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The French regulator ARJEL released its annual report for 2015/2016 last week. Online sports betting is on a relentless rise, but even so, French taxes make it extremely difficult to make a profit.
In 2015, ARJEL reported that sports betting wagers rose by 30 percent to €1,440 million ($1,602 million), and gross gaming revenues rose by 19 percent to €270 million ($300 million).
Nevertheless, overall, online sports betting was a loss-maker for operators. Total profits for the sector in 2015 were minus €7 million. Since the new laws and taxes were introduced in 2010, operators have lost a combined total of nearly €222 million.
Of the 11 licensed sports betting operators, five have been unable to make a profit. While the situation may be bad, in online poker it is much worse, with only two of the nine licensed operators able to make a profit in 2015.
The French state can plausibly argue that high taxes have done their job well. In 2015, ARJEL regulated online gaming produced tax revenues of €382 million, and since 2010, taxes on online gambling have sent €1.946 billion to the French treasury.
The graphic below shows the number of players and annual spend per active player for all three regulated online gambling activities:
Over the five year period, sports betting spending per head has risen by almost 39 percent to €226. This is far in excess of inflation and far exceeds the figures for poker (up by 26 percent) and horse race betting (up by 10.5 percent).
The average annual spend is the difference between bets placed and winnings received; in other words, the gross gaming revenue received by the operators.
Sports betting had a huge Q2 in France.
In sports betting, horse race betting and cash-game poker, gaming taxes are calculated on the total amount bet, not as a percentage of gross gaming revenue.
This system creates an extremely high effective tax rate, and is the primary driver of operator losses. ARJEL’s first President, Jean-François Vilotte, argued for a change to a gross gaming revenue basis, but French politicians rejected his arguments.
Current ARJEL President Charles Coppolani has taken up the battle, and over the last couple of years has tried to convince government ministers that the change is necessary. Coppolani addressed the issue in his introduction to the annual report:
“Regulated market sustainability remains fragile despite the boom in sports betting…. The market is still hampered by heavy taxation imposed on money operators do not see. Economic logic recommends a system based on gross gaming revenue (GGR) that is to say the amount received minus the winnings paid out to the players.”
He immediately followed by relating the high taxes to the high rate of gambling on unlicensed sites, which can spread an unlimited variety of games and bets. Unlicensed sites have no obligations, no fees or taxes to pay, and can offer bettors a very attractive alternative to regulated sites.
This year’s annual report presents Coppolani’s most explicit arguments for reforming French gaming laws since he became President of ARJEL in February 2014.
“Enhancing the attractiveness of the regulated supply is a necessity,” states Coppolani, suggesting that the regulated market covering only the three activities of poker, sports betting and horse race betting is “probably too small in economic terms.”
He praises the changes that he has managed to obtain in 2016, adding new poker variants, more sports betting opportunities and the regulation of daily fantasy sports.
Coppolani is also justly proud of having managed to get shared international poker liquidity into the Digital Bill. Specific legislative proposals for sharing poker liquidity have since been sent to the EU Commission for approval.
Coppolani argues that ARJEL should be given more power to determine what activities it should allow and regulate, and points to the rise of esports betting as one area where submitting proposals through the legislative process simply leaves an unregulated market lacking in essential consumer protections.
In this area, he may manage to achieve some success over the next few years. However, there has been no report of French politicians being open to his arguments for changing the basis of taxation to gross gaming revenue.
Profits in the French regulated sports betting market will continue to be thin.