Malta is on the move and is going global in its ambitions. Long viewed as Europe’s iGaming capital, the island is increasingly the destination of choice for the world’s largest operators and a bridge to Europe for Asian and Latin American companies. The presence of some 250 plus iGaming companies is proving an irresistible draw for platform providers, game developers, payment services, support firms and start-ups, who are flocking to the island in droves to join Malta’s thriving iGaming ecosystem. This trend has not gone unnoticed by tech investors, venture capital firms, hedge funds and more recently global investment banks, who are competing to fill the funding needs of the industry as the pace of consolidation is accelerating and transforming the marketplace. Meanwhile, the Malta Gaming Authority (MGA) is also rising to the challenge of untangling the ever-growing web of regulatory, legislative and compliance challenges that iGaming companies have to deal with by rewriting the rulebook to provide a more business friendly environment.
iVision Pays Off
As the first EU country to license online gaming, Malta can now look back at almost two decades of uninterrupted growth in the iGaming sector. Over this time Malta has gained possibly the best understanding of the environment iGaming companies need to flourish and be successful. The first online gaming businesses arrived on the island in the late 1990s, well before the online boom. Blazing a new trail, Malta, unlike many other countries that sought to protect their monopolies, allowed commercial operators to set up and enter the gaming market, with the first online betting businesses established under the Public Lotto Ordinance in 2000. The government quickly recognised the need for a dedicated regulatory framework, set up a regulatory authority for this young industry and released the Remote Gaming Regulations in 2004, just before Malta joined the European Union. This move gave licensees the added benefit of being located in and regulated by a jurisdiction that forms part of the largest single market in the world. In spite of its modest size and numbers – the island is just over 316 square kilometres in area and is home to 435,000 people – Malta has emerged as a leading iGaming hub. The gaming industry contributes around 10% to Malta’s GDP and employs more than 6,000 people directly, with an additional 3,000 to 4,000 providing ancillary services such as web hosting, security auditing or legal work.
Industry Heavyweights and Start-ups Converge
Malta is now widely regarded as the most prestigious address for gaming operators. The list of new companies joining Malta’s thriving iGaming sector is growing by the year. Industry heavyweights, such as Betsson, Paddy Power Betfair, Interwetten, Unibet, bet-at-home and Tipico to name but a few, have long understood Malta’s unique advantages as a gaming jurisdiction. In more recent times, industry leaders such as Pinnacle Sports and bet365, as well as US fantasy sports giant DraftKings, have received licences from the MGA. In total, some 250 operators are now based in Malta holding 490 licences for online offerings such as casino-style games, lotteries or sportsbooks. With consolidation in the iGaming industry now moving at a faster and more discernable pace, much of which is being driven by Maltese licensed operators, the island is quietly becoming home to the largest and most powerful operators in the business. Over the past 10 years, many of Malta’s first arrivals have grown from small start-ups to global giants, who are now acquiring the innovative brands of their smaller, faster growing rivals. Freshly minted, having sold their companies, this next generation of gaming executives and founders are themselves funding promising start-ups whose market strategies, products and technologies have the potential to disrupt the global gaming scene. There is also a new army of start-ups emerging from the gaming giants, having cut their teeth working for the bigger companies. These start-ups are hoping to make a big splash, and some are already being looked to as acquisition targets by the more established outfits.
The country's main draw card is the ease of doing business and a very supportive regulatory environment. Malta’s gaming industry is incredibly international and diverse, attracting people from all corners of the world and offering companies the benefit of being physically close to a critical mass of gaming companies and network of professionals. A deep talent pool, strong business support services such as experienced gaming law firms, accountants, corporate service providers, and industry-specific infrastructure have cemented the island’s position as the leading EU jurisdiction for iGaming operators. The presence of data centres, online payment processors, security auditors, gaming software developers, and platform providers contributes to a tailor-made environment that is conducive to growing a successful business. The island also boasts technical expertise to support critical operations in areas such as search engine optimisation and affiliate management companies, with experienced consultants always on hand. Equally, the island’s lawyers and accountants have a wealth of experience, thus ensuring that a vibrant and creative cluster of talent and know-how is in place to help companies manage their operations. This is unique in Europe and goes a long way towards explaining Malta’s identity as a gaming location.
A recent survey ranked the iGaming sector as the most attractive sector for foreign direct investment in Malta. Service providers report that many companies are currently analysing the option of setting up in Malta as they finalise their contingency plans to deal with Brexit. The island has also emerged as one of the big winners of the global M&A frenzy as newly combined companies are injecting fresh capital on the island and hiring more people for their Malta offices. In addition, legal uncertainty in many European countries and a fragmented regulatory landscape have led to a surge in interest from both EU multi-licensed operators as well as non-EU companies that are looking at Europe as the next frontier for growth. The Maltese licence is the only licence in the EU that does not restrict the licensees to the particular jurisdiction of the licence, which gives iGaming companies the opportunity to exploit white and grey areas in the rest of the world. On an international level, Malta’s service providers are regarded as being among the most competent and experienced experts in the iGaming sphere. Many of them service licence application in other countries than Malta and offer multi-jurisdictional support on a wide range of issues.
Excitement and anticipation are currently rising in the iGaming sector as a new regulatory framework is expected to come into force in late 2017 or early 2018. The increasingly maturing industry demands smoother processes, as well as better regulation for new forms of gaming. This has encouraged the MGA to initiate a complete regulatory overhaul to streamline, consolidate and future-proof all gaming sectors under one legislative umbrella. The new Gaming Act promises to be as revolutionary and innovative as the Remote Gaming Regulations were in 2004. Eliminating unnecessary bureaucracy, simplifying pre- and post-licensing processes, and speeding up time to market for operators are some of the key changes to be envisioned. A new licensing framework has also been designed, which will introduce only two different licences: a Business-to-Business and a Business-to-Consumer licence.
The MGA is also proving to be a dynamic, on-the-ball-player: a new skill games licence for fantasy sports operators was singled out as a top priority and introduced in January 2017, ahead of the new regulatory package. The hopes are high that this will lead to an explosion in demand in skill games comparable to what the industry experienced when online poker came to the fore in the early 2000s.
The Best and the Brightest
Having attracted a large pool of talent, which has evolved over the years, Malta offers a strong skill base with a wide range of specialisations that companies can tap into. Yet for all the positives, Malta faces some challenges. There are signs of strain in the talent pool given that the industry often requires specialist knowledge that cannot be sourced locally. Demand for top talent outstrips supply, which inevitably creates an upward pressure on wages. iGaming companies have long turned to foreign labour markets to fill gaps in the local workforce. Today, two thirds of those employed in the sector are foreign expats. Efforts to attract the best and the brightest include a 15% tax cap on the salaries of highly qualified foreign professionals in the gaming sector, and a fast-track service for work permits of highly specialised third-country nationals employed in Malta, which was introduced in 2016. This was welcome news given that many companies have extended their search for talent beyond Europe’s borders.
However, more must be done to address the talent shortage. Due to difficulties finding the right people and fierce competition for the best graduates on the island, companies have already started to move positions out of Malta, mostly to Eastern Europe. Malta must produce more home-grown talent fit for employment in the sector to ensure companies do not need to fight tooth and nail for talent. As a short-term measure, upskilling initiatives are being put in place. For instance, a new gaming academy – the European Gaming Institute of Malta (EGIM) – seeks to provide training and development opportunities for non-experienced personnel wanting to join the gaming industry.
Banks Remain Cautious
The negative outlook of the international banking sector on gaming is currently presenting one of the biggest challenges to gaming companies in Malta. There are only a handful of banks servicing the sector, however, in 2016 a new bank – Catella – moved into Malta with the intention of building up a portfolio of iGaming clients. Paradoxically, while the industry is experiencing difficulties with basic banking services, iGaming companies are coming into view of the global investment banks due to the sector’s increased funding needs to support their M&A activity. Many companies have grown significantly in size and scope, and iGaming has become a market far too big to be ignored. The same can be said about the future of cryptocurrencies. Convergence between digital currencies and mainstream financial products has the potential to transform the entire payments system in the coming years. While Malta is currently assessing whether or not to accept, and possibly regulate cryptocurrencies, many within the industry believe that Malta could reap multiple first-mover advantages by paving the way for digital currencies, crypto-banks and blockchain technology in general, which has moved on from its bitcoin past and is being seen as a key tool for information and business process sharing in a wide range of industries.
The power of rapid scaling is a huge competitive advantage for companies setting up in Malta, which is positioning itself as a key innovation hub for the sector. The start-up and creative culture is being channelled into a vast array of products and services such as analytical tools, games development, fantasy sports and eSports. Meanwhile others are developing products in areas such as virtual and augmented reality, cloud platforms based on artificial intelligence, as well as new and innovative payment forms. Technology and service innovation go hand in hand, and the island is carving out a niche for services that are not on offer in other iGaming jurisdictions: Malta can be a disaster recovery site, a base for payment companies and back office activities. The competitive pressures of recent years have seen the customer service function become more important when it comes to player acquisition and retention. There is a strong case this trend will continue, and Malta is expected to benefit. Big data is also playing a key role in back office support, and Malta has the opportunity to become a leader in this fast-emerging field. With the right investment and a stronger focus on big data applications from an educational perspective, Malta could become a key hub for data scientists and analysts.
The Malta Package
When it comes to taxation of gaming companies, Malta’s approach is widely seen as to be within the acceptable range and can be as low as 0.5% on the gross amount of bets accepted for a sportsbook. In addition, tax is capped at €466,000 per year, whereas taxation under other licensing regimes makes it difficult for operators to generate profit. It is not only Malta’s gaming tax that is attracting operators; the island’s corporate tax regime is also doing its bit. While companies are taxed at 35%, a refund system brings down the effective tax rate to around 5%.
Making Malta Great
Ultimately, the aim is to make Malta a centre of excellence for iGaming-related companies, where executive decisions are made that drive global gaming businesses and where start-ups and innovative ideas are nurtured. However, the sector’s fast expansion, in tandem with many other sectors that are experiencing similar growth rates; the influx of companies and capital, as well as an inflow of expat workers, are also putting pressure on Malta’s infrastructure. To enable the iGaming sector to attract the best talent to the island, Malta urgently needs to address certain capacity constraints in terms of schooling and kindergarten facilities, which reduce the island’s competitiveness. iGaming professionals report that there had been cases in which foreign professionals had not taken up positions being offered because they could not find schooling for their children. Most iGaming companies choose to locate in Sliema and St. Julian’s, which thus have become popular residential areas for iGaming executives. The high demand has driven up rent for both offices and apartments. Investment in high-quality office space in other localities, coupled with improvements in transport and road infrastructure, would enable the sector to grow out of its traditional hotspots and spread across the island.
Malta is in the enviable position of being the author of its own destiny, but this defining moment will not last forever. The island saw strong growth on the back of its regulatory framework, which was revolutionary at that time and lured the sector’s strongest companies to the island. However, the future will be written by the level of regulatory, financial and technology innovation prevalent in Malta’s iGaming industry. The island’s success will also be built on its ability to constantly attract new entrepreneurs; Malta needs to accommodate global players while acting as a magnet for start-ups. However, to fit into the business plans of these companies, Malta needs to continuously make sure it has all the right elements in place: the availability of cross-sectorial talent, the depth and breadth of industry clusters, good air transport links and ICT infrastructure, as well as a reputation as a good place to live. Malta has the opportunity to be a truly global centre for the iGaming industry, similar to what New York, Hong Kong and London are to the finance industry. The gaming industry in global terms is still in its infancy and expected to expand significantly in the coming years. Malta understands the current and future value of the iGaming industry and is truly embracing it to unleash the sector’s full potential.