Didn’t You Bet on Brexit?

The entire world was shocked by the recent Brexit vote which has the result of Great Britain leaving the European Union as soon as some kind of exit procedure is hammered out by both parties. The result of this vote was shocking not just to the 48% of Great Britain citizens who voted to remain in the European Union, but also to the world as a whole who largely seemed to expect that Great Britain would opt to remain. Economists the world over are also questioning this decision even saying such things as, ‘The idiots have taken over.’

The result of this vote was stunning to anyone who has followed the news in any way whatsoever and the Economic and Political impacts are completely unpredictable at this time. It remains to be seen how Economically viable Great Britain will be over the next several years and decades, although, the world’s leading Economists have less than stellar confidence in the viability of Great Britain without the European Union as is evidenced by the almost immediate steep decline in the value of the British Pound. 

There is one other set of entities who were taken completely by surprise by this decision, but unlike other entities who are worried about the potential chaos generated as a result of the unpredictability, these entities were more than happy in the short-term: The Sportsbooks. The reason why is that the money action came in heavy on the side that said Great Britain would, ‘Remain,’ in the European Union. This was so much so that some books were offering as high as 4-to-1 odds for bettors who wanted to take the, ‘Leave,’ side due to how heavy the action was coming in on, ‘Remain,’ almost regardless of any changes to the Implied Probabilities by way of having to Lay more money against.

In the short-term, the Sportsbooks saw a considerable profit as the citizens of Great Britain voted 52%-48% to leave the European Union. The betting markets favored that Great Britain would remain so heavily that it was not until a substantial amount of the vote had already been counted that, ‘Leave,’ actually became slightly favored. At this point, a substantial amount of bets started coming in on, ‘Leave,’ and it has been suggested that many of these bets were hedges made by some of the heavy bettors who bet on Great Britain to, ‘Remain,’ trying to somewhat limit their losing potential.

In other words, the vast majority of the big money bets were placed on, ‘Remain,’ in fact, it was determined by one Sportsbook that 2/3rds of the money bet was on, ‘Remain,’ while 2/3rds of the total individual bets were placed on, ‘Leave.’ However, as has already been mentioned, many of these, ‘Leave,’ bets were hedges made by people who had originally bet on Great Britain to remain. Had these hedges not been made, the Sportsbooks would have made an even bigger killing on the actual result because they couldn’t do anything, for a time, to get any of the big money on the, ‘Leave,’ side.

Ultimately, the Sportsbooks still made a massive profit for two reasons: The first is that the bulk of the money was bet on the, ‘Remain,’ side, which obviously, is the side of the Proposition that lost. The second reason is because, when big bets did come in on the, ‘Leave,’ side it was from people who were trying to hedge their bets to limit their losses when it looked as though the, ‘Leave,’ side might have a chance. Of course, there was direct evidence (at that point) that the Probability that Great Britain was going to leave the European Union had improved, so obviously, these people making these hedge bets were making them at far worse Odds than those that they had originally laid against.

The ultimate goal of Sportsbooks, it should be realized, is not to predict anything but rather to have balanced action on both sides of a particular event. While it is most efficient for Sportsbooks to be able to that by initially putting out a highly accurate line that equal amounts of money want each side of, with the vast majority of events, adjustments are made to the betting Line as the event comes closer and closer to resolution and more information becomes known.

It is no different for something like this, at least in that respect, than it is with Sports Betting. With Sports Betting, a Line can open up on the premise that a star player may or may not be injured, and then when it becomes known whether or not that player will play, betting will come in more heavily on one side that causes the Sportsbook to adjust the Odds, or what also happens a good bit of the time, the Sportsbook will simply take the Line down and adjust it of their own accord in response to the new information.

Interestingly, this happened in much the same way. The Lines came out in favor of the position that Great Britain was going to vote to, ‘Remain,’ in the European Union. The money came in so heavily on the side that said the country would remain that the Bookmakers actually had to make it so that more money would have to be laid against Great Britain leaving. The bettors, in terms of actual money spent, chose to Lay more money and the shifting of the Odds, apparently across the board, on the side of Remain only caused people to become even more comfortable with their position that Great Britain was going to remain in the European Union.

However, this betting as well as the initial Line was based on no conventional wisdom whatsoever, much less Statistics, it was based primarily on the predictions of experts making their conclusions based on what they believed would be the smart thing to do. I’m certainly not suggesting that there is anything wrong with that, in the face of an event for which there is nothing to previously compare it to, from a statistical standpoint, people are left with nothing other than what the experts have to say and the experts have nothing to say other than explaining what decision they think makes the most sense. To that point, most of these experts still maintain that, ‘The idiots have taken over,’ and that Great Britain would have done well to remain in the European Union.

As the vote loomed ever near, though, the betting started to shift slightly more towards, ‘Leave,’ although, ‘Remain,’ was a significant favorite until the votes started being counted. As the vote was being counted, it became increasingly apparent that the vote to, ‘Leave,’ the European Union was looking to be somewhat possible, like something more than a pipe dream for those who went the Populist route, and the odds started to shift accordingly. In fact, the Odds were shifting just ever so slightly ahead of the vote as the Sportsbooks were still attempting to get some action on the other side. Very shortly after, ‘Leave,’ had shifted to being a slight favorite in many of the Sportsbooks, ‘Leave,’ had also started to take a lead in the polls. Much to the chagrin of both many British subjects as well as big time market players, this shift would remain the case until the end, a 52-48 vote in favor of leaving.

In the short-term, the bookmakers definitely had a great day because of the serious money that was bet on the side of Great Britain remaining in the European Union. As stated, two-thirds of the money bet was on Great Britain remaining with the average bet being in excess of 400 pounds while the average bet for, ‘Leave,’ came in at less than eighty pounds. Even then, compared to the average bet of ten pounds when it comes to most sports betting events, relatively large amounts were wagered on both sides. The disparity in individual bets made on the, ‘Leave,’ and winning, side was not enough to overcome the sheer sum of money bet on the Remain side, and as a result, the bookies made a killing.

In the long-term, however, the bookmakers and gambling companies behind them, may not end up being so happy. One reason is because many of these Online Gambling companies are headquartered and based in Gibraltar which, as of right now, is a British overseas territory. Even though it is a British territory at this time, the European Union has measures that essentially open up the borders to any European Union countries when it comes to people being able to commute easily from country to country in order to work. For that reason, and due to geographical considerations, many of the employees of these over thirty Online Gambling countries based in Gibraltar come from Spain.

The problem with that is that Spain is currently poised to remain in the European Union, but it remains to be seen whether or not Gibraltar will. In the event that Gibraltar also leaves the European Union, it will remain an overseas colony of Great Britain, and effectively, these companies will be headquartered and licensed in Great Britain rather than the European Union as a whole. In the event that Gibraltar remains with the European Union, however, it may fall under the control of Spain, but that could limit the ability of these companies to legally operate within Great Britain.

While many of these Online Gambling companies operate within Great Britain, the European Union, and other areas, many of them such as William Hill and Grosvenor are commonly associated with and identified as Great Britain companies. In fact, many of these Gibraltar-headquartered companies have Land-Based gambling locations of varying types within the borders of Great Britain.

The result of that is that many of these companies, in the event that Gibraltar remains in the European Union, may also have to attempt to obtain separate licensing in Great Britain. Of course, the Government of Great Britain can largely select who they choose to license or not to license, effectively, they will have the ability to pick winners and losers. Furthermore, in the event that Gibraltar opts to leave the European Union and remains as a colony of Great Britain, then many of these companies, at a minimum, will have to be licensed elsewhere in the European Union and many will likely live Gibraltar completely depending on what the situation is with respect to their employees being able to come over from Spain with as much relative ease.

In other words, in order to interrupt their operations as little as possible, many of these companies will have to choose to leave Gibraltar and set up their operations elsewhere.

Not only is there uncertainty in that sense, but there is also going to be some uncertainty with respect to the ability of these companies to deal in certain currencies and whether or not they will be able to deal with banks in Great Britain, or for those companies who are licensed in Great Britain only (in the event Gibraltar opts to leave the European Union) whether or not they will be able to do business with the banks in other countries. The problem is that this can make their operations infinitely more complicated with respect to taking deposits from customers and being able to facilitate winning customers to be able to make withdrawals.

There is a good chance that this will end up being comparable to the situation in the United States. Prior to the passage of the Unlawful Internet Gambling Enforcement Act, (UIGEA) it was relatively easy for overseas (though still not U.S. regulated) Online Gambling companies to accept deposits from virtually any credit card as well as to make deposits into the bank accounts of the vast majority of United States’ customers. While it did not stamp out Online Gambling in the United States completely (largely because it did not make the act of gambling online illegal) the UIGEA was successful in causing United States banks to refuse to deal with any Online Gambling companies overseas.

Furthermore, many credit card providers that were located in the United States would not knowingly allow a customer to make a purchase that was being made to deposit money into an Online Casino. Many different workarounds were come up with for this problem in the fashion of hiding where customer deposits were going as well as coming up with third-party processors to facilitate the deposits. When it came to customers who wanted to withdraw money, a multi-layered (in most cases) process was developed by which EBT (Electronic Balance Transfer) deposits would come into the United States banks in a manner that concealed the fact that the monies were coming from Online Casinos.

It is difficult to say whether or not similar measures will be as successful when it comes to being able to deal in Great Britain, in the event that Gibraltar chooses to remain in the European Union, because Great Britain has a greater incentive to ensure that its citizens are only gambling in Online Casinos that are licensed and regulated by Great Britain: tax revenue. When it comes to United States customers of Online Casinos (with only exceptions for a few states) gambling Online, there is no real great incentive for the United States to crack down on the customers because the United States does not collect any taxes as a result of these players playing, nor do they collect any licensing or regulatory fees, because none of these companies are licensed or regulated to operate in the United States.

With Great Britain it is entirely different. One can assume that they will continue to have legalized Online Gambling, and as such, Online Casinos will continue to be licensed and regulated. In the event that the customers choose to gamble at unregulated casinos, Great Britain could actually stand to possibly directly lose some money. The result of that is that the country will only want its citizens playing at casinos that are licensed and regulated there.

While many of the larger casino companies have multiple licenses in Great Britain as well as within other places in the European Union as a whole, some of the smaller ones may only be licensed through one or the other. The result of Great Britain opting to leave the European Union may impede the ability of these companies to operate in jurisdictions other than those in which they are already directly licensed. This fact could cause significant decreases in revenue for them.

There are also other more immediate costs that may come as a result of whatever Gibraltar decides to do. Obviously, there are going to be some costs associated with moving the headquarters of an Online Gambling company as well as finding a way to transition staff to the new location, or if that is not feasible, then rehiring all new staff. If Gibraltar ends up staying in the European Union, then these companies will have to do whatever it is Great Britain demands in order to maintain a presence in that country, which also may include having some sort of offices in Great Britain, even though they may not necessarily be the main offices for that particular Online Gambling company.

Furthermore, with respect to taxation and Regulation, Great Britain is now free to do whatever it wants to with respect to Online Gambling as will be any others who leave the European Union, which will result in even more uncertainty for the industry. When it comes to the European Market, the industry is largely used to operating within one set of Rules that has not changed in quite some time, but now it will be difficult to say how many different sets of Rules they will have to operate under in order to remain compliant in all of the countries in which they have players.

It is not necessarily a scary time for the industry as much as it is an uncertain time, one in which plans and contingency plans and contingency plans of contingency plans must be made at a rapid pace in order to prepare for each possible outcome. In the long-term, the industry is almost certain to remain healthy and viable as it has weathered storms as tough as this including the passage of the UIGEA and has always acted swiftly and smartly in order to reinvent itself and adapt to changes. There is some possibility that some smaller companies will not be able to adapt in time and will fall through whatever cracks may form in the foundation of its business, but the major players are the major players because they have been able to adapt to anything that comes their way and that is unlikely to change.

From the perspective of the customers, they may end up having less choices in one specific market compared to another, or there may be certain regulations in place that will disallow casinos from offering certain types of Promotions depending on what each individual country decides to do in a regulatory capacity. Furthermore, many of the European customers may find themselves contending with, at least in certain markets, some of the payout delays and hangups that customers of the United States occasionally have to deal with as a result of the difficulties securing payment processing capabilities. For the most part, though, the process of Internet Gambling should remain much the same for the customers though they may have to gamble at a different company than the one with whom they gamble now.

In the immediate sense, the only thing that can be said for sure is that nobody is sure about anything and almost nothing, at this point, is predictable to any reliable degree. However, as we have seen, many of the things that we thought that we could predict, such as Great Britain remaining in the European Union, turned out not to be correct either. Undoubtedly, though, the Online Gambling industry will be prepared for the fact that things may get tougher from here and they will be ready to adapt to whatever changes may take place within the industry...that is the one thing that we can predict.