Baskadia

• 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
  

  
  

By Cynthia Areh

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 multibillion-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. 

The possible rationale behind this new tax regime

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.