Close

UNFAIR COMPETITION

Be wary of unchecked online betting

Consequences of unregulated trade include proceeds being used to fund terror and organised crime.

In Summary

• These regulatory measures hurt local betting firms and benefit their international counterparts, which do not pay a shilling in tax.

• Advertising revenue for local media firms, and the jobs that depend on it are equally at risk.

That betting is one of the most heavily regulated businesses in Kenya is not in doubt. This is evident in the number of strictures governing the operations of betting firms, and the growing tax burden they have to bear.

The move to dis-incentivise betting is grounded on a sound motivation: That betting is recognised globally as a demerit good. It has the potential to harm consumers and there is always the possibility of it leading to addiction or disorder. Consumption of betting services, just like alcohol and tobacco, is best controlled through a number of well-thought-out regulatory tools.

In Kenya, this is being done mostly through a slew of tax measures. In this year’s budget statement, for instance, Finance CS Henry Rotich introduced withholding tax on winnings. The money raised through this tax would be used for the development of sports, arts and cultural activities for the youth and critical social development initiatives, including universal healthcare.

On the operations front, the government has banned most forms of advertising promoting betting. Further, the Betting Control and Licensing Board directed that all forms of betting adverts would from June 1 have to be approved by the agency before they are carried in any media outlet.

The adverts should carry an explicit warning about the consequences of gambling and its addictiveness. The warning must take up one-third of the space, besides being in the same font. But what about adverts carried online and on the many international football league matches watched in Kenya, in which a number of teams are sponsored by betting firms?

Access to the Internet, mobile financial services and other forms of payment, including cryptocurrencies, mean that betting has a new venue, largely outside the radar of regulators and tax collectors: the online universe.

While the regulatory onslaught on betting can be justified, to some extent, it is not aligned with global industry dynamics and is likely to result in unintended consequences, some of them inimical to the very objectives it seeks to achieve. The extant tax and other regulatory measures greatly disadvantage betting companies operating in Kenya, and by extension citizens, as opposed to their international competitors, most of which operate online.

Access to the Internet, mobile financial services and other forms of payment, including cryptocurrencies, mean that betting has a new venue, largely outside the radar of regulators and tax collectors: the online universe.

A story carried recently by the Financial Times best illustrates the ease with which one can engage in online betting, without going through the normal regulatory strictures such as KYC (know your customer) measures. Through peer-to-peer relationships between regulated betting firms and unregulated offshore ones, an investigative journalist, posing as a punter, was able to open an online account, place and win on a bet. No KYC questions were asked. This is the grim danger Kenya courts in the regulatory assault on local betting firms, while their online counterparts remain largely unregulated.

The advertising ban and steep tax regime will obviously have a negative effect on the Kenyan betting business and its entire support ecosystem. Jobs, both direct and indirect, are at risk. With margins likely to be in a chokehold, the government will collect lower taxes from betting firms while the cash outlays the companies traditionally spend on corporate philanthropy, and especially the promotion of sports, will obviously contract. Advertising revenue for local media firms, and the jobs that depend on it are equally at risk.

Simply put, these regulatory measures hurt local betting firms and benefit their international counterparts, which do not pay a shilling in tax. Non-licensed international betting firms will salivate at the opportunity to aggressively target Kenyans online with irresistible offers as they are not bound by the advertising ban and Kenya's tax obligations.

Unwittingly, a window of opportunity has been opened for online-based, unregulated international betting companies and illegal operators, unshackled by any form of legality. The consequences of such an unregulated trade, which include proceeds potentially being used to fund terror and organised crime, are too grave to countenance.

Efforts to regulate betting, just like any other industry, are welcome. But such regulatory measures require imagination and perspective, which is best built through an entrenched culture of consultation among the industry, government and consumers, as provided for in the Constitution, and not the absolutism we are currently seeing.

Sports business & communications consultant