Brexit could threaten Gibraltar's online gaming sector

GIBRALTAR - 12 July 2017:Deep inside the Rock of Gibraltar are vaults harbouring a prized treasure: the servers that power the websites of online gaming companies, the territory's biggest source of income.

Over the past 20 years, the limestone outcrop on Spain's southern tip has become the unofficial capital of the global online gaming industry, home to major betting firms such as William Hill.

Their servers are housed in three data centres, one of which is known as Continent8 which is hosted in the Admiralty Tunnel where Dwight Eisenhower directed the Allied landings in North Africa in 1942.

The online gaming sector accounts for around a quarter of Gibraltar's gross domestic product, according to the territory's commerce minister, Albert Isola.

And around 30 percent of the global online gaming sector -- worth an estimated $39.3 billion (44.6 billion euros) in 2016 -- was generated in Gibraltar, according to Simon Holliday, founder of consultants H2 Gambling Capital.

- Border worries -

Back in the 1990s, before the dawn of the internet, when bets were made by phone, gaming operators began arriving in the territory attracted by low taxes and access to the European market.

Isola said Gibraltar only accepted top-notch, or triple-A operators, who must have a physical presence in the territory and are bound by strict rules governing money laundering, under-age gambling and addiction.

"Because we were very careful whom we allowed in, we began to create a brand reputation," Isola told AFP.

While hundreds of firms are licensed in Malta, another major player, only 30 companies have an online gaming permit in Gibraltar.

The companies employ more than 3,000 people from all across Europe, and most live in Spain where housing is more affordable and the cost of living lower.

"We probably wouldn't have grown the way we did if we didn't have the hinterland," said Peter Montegriffo, a lawyer who helps online gaming companies set up shop in Gibraltar.

But Britain's EU departure could pose a major headache for the industry.

"The major concern is the impact of how the border will work for industries like the gaming sector," said Montegriffo.

- 'Hugely significant' -

Spain ceded Gibraltar in perpetuity to Britain in 1713, but has long wanted it back.

Madrid has renewed its claims since the Brexit referendum last year, fuelling fears it could step up border checks, causing lengthy delays to enter the enclave.

This has been the case in previous periods of tension between Madrid and London.

Spanish dictator Francisco Franco closed the border completely in 1969 and free travel between the two sides was only fully restored in 1985, just before Spain joined the EU.

"The Brexit challenge is hugely significant for Gibraltar," said Montegriffo.

"We don't think that democratic Spain will use the frontier as a sort of weapon as it did 45 years ago (but) it is unchartered territory."

Lottoland, one of the world's leading online lottery companies, has taken steps to ensure its 200 employees in Gibraltar can work from home if needed.

"It's a way to hedge our bets and cover all eventualities. Business continuity is paramount," said Lottoland's recruitment chief Andrea Lazenby, speaking in the company's offices overlooking Gibraltar's marina.

The Brexit negotiations between London and Brussels have started and whatever terms are eventually agreed will also have an impact on the sector.

Britain is Europe's biggest and most mature gaming market.

But "more and more firms ... have used their base in Gibraltar to be licensed on other European countries" such as Spain, France or Italy, said Isola.

- 'Our home' -

One of the world's biggest online casinos, 888, warned in its 2016 annual report that it would consider moving from Gibraltar to Malta if Brexit cuts off its access to the European market.

Britain has bargaining chips should Brussels decide operators must have their servers in the EU in order to retain their gaming licences in member states, said Montegriffo.

London could retaliate and, for example, block an operator based in Malta from having access to Britain, he said.

But Lottoland director Nigel Birrel is upbeat.

"In terms of being able to offer your services in the EU, I don't think Brexit will have any untoward impact, apart from moving a server there or maybe a handful of staff," he said.

"We will stay in Gibraltar for sure. We want to be in good company with all the big guys. That's our home."

Continent8 also plans to stay, according to its manager in Gibraltar, Luis Garcia, as he sits in Eisenhower's former command post.

"Continent8 will be here as long as the customers are here. And they have said they don't have any intention of leaving Gibraltar," he added.