Irreparable damage in Kenya?

The dispute between the country’s authorities and some of its biggest bookies is taking a toll on one of Africa’s most established igaming markets but also providing some opportunities, says Joanne Christie.

In an interview with iGB earlier this week, SportPesa accused the Kenyan authorities of acting illegally in ordering telecoms companies to block payments and accused it of “politicising” a tax dispute.

A press conference held this week by a cross-party group of MPs and a recent senate hearing – in which the government was accused of acting with “impunity” – suggest at least some of the country’s lawmakers agree with the operator.

But while SportPesa, along with some of the country’s other big names in sports betting, prepares for a lengthy legal battle with the country’s tax authority, gambling regulator and Interior Ministry, the situation is damaging the image of what is one of Africa’s largest regulated markets.

Dhrupal Amin, managing director at G-Bets, which operates in South Africa, Lesotho and Mozambique, says the operator had been close to entering Kenya but the situation is giving it pause for thought.

“We have been very close to securing a licence, we have been in that process in Kenya and the internal view of our executive team is split – half of us see it as an opportunity, the other half see it as a risk, so we are basically sitting on the fence at the moment to see how it pans out.

“When you are making an investment in any territory, one needs to be certain that you can operate on a fair basis and generate a return and when things like this happen we are not certain that we will have that ability.”

Upside for some?
For those already operating in the country, however, the situation could actually be providing an opportunity, at least for now.

“Only 27 licences went off, the rest are still online,” says Alessandro Pizzolotto, CEO at STM Gaming, BtoBet’s exclusive white label provider in Africa. “In fact, the guys with their licence still in place are seeing thousands of new registrations a day. Where before they were doing 25 registrations a day, now they are doing 2,000, because people want to gamble at the end of the day.”

Indeed, relatively new market entrant BetLion, which launched last December, has recently stated it will begin deducting the 20% tax from player winnings that lies at the heart of the dispute.

BetLion managing director Spencer Okach was quoted in various news outlets saying the company had decided, “the most appropriate course of action is to apply it as per the KRA’s [Kenya Revenue Authority’s] view of the law”.

The problem is that most people see the KRA’s view of the law as fundamentally flawed. It wants to tax 20% of players’ gross payouts, therefore including their original stake. It seems unlikely that players will find this acceptable in the long term, however much they want to gamble.

A cross-party group of MPs held a press conference on Tuesday urging the government to reconsider its position, pointing out that making gambling unviable through legal channels would only drive activity to the black market.

In the conference, broadcast on KTN News, ANC Senator Cleophas Malala said: “The taxation of customer stakes is in fact taxation of capital and represents a violation of the existing law of the land.”

He said the government should think of the economy and other stakeholders and act swiftly to get those companies currently offline back into operation. “The government and the people of Kenya are losing revenue every day that this impasse is allowed. If the impasse is allowed to continue it is estimated that the government is losing KES 1bn [£8m] every month.”

He also pointed out that Kenyan society was suffering due to the loss of gambling companies’ sponsorship of sports, culture and arts.

Already, Sportpesa’s withdrawal of its sponsorship of football teams has seen fans threaten large-scale protests against the KRA.

‘Irreparable damage’
Dolan Beuthin, founder and CEO of Nigerian sportsbook BestBet360, says while he thinks the situation in Kenya will eventually be resolved, the government has caused “irreparable damage” by blocking operators' access to mobile payment services, which account for the vast majority of igaming payments.

“I don’t think they’ve done themselves any favours in Kenya the government. They have created instability by doing what they did.

“I just find it shocking that they were able to instruct a payment provider like M-Pesa to simply stop doing business with operators. Have they contravened a banking act? They haven’t contravened anything yet, nobody knows what they have done.

“So how do you just give an instruction to a payment solution provider which is literally acting as a bank to close their accounts?”

Amin has a similar view. “From our perspective it is always cause for concern when a regulator takes this type of approach that basically seizes operations. It was a multi-pronged approach. It was closing down the businesses, it was closing down the processes, it was literally grinding everything to a halt.”

Based on past experiences, such as the Kenyan government’s short-lived increase of betting tax to 35%, it seems likely the big operators such as SportPesa, Betin and 1xBet will eventually resume operations in Kenya. How much damage is done to the industry and the country’s economy in the meantime, however, remains to be seen.