Julian Hoskins, Principal
One of the most challenging decisions an organisation can make is whether to diversify and, if so, how? Diversification is about exploring new markets and taking new risks. Many gambling sector organisations are now faced with the strategic deliberation of how best to maximise market share and competitive advantage as a result of the industry shutdowns and disruption associated with the global pandemic. It is imperative that organisations embrace disruption and ‘lean into’ strategic growth opportunities.
Part of this is recognising that diversification can be about preserving relevance and sustainability. Diversification enables an organisation to respond to consumer wants and expectations and survive and thrive in a competitive environment where its business model can be disrupted awfully quickly or more gradually.
There are various ways for an organisation to diversify and each strategy will depend on where the organisation believes it is best placed to compete and gain a competitive advantage. The path towards diversification is often informed by a considered assessment of the competitive environment, including threats and opportunities, and by the organisation’s risk appetite.
For organisations operating in home markets of the USA, Asia and Europe that are considering diversifying into the online gambling market in Australia, the following high-level guide sets out the steps required to obtain a bookmaker licence, which is the most common online licence sought.
Overview of the land-based and online licence regime in Australia
An operator licence is required to conduct the following land-based gambling activities in Australia:
· casinos;
· ‘retail wagering’, under which licence-holders offer: (i) pari-mutuel (totalisator) betting on racing (thoroughbred, harness and greyhound); and (ii) fixed-odds betting on racing, virtual/simulated racing, sports and other approved events. Except for virtual/simulated racing (which is generally only offered in retail venues, including hotels and clubs), such betting is generally offered at racecourses, retail venues, online and by telephone;
· lotteries;
· keno; and
· instant lotteries to persons in Australia.
These operator licences are nearly always State or Territory based and are typically monopolistic or very limited in numbers. There are several online only gambling licences which are also available, covering certain forms of internet gaming and bookmaking.
In the case of the latter, bookmaker licences can be issued by Licensing Northern Territory (Licensing NT) or by a principal racing authority in Australia (PRA). A sports bookmaker licence (often referred to as a ‘corporate bookmaker licence’ (Corporate Bookmaker Licence)) issued in the NT enables the bookmaker to offer fixed odds betting online and over the telephone on sports, racing and other approved events. There is no limit on the number of Corporate Bookmaker Licences the NT may issue. Fantasy sports betting in Australia is typically permitted under a Corporate Bookmaker Licence.
In the case of a bookmaker licence issued by a PRA, an individual (or sometimes incorporated) bookmaker operating at a racecourse in Australia (On-course Bookmaker) is required to hold a State or Territory based on-course Licence, issued by the relevant PRA. An On-course Bookmaker can also accept bets over the telephone and via the internet where appropriately licensed.
Corporate Bookmaker Licence application process and related matters
The licensing process for a Corporate Bookmaker Licence can typically take around 6 months or so from the date of licence application and requires careful consideration of a range of matters, including the economic benefits which the licensee expects will be derived by the NT (as detailed further below).
Working with local advisers with deep expertise in the gambling industry will assist applicants to navigate the application process, the likely areas of concern for Licensing NT and the ability to deal with industry specific issues in a timely and efficient manner.
1. Eligibility criteria
To be eligible to obtain a licence, applicants must be registered in Australia as a corporate entity under the Corporations Act 2001 (Cth). The eligibility criteria in respect of an applicant includes:
a. whether it has or has arranged a satisfactory ownership, trust or corporate structure;
b. whether it has or is able to obtain financial resources that are adequate to ensure the financial viability of the business proposed to be conducted and to obtain the services of persons who have sufficient experience in the management and operation of the business;
c. whether it has sufficient business ability to establish and maintain the business proposed to be conducted; and
d. whether it or any person to be involved in the management or operation of the business proposed to be conducted under the licence has any association with any person, body or association who or which, in the opinion of Licensing NT, is not of good repute having regard to character, honesty and integrity or has undesirable or unsatisfactory financial resources; and whether each Director, partner, trustee, executive officer and secretary and any other officer or person determined by Licensing NT to be associated or connected with the ownership, administration or management of the operations or business of the applicant is a suitable person to act in that capacity.
2. Net Economic Benefit
In line with a directive from the Minister for Racing, Gaming and Licensing, issued pursuant to Section 19 of the Racing and Betting Act (1983), Licensing NT is required to ensure that all applications for a Corporate Bookmaker Licence (including the renewal of a licence) are to include the applicant’s proposal as to how they will satisfy the provision of economic benefits to the Northern Territory.
Economic benefits that may be provided by an applicant include, but are not limited to:
· direct payments to the NT Government or NT sporting, racing and/or charitable bodies in addition to existing taxation and fees imposed under NT legislation;
· sponsorships of NT events or sporting or racing bodies;
· joint venture arrangements with the NT Government or NT based businesses, charities or sporting/racing bodies to create new events that will drive tourism in the NT;
· business presence in the NT (physical leases, local employment etc); and
· traineeships or internships.
To enable Licensing NT to properly consider an application for a Corporate Bookmaker Licence, Licensing NT also requires from the applicant various detailed application and supporting documents, including a 3-year business plan.
3. Key application documentation and bank guarantee
A comprehensive suite of documentation is required when applying for a Corporate Bookmaker License issued by Licensing NT, as such, working closely with key advisers to prepare an application and navigate the various complexities relating to the licence process is essential.
Documentation which is required includes:
a. a standard application form, which requires disclosure of all key information;
b. a Deed of Release and Indemnity in respect of probity by all relevant persons;
c. extensive probity related documentation in relation to directors and shareholders (the latter applying to any shareholder with a shareholding in the applicant of at least 10%);
d. proposed Terms and Conditions, Betting Rules and Regulations and Policy documentation;
e. AML/CTF Program and associated documents; and
f. a comprehensive 3-year business plan.
The licence application will also document the system approval requirements, which are the Licensee’s controls and administrative and accounting procedures. Applicants are also required to implement appropriate operational procedures, namely control systems. Control systems serve to mitigate risk and the licensee is required to submit an Internal Control System (ICS) consistent with the relevant guidelines.
Currently, applicants for a Corporate Bookmaker Licence must lodge a bank guarantee of at least $200,000 which secures the obligations of the licensee under the licence, with the exact amount being subject to determination based on the financial resources and viability of the applicant. The current maximum prescribed under Regulations is $250,000.
4. Tax rates for Corporate Bookmaker Licensees
Currently tax rates for Corporate Bookmaker Licences are:
a. On racing events – 10 per cent of gross profit;
b. On sports events – nil for amounts wagered by persons located in Australia and 10 per cent of gross profit for international clients; and
c. The combined tax is capped at $605,000 or $1.21 per revenue unit (500,000 units).
Utilising a Corporate Bookmaker Licence to take bets from residents of foreign jurisdictions (where lawful to do so)
An applicant for a Corporate Bookmaker Licence may, subject to regulatory approval, wish to consider also taking bets from residents in other jurisdictions outside of Australia utilising its NT Licence (where it is lawful to do so). Prior to doing this it would need to obtain appropriate foreign law advice, which should also consider relevant AML/CTF and other risks in that jurisdictions. It should be noted, however, that there are provisions in the Interactive Gambling Act 2001 (Cth) (IGA) which enable this activity to be prohibited at a future time.
In particular, the relevant Minister may declare that a specified country is a “designated country” at any time, which may occur where the government of the relevant country has made the request of the Minister and there is in force in that country provisions that correspond with the prohibited interactive gambling service provisions in section 15 of the IGA.
Conclusion
Conducting business in foreign markets is achievable and beneficial if the business understands and can operate sustainably within the local environment and meet its regulatory obligations. It requires adopting a disciplined approach, particularly when entering a new market as the rules of engagement must be re-learned.
Operators need to learn customer communication preference and marketing strategies that will meet their expectations. Generally this also requires development of a differentiated product which is likely to be embraced in this market, where similar products often compete for the same customer spend. The regulatory and commercial frameworks that are so well understood in home markets, whether it be USA, Asia or Europe, must be navigated with care in new jurisdictions, such as Australia, in order to diversify strategically and successfully.
For more detailed information about the specific laws that apply in Australia, please refer to the International Comparative Legal Guide 2020, Australia chapter, authored by Principal at Senet, Julian Hoskins.
Julian Hoskins is Principal at Senet, a specialist gambling law and regulatory compliance advisory firm. Julian is ranked in Chambers & Partners Global and Asia Pacific as a leading gambling expert. Julian can be reached at +61 448467824 or julian@senetlegal.com
https://senetlegal.com/