Betting on Balance: Nigeria's Sports Betting Tax Dilemma

●    Olojede: It’s not always a bad thing if small players become extinct
●    Ehiaguina: Unregulated betting platforms may spring up and take advantage of this situation

It’s almost been one year since Bola Tinubu became the president of Nigeria and his administration has become renowned for introducing policies that have made the Nigerian economy a shadow of itself. One of such policies is the recent introduction of a new tax regime for the sports betting industry, which has sent shockwaves through the sector, sparking heated debates and concerns among operators, consumers, and industry stakeholders.

This bold move aims to regulate and generate revenue from the booming sports betting market, but its implications extend far beyond mere fiscal considerations, potentially reshaping the industry's landscape and impacting the dynamics of this multi billion-naira business. Sports Boom sat down with two professionals - a finance expert & economic analyst, Gbolahan Olojede, who explains the possible rationale behind the government’s decision and a renowned i-gaming expert & consultant, Harrison Ehiaguina, who sounds the alarm on the potential dire consequences of this decision.

Finance expert & economic analyst, Gbolahan Olojede

As a finance expert and economic analyst, what do you think was the rationale of the government in coming up with this levy for the budding industry?

Olojede: The revenue accrued from such an initiative could help with an improved regulatory environment, in the sense that some of it could be put back into creating a better environment for the betting industry to thrive. It could also be invested in related and complimentary activities such as core sporting activities. Some of the revenue could even be channeled towards addressing some of the perceived negative impacts of betting.

Some i-gaming experts deem the introduction of this tax a dangerous move which could lead to double taxation and result in a case whereby smaller sports betting platforms could become extinct due to not being able to keep up. Do you think a lot of thought went into this decision by the government or could this be a result of the popular perception that this is a wealthy industry that simply needs to be milked?

Olojede: It's difficult to say categorically if the government put a lot of thought into the additional taxation. This is because the Nigerian government is in very desperate times as far as revenue is concerned. Hence, it’s seeking every possible avenue to get revenue or rev up its revenue profile. Until we begin to properly question the government and make a case, it will remain difficult to establish how much thoughtfulness goes into decisions like this. For now, we can only guess. It’s possible that this could have been well thought through and it’s also possible that this was a spur of the moment action in an attempt to make some money from the industry.

You also mentioned that there is a concern that small players might become extinct. It’s not always a bad thing when this happens. This is because sometimes it is better for an industry to experience this and become branches or franchisees of the bigger brands. In the real sense, it's much more difficult to supervise and regulate hypothetically 2000 players, than it is to regulate 50 players. That being said, the consolidation of an industry is not necessarily a bad thing as it could enhance the quality of the industry and minimize risk.

If consolidation is an unintended consequence, what kind of market structure could emerge?

Olojede: Consolidation will definitely happen. If the cost profile of the industry goes up and the fringe players can’t compete, they will go out of business or merge with others to survive. It could push the industry towards an oligopolistic market structure where you have a few big players who have very strong influence on the industry. But, I don't think we’re going to have that level of consolidation. It will still be one within the system which could be referred to as a competitive monopoly.

If this tax is implemented, how do you think the government plans to evaluate the effectiveness of revenue allocation in addressing the intended societal issues?

Olojede: I actually don't think that there is any strong metric or framework for measuring how the government is going to apply, unless we decide to set performance measures and come up with a timeline for this measurement. Then, we will be able to determine if things have been properly applied or the reasons for the taxes have been achieved. But, in typical Nigerian fashion, we hardly ever set targets and when we fail to set these targets, how do we measure the progress and determine if the performance metrics which were set have been achieved?

I don't foresee a situation in which we will bother to determine if the government has invested the taxes in improving the regulatory environment or whether it has channeled it towards sporting activities or any other promises it made to commit the revenue from this tax. I don’t think it will happen.

Should these metrics not have preceded the tax that is being imposed on the betting industry for the sake of accountability and transparency?

Olojede: Generally, the public sector is not used to a performance management environment and I don't think it will come up with performance metrics by its own volition, unless there is a situation that will force it to do so. For instance, representatives of the sports betting industry could have an engagement with the government and agree on certain written down deliverables, which can be reviewed to confirm if the standards have been met. But, the government hardly ever by itself sets those targets.

There is a concern that this gesture could make the unregulated sports betting industry seem more appealing to consumers. Do you have any advice on how this could be avoided?

Olojede: If the operators are able to pass on the additional burden to the consumers totally or partially, that would definitely be the result and naturally the effect would be that certain fringe consumers may no longer find it attractive and opt to patronize other players that are unregulated, thereby signing up for the associated risk of doing business with those kinds of players.

This takes us back to the issue of performance management. If the government makes money from this tax and part of the investment of this revenue is used to provide a better operating environment, it will improve. Indeed some consumers will drop off initially but ultimately, a more sane and sanitized industry will actually attract more players in the medium term. So, the initial consumer drop off will only be in the short term.

If the government asked for your advice at this moment to prescribe a way forward, what would your recommendation be?

Olojede: The way forward would be to interrogate this additional tax that is coming into the system to be sure that we indeed understand the rationale behind it and make sure it will not kill the businesses. Secondly, we need to be able to determine how these taxes will be used to make the sports betting industry perform better.

Therefore the operators should sit down with the government and set certain targets that must be achieved within a timeline and agree on metrics for the measurement to make sure we are on track. If we are not on track, how do we realign to make sure we get back on track. This will result in one thing- by the time we take the first step to interrogate the tax in itself, we might find a situation in which we are either comfortable with the move or suspend it as was the case with the cybersecurity levy.

Gaming Expert and Consultant, Harrison Ehiaguina

I- Gaming Expert and Consultant, Harrison Ehiaguina shares Olojede’s sentiments on the need for dialogue between representatives of the sports betting industry and the government. But, he is also very concerned about how this tax will impact the customers and thinks this might lead to a case of classism whereby the players with deep pockets find a way to cope with the new tax, while the small players gradually fade away.

What do you think the operational impact of this new tax will be on sports betting companies?

Ehiaguina: Before now, sports betting companies have enjoyed the exemption of Corporate income Tax (CIT) over the years and that was in a bid to encourage foreign investors because 80% of gaming operators in Nigeria are foreign investors mostly from Europe, who have partnered with Nigerians. This exemption significantly encouraged foreign investors to do business with Nigeria. Considering the fact that gaming and lottery companies have contributed immensely to the Nigerian economy, I think the impact would be negative especially when the rate of unemployment in the country is on a steady rise. It will definitely impact a lot of things such as the cost of technology acquisition and ultimately it will affect jobs.

Based on this imminent negative impact which you foresee, are you content with how most sports betting companies are positioning themselves to survive the change that appears to be imminent?

Ehiaguina: The gaming industry is quite competitive and so it’s more like a power tussle in terms of having deep pockets. If you have deep pockets, you will excel in the industry because you will be able to provide great technology, offer good incentives and bonuses. The impact of this new tax is going to fall on the smaller operators who don’t have deep pockets. Therefore there is no balancing act and the government is not considering this crucial factor. They are more concerned about the tax and not the smaller companies that are trying to compete in the industry.

Based on the body language you’ve observed from this administration, do you foresee the government suspending this tax, as was the case with the cybersecurity levy?

Ehiaguina: I think for example, the issue of double taxation has been going on between the National Lottery Regulatory Commission (NLRC) and the Lagos State Lotteries and Gaming Authority. At t a conference earlier this year, I stated that there was a need for harmonization between the federal and state laws and I still think the government needs to harmonize when it comes to taxation, so that there won’t be an issue of double taxation, as has been the case for a while in this industry.

At the start of this year the CEO of Lagos State Lotteries and Gaming Authority assured us that before the end of 2024, there would be harmonization of taxes. Even though the body language of the government says otherwise, we are simply hoping for the best, but I can’t really say for sure how this next tax situation will play out.

What will be the likely impact of this new tax regime on the customers?

Ehiaguina: This will definitely reduce the incentives which most customers enjoy. For instance when a new gaming company comes on board, we reward our target audiences with incentives, bonuses and promotions. This new tax regime will definitely reduce the aforementioned which consumers have always enjoyed.

Do you think it would make a difference if consumer advocacy groups and industry stakeholders could collaborate in order to promote the interests and rights of bettors?

Ehiaguina: I think it would, For instance, the Nigerian Bookmakers Association, is a body which serves as a liaison between the operators and the government in terms of taxation. This institution will first need to be strengthened in order to effectively protect consumer rights. Also, bettors need to be more educated regarding the new tax laws, because this will help operators work around it in such a way that it will not affect their Gross Gaming Revenue (GGR).

Are you concerned about the possibility of bettors opting to migrate to unregulated or offshore betting platforms?

Ehiaguina: Yes, there is every tendency that unregulated betting platforms will spring up and try to take advantage of this situation. Hence, it's imperative for the government to promote the campaign on consumer protection, so that the players have adequate knowledge to work with. This is because the migration of customers to such platforms means that their rights cannot be protected. Hence, if anything goes wrong, the government cannot intervene.

If this administration asked for your advice at this stage on how it should proceed, what would you tell them?

Ehiaguina: The issue of taxation needs to be properly addressed in order to encourage foreign investors to keep on coming. Nigeria is a very big market and as a matter of fact the industry is still budding with huge prospects for foreign investors, unlike the United Kingdom for instance, where there is an abundance of betting companies. So, the taxation needs to be worth the influx of foreign investors.

There is no need to increase the NLRC tax and Nigerian Lottery Trust Fund tax because the operational cost is huge. Getting an NLRC license for sports betting costs 60 million naira, getting the casino license costs 100 million naira, obtaining the Lagos state license runs into another hundreds of millions. These precede setting up the company, getting the technology, the overhead costs, etc. I think the government is not looking at the operational costs at all, they are simply looking at it from the revenue angle and assuming that the players are making money.

But, before any money is made, a lot of money is put into it. Hence, less tax on gaming companies will do a lot of good.