Exclusive Q&A on Gaming Law with Jamie Nettleton

Who are the main regulators and what are the key legislations that apply to the gaming industry in your jurisdiction?

As a Federation, the legislative power in Australia is divided between the Federal Government and the eight constituent States and Territories. Traditionally, the power to regulate gambling activities in Australia is reserved to the States and Territories.

In 2001, the Federal Government enacted the Interactive Gambling Act (IGA), which prohibits the provision of ‘interactive’ (or online) gambling services with an ‘Australian customer link’ (Operational Prohibition), subject to express exemptions in respect of wagering services (with the exception of in-play sports betting services provided online) and lottery services (with the exception of instant lotteries). The IGA also prohibits the advertising in Australia of interactive gambling services (Advertising Prohibition). The IGA imposes liability on entities involved in the supply and promotionof interactive gambling services, but does not make liable Australian residents who access these services.

Whereas the IGA targets the supply of interactive (or online) gambling services, State and Territory legislation continues to regulate land-based gambling activities.  Different regulatory frameworks exist for different types of gambling, including casinos, sports betting, gaming machines and lotteries.  Separate regulatory bodies exist in each State/Territory.

Each State and Territory regulator is responsible for granting licences, monitoring compliance and enforcing the relevant gambling legislation in its jurisdiction. The leading licensing jurisdictions for online gambling in Australia are the Northern Territory (Northern Territory Racing Commission (NTRC)) and Norfolk Island (Norfolk Island Gaming Authority (NIGA)).

Can you explain how the current tax regime in your jurisdiction works?

The Australian taxation regime in respect of gambling operators can be divided into two categories; those taxes imposed generally in relation to all Australian businesses, and those taxes which directly target companies conducting gambling activities.

All Australian companies, including gambling operators, are required to pay corporate income tax (currently 30%) and goods and services tax (GST) of 10% on all sales.

A number of additional taxes are imposed specifically on gambling operators.  These taxes, which represent a significant source of revenue for State and Territory governments, include a combination of:

• direct gambling taxes paid to the licensing authority and calculated by reference to gambling revenue of the company. The method by which these taxes are calculated will be set out in the operator’s licence conditions and the relevant legislation;
• licence fees paid to the  licensing authority, either yearly or as a one-off payment (depending on the licence held). In the case of exclusive licences such as retail totalisators, this is usually a once off fee payable on grant of the licence; and
• race fields/sports fixture fees are charged by sports or racing control bodies to betting operators in consideration for their use of race fields and sports fixtures information. This fee is calculated by reference to a percentage of gross revenue from betting activities or betting turnover.

The nature and extent of these taxes vary quite significantly and depend on the type of gambling service provided and the licensing jurisdiction.

Have there been any recent regulatory changes or interesting developments?

There have been a number of significant developments in the Australian regulatory landscape this year.
From a licensing perspective, the status of Norfolk Island as both an external territory of Australia and a leading licensing jurisdiction remains a matter of uncertainty. On and from 1 July 2016, Norfolk Island will lose its right to self-govern and will become, in effect, a regional council of New South Wales. As a result of this process, a number of Norfolk Island statutes will be repealed.

At the time of writing, the Norfolk Island gambling laws have not been expressly repealed. Unless and until this happens, we consider that the NIGA will continue as a regulator and existing licences will remain in full force and effect. However, the Federal Government is in the process of conducting a performance review of the NIGA. Pending the outcome of this review, the ability of the NIGA to grant and renew licences has been restricted. As at the time of writing, it remains unclear what recommendations will be made, and how this might affect the NIGA and the exercise by it of its functions.

Another noteworthy development is the introduction of the Australian Association of National Advertisers Wagering Advertising & Marketing Communication Code (AANA Code). The AANA Code is a self-regulatory framework for advertising and marketing of wagering services and will come into effect on 1 July 2016. The AANA Code will facilitate consumer complaints and enforcement.

Finally, the High Court handed down recently its decisions in claims brought by Tabcorp and Tattersalls relating to the change by the Victorian Government of the licensing regime relating to gaming machines.  Those claims, which were for significant amounts (in excess of $1 billion in total), were unsuccessful and confirm the principle of sovereign immunity in connection with the grant by governments of gambling licences.

In light of Leicester City winning the Barclays Premier League, can you explain the mathematics of bookmaking and detail how bookies can effectively hedge bets?

This is best responded to by others.  In Australia, risks can be limited through bet backs with other bookmakers, the totalisators and Betfair.

Are there any compliance issues or potential pitfalls that companies need to be cautious about?

When considering entering the Australian market, gambling operators should be aware of various prohibitions and restrictions which are unique to the Australian regulatory landscape in respect of gambling.

The key issue to note when considering Australia as a potential gambling market is the total prohibition on online gaming contained in the IGA.  However, the IGA, which contains the prohibition on online gaming, expressly excludes from the scope of that prohibition the provision of online bookmaking services. 

Legislation at the Australian State and Territory level includes provisions which require approvals to be obtained to use race fields information/sports fixture information (see above).

Finally, in-play betting is very popular with punters and is routinely offered by betting operators in many jurisdictions (for example, the United Kingdom). By contrast, the IGA prohibits the provision of online in-play betting services in respect of sporting events (In-Play Prohibition).  In other words, Australian licensed operators are able to offer in-play betting online in respect of racing events. While certain Australian licensed operators have sought to address the In-Play Prohibition through “click-to-call” technology, recent comments by the Australian Federal Government indicate an intent to clarify the scope of the In-Play Prohibition. This issue is considered in greater detail in our response to questions 8 and 9 below.

Are you noticing any particular trends in M&A activity?

For a period of time, the Australian market experienced an influx of leading overseas bookmakers acquiring local, online bookmakers to enable an Australian operation to be launched with their international brand.
More recently, the Australian market has experienced an increase in parties seeking to engage in backdoor listings or reverse mergers between dormant, mining companies listed on the Australian Stock Exchange (ASX) and emerging technology or gaming companies. The Australian Securities and Investment Commission (ASIC), Australia’s corporate regulator, and the ASX have expressed concerns regarding these proposals.  Accordingly, proposed listings of this type should be approached  with caution.

How is technological innovation shifting the landscape in the gambling industry?

Over the past year, the Australian market has seen an increased interest in gambling products utilising new and emerging technologies, such as daily fantasy sports and eSports. Australia’s regulatory regime relating to online gambling is complex, outdated and ultimately ineffective in regulating emerging gambling technologies. As a result, gambling products utilising emerging technologies have been incorporated into the existing legislative framework (often with surprising results).

These emerging technologies often demonstrate the inadequacy of Australia’s current regulatory regime and, over time, may become a catalyst for reform of the Australian gambling regulatory landscape.

Can you outline the challenges and opportunities relating to the evolution of the gambling industry from land-based to online?

In Australia, the key challenges relating to the evolution of the gambling industry from land-based to online exist largely at the regulatory level. As alluded to above, the Australian regulatory regime was developed at a time when the development of new technologies and the market disruption this would cause was not fully appreciated.
The inadequacy of the Australian framework for gambling regulation was recognised in the Report relating to the Review of Illegal Offshore Wagering conducted by the Hon. Barry O’Farrell, the former premier of New South Wales, that was released at the end of April (O’Farrell Report).

The O’Farrell Report presented a significant opportunity to review and update the IGA to address the challenges posed by new technologies. However, the singular recommendation concerning new technology, that is, the recommendation that the Federal Government consider relaxing the In-Play Prohibition in the IGA, was rejected by the Government in its response to the O’Farrell Report. The Government has indicated its intention to “clarify” the IGA by amending the IGA to ensure that “click‑to‑call” services are prohibited.

While clarity in the law is required, there remains opportunity for online gambling businesses to be licensed and provided in Australia (subject to various restrictions)!

Are there any exciting technological developments on the horizon?

There is increased interest in new forms of bookmaking, daily fantasy sports, social games and eSports (among others).  Some of these new platforms are already conducting business in Australia:  others are in the early stages.  What is clear is that Australian developers are at the forefront of creating new gaming products.

What measures are being implemented to tackle the issue of gambling addiction?

A significant proportion of the recommendations made in the O’Farrell Report were directed at achieving greater and more uniform harm minimisation for Australian consumers of licensed Australian online operators. This reflects general public concern about the harms associated with gambling.

Importantly, the O’Farrell Report recommends a series of minimum standards that should be developed and included in a national consumer protection framework within the next 12 months by agreement between the Federal Government and the States/Territories. This recommendation was accepted by the Federal Government in its response. Among the matters to be addressed are:

• consistent nationwide research into problem gambling;
• a national self-exclusion scheme;
• a voluntary pre-commitment scheme;
• a prohibition on credit betting;
• training by licensed online operators of staff  in the responsible conduct of gambling;
• the provision of activity statements to customers;
• a reduction in the period in which customer verification must be conducted; and
• consistent messaging and a single national gambling hotline that operates consistently nationwide.

In December 2015, the Victorian Government introduced a voluntary pre-commitment scheme in relation to the playing of gaming machines. However, a recent media release from the Minister for Consumer Affairs, Gaming and Liquor Regulation in Victoria revealed a registration rate of 8,130 in the first 6 months of operation. This was viewed as low and casts doubt on the effectiveness of this pre-commitment scheme as a means of achieving harm minimisation resulting from the playing of gaming machines.

What key trends do you expect to see over the coming year and in an ideal world, what would you like to see implemented or changed?

Consistent with the growing international interest in alternative virtual gambling models, the Australian market has also seen growing interest in these products.  We expect to see this interest continue into the next year. As contemplated earlier,Australia’s regulatory regime relating to online gambling is outdated and thus ill-served to regulate gambling services utilising new and emerging technologies. In this regard, we would hope to see greater clarity in respect of how these emerging gambling models will be treated under existing gambling laws.

Jamie Nettleton enjoys a global reputation as a gambling law expert.  He advises Australian and international gambling operators on Australian legal issues, as well as in relation to investments overseas.  Clients include gaming machine manufacturers, wagering operators, casinos and other gambling service providers.  Jamie also has extensive specific expertise and knowledge in the field of online gambling and social media.
 
Jamie is Vice President of the International Masters of Gaming Law and a Senior Fellow at the University of Melbourne where he teaches Gambling and the Law.  Jamie has been ranked as a leading gaming lawyer by Chambers Global every year since 2008.

Jamie can be contacted on +61 2 8915 1030 or by email at jamie.nettleton@addisonlawyers.com.au