Bermuda Prepares For Legalized Gambling

by Phillip Morton, Investors Offshore.com

17 March 2010

The Bermuda government has released a report assessing the prospect of introducing small scale taxed gambling in Bermuda to generate additional revenues and boost tourism inflows.

According to the report’s estimates, introducing casino gaming to Bermuda could generate potential gaming revenues of between BMD84m and BMD146m annually. Of that figure, around 2% would go on marketing the jurisdiction and a similar figure on tackling the negative impact of gambling on the local community.

According to the proposals, jurisdictions with the lowest effective tax rates often feature the most elaborate casino developments, such as in Las Vegas, Atlantic City, Mississippi, and the Bahamas. In order to encourage investment, but on a smaller scale than present in the aforementioned jurisdictions, the report has advocated the introduction of a two-tier system.

The report says that a tax rate in the range of 10-15% is likely to induce the maximum level of investment and enhance tourism offerings through the development of an internationally competitive gaming product. “Depending on the desired effect, a graduated tax rate for Bermuda could start in the 10% range, allowing smaller operators a chance to compete, while an upper range of 15%-18% would permit higher tax revenue while still supporting the government’s partnership with the industry,” the report says, adding: “A graduated tax will increase the probability that smaller amenity type casinos will develop at hotels.”

The report also recommends the limiting the number of major casinos to reduce competitive risk and encourage investment.

Further, the report states: “Relevant to the size of the market opportunity, significant upfront license fees should be avoided. We do suggest a modest upfront license fee be established purely to help defray the costs of the regulatory, licensing and background investigation costs the government of Bermuda will incur. It would be advantageous to also design a minimum investment criteria or component guidelines for major resort-casinos, or to encourage an equivalent enhanced investment profile through a competitive bid process.”

Finally, on the regulation of gambling entities, the report advocates that, should legalized gambling be introduced, as proposed, a Gambling Control Board or Commission should be created.

“In order to create both the reality and appearance of a transparent and legitimate industry to global gaming investors, operators, and patrons alike, it is imperative to create a strong regulatory and oversight mechanism, which can enforce the operating guidelines established for the industry,” the report states.

“Such an authority will ensure confidence among investors and fairness to gaming patrons. Furthermore, the authority will guarantee that there is no tint of corruption our criminal involvement within the jurisdiction. This is necessary to attract major international gaming companies with licenses at risk in other jurisdictions, and also broadens the availability of debt financing to those companies,” the report concludes.

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