Greyed out: how Poland's crippling turnover tax and lack of casino hampers the market

In 2017, the Polish Ministry of Finance updated the Polish Gambling Act in an attempt to bring the market into the modern era. Since then, two operators, STS and Fortuna Entertainment Group (FEG), have led the sports betting scene, with over 50% market share between them. Fellow operators Betclic and Superbet have also managed to gain a foothold in the Central European nation, despite the many peculiarities of the market.    

In a paper published in 2021, Poland’s former deputy finance minister at the time, Konrad Raczkowski, said that only two of the companies licensed in Poland turned a profit, primarily due to the exorbitant 12% tax on turnover, which equates to 55%-65% tax on gross gaming revenue (GGR), making it one of the highest online sports betting taxes in the EU.

There are currently 25 licensed online sports betting operators in Poland, which runs a monopoly model for online casino, with state-owned Totalizer Sportowy the only legal operator in the country.

However, according to Regulus Partners, the Polish market has had a compound annual growth rate (CAGR) of 40% since 2017, and while the analyst expects this to slow down considerably after a significant channelisation and adoption boost, the strength of the Polish economy means it retains attractive growth characteristics.

There is obvious interest and appeal in the Polish market, evident by the news breaking at the time of writing that Entain has purchased retail and online market leader STS for £750m. Under the terms of this deal, STS will become a part of Entain Central and Eastern Europe (CEE).

This level of M&A truly shows the confidence a leading operator has in the profitability of the Polish market as the London-listed giant outlined its reasoning behind the move. Entain noted that the Polish gambling market is experiencing strong growth, with GGR reaching $1.6bn (£1.27bn) in 2022, and the firm expects there to be a 12% CAGR through 2025.

Regulus Partners noted that this deal represents an almost risk-free opportunity for Entain, as it said: “While not cheap, a fair price is being paid for a very strong market position, which is hard to leverage outside Poland but which a global operator can leverage through a combination of scale, portfolio risk management and regulatory optionality. In short, we see Entain’s acquisition of STS as a high-quality, low-risk deal at a win-win price.”

Entain does have a strong track record of cherry-picking local heroes, and STS has risen to the top despite the difficulties posed in Poland. Alongside the exorbitant tax rate, a rampant grey market has also been a major bugbear for licensed operators in recent times.

Prior to the updating of the legislation, operators without a Polish licence claimed legal operation in the country via a licence from another European jurisdiction. This has always been a friction point for licensed operators in Poland, and, in October 2022, it was revealed that STS was suing Kindred Group for allegedly breaking Polish law on illegal gambling. STS claimed that Unibet had been serving players in Poland via its Malta-licensed Trannel subsidiary, which STS argued breached Polish law as the Kindred-owned brand didn’t hold a Polish licence.

Before the news of the lawsuit came to light, STS CEO Mateusz Juroszek told EGR the action taken aligned with his views on grey-market operators. The CEO called out Betsson and Kindred for trying to circumvent Polish law by using their Maltese licences in the country.

Recently, STS teamed up with FEG to combat unlicensed operators via a nationwide campaign to encourage people to steer clear of the grey market. The duo displayed the slogan ‘Play Legally’ across the kits of the Polish football teams they both separately sponsor, as well as on pitch-side LED advertising. The rationale behind this campaign was the research conducted by experts at consultancy EY Poland, which found that the grey market accounts for 45% of the entire gambling sector in Poland, with turnover in 2021 estimated to be around PLN7.6bn (£1.45bn). This translated to PLN379m in unpaid betting tax to the state.   

A taxing situation   

Turnover tax is cited as the main stumbling block in Poland. This level of taxation, as LV BET CEO Marcin Doszczeczko puts it, allows the grey market to be “more attractive for the customer”.

He says: “Because of the taxation model in Poland, Polish operators cannot offer as attractive odds as the competitors from the grey market. Customers also want to avoid the taxation being put on their shoulders, which I think creates the biggest migration from legal operators to the grey market.”

What this means in practice is that when a customer bets PLN1,000 at odds of 3/1 with a grey-market operator, the player can gain PLN3,000, whereas with a legal Polish bookmaker the player would win PLN2,376. This is because the stake is taxed at 12% as well, and if the bet were to come in then there is an additional 10% tax on winnings above PLN2,280.

Doszczeczko berates the tax system and draws comparisons with other European markets. He remarks: “The 12% tax, which is based on the whole turnover, is ridiculous, and when compared to the rest of Europe, there are only six other nations where tax is based on turnover, but Poland’s is the biggest in the whole of the European Union.”

This disdain for the tax system on gambling is echoed by VP of Superbet International Adam Lamentowicz, who comments: “I believe the taxation in Poland is the biggest factor affecting channelisation. If we were able to have taxation that would allow the customer to compare us effectively against the illegal alternative, no one would pick the illegal option, with the exception of those who are excluded for responsible gaming reasons.”

The VP wants to see the system switched to one based on GGR instead: “We’d dramatically reduce the grey market which would create a healthy balance in the industry and allow operators to function in a healthier manner.”

However, Juroszek pours cold water on this by saying that a move to a GGR setup isn’t feasible. He believes the government won’t entertain the change because they would not be open to the possibility of a drop-off in money coming into the state budget. He explains: “So, if we did change to the equivalent in GGR tax, which would be around 50%-60%, it would still provide the same issues for the smaller operators. I personally would change it to between 25%-30% of GGR like it is in many European countries.

“The bigger question is do we have the option to talk to the government to have a normal GGR taxation of 30%? I don’t think so right now. I think we need a political change; we need a different approach to gambling. Eventually, in maybe five to 10 years, there will be a moderate GGR taxation.” 

Juroszek believes that the smaller operators want the tax change to spike growth in the short term. However, STS’ CEO says that instead of campaigning for this wider change, firms need to look inwards and evaluate strategy rather than relying on the kindness of government. 

Breaking the monopoly    

Poland is one of the very few nations in Europe that has a monopoly over just one online gambling vertical: online casino. Marek Plota, attorney at RM Legal Kancelaria Radców Prawnych, believes breaking this monopoly “could be one of the major factors that could decrease the grey market in Poland”.

Likewise, Juroszek thinks abandoning the monopoly will not only benefit the industry but also the government’s budget. He says: “One way to solve this is to liberalise it because people want to play online casino. They cannot choose between the 20 or so brands in Poland as there is only the state monopoly, and whenever the state monopoly runs something, it is always worse than private businesses no matter the industry. So, if you want to fight against the grey market, then you need to change the legislation and give the licences to the local bookmakers as it is everywhere else.”

In confirming its tender offer for STS, Entain noted the opportunity for “incremental potential upside” should online casino open up in Poland. The operator added: “STS would likely be well-positioned to benefit from the opportunity to enter the online casino market should this market fully liberalise in the future.”

Online casino also offers operators far greater return than sports betting, and if the monopoly on the vertical is eradicated, operators will be raring to go. While there is no timeline in place for the commercialisation of online casino, lobbying will continue, especially as the larger operators look to tap into the riches on offer, providing the tax rate and regulations are reasonable.

The need for regulation   

While having proven to be the ire of some, there is a wide consensus that Poland requires a dedicated gambling regulator to both support and fight for the industry. At the moment, the regulation of the gambling industry falls under the remit of the Ministry of Finance, but the lack of a dedicated body means stakeholders are served short on a representative to support it in conversation with government.

Plota comments: “I think this should be the first step because if you have a dedicated authority with dedicated people who are focused on the industry instead of dealing with other sectors, then it would make it much easier to understand from the governmental side how important it is to change things such as the tax regime and make the communication more open.”

Lamentowicz explains that the level of communication that Plota is suggesting is currently something Superbet and other operators are already engaging in with the Ministry of Finance, but that a dedicated regulator would make the decision-making process much easier.

He says: “This is already part of the work we do with the United Nations Global Compact, and we have made three main initiatives to the Ministry of Finance. The first was around tax and the second is the dedicated regulatory body. The third is to maintain a dialogue with the market, which would be easier if we had this regulatory body. This counterpart on the regulation side would allow better information exchange between industry stakeholders.”

Juroszek again warns the industry to be careful what it wishes for given the operators’ dealings with other regulatory bodies in European markets such as the UK. He remarks: “From my experience, a body like the Gambling Commission in the UK is not as good as it could be. They are a very professional body, but they are actually too focused on all these regulations, and I think they’re basically killing the business. In my view, they are creating a black market in the UK because now it is so difficult to operate there, even with a licence.”

However, despite his reservations, the STS CEO agrees with his peers that a professional body with an understanding of gambling is essential. “I think it will get to a point where if you want the market to grow, if you want the market to deliver more and more taxes and if you want to have a dialogue between operators and customers, we need a professional body to make that possible.”

Aside from the damage to the state’s pocket, the grey market also hurts industries outside of gambling. Licensed operators are required to give money to the Polish Football Association to include their events on the operator’s apps and sites. LV BET’s Doszczeczko breaks this down: “We have to pay 0.5% of our overall turnover to the Football Association, which is ridiculous as no matter how much money we make, we have to make these payments. When you take into account this payment, the taxes and everything combined, it is a lot of money, and we compare it to our competitors in the grey market who do not have to cover these costs. They can also offer better payouts, lower margins and, as I have said, are more attractive to customers.”

All in all, there are three parts to the wishlist that Polish operators and those with a vested interest in the country’s gambling market want from the government to stem the tide of the grey market: a change in tax, liberalisation of online casino and a dedicated gambling regulator. There are parliamentary elections due to be held this autumn and once the political landscape is clearer, the industry can begin its conversations with the incoming government.

But, despite the gloom of grey markets and turmoil of tax, this is still an attractive market. Entain has agreed to part with a significant sum to set up shop in Poland. CEE is piquing interest from Western Europe and Poland can play a key role in the next phase of growth. If the government is capable of engaging with operators on core issues, it could well prove to be a fertile trading ground for local and foreign firms alike.