.

    I work in the trade but my focus is on getting a fair deal for the punter. This isn’t about the social cost of gambling – South Australia is not going a world-leading facility for the rehabilitation of gambling addicts. It’s about SA being flat broke and pissed off that the NT is home to a ‘niche’ industry, that of internet wagering, when most of the people employed by such corporations aren’t even based in the NT. The NT is vastly undercharging corporate bookies for what they do. They set up the tax breaks to begin with, and now they are stuck with it. There’s not much else to bring in state revenue up there, so they need to keep those businesses licensed in the NT to keep the coffers filled. They need to offer significant tax breaks to operators to offset the disadvantage of being so far away from the rest of the country. Charge on a par with Victoria or NSW, and there is absolutely no reason to stay there.

    Is there any other industry which charges transaction fees or taxes from crossing an imaginary line within Australia? If I buy a book, a plasma TV or a shares portfolio from a company registered/based in another state, do I pay a penalty for it? No, so why should the betting industry be any different? Why should punters on NSW racing be guaranteed to get a bet on, while punters on that poorly-funded dross lining up at Morphettville can’t be assured of anything? Are major wagering operators the first international corporations to extract profits from Australian citizens and take it overseas? That’s been happening since Governor Phillip arrived with the First Fleet. Ever drunk a can of Coke or bought an iPhone or Samsung phone?

    Corporate bookmakers SHOULD pay more but it should not be down to the state governments to create an imbalance according to moral beliefs or disastrous economic planning of the current or previous government(s). It should be federally regulated so that Joe Bloggs in NW Tasmania has the same options as his cousin in Birdsville or his old school mate in Perth – betting into a licensed environment, where all punters are treated fairly, and the operator pays his way, to the government in taxes which go toward health, social services and infrastructure, and to the sporting codes who deserve monetary reward for putting on the show. The inconsistencies between states and territories come down to more than just taxes and minimum bet laws – remember the debacle of the SportsAlive collapse, a firm ‘licensed’ in the ACT but it later turned out that licences found in Corn Flakes packets held the same amount of punter protection? That should never be allowed to happen again. But could anyone of us really trust a recent Federal Govt to draft and pass industry-changing legislation which benefits all of us? More chance of Anudjawun winning the Newmarket and the Melbourne Cup in the same year!

    Bookies already pay product fees on sport – some of which makes its way into SA. Does sport in SA now get removed from this pool of funding or are they going for the double dip? Other back-door taxes have snuck in to compensate for the lack of revenue for other states. The precedent for this cash grab, the UK Point of Consumption tax, had no such charges to offset or compete against, apart from a voluntary contribution to racing called the Levy (UK-based retail firms are compelled to pay it, but their online businesses based in Gibraltar avoided it and the Gross Profits Tax applied to bookies).

    Aussie punters are not subject to a local monopoly like NZ where you get no choice, face higher margins imposed on prices and it’s theoretically illegal to bet abroad (or at least that’s what the NZ govt want to achieve). We opened the door to competition in wagering many years ago, the genie is out of the bottle now. If you’re sick to death of the wall-to-wall advertising, then find ways to restrict that like alcohol or tobacco instead (watch for TV networks to scream very loudly about any attempt to do that, they make a fortune out of it!).

    The article highlights how Sportsbet currently make millions out of the Aussie market (a significant part of that attributable to the foundations laid before Paddy Power bought in), but no mention of Bet365 and Betfair not making a local profit at all (I stand to be corrected but don’t believe either of them have ever made a profit in Aus).Don’t forget the local ‘good guys’ Tabcorp and Tatts and the squillions they made from everyone’s friend, the pokies. How about taxing those a bit more for the punter to fund responsible gambling practices or simply dissuade a few of those daft enough to think they are anything but mechanical coin-draining leeches? Not likely, the Hotels Association are a very powerful lobbying group.

    Other states, particularly the smaller ones with fewer resources/ideas to call upon, will line up to follow South Australia, effectively creating a series of state sales taxes – the bureaucratic crap that the GST was designed to eliminate. The far better option is to do it once, do it right, make it consistent nationwide, and do it from Canberra.

  • Flash

    Hi Luke,
    We may not agree but thanks for reading.

  • Luke Anders

    No problemo, had a skim through a few other articles, looks interesting, I’ll have to keep checking in 🙂

  • Hi Scott,

    Thanks for taking the time to share your view. It looks like we agree on the overall picture, just a few smaller points, as always the devil is in the detail.

    So the things we agree on:
    1. We both want a fair deal for punters (that’s a given)
    2. Tax grab from SA
    3. Corporate bookmakers should be paying more tax
    4. The NT gambling commission is a shambles and the bookies have them over a barrel
    5. The federal government should be getting involved.

    Now, I don’t work in the industry and as this article states in the title, this was “My view” of things. But over the last few years I have been asked to talk to a number of different agencies to share the “punters view” of the current situation. Just this week I sat down with 2 gov agencies to share my views. I’ve learned a few things from these talks and surmised that certain things are more likely to happen or not.

    The government is so far behind on understanding the gambling environment that it will be a very long time before they involve themselves by setting concrete taxes and laws. The SA gov know this and they clearly want to get in early and grab what they can. It is a clear tax grab and as you said, it will set a precedent for other states to follow (WA and QLD already looking into it).

    You ask if there are other industries that charge transaction fees or taxes from crossing state lines. It happens in retail all the time, Amazon even charge a Cross-Border processing fee. Other industries do the same. So a POC tax really is not new. When you buy a new TV all those taxes and fees are baked into the final price, you just don’t notice it as there isn’t an itemised list showing you where each dollar you spent goes. Just like the current taxes and product fees are already in the odds you receive from your bookmaker.

    I did write an article recently about the product fees that Australian bookmakers need to pay. http://www.daily25.com/australian-bookmaker-odds-cant-compete-off-shore-bookmakers/

    100% we need this industry to be federally regulated. It’s crazy that it currently isn’t. As mentioned above, the government is so far behind the 8 ball on this that it will take a very long time before they do anything. Bookmakers rely on this to continue to make massive profits. Racing will take care of themselves as it needs gambling to survive, but other Australian sports are not reliant on the gambling dollar so they will not push for minimum bet laws and other punters rights.

    I highlighted Sportsbet in the article simply because they are the ones taking the lead on this issue. They seem to be the driver and major backer of the “punters tax” angle.

    You’re right that Bet365 have not made a profit in Australia, but have cut their losses massively and look likely to be in profit next year. But they know that they can turn profits on whenever they want by cutting down on marketing costs. They are spending because the environment currently allows it and the ROI of advertising right now is huge and they know eventually it will end. As you mention, the TV networks are going to do everything they can to keep the status quo.

    I only shared my opinion because the other side needs to be heard. When a bookmaker can set an agenda, tack a slogan (punters tax) onto it and send that scare campaign to 100’s of thousands of people without any accountability, that just doesn’t sit right with me. Yes I’m not an industry insider, but I have seen enough to understand how things work and the article was there to start a conversation around the issue, which it has clearly done.

    By people reading my view and your view and the others that have commented on the blog and on social media, they can come to a more rounded understanding of what is a very complex issue.

    Thanks again for taking the time to post and sharing your thoughts on the issue, I wish others in the industry followed suit.

  • Matt Crawley

    Steve maybe you can help me out.

    I understand that the bookies are driven by profit and target the problem / losing gambler with promos etc while at the same time restricting the winning punters with no promos lower odds or barring them altogether. I know certain politicians target the bookies like Xenophon restricting them from offering sign up Bonuses etc in certain states.

    Why can’t the government pass legislation that plain and simply creates a level playing field. That is the bookies have the right to offer whatever promo odds bonuses etc but if it’s offered it has to be offered to all members and they can’t discriminate against the winning punter. Surely this would make the bookies think twice about what they offer as yes they will make profit from the problem gambler but in turn will be behind with winning punters. One other thing I think they should legislate is that the bookies have to clearly display on the home page of any members account their profit and loss since account opened. This will make it clearer to the problem gambler how much money they have lost since they started betting. The winning punter will know anyway as they are more disciplined.

    We live in a world of political correctness where discrimination is rightly legislated against yet the bookies are constantly allowed discriminate against the profitable punter. I really don’t see what it’s so hard one rule for all. Same odds promos bonuses etc??

    Cheers Matt

  • Hey Matt,

    This would be the dream scenario. But the government are really really slow and so far behind it will take many years before this is how it is run. The IGA report was released a few months back now and did offer some suggestions.

    It will be a requirement that bookmakers give all members a monthly statement of their betting profit and loss. There will be a national self-exclusion website also.

    I also brought up the exact same point with Barry when I was consulted on the issue. Saying if these bonuses were open to all and no accounts can be banned, it would fix many of the issues we already see.

    Sadly, anything the government does takes a lot of time, states can move quicker and that’s what we are seeing. Bookies will continue to take advantage for as long as they can and when things don’t go their way they will chuck a hissy fit like we are seeing sportsbet doing now.

    It will take time, but we will get there.

  • Jack

    Most of the bookies in UK are funny.

  • Laurie M

    In summary I agree that the overall situation needs government intervention as a few, including Steve, have mentioned.

    This, however, is not the intervention that is needed. It is a blatant exercise in greed from a government bereft of both ideas and integrity. And to hear the decision applauded basically floors me.

    The only place a proper business derives its profits from is its customers, there is no other source (note I have said proper – not a front operation, a tax loss scam etc etc). Increase running costs and the business needs to recoup those costs, they must pass those costs onto the client unless they accept a cut in profit. I don’t know of any large corporation that will accept such a cut as a long term decision. And, as an aside, in this case just think of the hyenas that we are dealing with here.

    So IMHO the customer will pay. Prices offered will be reduced, maybe infinitesimally and it will be across the board as all corps are affected and so invisible.

    At the moment, as far as I can understand, this decision will only affect those domiciled in SA. But the rot will spread as the bodies collectively known as ‘government’ is lazy and greedy.

    The proof will be in watching what Betfair does with its commission structure. As far as I can work out it is unique in that prices don’t produce revenue so profit must come from commission income. If (but I reckon “when”) that is increased that will tell you who is ultimately funding the tax.

    IMHO, the more widespread this grab becomes the more punting will simply move offshore. It is a world economy now and impossible to ringfence anything for those serious enough to be big customers.

  • Matt Crawley

    Thx for the reply Steve.

    Really enjoy your site / blog.

    I’m just amazed how simple it can be yet the government can’t see it. It really is discrimination against the winning punter. One rule for all. Yet as can be seen with the government with nbn and census they really can stuff things up.

    Curious how much for your nrl afl nfl packages per month? Is it $133?? Am considering giving it a go but at that price it’s $3192 for two years where as last two years in tips only turned over 4K in profit using $100 bets / units. I appreciate the honesty in results / odds available but at the price the service is that’s basically 3/4 of profit betting at $100 per unit with no guarantee ( I know there are never any guarantees in betting that’s why they call it gambling)

    Can u please clarify the cost for just those three tips packages?

    Cheers

    Matt

  • Hey Mat,
    The $137/month was only brought in this season and will be going down to $99 after the AFL season ends (and likely to stay at that price for the next year).

    Most members are on at much cheaper rates, the average member pays about $55/month for access to all plays. We also offer a yearly discount of 15% which can further reduce the price.

    Pricing is a hard one, need to come up with a price that suits members and allows the business to make a profit.

    So doing the maths. Looking at a yearly package you will be paying $99 per month or $1,188 per year. That is for all sports (AFL, NRL, S18, NFL, NBA). If you take up the yearly package that comes down to $1,009 for the year ($84/month or $21/week).

    Off course not everyone has a $4,000 bank and $100 per unit. We use that simple because 1 unit = $100 is easier for people to understand.

    So last two SP years have produced 23.54 units and 22.08 units profit. Or $2,354 and $2,208 profit. So you are paying a little under half the profit in sub fees (If betting $100 per unit).

    Taking sub fees into account is really important and I mention that in our second year review. http://www.dailyprofit.com.au/2nd-year-update-sportpunter/

    Hope that helped
    Steve

  • I think we all agree that this is not the best way to tax the bookies and it should be a government thing and not left up to the states, there should be one standard for taxes, bonuses, advertising, so on.

    Your also right that in the end the customer always pays. But this industry is currently very competitive and some bookies are happy to take losses now because they know future rewards will be there. I feel Sportsbet will initially be harsh to show what “could” happen and then revert back to the same odds and promos as everywhere else.

    They do not care about the SA market, it is more that other markets might follow.

    Yep, world economy and they have no problems allowing international customers to bet with them, yet they through tantrums about Australian punters being able to bet off shore. Hypocritical much?