Betfair moves betting exchange to Gibraltar

A dealer distributes cards at the Betfair Asian Poker Tour in Singapore November 12, 2006.

LONDON (Reuters) - Betfair (BETF.L), the world's largest betting exchange, said it would follow rivals Ladbrokes (LAD.L) and William Hill (WMH.L) by moving part of its business to Gibraltar to slash its tax burden.

Betfair, founded 10 years ago by one-time professional gambler Andrew Black and former JP Morgan derivatives trader Ed Wray, said it expected to save 20 million pounds a year as a result of the switch, which will see its betting exchange operate under a Gibraltar licence from Wednesday.

Betfair currently pays 15 percent tax on gross profit from betting, but this will drop to 1 percent following the move.

On a conference call with reporters, CEO David Yu said Betfair was also looking to avoid the so-called "double taxation" which it is currently faces under UK tax regulations.

"When you look at how the UK does their taxation, it's based on all revenues rather than where the customer is located. For example, if you're paying tax to a local jurisdiction it doesn't really work to have a case where you're double taxed both in the UK as well as the other jurisdiction," he said.

The government is reviewing its licensing system for gambling companies following the decision of the country's two biggest bookmakers William Hill and Ladbrokes to relocate their businesses to Gibraltar in order to pay less in taxes.

"The question mark is whether this provokes any response from the UK government, now most of the online gambling companies have moved offshore," said Liberum Capital analyst Richard Taylor.

Taylor said the tax change could add 66 pence per share to Betfair's value based on 2012 earnings and 10 million pounds worth of annual savings rising to 121 pence per share when the savings increase to 20 million.

Shares in Betfair were up 5 percent to 933 pence at 10:30 a.m. They were sold at 1,300 pence in an IPO last October and hit a high of 1,610 pence that month, but their value has slumped on the back of fears over increased regulation.

As part of a wider restructuring, the group has moved key technical equipment and 120 staff to new offices in Gibraltar and Dublin.

Betfair said the initial tax savings will be partially offset by higher operational costs arising from running the new offices in parallel with existing ones. This will come down as the offices are consolidated in 2012.

As a result, Betfair said it didn't expect the restructuring to have a positive impact on its earnings this year.

In the year to April 2012, it expects to save 10 million pounds, with the benefits of the switch totalling 20 million pounds each year thereafter.

Betfair said it would continue to be incorporated in the UK and employ about 1,200 people at its headquarters in Hammersmith, London, and other UK locations.

The group said it had made a good start to the fourth quarter, with revenue up 6.2 percent at 77 million pounds in the three months to the end of January.

Finance Director Stephen Morana told reporters the company was confident of reporting full year earnings before interest, tax, depreciation and amortisation within the 70 million to 77 million pounds range currently forecast by analysts.

Betfair is not a traditional bookmaker but instead acts as an intermediary between gamblers wanting to place a bet or offer odds to others, taking a commission on their winnings. (Reporting by Matt Scuffham; editing by Rhys Jones and Will Waterman)