Online bingo and casino: is there life after the UK bonus tax?

The introduction of the UK online tax on bonuses set for 1 August is the elephant in the room for online bingo and casino operators. While some are ignoring it, others are implementing new strategies to counter its effects.

But how will the UK online casino and bingo sector respond to it and is it now too late for those who haven't already put in place an alternative strategy to cope with it?

 

Amanda McCormack 

At the recent Online Bingo and Slots Summit held at the Hippodrome casino in London, online bingo and casino operators discussed the bonus tax and other key topics such as evolving gaming platforms and the combined impacts of all these changes on the industry.

It was clear from the event that while some were happy to continue as if nothing would change, for now at least, other operators were already changing or adapting their corporate strategies to cope with the new tax.

The tax on bingo bonuses will result in a 15% general betting duty on all free or discounted online bets, so whereas before 15% would be paid on real bets, once the bonus tax comes into force operators will have to pay 15% tax on all bets placed, including on free bonuses and on the value of free spins.

Cenkos Securities estimates the tax, once brought in, could take the form of a £5m to £10m annualised hit for operators.

Online casino and bingo had been exempt from the 15% general betting duty imposed on free or discounted online sports or race bets, and with the announcement coming on the back of the 2014 introduction of point of consumption (POC) tax of 15%, it came as an understandable blow to operators.

Following the UK hung parliament election result in June a rumour emerged that introduction of the bonus tax had been delayed, but, unfortunately for casino and bingo sites, it was a case of ‘fake news’. It will be going ahead with no fundamental changes.

Once the tax is brought in free spins will be taxed at their actual money value along with bonuses, but some operators argue that they have ways of limiting the impact of the bonus tax and that they can bring in measures to circumvent it if necessary.

How to limit the implications of bonus tax?
Some operators had already implemented changes when the original POC tax came in.

Elad Dvir, director of the Dragonfish bingo network, explained that the company originally “moved to a different bonus scheme, so we moved from bonus-money-winning-real-money to bonus-money-winning-bonus-money, which increases your margins and helps to fight the tax”.

However, bonuses are still at the forefront of acquisition offers for many online bingo and casino operators. Tom Ustunel, head of gaming for News UK (which runs Sun Bets, Sun Bingo and Fabulous Bingo), said: “We took a decision that active acquisition is good for us, so we offered at Sun Bets 10/40 and even tried 10/50, we knew margins would be squeezed further down the line, so for us the main way to grow our business is with volumes of player acquisitions.”

PlayOJO is another casino operator that is using bonuses as a key acquisition tool. It is offering 50 free spins, there are no wager requirements and players get money back on every bet.

Ohad Narkis, co-founder of PlayOJO, said: “It will remain the same because we built an eco-system to cope with this, it is a new brand that only launched very recently, so we knew at the time these changes would be coming into effect and it formed part of the consideration for the business model.

“Irrespective of any changes to regulation this is the right offer for the customer. It is still a viable commercial model and I agree that it is all about volumes, but without the free bonuses and free spins you will find it hard to acquire customers.”

Replacing bonuses
Despite the tax on free spins, Dvir of Dragonfish said: “I’m 100% sure we will see more and more sites move from pure bonuses into free spins and free bingo cards. This is logical because when you give free spins, you can give a lot, and players don’t usually know how much they can win from it, but the good thing is you know how much you are giving away. I think this model is easier as you know exactly how much tax you will pay at the end of the day.”

It is a different form of acquisition, but how much loyalty is there when players are offered such incentives? Dvir explained that they play for longer with free spins and there is more player loyalty while player value is higher, so he doesn’t think players believe they are getting less. 

Affordability, however, is a big issue for some. Ustunel said that when the new tax comes in Sun Bets probably wouldn’t still be able to offer 400% or 500% bonuses.

“I suspect not – I believe we will move away from bonus heavy stuff to more experiential, as pretty much anyone can copy a cash offer, we can offer the customer an experience instead, for example a holiday. We can circumvent the tax in a way by improving our marketing techniques.”

This year GVC’s Foxy bingo and casino brand, tellingly, signed a deal with ActiveWin Media to leverage its network of over 30,000 affiliates to promote the Foxy Bingo and Foxy Casino gaming websites in the UK.

By working more closely with affiliates in order to drive traffic to its site, GVC’s Foxy is starting to move away from traditional bonus offers and towards affiliate marketing. 

Should affiliates pay bonus tax?
With online bingo and casino operators having to bear the brunt of bonus taxes, should some of the costs be passed onto affiliates? The operators at the event certianly believed so.

“The affiliate landscape has changed, we offer them to work with external platforms so they can build their own platform, therefore they can decide on their own if they charge for bonuses. I think affiliates should take some of the hit at least,” said Dvir.

Narkis agreed: “We mainly have a revenue share, deduct POC tax and then give affiliates their share, so if this goes up, the structure will remain the same. They should take some of the costs.”

Ustunel of Sun Bets had a slightly different approach, saying they would end up ‘soaking up the extra costs’ in order to avoid it affecting their top players and increasing churn rates. 

Ustunel of course is in the envious position of being able to rely on a major corporation such as News UK, which can temporarily take financial hits such as the bonus tax, but he also pointed out that a move away from bonuses was not necessarily a bad thing as it could leader to higher player values in the long-term.

Some content providers charge operators for the use of free spins, so with the added costs there is an argument that content providers should also absorb some of the costs.

Ustunel said: “It depends on the game really. If we have a big title it would be very hard to say we want to do that, if the margins start to get squeezed on one particular title then obviously we would look at that… a lot of operators out there are building their own bespoke games to avoid paying content providers.”

Conclusion
Most online bingo and casino operators are ready to roll with the punches that the new bonus tax will bring with it.

Although some are not as prepared as they probably should be and are making the most of the time they have left by bringing in large player volumes, many are already prepared to change or adapt their business models and marketing strategy to limit the impact of the extra costs.

The key is to keep not only player volumes up, but player loyalty and retention as well.

It may be that affiliates help share the impact of the new tax, but also that more is spent on less traditional marketing strategies that move away from the traditional reliance on bonuses and free spins to draw customers in.

Related articles: Opinium report: Introductory offers still most important to UK punters (paywall)
iGB Market Monitor – June 2017 (paywall)
UK Budget 2014: bingo, FOBTs, point of consumption tax