Sky Bet performing well, but beware a government tax hike

This is certainly something that the British government has leveraged during the last decade, having incrementally increased tax and introduced new levies on operators in a bid to optimise public revenues.

With the online gambling sector thriving and now accounting for 33% of all gambling activity in 2017, operators like Sky Bet are performing better than ever from a financial perspective. This may well tempt the government to implement further tax hikes, but could this hinder growth and the lucrative nature of the marketplace in the UK?

Sky Bet's outstanding year – and a call for reason by Richard Flint

Sky Bet released its latest financial revenue report on November 8th, showcasing positive figures and an increased rate of growth. 

More specifically, the operator revealed a 38% increase in group revenues between 2015 and 2016, as turnover rose to an impressive £516 million during this period. This has been received well within the sector, while it's also reported that the company will create up to 200 high-tech job roles in it's home county Yorkshire.

As the operator's turnover and bottom line profitability continue to increase, however, chief executive Richard Flint has moved to avert any future tax hikes before they are formulated by the government. Flint has written a letter to Chancellor Philip Hammond, in a bid to help maintain the current rate of growth in the UK market.

While some would argue that Flint has been a little presumption in his approach, he did not act without reason. After all, the government's point of consumption tax was released with little warning in 2014, and it is far from inconceivable that this could be increased in the near-term. Similarly, the government is in the midst of reviewing a potential change to the betting limits associated with fixed odds betting terminals (FOBTs), with any amendments potentially including a higher rate of consumption tax.

What impact would further tax hikes have on Sky Bet and the market as a whole?

Regardless of the rate of any subsequent tax hike, this would increase the cost of operating for brands like Sky Bet and eat into their bottom line profit margins. Flint's response to this is typical of most UK operators, who are happy to pay an incrementally higher rate of tax to base themselves in the UK but will not maintain this business model if it becomes financially unsustainable.

“We are prepared to have the penalty of higher taxes versus being based offshore but it could become unsustainable if taxes are increased too much,” wrote Flint in his letter to the Chancellor. More succinctly, despite being committed to the UK iGaming marketplace, Sky Bet are simply not willing to remain a resident at any cost.

Sky Bet and other operators already pay a 15% point of consumption tax in the UK, while they must also pay VAT on any affiliated marketing expenses (offshore operators do not have to meet this obligation). There is a tipping point in terms of the financial levies that companies will bear, and anything other than a marginal tax hike in the future could push British firms over the edge.

The crucial thing is that the government respects the need for balance, while also recognising the value that gambling operators add in terms of job creation. After all, operators like Sky Bet are keen to stay in the UK and support the economy, but not if it comes at the detriment of the firm or its employees.
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