Whenever market percentages are a topic of conversation, talk turns to illegal wagering.
Basically, it refers to people betting with bookmakers that aren’t licensed to operate in Australia.
They’re not taxed in Australia, and they don’t have to abide by Australian laws, nor cooperate with our racing or sports authorities when it comes to integrity issues.
The question is often asked: why would somebody bet with one of these illegal bookies?
The answer? Well there are a few reasons. But generally, it’s price-related.
Illegal, offshore bookies aren’t subject to anywhere near the costs that legitimate Australian-licensed bookmakers are. Therefore, they have fatter margins to play with and can offer lower market percentages – and thus higher dividends – to punters.
Thankfully for us, August 2018 Australia’s biggest bookmaker, Sportsbet, revealed a little about their operating margins in their results update and investor briefings.
It was designed to give viewers an idea of the impact of new point-of-consumption taxes. You can view it here if you like.
Racing bodies love to talk about turnover – that’s the total amount wagered on their racing. But how do the numbers look for a bookie, and what’s the impact of a new tax?
Let’s go with a simple example: you have a $100 bet on a race. How much of that does the bookie actually pocket?
Revenue is the proportion of your $100 that the bookie keeps (in total, across all winning and losing punters).
Obviously that varies a lot depending on punters winning and losing. But we know the overall figures. The Queensland Government (with cooperation from the other states and territories) collect and publish the Australian Gambling Statistics each year.
The last published data showed bookies turn over around $7.9 billion annually on racing, of which punters lost about $850 million. Call it 11% in round numbers.
So of your $100 bet, the bookie keeps – on average – $11. That’s their revenue.
Like all other businesses, the federal government takes a cut of revenue in GST. So the net revenue after GST is actually $10. 10% of that, or $1, goes to the federal government in GST.
In Australia, racing bodies (and sporting bodies) collect product fees from bookies who take bets on their events. The fees vary based on the state, the code and the type of meeting, such as whether whether it includes high-profile Group races.
Sportsbet put that figure overall at 15% of net revenue, so we’ll say $1.50 of the $10.
The new taxes. What the state governments are doing is charging a further percentage on net revenue. Because most of the big bookies are based in the Northern Territory, the state governments say they get no tax. And they want some of the pie.
The POC tax rates vary. South Australia, Western Australia and Queensland have gone with 15% of revenue. New South Wales went with a lower 10%, while Victoria went lowest with 8%.
Sportsbet says that, blended all together, they’ll pay a total rate across all states of around 13% of net revenue. So that’s $1.30.
With what’s left, the bookies pay for all the other costs of doing business. Their staff, offices, admin costs, those endless advertisements… everything else that you need to run a business. Sportsbet’s figures put that at 40% of net revenue.
After all that is deducted, the bookie has their gross profit. From that, of course, they pay company tax to the federal government, which is 30% of profits in Australia. Sportsbet (and all other companies) have ways to reduce that which are completely legal, so they will ultimately pay less than that. But it gives us an idea.
Market Percentages: The Wash Up
Assuming all else is equal (which it may well not be), we can get an idea of how much it costs an illegal bookie to operate in comparison. We have absolutely no idea what their other costs of business are, of course.
But given they don’t have enormous marketing budgets and CBD offices full of staff on Australian wages, we can assume they’re far less. We’ve plugged in half the amount of the licensed bookie… purely for illustration (as we said, we don’t know).
All figures are examples for illustration only
The kicker, of course, is illegal bookies pay no GST, product fees, POC tax or company tax. It starts to give you an idea of how much Australian bookmakers are taxed, and why illegal bookies can afford to pay so much more back to punters in better dividends.
That’s the point. Though these costs are “taxes on bookmakers”, they’re really taxes on punters – because the bookies pay for them with higher market percentages and lower dividends.
For those with the means to reach illegal bookies and deal with them, you can see why it becomes attractive.