Abstract
We analyze the effect of taxation in the online sport betting market. A relevant characteristic of this market is its negligible marginal cost on bet volume. Taxation can be on gross profit (Gross Profit Tax) or on volume (General Betting Duty). We model the two most popular online sport betting bets: fixed-odds and spread, as compared with another traditional sport betting: parimutuel. We characterize the odds and the bookmaker’s payoff in (strong) subgame perfect equilibrium for each of the three types of bets under both taxation schemes. The results show that taxation on gross profit maximizes the utilitarian social welfare. Moreover, the three types of bets are equivalent when the market is symmetric.
Highlights
A remarkable feature of online betting is that their operators require little more than an internet web page to enter a new market
From the online bettor’s point of view, it is preferable a GPT scheme, in the following sense: In equilibrium, the odds are not affected by the taxation under GPT; whereas a gratefully acknowledged. CountryGeneral Betting Duty (GBD) scheme would reduce the odds and the bettors’ utility
These results agree with the ones presented by Smith (2000) and Paton et al (2001, 2002), whom analyse the effect of the different taxation schemes in Australian, UK and USA betting markets
Summary
A remarkable feature of online betting (which includes sports, casino and card games such as poker) is that their operators require little more than an internet web page to enter a new market. The regulator decides on the general taxing scheme (either GBD or GPT) and the operators decide on their commission (parimutuel and spread operators) or odds (fixed-odds operators). From the online bettor’s point of view, it is preferable a GPT scheme, in the following sense: In equilibrium, the odds are not affected by the taxation under GPT; whereas a GBD scheme would reduce the odds and the bettors’ utility These results agree with the ones presented by Smith (2000) and Paton et al (2001, 2002), whom analyse the effect of the different taxation schemes in Australian, UK and USA betting markets.
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