by Declan Jordan

Recently I posted on this blog about the potential for taxation measures to address some of the negative effects of Ireland's problem with gambling addiction. In the course of it I noted the substantial difference between the rate of betting tax (1% paid by bookmakers) and the VAT rate (23%), and suggested that there was scope for an increase in the betting tax (among other suggestions) which could be paid by the bookmakers or by punters.

I received an email from a UK colleague who took issue with my suggestion that the negative effects of gambling (internalising the external effects) could be achieved by punters paying taxes (especially at a higher rate) on their bets. As I reflected on the points, I realised he was right and that this element of my suggestion could in fact worsen the problem for gambling addicts. As he pointed out, there is a difference between alcohol consumption and betting consumption. An increase in the price of alcohol (through higher excise for example) should reduce the quantity consumed, albeit at a slow rate given alcohol's price inelasticity. For gambling however, the difficulties arise from the total value of money gambled and the difficulties this poses for addicts, so an increase in the price of gambling (by raising a tax levied on punters) would increase the overall value of bets and probably exacerbate the financial difficulties (and ensuing personal and social difficulties) for problem gamblers.

I think this means higher taxes would have to be borne by the bookmakers, and not passed on to punters. My other suggestions, a higher bookmaker-paid betting tax and/or a levy on bookmaker profits would still be beneficial in my opinion where the revenue is directed into education about and support services to those with gambling problems. This would mean ending the situation where revenue from betting taxes are largely invested in the horse racing and bloodstock industries to keep the vicious cycle going. The tax on bookmaker profits may be preferable to a high betting tax since it would be easier to collect and monitor where there is such substantial online gambling.

The conclusion I've drawn is that it would seem very difficult to internalise the external effects of gambling on an individual basis - and this makes sense when one considers that gambling addicts impose costs largely on themselves (and families) through their behaviour. This would mean the societal costs would need to be internalised in the aggregate.

There are two other initiatives that should also be mentioned.

My correspondent made the very useful suggestion that a reliable national estimate of the prevalence of problem gambling and gambling addiction would be very beneficial in Ireland to inform policy and I agree. 

I think also as part of the policy measures to address the problems of gambling there should be a ban on advertising and sponsorship by bookmakers, similar to that in place for tobacco companies and to a limited degree for alcohol. 

by Declan Jordan

A recent discussion on Newstalk’s Talking Points with Sarah Carey addressed the difficult issue of gambling addiction. It is very difficult to assess the scale of gambling addiction in Ireland (and elsewhere), particularly with the advent of online gambling websites and mobile phone apps. Gambling is a particularly invidious form of addiction. As pointed out in the radio discussion, gambling addiction is a silent and hidden disease – there is no smell on the breath or puncture marks in the skin to give it away. Addicts may believe that a way out of their problems is to ‘double down’ so that more gambling becomes the ‘solution’. It is unlikely that any alcoholic or drug addict believes that a way to solve their addiction problem is to drink more. Gambling is also a difficult addiction to address because it is not a substance introduced to a body, but rather is bound up with an individual's self-worth and need to be right.
 
As a society Ireland is coming to terms with its damaging drink culture. There is more education about the dangers of alcohol and there is an opening up about the problems of gambling addiction, with several high profile sportspeople now talking about how they suffered from their gambling problem.
 
This is not the case with gambling, and if anything we are normalizing gambling as an activity, just as we did (and to an extent still do) with binge drinking. The saturation coverage on all media of the Cheltenham festival is a perfect example. However, it is clear now that betting has infiltrated many parts of our national discourse with coverage of the recent election often showing the odds on different election outcomes and potential Taoisigh. Football on television has become an opportunity to bet as the game progresses with odds flashed on screen continuously during, for example, Sky Sports coverage. Of course, once you have a mobile phone then it is so easy to put down a stake.
 
Of course there are many (probably a majority of punters) who can control their gambling, just as there are a majority who can control their drinking. There is no way a prohibition on gambling makes any sense. Indeed there are many strong vested interests who would have a stake (pun intended) in keeping the gambling industry as strong as possible. The Irish government levies a 1% tax on bets (which in the last budget was extended to online betting). The take from this tax is paltry however.

Even this small amount is used to prop up the bloodstock and racing industries – irrespective of whether the bet being taxed was placed on horse racing or not. It’s fairly clear there are very strong vested interests at play here – and the popularity of horse racing in Ireland means the government continues to forego what could be a very profitable source of tax revenue. The ring-fencing of revenue from this tax for the horse racing and bloodstock industries also makes little sense. The value of bloodstock industry itself was estimated at €0.9bn in 2010. The industry receives approximately €11m from the betting tax (or approximately 1% of the industry value). Does this very successful industry require state support?
 
This boils to little more than a question of priorities however, until the issue of gambling addiction is considered. Whatever the scale of gambling addiction in Ireland, there can be no doubt that the gambling industry, and the sport of horse racing that relies on gambling to exist, have negative social external effects. The effects are more significant also because they are so highly concentrated, in that the damage done to individuals and families are catastrophic. An issue raised in the discussion on Newstalk was the lack of investment in gambling addiction support in Ireland. Potential solutions were in short supply, though it is clear that a large part of the solution must be internalizing the external costs of gambling. That means dramatically increasing the betting tax. There can be little justification for VAT rates of 21% and a betting tax rate of 1%. This could be paid by bookmakers (as is currently the case) or by punters. This could be supplemented by a levy on bookmakers’ profits. And instead of ring-fencing the income for investment in an industry that hardly needs such investment, the proceeds could instead by invested in gambling addiction counseling and other mental health supports.

by Declan Jordan

The General Election campaign is in full swing in Ireland. Each party has published their manifestos. What is in them for the Irish sports community?
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Fine Gael (the largest party in the current coalition government) proposes more physical education at primary school level and its introduction as a leaving certificate (high school) subject. They claim they will work with the Irish tourism promotion board to develop tourism in cycling, sailing, running and in adventure sports. They commit to an annualised round of sports capital grants. The party promises to produce a national sports strategy but there are no specific elements of that measure, though greater public use of the national sports campus facilities is suggested.

The Labour Party (the smaller party in the current coalition) always proposes a national sports strategy, though they indicate that, as part of that strategy there will be a specific sports bidding entity to facilitate bidding for events across all sporting organisations. The sports policy will also include elements to support sports tourism. In relation to sports capital grants they indicate that they will prioritise applications that are jointly submitted by sports clubs and schools to incentivise the facilities being available more generally to the public. They suggest a National Physcial Activity Plan which will have an objective to support the Special Olympics and increased participation in sport by females.
 
The Fianna Fail policies are framed largely in the context of improving health outcomes through encouraging physical activity. The plan around improving health includes taxes on sugar sweetened drinks, healthy eating programmes in schools, and strengthen local authorities’ powers to compulsorily purchase land for recreational use. The party promises to ‘phase out’ alcohol companies’ sponsorship of sporting events. They indicate that there will be an audit of NAMA properties to identify those suted for sports and recreation use and that “major construction project levies should integrate a contribution to locals sports clubs, such as land or monetary contributions”. The party will change the Sports Capital Grants system to allow funding of Community Centres, providing services to elderly social groups. It’s unclear if this will be mean a reduction in the money available to sports clubs.
 
Sinn Fein’s commitments on sport are contained in the section on building communities. The manifesto says they “ see sport as having a vital role in developing communities and want to ensure that investment is made in recreational sport first and foremost at community level; and that all sporting bodies, particularly at professional level, are properly funding and governed.” There is an unquantified commitment to invest in sport and another commitment to invest €42 million in sport at community level. This is in a section headed an all-island approach.
 
Renua Ireland is the only party to mention specific sports in their election manifesto. They have sections dedicated to Horse and Greyhound Racing and the Horse Sport Industry. To support these industries they propose increasing the betting levy from 1% to 3% and ringfencing the income for the sports. They state that “a senior level Department unit should be created to facilitate and drive government policy on the [thoroughbred] sector”. With specific reference to the showjumping, eventing and dressage sectors, they propose a four year tax incentive scheme “to attract investment in the sector, with a clear goal of garnering medals at the Tokyo Olympic Games in 2020”.Interestingly the policy also states in the section on the tax system, that “the only circumstance in which RENUA Ireland believes reliefs should be permissible is a situation where appalling economic planning has led to a market failure”.
 
The Social Democrats, a new party in this election, do not have any mention of sports in their manifesto. There were no mentions of sport in the manifesto of People Before Profit, and I couldn’t find a manifesto for their allies in the Anti-Austerity Alliance. 

By John Considine

There is a superb article by Philip Connolly in the recent edition of The Sunday Business Post titled 'By Jorge! Ronaldo's Agent and his Dublin connection'.  Connolly explains that the attraction of Dublin for Jorge Mendes is "the same for many other body corporates - tax".

I particularly like the sentences "At the head of a vast multimillion-euro business, the Portuguese agent sits atop an organisation that spans from Porto to the tax haven of the British Virgin Islands.  In the middle is Ulysses House, a nondescript office block just north of Dublin's River Liffey.  It is here that a subsidary of Gestifute, Mendes's agency, shares a registered office with more than 150 other companies."  Connolly describes the British Virgin Islands as a tax haven and in the following sentences he discusses the 150 registered offices in Ulysses House.  Imagine all the economic activity that takes place in Ulysses House!

The article is not just about taxation.  Connolly also discusses 'economic rights participation agreements' and the role of an entity called Quality Football.  Most of us might associate Carlos Tevez with third-party ownership of a player's sporting rights.  Connolly says explains how Norwich's Ricky van Wolfswinkle is another player with a connection to such agreements.  Tevez kept West Ham in the Premier League while embroiled in controversy over his arrangements.  Van Wolfswinkle was relegated with Norwich after a season where he contributed almost nothing on the scoreboard. 

By John Considine

A government idea to use the tax system as a vehicle to boost the Olympic legacy by awarding tax breaks worth up to £50,000 is under way in the U.K. The story can be read here  and here.To get an idea of the mechanics of the changes see here

An interesting article in today's Irish Times by Ciaran Hancock shows that Irish sports stars are set to benefit from tax rule changes in the Finance Bill published yesterday. Previously, Irish sports stars were entitled to tax relief on their sports earnings (this would exclude income from sponsorship etc) on retirement but were required to finish their careers in Ireland to avail of the relief. The Finance Bill changes now mean that sports people no longer need to spend their final year before retiring in Ireland and it is suggested in the article that this was prompted by EU Commission concerns.

Sports people are only able to claim to relief on income earned while resident in Ireland.

John Considine wrote about this tax relief previously on this blog. He noted that the cost of this relief to the exchequer from 2003 to 2011 was pretty small but could increase dramatically in coming years. Yesterday's change is likely to contribute to that rise.

By John Considine

Why were there only 11 non-British or Irish players in the top flight of English football in 1992 and 250 of them in 2007?  This is a question Richard Brooks raises in his 2013 book The Great Tax Robbery.  Not surprisingly, given the title of his book, Brooks says tax law can help explain this transformation.

The central role played by Arsenal in his illustrative examples is interesting.  Brook begins by naming the starting Arsenal eleven from Valentine’s Day 2005.  It was the first occasion in the top flight of English football that a British player was not in the starting eleven.  The use of illustrative examples involving Arsenal is also interesting given comments emerging from the club about financial doping in soccer.

Like Arsene Wenger, Richard Brooks plays Dennis Bergkamp up front.  He shows how Bergkamp led the line when it came to getting some of his rewards from Arsenal paid to an off-shore entity he had established while playing for Inter Milan. The Dutch and Arsenal striker with the quick brain and feet was no slouch when it came to innovation off the field.  Bergkamp showed that footballers as celebrities could profit from their image. Image rights, says Brooks, are “an intangible commodity as pregnant with income tax possibilities as drug’s companies patents were for its corporation tax bill”.

Three English men that played for Arsenal also feature in The Great Tax Robbery - Parlour, Platt and Campbell.  The example of Ray Parlour is at least as important as that of Bergkamp for the author.  Because of his personal troubles, Parlour’s finances makes for some interesting reading and comparisons.  If we stick to the football comparisons, we see that tax-resident British footballers could not benefit to the same extent from the tax law as those players that were
“non-doms”.  That is not to say they did not benefit from the various schemes!
 
Because players are interested in the net rewards, clubs could get better foreign players for the same net payment.  This is the competitive advantage foreign players have and it goes a long way towards providing an answer to the question Brooks raised: Why were there only 11 non-British or Irish players in the top flight of English football in 1992 and 250 of them in 2007?
 
Brooks goes further and says that it also means that “talented British youngsters struggle to find places at the top level and the national [English] team plumbs new depths of under-achievement: failure to qualify for Euro 2008, a dismal showing at the 2010 World Cup and a further also-ran finish at Euro 2012”.

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