March 08, 2011

Betfair joins UK offshore exodus

Betfair has become the latest operator to move offshore to escape the UK’s 15% gross profits tax and will save close to £20m a year, its chief executive announced during its third quarter results this morning.

As of tomorrow the newly floated betting exchange will operate under a Gibraltar gaming licence following in the footsteps of rivals Ladbrokes and William Hill, both of which have announced millions of pounds in cost savings since their departure from the UK two years ago.

Betfair CEO David Yu has made no secret of his desire to move more of Betfair’s operation offshore. In October the exchange opened a new Dublin office to house its data centre and telebetting operators. This was considered a warning to the UK government to take action over proposed tax increases including the horseracing levy which it today said it would continue to pay for the time being. The UK government has been reviewing the licensing system but has yet to announce any decision on reforms, however Betfair’s statement today could spark calls for reforms to the law.

Last year the betting exchange paid £6.1m in payments plus another £1.25m voluntary payment due to its overseas customers betting on horseracing. At the time Tessa Murray, director of corporate communications at Betfair, told eGaming Review there were “no immediate plans to go offshore”.

In a statement Yu said that in recent months Betfair had transferred the majority of its key systems from the UK to Gibraltar and Dublin employing over 120 people. He said its revised structure would “provide the company with the freedom to locate key technical equipment in more efficient locations in order to improve service to customers and compete on a level basis in the UK market”.

In a conference call with city analysts this morning, queries were raised about the wisdom of Betfair’s continued methods of contributing to the horseracing industry, with suggestions that its existing goodwill (or lack thereof) with the industry might make sponsorship a more beneficial option than continued levy contributions.Yu responded by explaining that the company will continue to hold talks with the racing board before settling on the best way to go about contributing to the industry.

“We believe making contributions to racing is important, and we will look at what the right mechanism is. We need racing to do well and if it continues to thrive that would only be good for our business.”

Betfair said its operational costs would rise in the short term due to running both new and existing data centres, but that this would reduce as its systems consolidation programme is finalised at the end of next year. It would then see significant tax savings of as much as £20m a year and £10m of underlying earnings.

The company said it would continue to be incorporated in the UK and employ 1,200 people at its headquarters in Hammersmith in London and at its other offices in Stevenage and Halifax.

Betfair floated on the London stock exchange in October last year valuing the company at more than £1bn. Shares were first traded at 1300 pence and hit a high of 1610 pence later that month, however the price has since slumped over fears of increased regulation in the industry. Shares closed yesterday at 887.5 pence, valuing the business at £954m.

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