This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
Over recent months there has been increased debate in many Member States as to how remote gambling should be regulated at a domestic level. Some Member States are responding to Commission complaints by amending rules, at least partially, to permit licensed operators to offer their gambling services to citizens as well as the national monopoly providers. At the same time other Member States remain resolutely opposed to any opening of their domestic gambling market (generally citing concerns about increased risks of gambling addiction) and are considering introducing laws to restrict citizens from gaining access to gambling websites by means of IP blocking or restricting banks from dealing with gambling transactions. We report on the status of these proposals and the European Commission's response. In this update, we also report on the recently published European Court of Justice ruling in the Bwin v Santa Casa da Misericordia de Lisboa case. We provide a summary of the ruling which many are describing as a set back for online gambling operators seeking to expand into other EU territories.
European Court judgment in Bwin/Portuguese Football League case
We have previously reported (in August 2008) on the reference to the ECJ of several questions from a Portuguese criminal court concerning the legality of the Portuguese monopoly provider of betting lottery and gaming services in Portugal (SCML). The questions were raised in relation to a case between Bwin and the Portuguese Football League (which Bwin had sponsored) in which the parties argued that SCML's monopoly was incompatible with EU laws which prohibit restrictions on the freedom of EU-based companies to provide services in other EU Member States. In mid-October last year the Advocate General Yves Bot presented his Opinion broadly concluding that the SCML did not have the right to fine Bwin for sponsoring the league (as reported in our December 2008 update).
On 8 September 2009, the ECJ published its ruling on the questions referred by the Portuguese court. The ECJ interpreted the previous case law to conclude that "the restriction at issue [i.e. the ban on operators licensed within other Member States from advertising their online gambling services in Portugal] may be regarded as justified by the objective of combating fraud and crime." In the judgment the ECJ restates the established case law that legislation of a Member State which prohibits providers such as Bwin (established and licensed in another Member State) from offering services via the internet in that territory constitutes a restriction on the freedom to provide services enshrined under Article 49 of the EC Treaty. However, crucially, it went on to conclude that Member States may be justified in confining the operation of gambling within "controlled channels" (i.e. granting a monopoly operator such as SCML with the exclusive right to operate games of chance via the internet) if this is necessary to meet wider public interest objectives such as protecting consumers against fraud on the part of operators.
In reaching its conclusion, the ECJ has not interpreted the European laws in a substantially novel way: it is a well established principle that Member States have the discretion to implement national laws concerning gambling in line with national public policy objectives. The ECJ has, in numerous cases (Gambelli, Zenatti, Placanica), considered whether national practices or rules ought to fall within the ambit of this public policy discretion. For example, in Gambelli the issue was whether the Italian rules governing invitations to tender for betting licences ought to be permitted. In that case the ECJ found that the rules were applied in a discriminatory way because there was no justification for the Italian authorities not to accept tenders from operators which were not established in Italy.
No doubt many monopoly operators will be proclaiming this is a victory for those Member States which seek to protect the position of their national monopoly betting and gaming providers. Indeed the European Association of State Lotteries has already publicly welcomed the ruling. However, this judgment must be read in light of the previous ECJ judgments concerning the sector (in particular Gambelli) which were proclaimed, at the time of publication, as a tipping point which would open up gambling markets within the EU. However, this wholesale liberalisation of the sector within the EU never materialised. Without any definitive application of how the EU rules should apply to the gambling sector, the only point we can be sure of is that commercial operators are likely to find it necessary to bring challenges against protectionist regimes in national courts and in turn more questions will need to be referred to the ECJ.
Online gambling operators will be aggrieved that the ECJ seems to have accepted the arguments presented by the state controlled SCML and further explained in its ruling that such restrictions may be justified on the basis that:
- even though an operator is licensed to offer its services via the internet within another Member State, this may not be sufficient assurance that national consumers will be protected from the risk of fraud and crime in light of the difficulties Member State authorities may encounter in "assessing the professional qualities and integrity of operators"; games of chance accessible via the internet involve a different and more substantial risk of fraud by operators against consumers compared with traditional markets for such games (because of the lack of direct contact between consumer and operator); and there is a possibility that an operator which sponsors some of the sporting competitions on which it accepts bets and some of the teams taking part in those competitions may be in a position to influence their outcome directly, or indirectly, and thus increase its profits.
These points appear to echo the arguments set out in the Report of the integrity of online gambling (authored by the Danish MEP Christel Schaldemose) which was adopted by the European Parliament in February this year. We discussed the details of the Report in our May update. The ECJ appears to have accepted the arguments raised in this Report and formally ruled that Member States ought to have the ability and discretion to monitor and regulate their national gambling markets.
The European Gaming and Betting Association has already publicly noted its disappointment with the ECJ's ruling. The secretary general of EGBA has stated that she does not believe that the SCML's monopoly on betting and gaming can be justified as necessary and non-discriminatory, "given the stringent anti-fraud regulations applicable to EU-licensed operators, which ensure a high level of integrity, transparency and traceability over online gaming transactions."
The ECJ does not rule on the compatibility of national rules with Community law and instead provides guidance as to how EC law ought to be interpreted by national courts of Member States. The Portuguese court in question must now apply this interpretation to the case and it would appear very likely the court will rule in favour of SCML.
EU-based gambling operators will no doubt be disappointed by this ruling. BetClic is reported to have been negotiating sponsorship deals with nine of the 16 top division teams in the Portuguese league in anticipation that the ECJ would follow the Advocate General's Opinion. It now seems unlikely that these negotiations will come to fruition.
France - latest news on legal reforms and court challenges
The French government continues to debate the terms of new legislation to be introduced to allow commercial operators to offer remote gambling services to French citizens (effectively ending the betting and gaming monopolies enjoyed by PMU and FdJ). In May we reported on the terms proposed by French legislators under a new remote gambling and licensing regime. In early June the Commission provided comments to the French government and indicated that it considered the draft law did not comply with European law. The Commission is believed to have raised concerns about the proposals to restrict licensed operators from paying out any more than 85% of their gross gaming win back to players (lower than industry averages). The Commission considers that a fixed maximum pay-back ratio could restrict the freedom of EU-based operators to provide their services (protected under Article 49). The French have argued that there is a correlation between a high rate of return and problem gambling but the Commission has requested the French present evidence to justify this claim.
Nevertheless the draft law will be put forward to the French Parliament this autumn. It was reported in Le Figaro newspaper at the beginning of September that the Commission is likely to accept amendments suggested by the French government in recent weeks. The Commission will carry out a final assessment of the final version of the draft law once adopted in October. It had been suggested that the new regime would be in place by January 2010 but it is now thought that the end of May is more likely. One interesting amendment to the proposals has been that operators of betting exchange products will also be able to apply for a licence. It has been reported that this late stage amendment was introduced as a result of intensive lobbying by Betfair.
The French Finance Minister, Eric Woerth, responsible for drafting the new rules has indicated on a number of occasions that the French government will not tolerate advertising or promotion by remote gambling operators prior to the opening of the market. He has also commented that attempts by operators to advertise their sites in order to get a first mover advantage would be thwarted and he threatened that he would impose penalties on them under existing legislation and prevent them from being granted licences in the future. French football organisers have so far adopted a cautious approach by refusing to authorise the sponsorship of football teams by remote gambling operators prior to the liberalisation of the online gambling market in France. The football authorities prevented French club Olympique Lyonnais from wearing shirts which included new sponsors BetClic's logo prior to the first game of the season. The president of the team has subsequently threatened to challenge the football league's power to do this but in the meantime the team agreed to play in shirts which did not carry a sponsor's logo rather than risk forfeiting points. BetClic had already curtailed its marketing activities in France by abandoning a radio advertising campaign following Mr Woerth's warnings. Other operators including Unibet and Bwin are said to be considering sponsorship deals with other French teams.
Meanwhile Unibet has commenced legal proceedings against the French Tennis Federation (FFT). The dispute concerns the FFT's attempts to prevent Unibet's use of FFT logos and match results online. In effect, the FFT is arguing that it has monopoly rights (contained within the French sports code) over its logo and event name. The case, which was scheduled to commence on 1 September, will be heard at the same time as the Parliament discusses the legislative reforms which may potentially give sporting associations more control of rights in event names and results.
Update on proposals to liberalise (partially) Denmark's gambling market
In May this year we reported that the Danish tax ministry had announced plans to reform the domestic gambling regulations by allowing foreign operators to apply for licences to offer online sports betting, casino games and poker as well as the State controlled monopoly Danske Spil. At the same time unlicensed providers will be prevented from accessing Danish citizens through means of website and financial blocking mechanisms.
At the beginning of July the Danish government submitted its proposals to the European Commission for review. The Commission now has an initial three month period to comment on these proposals. The proposals have not been made publicly available but it has been widely reported that the legislation will allow private operators to apply for an unlimited number of licences in order to offer sports betting casino and poker games to Danish citizens. Licensees will be obliged to pay an annual fee of DK3-4 million. It is currently unclear what level of tax licensees will be required to pay.
If the Commission approves the Danish government's proposals and the legislation is implemented as planned, several online operators (including Ladbrokes) have so far indicated an interest in applying for a Danish licence.
Norway warned not to implement rules banning payment processing
The European Free Trade Association (EFTA) has warned Norway not to implement its Unlawful Internet Gambling Enforcement Act (UIGEA) because these rules breach the free movement of services contained in the EFTA regulations. We reported back in December last year that the Norwegian government had proposed legislation to prohibit companies from processing payments made by Norwegian citizens to remote gambling operators. The Norwegian government planned to implement the legislation by the end of August.
Although Norway is not part of the EU it is part of EFTA and, along with Iceland and Liechtenstein, is party to the Agreement on the European Economic Area (EEA agreement). All parties to the EEA must comply with the free movement of services rules (as established in the EC Treaty). The EFTA Surveillance Authority (which is responsible for ensuring EFTA states comply with the EEA rules) has warned Norway that legislation which prevents payments being made to gambling operators legally established and licensed within the EEA internal market breaches the EEA rules. If Norway implements the UIGEA, the Surveillance Authority has warned it will commence infringement proceedings against Norway before the EFTA court.
In other news concerning Norway, UEFA has recently denied that it forced the football club Valencia CF to remove the Unibet.com logo from its players' shirts for a match played in Norway. Norway's Civil Penal Code prohibits all gambling advertising, aside from that of the State monopolies. Having received warnings from local authorities and UEFA, the Spanish club took a last minute decision to play in plain white shirts. UEFA's director of communications explained that UEFA will only impose sanctions for non-compliance with local restrictions where action is first instigated by the local authorities in the country hosting the match. UEFA considers the decision on whether or not to risk non-compliance with local rules always lies with the club itself. It has been reported that Unibet is considering lodging a complaint over the threatened action against Valencia CF especially in light of a Polish team previously having been permitted to wear shirts advertising BetClic for a match played in Norway.
Proposed Belgian gambling laws subject of Commission scrutiny
In December last year we reported that the Belgian Parliament was considering proposals to amend its gambling legislation. Belgium has been considering proposals to allow gambling operators to offer online betting and gaming services to Belgian punters. In March this year, it was revealed by the Secretary of State responsible for introducing gambling reforms that the proposals would allow only casino and betting operators already licensed and established in Belgium to apply for online licences. Other aspects of the proposals include website blocking, a minimum age restriction of 21 and a requirement that all servers are located in Belgium.
The Belgian proposals were sent for approval by the European Commission in March but the Commission has raised concerns that the rules, as currently drafted, are contrary to the free movement rules. In particular the Commission has raised objections to the rules which, as drafted, would only allow operators which are licensed and established in Belgium to apply for online gaming licences (therefore discriminating against operators established in other EU Member States). At the end of June the Commission sent a detailed opinion to the Belgian government in which it both requested further information in relation to the draft rules and, in order to address the Commission's concerns, for the draft rules to be amended to comply with EU law. Nevertheless in mid-July the first chamber of the Belgian Parliament (the House of Representatives) approved the draft without taking into account the detailed opinion of the European Commission. The second chamber of the Belgian Parliament (the Senate) must now discuss the draft law in October and some believe the Senate will not approve the law without first amending it to comply with European laws as requested by the Commission.
Changes to Italy's online gambling laws
It has recently been announced that by the end of the year, the Italian regulator Amministrazione Autonoma dei Monopoli di Stato (AAMS) will be allowing betting operators to offer cash poker games, casino games and new forms of betting which are not currently permitted under the Italian regulatory system. The changes have been brought about in response to industry lobbying: one of the online operators' complaints was that the current system of only allowing tournament poker games does not allow operators to generate sufficient revenues.
The changes have been welcomed by the internet gaming industry. They will be especially attractive to the large poker sites such as PartyPoker, Full Tilt Poker and PokerStars which have the liquidity to pull in the major players of the poker world. According to AAMS the changes have been a long time in the pipeline, partly due to the ineffective Italian ISP blocking system. It has been argued that despite this ISP blocking system being in place, Italian punters still come across unauthorised sites regularly, although most abide by the state's warning messages not to play on them. The new forms of betting mark a further liberalisation of Italian gambling law.
Dutch take further action to restrict remote gambling operators' activities
On 7 May this year Betfair announced that it had filed a complaint with the European Commission alleging that the Dutch government's policies to curtail remote gambling operators' activities breach EU laws. In addition the bookmaker has commenced proceedings against the Dutch government in a civil district court of The Hague. Betfair has taken these steps following the Dutch Ministry of Justice's request to banks not to process payments from Dutch customers wishing to place bets on gaming websites. Betfair alleges that the government's actions breach Article 86(1) of the EC Treaty (which restricts Member States from showing undue preference to undertakings granted special or exclusive rights and therefore distorting competition) and Article 49 of the EC Treaty (which protects the freedom of EU based companies to provide services in other EU Member States).
As part of the Dutch Ministry of Justice's campaign to counter online gaming operators' activities in the Netherlands, it has also contacted the Dutch football association requesting that the latter reminds all football clubs that the Dutch Gaming Act 1964 prohibits the offering and promotion (i.e. carrying advertisements) of unlicensed games of chance.
Meanwhile RBS has reportedly informed its gaming clients that it is no longer willing to service gambling related transactions from the Netherlands and Switzerland. Whilst the Dutch government has over recent months been increasingly vociferous in its attempts to prevent remote gaming operators from advertising and offering their services to Dutch citizens (as reported above) the Swiss Ministry of Justice published proposals to tighten domestic online gaming laws back in April (as reported in our May update).
Ireland consults on future gambling regime
In July the Irish Minister for Justice, Equality and Law Reform (Mr Dermot Ahern) published a report on Regulating Gaming in Ireland. Furthermore, a Casino Gaming Control Section has also recently been established as an interim gaming authority. This group will be responsible for proposals to draft a new gambling code and to coordinate consultations which must be undertaken prior to the publication of proposals. The Irish Government is currently conducting a public consultation on how the new regulatory framework should be implemented. The consultation addresses various issues including: public policy objectives (i.e. addressing gambling addiction and protecting minors and the vulnerable, preventing crime and ensuring transparency); clarification of the laws concerning the way in which Private Members' Clubs operate; and how the regulatory framework should apply to online gambling.
Finland to ban all gambling advertising
The Finnish parliament has recently debated legislation which will prohibit all forms of gambling advertising including, for example, event and sports player sponsorship and branding media even where no reference is made to entice gambling. It is expected that the legislation will be adopted because of overwhelming support for maintaining the Finnish State gambling monopolies (Veikkaus Oy, RAY and Finntoto) from the Finnish general public and politicians alike.
The proposals have been produced following a judgment of the Finnish Supreme Administrative Court which rejected an application made by Ladbrokes for a Norwegian gambling licence back in May 2007. The Court criticised Veikkhaus Oy (which is the only licensed betting and lottery operator in Finland) for being involved in marketing activities which were likely to increase overall demand for gambling. The Court considered that this behaviour could be remedied by banning all marketing of gambling services irrespective of whether these are undertaken by foreign licensed operators or the national monopolies.
Although no Finnish court has, to date, held that the state monopolies breach the European rules which protect the freedom to provide services, the European Court commenced proceedings against Finland's gambling regime in 2006. As reported earlier this year the Commission has yet to use its ultimate sanction of bringing a Member State before the European Court of Justice.
German authorities continue hard-line approach to enforcing the Interstate Treaty
Despite various legal challenges to Germany's Interstate Treaty, the German gaming authorities continue to enforce the country's blanket ban on all online gaming and gambling advertising. Most recently the Administrative Court of Hamburg ruled in July that Bet-At-Home's sponsorship of a major tennis tournament in Hamburg would violate the terms of the Treaty. It has been reported that the court ruled that merely using Bet-At-Home's branding in connection with the tennis event would be sufficient to breach the law.
Earlier in the year Tipp24 lost what had been its core market as a result of the ban on online sports betting, casino and poker games being extended to internet lotteries. Although Tipp24 has sought declaratory judgments against the validity of the ban against online lotteries from courts in each of the 16 German states, only one positive verdict had been achieved prior to August 2009. Tipp24 has also revealed that the German authorities have taken issue with the validity of its UK operation which allows non-German citizens to bet on the outcome of German lotteries. The Treaty is due to expire in December 2011 and Tipp24 has indicated that it will continue to lobby in favour of change.
In 2010 the ECJ is due to begin hearing eight cases concerning gambling issues referred by the German courts to the ECJ. These cases should clarify the validity of the German legislation. Meanwhile, this autumn, UK-based Betfair is due to hear the result of its appeal in the German courts against a prohibition order.
Greece to introduce a Winnings Tax
At the end of August it was announced that the Greek Ministry of Economy and Finance would be introducing a tax on all gambling winnings from September 2009. A tax rate of 10% is to be levied on all winnings above EUR1 on all winnings from lottery gambling and sports betting which will increase to 20% on winnings above EUR1,000. This decision is unlikely to be welcomed by the Greek gambling industry which is, not surprisingly, reported to have strongly opposed the amendment.