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U.K. to License Gambling Companies to Halt Duty Slide

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July 14 (Bloomberg) -- The U.K. government is seeking to license offshore gambling companies, a move that may help stop a slide in betting duty.

All betting companies would need to get a license from the Gambling Commission, under plans announced today by John Penrose, the culture minister responsible for gambling policy and regulation. The plans mean rules will apply where gambling takes place, rather than where Internet servers are located.

Offshore companies get an “unfair advantage” over U.K.- based, and British online gamblers lack protection, Penrose said in an e-mailed statement. British gambling levy fell to 335 million pounds ($540 million) in the year ended March, from 424 million pounds in the year ended March 2008, Matthew Hancock, a Conservative law maker and a former chief of staff to Chancellor of the Exchequer George Osborne, said in an interview yesterday.

“We will create a level playing field, so all overseas operators will be subject to the same standards and requirements as those based in Britain, as well as being required to inform the Gambling Commission about suspicious betting patterns to help fight illegal activity and corruption in betting,” Penrose said in today’s statement.

Tax Rate

Though taxes weren’t mentioned directly in the minister’s statement, they are probably coming, wrote James Hollins, an analyst with Evolution Securities. He predicts a 15 percent tax on gross profit, the same as for land-based gambling.

Such a rate could cost Ladbrokes Plc and William Hill Plc as much as 30 million pounds per year, according to Hollins. Yet they would probably gain in the long run, because “smaller, weaker branded operators will end up with unworkable financial models,” he wrote.

A plan to tax offshore bets by U.K. customers would be an “obvious potential negative” for companies including Paddy Power Plc, William Hill, Ladbrokes and Betfair Group Plc, wrote Gavin Kelleher, an analyst with Goodbody Ireland today before the announcement.

“We welcome the government’s progress in this area and it is our intention to continue to work constructively with them to ensure that the regulated online gambling market in the U.K. is competitive, viable and sustainable for all parties,” Betfair Group’s chief legal and regulatory affairs officer, Martin Cruddace, said in a statement.

888 Holdings Plc, based in Gibraltar, fell 8.9 percent to close at 33.25 pence at 4:30 p.m. in London trading, while Betfair decreased 3.4 percent to 682 pence. Ladbrokes fell 1.7 percent to 144.1 pence, while William Hill Plc declined 3.7 percent to 215.9 pence.

The European Internet gambling market will be worth 12.3 billion euros ($17.5 billion) by next year, according to the government.

To contact the reporter on this story: David Altaner in London at daltaner@bloomberg.net

To contact the editor responsible for this story: Colin Keatinge in London at Ckeatinge@bloomberg.net

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