Contined from Part 1
IGN: The treasury of Great Britain has made recent inquiries into taxing offshore U.K. bookmakers. Can you explain your status regarding taxes and how new policies in Great Britain might affect your business?
Mark Blandford: The situation is that for any U.K.-based licensed bookmaker, there is a betting tax. The tax that is actually levied back to the consumer--because it contains a couple of subsidies to things like U.K. horseracing as well--tends to be charged to the consumer at 9 percent of the turnover of the handle. Now, in terms of locating an international business, that's a punitive tax rate. I took the decision, when I discovered the opportunity, to try and locate Sportingbet.com into a jurisdiction that was tax friendly for me to exploit the international opportunity. We were successful in getting the license in Alderney in the British Channel Islands where there is no betting tax on that basis. So we're not actually located within the U.K., but we're still within the British Isles, and we're licensed directly by the government of Alderney here. We just pay a flat license fee and we have a five-year license deal here.
Now, given that's the current state, we do have a fairly serious competitive advantage into the U.K. market, and other offshore bookmakers have been setting up in Europe and some of the major U.K. bookmakers indeed themselves have been looking at getting into the business as well. The U.K. government therefore has decided to look at this whole area and has made a statement. And as yet we're looking for further detail on it, but it's looking to tighten up on offshore bookmakers who are seeking to do business into the U.K. market. We can therefore only speculate as to what form that might be, but I think it's generally felt there are probably a couple of areas that they could tighten up on. Number one would be any areas where advertising could be accepted. It could be harder for us to advertise physically within the U.K. Secondly, there's the possibility that they will seek, where a company has U.K.-based bookmaking operations as well, to assess on some kind of basis, any turnover they think has been dealt with by as separate, linked offshore company, and charge that tax to the U.K. subsidiary. And that would have a huge detrimental effect on the people like Ladbrokes, William Hill and Coral. The offshore operations would see extra tax being charged to their U.K. operations. And with those large numbers of shops involved, it really puts them in a difficult position, so maybe it's designed specifically with them in mind to stop them setting up offshore, exploiting the power of the Web and the low tax model that exists offshore.
IGN: So, this won't affect your business in any way?
MB: That's right. The two main players who stand to gain most are obviously ourselves and Victor Chandler because we have no U.K.-based operations.
IGN: Having established yourself as a successful Internet bookmaker, have you given any thought to expanding into the online casino business?
MB: Casino gaming is an area of interest to us. We've been looking at it for some time now, and you can expect announcements from the company early in the new year as to which way we're going on it.
IGN: Sportingbet.com put out a news release a few months back addressing an e-commerce problem in which U.S. banks were not accepting checks from offshore U.K. banks. Can you explain what that's all about? Are there any solutions to this problem?
MB: The position that we discovered was that writing checks from a British offshore bank and sending them to American customers for Americans to clear through their own banking systems caused a few problems. It wasn't a universal problem, but it seemed that some of the time, some of the American banks were not recognizing the British offshore subsidiaries. And we actually bank with an offshore subsidiary of one of the top-four U.K. banks. However, that wasn't considered good enough by the carrying system in North America. The solution that we have in place in the moment is we're just simply making payments by a variety of other methods, and that seems to have solved the situation in that respect. However, we are continuing to work on further banking solutions to that and also, of course, technology is moving at fast pace. Modern electronic cash solutions and direct online transfers are pretty much upon us now. So, I think the number of options that are going to be open to us are going to be expanding shortly.
IGN: Is there an explanation for why this is occurring?
MB: What it really boiled down to was the fact that they were coming back and saying, "We don't recognize these banks." It wasn't really that their was a problem with them, it was just: "We don't know them; we don't have clearing arrangements in place with them." Had it been through the major London branches, maybe things would have been a little better. We did consider setting up to make the payments through London, but upon further investigation, there had even been one or two problems with that. Therefore we're looking at being able to serve other payment products directly to the consumer from our operation in Alderney.
IGN: What's your policy toward the legal situation in the U.S.?
MB: The situation is that we're licensed under British law and we operate under British law, and the law in Alderney says that the activity I'm carrying out--that of bookmaking via modern media--is legal and that in legal terms under the law of Alderney, the actual transaction takes place in Alderney; and therefore the bet is physically deemed to be struck on the Web servers that are located in Alderney; the management decisions are taking place in Alderney, so we're operating under British law, quite frankly.
Now having said that, of course, you have a certain senator--Senator Kyl--who's sort of trying to claim global jurisdiction for an American law. I think the Internet would be a very sad place if any one country were able to claim jurisdiction over it on a worldwide basis. It certainly contradicts British law. Quite frankly, it doesn't go down too well in Britain to come and say that an activity that's been organized for many years very successfully--and legally--should not be taken place.
So we're operating under our law. The bets, under our law, are struck here. The consumer, wherever he is in the world, might use his PC, as he'd use a telephone or facsimile machine, to make contact with suppliers elsewhere in the world. It's called import and export, it's been going on for years and I don't think Senator Kyl is going to stop it.
IGN: Obviously, your company is taking advantage of the tax situation in Alderney. Are there differences between Alderney and Great Britain in the bookmaking laws from an operation standpoint as well?
MB: Not really. The reason for us locating in Alderney is purely the tax situation. I could go and locate right in the middle of London and, under English law, take bets from American customers. The law over here is pretty much akin to, for instance, an American citizen visiting London and walking into a betting shop and placing his cash over the counter. Instead of physically visiting, of course, he's sending electronic messages. The law over here doesn't draw that distinction.
IGN: What about the process of getting licensed in Alderney as opposed to doing so on the mainland? Is it different?
MB: In Alderney, being a smaller place, there are literally only three licenses in operation at the moment. There may or may not be a fourth license granted, but I think, certainly, if the fourth is granted, that will definitely be it. We're subject to a level of regulation over here which is much more akin to financial services' standards. We're probably, as a result of that, one of them most highly regulated bookmakers in the world. We have regulators who are looking in terms of our marketing, in terms of the way we conduct our activities, the financial strength within the balance sheet of the company, for us to meet our liabilities... Client funds are being held separately, and until the money is bet and lost, we're not allowed to transfer it into the company, etc. At the end of the day, we accept that level of regulation because, quite frankly, it's good for all concerned. It's good for the consumer: they can deal with us with confidence. As more and more consumers are learning that, more and more are turning to deal with bookmakers like us, and that, therefore, is good for us as well.