Racing: Boom time on the Rock as punters roll up

Bookies scramble for a place in the sun as no-tax betting multiplies. By Greg Wood in Gibraltar

AS YOUR plane banks sharply towards the narrow, ex-RAF airstrip, Gibraltar does not look much like a boom town. There is a thin smear of houses and office blocks around one side of the Rock, which is home to 27,000 people - barely enough to fill an average Premiership football stadium. And yet, thanks to a mix of centuries-old power politics, mid- Sixties British betting legislation and the heat of late-Nineties technology, this place is a modern Klondike.

It is less than a year since Victor Chandler decided to move his British credit-betting operation to Gibraltar, and already he employs more people than anyone except the island's health service. Ladbrokes, which did the same in the summer, is close behind. Stan James, another British bookie with a foothold on the Rock, has also expanded its workforce significantly.

Between them, they have created almost 500 jobs in the last nine months. On the same scale in Britain, the equivalent figure would be a little over one million.

Bookmakers have always been fond of this stretch of the Spanish coast, but generally only for a two-week break after a thumping Ascot or Goodwood. The weather is warm, the thousands of ex-pats make it feel like home, and there is a different golf course for every day of the week.

In the past, a few even set up business in a small way. Ladbrokes and Chandler have had a presence for several years, servicing high-staking foreign clients (about 100 of them in Ladbrokes' case, with an average stake of around pounds 4,000).

But it was only when Chandler astonished racing by moving to Gib, opening the lines to British clients and charging deductions at just three per cent, that the boom really started. Immediately, his rivals saw their bigger customers dribbling away.

A punter who staked pounds 50 a day, five days a week, could save almost pounds 1,000 a year by taking his business to Victor. The phone calls were free, so what did it matter if on a clear day the person at the other end could look out of their window and see Africa?

The big bookies were forced to respond. Ladbrokes' Gibraltar operation started taking bets from Britain in October, and they now require a minimum stake of just pounds 10. Coral bought out a local Internet bookie, and thus acquired his betting licence, around the same time. Hills, meanwhile, have devised a scheme which will see calls routed through the Caribbean to avoid the need to charge their punters tax.

Space is at a premium on Gibraltar, and Chandler and Stan James run their business from different floors of the same office block near the casino, at the foot of the Rock.

Ladbrokes, meanwhile, are in a new development down by the shore, on land reclaimed from the sea 150 years ago. There are no signs or corporate colours on their HQ, nothing to indicate that a multi-million pound betting business is being carried on inside. It feels rather like the arch-criminal's command centre in a Bond movie, from where world domination is being ruthlessly plotted.

The inside feels a little like that too. There are banks of computer and television screens, hundreds of miles of cabling, and software that knows whether an incoming call is from a pounds 20 punter in East Cheam or a five-grand heavy-hitter in Hong Kong. It has clearly cost millions. And all because the Chancellor expects British punters to pay nine per cent tax on their bets, when modern technology means there's simply no need.

They have 4,000 clients already, and John O'Reilly, Ladbrokes' man in charge, is keen to point out that these have not been passed on by the parent operation in Britain. "There was no question of us contacting bigger Ladbrokes customers and saying "what about this, then?" he says, "because there were some legal question marks about it. These people have all found us, not the other way around, and they tend to be fairly heavy-hitters, maybe pounds 100 a bet, which is what you would expect, because the value is greater for them."

The law prevents advertising, or even mention, of Ladbrokes' Gibraltar telephone number in most media. At present, though, advertising on television text is legal thanks to a loophole opened by Chandler's lawyers four months ago. Gordon Brown intends to ban that too next year, but O'Reilly is not unduly bothered.

"There's still word of mouth and the Internet," he says. "Punters tend to talk to punters. And how can you stand in the way? In financial transactions, geographical borders now count for nothing. You can be anywhere in the world and I can take money from your bank account in seven seconds, and put it back again just as quickly."

The overall betting turnover on Gibraltar can only go one way, particularly since former restrictions on the number of betting licences issued on the Rock are no longer recognised. "Basically," O'Reilly says, "if you can show that you'll bring economic benefit to Gibraltar, they'll give you a licence."

And there can be little doubt about the benefits of betting to this tiny colonial throwback, with its British bobbies and telephone boxes, and a crime rate which is effectively zero (someone stole some flowers from an unlocked church a few weeks ago, and it made half a page in the daily paper).

Back in the 1970s, more than 70 per cent of the population worked for the MOD, servicing warships in Gibraltar's deep harbour. By the Eighties, the naval work had largely gone home to Portsmouth, and now it is financial services which are taking over, particularly those in which the value of your investment goes up or down in the time it takes to run a race.

Ladbrokes alone are reckoned to have put two percentage points on the island's GDP. The bookies are also providing work for people who could not work before.

"The family and social structure here doesn't really lend itself to mothers going out to work," O'Reilly says. "Kids get two hours off school in the middle of the day, and they're not allowed to stay there, they get sent home, and lots of workers go home too. So we've provided opportunities for those mothers to work at times when they previously couldn't get work."

But if the Gibraltarians are winning, someone must be losing, and for racing, which receives a small cut from British betting turnover, the long-term implications of betting's move offshore are of deep concern. At present, all of Ladbrokes' three per cent deduction goes back into their cost structure, while Chandler makes a voluntary contribution of one and a half per cent to racing, mainly via race sponsorship.

O'Reilly is sensitive to claims that Ladbrokes moved to Gibraltar to avoid paying tax. "That's a misunderstanding," he says. "We pay two and a half per cent in corporation tax to the Gibraltarian authorities, and the balance of the profits go into the UK books. We've never avoided paying British corporation tax on profits made here in Gibraltar, even though until recently we weren't taking a single bet from the UK."

Instead, it is their customers who are avoiding tax, and more are finding their way to the dusty Rock. The Gibraltarians seem to have cracked the perennial problem of gold rushes. This seems to be one place where the gold will never run out.