Taxation and online sports betting in Germany
Considering the relative merits of a tax on gross gaming revenue and a tax on stakes for the potential regulation of online sports betting.
Table of Contents Page
1. Executive summary
2. Introduction
2.1. Purpose of the study
2.2. Scope and approach
2.3. Terms of reference
3. Different approaches to taxing gaming: considerations and example markets..
3.1. Different types of taxes and range of approaches
3.2. Considerations for evaluating different regimes
3.3. Examples seen in EU and other markets
4. Lessons from online regulation in other jurisdictions
4.1. Italy
4.2. France
4.3. UK
4.4. Selected other jurisdictions
5. Modelling Germany’s online sports betting tax revenue in different tax scenarios
5.1. Overview of scenarios and modelling assumptions
5.2. Overview of model output
5.3. Scenario 1: Online sports betting regulated with a 4% tax on stakes
5.4. Scenario 2: Online betting regulated with a 8% tax on stakes
5.5. Scenario 3: Online betting regulated with a 20% tax on GGR
5.6. Conclusions from modelling and considerations of flexing assumptions
6. Other considerations
6.1. Enforcement of gaming regulation
6.2. Other economic considerations
6.3. ‘Problem gambling’ and player protection
6.4. Impact of imposing betting restrictions
7. Conclusions
1 Executive summary
This study investigates the potential impact of regulating online sports betting in Germany. Specifically, it considers the relative merits of doing so with a tax on stakes or with a tax on gross gaming revenue, and the consequent impact on the proportion of the market which is regulated in Germany.
We conclude that regulation of the online sports betting market in Germany has the potential to significantly increase the proportion of the market which is locally regulated, eliminating much of the nonGerman regulated market, and the most effective means of doing so is with a tax on gross gaming revenue (GGR1). We believe that regulating the market with a tax on GGR as opposed to a tax on stakes will result in higher ‘absorption’ (defined as the proportion of the online sports betting market in Germany, in GGR terms, which is regulated in Germany), thereby reducing the size of the market which is non-German regulated, better protecting German customers and capturing more potential tax revenue. Furthermore, we believe that betting restrictions such as customer stakes limits or banning ‘in-game’ betting will significantly shift gaming from the German regulated market to the unregulated market; such restrictions are designed to protect players but we believe they could drive activity away from the German regulated market, where German customers are not protected by the German regulatory regime.
Our conclusions are based on a number of key findings which we discuss in detail within this study:
- No attempts to block customers accessing online sites have proven to be wholly effective due to legal, practical and technical limitations. The online gaming sector will therefore exist regardless of regulation, so an effective tax and regulatory regime is key to reducing the size of the gaming market which is non-German regulated
- A tax on GGR stimulates a higher proportion of the market to become regulated in Germany relative to a tax on stakes. This limits the size of the non-German regulated market, and ensures a competitive market of locally regulated German operators
- By encouraging a higher proportion of the market to become regulated in Germany, a tax on GGR supports the effective implementation of social responsibility policies, enabling greater control of problem gambling’ and player protection, as a higher proportion of German customers will be playing on sites that are licensed with appropriate regulatory oversight
- The experience of EU Member States that have already regulated online gaming supports the assertion that a tax on GGR is the most effective way to regulate the market o “Regarding taxes, we have now realised that the taxation model where a percentage of stakes is levied does not work” – Chairman, ARJEL (French gaming regulator), July 2011
- A GGR tax works with all gaming products and therefore future proofs the tax regime to potential regulation of other products such as cash poker which does not work with stake
- A higher GGR tax increases the potential of customers using non-German regulated operators, because it reduces the incentive for operators to obtain a license. We expect that betting restrictions on e.g. ‘in-game’ betting could have the same effect given its increasing popularity
- The experience of other EU jurisdictions also suggests that regulation of the online market and its subsequent growth does not cannibalise the offline (retail) sector in a material fashion
We conclude therefore that a tax on GGR is the most effective tax regime with which to regulate the online sports betting market in Germany, and the most likely to achieve desired policy outcomes.
This conclusion is based on, amongst other things, extensive analysis of the gaming market in Germany, including the development of a detailed market model, analysis of the experiences from EU Member States that have already regulated online gaming, consideration of operator and customer incentives, and PwC’s experience based on our extensive work in this sector. We present a detailed consideration of the evidence, arguments, analysis and conclusions in the main body of this study.
