Hilton said it would expand its existing business in Gibraltar, boosting the number of staff employed in its call centre there from 25 to 200. The telephone betting service, previously restricted to big-spending, non-UK customers, will be extended to gamblers anywhere in the world, including Britain.
Punters dialling a freephone number will pay just 3 per cent betting tax compared with 9 per cent in Britain.
Peter George, Hilton's chief executive said: "Competition in telephone and Internet betting has no respect for national boundaries. We have been operating successfully in Gibraltar since 1992 and are determined that the Ladbroke brand should be pre-eminent in the new distribution channels that are being created by new technologies." The enlarged division will take bets from October.
Hilton's decision to increase its offshore betting operations is the latest move in the dash to off-shore betting that is transforming the traditional bookmaking industry.
The high street bookies like Ladbroke, Coral and William Hill are hurriedly developing their own off-shore plans since rival bookmaker Victor Chandler opened up its telephone business, Victor Chandler International, in Gibraltar in May. The motive behind Victor Chandler International was to avoid the high levies and tax demanded from betting companies in the UK and which help subsidise horse-racing and other sports. For punters, the attractions are obvious.
In the UK, every bet is taxed at a rate of 9 per cent. Of this, 6.75 per cent is collected by the Government, contributing about pounds 400m a year to the Treasury's coffers. Most of the remainder goes to support the racing industry, with deductions of around 1.25 per cent scooped by the bookmakers as a service charge.
By moving its operations to Gibraltar, Chandler and other off-shore operators avoid betting taxes altogether. Victor Chandler International levies 3 per cent, half of which, the company says, will be invested in the UK racing industry. Hilton also plans to charge a 3 per cent, but will initially keep that revenue as profit.
The growth of the offshore betting industry has been hampered by restrictions on advertising in the UK. The law strictly precludes any promotion of offshore business, which might be construed as tax evasion. But thanks to a loophole uncovered by Victor Chandler in June, companies can advertise their operations on both Teletext and their own Internet sites since these media are not categorised "documents", as referred to in the law. Since the ruling, the number of gamblers moving telephone accounts to off-shore operations has rocketed.
Not surprisingly, the UK's other major betting groups, Deutsche Bank's Coral and William Hill, owned by private equity fund Cinven, are also keen to get in on the act.
Coral does not currently operate an offshore unit, but announced two weeks ago that it is looking at available options.
Malcolm Palmer, a spokesman for the company admits: "In order to be competitive, we have to establish an offshore division."
He said Coral aims to have a licence by Christmas and to begin its offshore business for high-staking, frequent gamblers next year. But it will maintain its Essex-based UK operations for customers who bet less frequently and with smaller amounts.
William Hill already has an offshore operation on the Isle of Man. But under the terms of an agreement with the local authorities, the group can only offer tax-free betting to non-UK customers.
Graham Sharpe, a spokesman for William Hill, said the company is in discussions to renegotiate this arrangement to include UK customers. If this does not prove fruitful, the group will consider relocating to another offshore location. "If the government does not listen to the concerns of betting companies and refuses to reduce its levvies, we will seek to offer customers a tax-free service elsewhere," Mr Sharpe said.
The Treasury does not appear concerned that for each pound Mr Chandler takes, he is depriving the Government of 6.5p and the UK racing industry of 1.5p. A Treasury spokeswoman said: "We are monitoring the extent to which offshore betting affects our revenues and, so far, it is negligible."
So far, the proportion of the UK's pounds 7bn annual gambling market affected is relatively small.
Analysts predict that telephone betting operations, which account for just 10 per cent of pounds 6bn off-course betting industry, will be the first to feel the heat from offshore competition. But, more worringly for the industry, it is already winning over higher-spending customers, the kind who will regularly wager pounds 500 a week.
More gamblers likely move as familiar names open offshore. William Hill's Mr Sharpe said: "There were UK companies offering offshore services prior to Chandler, but no one had heard of them. The Chandler move raised the stakes because his is a well-established company and no one would have a problem with taking their business to them."Reuse content