Legal Reform for the European Gambling Sector

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

Since the European Court of Justice's BWin Liga/Santa Casa judgment was published in September, many Member States have interpreted this as a justification for maintaining a State monopoly in the provision of gambling services. Meanwhile, many other Member States continue to debate national legislation which will allow (at least some) competition in their national gambling markets. Our colleagues at Alerion report on the development of French legislation and we consider amendments to the Danish regime which could follow the French lead. In addition, we report on proposed amendments and legislative reforms which will affect the gambling sector in a number of other EU Member States.

At the end of October a new European Commission was announced and the current Internal Market Commissioner Charlie McCreevy is set to be replaced by a French representative Michel Barnier. During McCreevy's four year term as Commissioner, he commenced many investigations into the national gambling laws of Member States which maintain State monopolies. Once Barnier takes over from McCreevy next year it will fall to him to decide how the 10 current Commission investigations into national gambling rules throughout the EU Member States will be resolved.

Danish reforms continue

The Danish government announced in April this year that it would partially liberalise its online gambling sector, which was universally welcomed by both the incumbent monopoly operator, Danske Spil, and also commercial operators in the EU. We reported on progress in our updates in both May and September.

The Danish government is still to announce details of the new licensing framework, although it is believed that this will broadly follow the Italian and (proposed) French model by requiring operators to be based in Denmark and to pay taxes locally in order to become licensed. The European Commission published a detailed opinion in response to the draft proposals and on 12 October 2009 it gave Denmark one month to make amendments to bring the proposals in line with EU laws (in particular the free movement of services provisions). The European Commission was concerned about several aspects of the proposals including plans to allow Danske Spil to hold a monopoly on pool betting for horse racing and plans to block ISPs and ban marketing by unlicensed operators. The proposals are due to be debated by the Danish government sometime within this parliamentary year which runs from October 2009 to May 2010.

Meanwhile, earlier this autumn, Ladbrokes celebrated success in a case Danske Spil (which means "Danish Game") brought against the operator for using an advertising slogan "Danish game, English odds", which it considered to have improperly used its trademark. The court ruled in Ladbrokes' favour and dismissed the claim for compensation on the basis that the Danish monopoly operator had no exclusive right to use the words "Danish game" commercially.

Polish Parliament approves gambling bill

At the end of November, the Polish Senate voted in favour of proposed legislation to impose tough restrictions on the gambling sector and also impose tax increases on casinos and sports betting operators. The proposed legislation still requires the President's signature before it becomes law.

If approved by the President, the legislation would ban all gambling outside of land-based casinos and would mean that video lottery machines cannot be installed in any place other than a casino. The latter proposal would effectively make some 50,000 machines installed inside cafes, clubs and shops illegal. In addition, the bill would restrict all "gambling-related advertisements" but bookmakers licensed in other EU Member States will still be able to display their logos and names if related to sports sponsorship. It is believed that this specific exemption on the use of logos will mean that various Polish football sponsorship deals by online gaming operators (such as Bwin, Unibet and BetClic) will be unaffected.

In terms of the planned tax increases, casino tax rates will rise to 50% of revenues and slot machine duty will also increase from €180 to €480 per machine per month. Sports betting tax rates are also set to increase from 10% to 25%.

The bill's parliamentary approval was preceded by political scandal. In October the Polish Prime Minister, Donald Tusk, either dismissed or accepted the resignations of a number of key ministers and aides following allegations of undue lobbying of the cabinet by gambling operators in relation to this draft legislation. It has been claimed that the legislative proposals were intended to punish gambling operators for trying to influence the political process.

New Greek government suspends tax on lottery winnings

In our last update, we briefly reported on the introduction of a controversial "Winnings Tax" in Greece which had been approved by the former Conservative government. However, the new socialist government, which won the Greek elections at the beginning of October, has announced that it will extend the suspension of this new tax. The taxation measure had been introduced in order to remedy (in part) Greece's budget deficit and would have meant that a 10% tax would be due on net winnings from OPAP's lottery games and all sports betting winnings. The Finance Ministry has also announced that consultations will commence which will seek an amendment to gaming taxation, although it is unclear whether this would include the reintroduction of a "tax-free" threshold on OPAP lottery winnings.

The Greek business newspaper Imerisia has also reported that the new government may even introduce new gambling rules which would follow the French proposals and allow a competitive licence for internet betting and gambling. No official statements have been made by the new government in relation to this issue.

Germany: Could reform be on the cards (at least within the next 2 years)?

Since the Interstate Treaty on Gambling ("ITG") was implemented on 1 January 2008, online gambling has been prohibited throughout Germany. The European Commission has been investigating the compatibility of the ITG with EU laws and, in addition, the blanket ban has generated a large number of legal challenges in the German national courts (eight of these cases have been referred to the European Court of Justice for clarification of how the EU laws should be interpreted).

Many commercial operators will have been pleased to hear that the ruling coalition party in the State of Schleswig-Holstein announced in mid-October that it would not ratify a similar Treaty before the ITG comes to the end of its four year term on 1 January 2012. The leader of the coalition party also indicated that the party would seek to introduce a licensing system on a state-by-state basis.

Review begins in Northern Ireland but reform is likely to be slow

At the end of September, Margaret Ritchie, the Northern Ireland Social Development Minister, announced a two stage review followed by publication of a report on possible regulatory reform to modernise current gambling rules. Although part of the UK, Northern Ireland has a separate regulatory system from Great Britain and is primarily regulated under the Betting, Gaming, Lotteries and Amusements (NI) Order 1985. This Order is broadly based on the legislation which applied in Great Britain prior to the implementation of the Gambling Act 2005 on 1 September 2007.

Ritchie noted that, "Current legislation is old, inflexible and hard to understand and the gambling market has moved on. There are new products and new ways of gambling that the current law never envisaged". She also noted that public safety would be the top priority of this review and that she wanted to create an "intelligent regulatory system that is seen to be fair". Few would disagree with her sentiments but the review and subsequent publication of a report is likely to take at least 24 months. Furthermore, any reforms are likely to be fiercely opposed by the Democratic Unionist Party and Sinn Fein and any reform will therefore take a matter of years to be introduced (if at all).

Betfair and Ladbrokes challenge Dutch government in European Court

On 12 November Betfair and Ladbrokes had an oral hearing before the European Court of Justice ("ECJ") against the Dutch Minister of Justice. Both cases are based on claims that the Dutch government has breached EU laws which ensure that EU-based businesses have the freedom to provide services in other EU Member States under Article 56 of the Treaty on the Functioning of the European Union (as the EC Treaty has recently been renamed). The Dutch courts hearing these cases each referred several questions to the ECJ requesting that it interprets how EU laws should be interpreted on specific issues which have not been considered previously. It will come as little surprise to those who have been following the line of recent ECJ judgments to hear that counsel for both of the operators asserted that the circumstances of these cases were distinct from previous ECJ gambling cases.

The advocate representing the Dutch Minister of Justice in the Betfair case sought to apply the ECJ's Bwin Liga/ Santa Casa judgment and argued that operators which are unlicensed in the Netherlands cannot offer their services to Dutch citizens. Ten Member States and the Commission also submitted arguments at the oral hearing. The Member States (including the Netherlands, Belgium, Portugal, Denmark and Finland) all raised arguments that national licensing systems for betting were appropriate and that the principle of mutual recognition did not apply to the gambling sector. In contrast, the Commission argued that the European gambling sector would benefit from a degree of openness and disagreed with most of the Member States' submissions. Of particular note, the Commission criticised the Dutch government's arguments that gambling was not an economic activity while the operator licensed to operate the Dutch horseracing monopoly, "Scientific Games" was listed on the NASDAQ exchange in New York.

Betfair launched its case earlier this year after the Dutch government sent a letter to Dutch banks ordering them to block payments between Dutch citizens and English betting operators. Betfair has indicated that, if successful, it will sue the Dutch government for damages which could run into millions of Euros. Ladbrokes' case has been running for seven years and involves an injunction imposed by a Dutch court and subsequently upheld which has prevented the operator from accepting bets from Dutch citizens.

It has now been announced that the Advocate General Bot will deliver his opinion on 17 December. The judgments will be published within 6 to 12 months of the Advocate General's opinion. As is always the case, the final judgment may or may not follow the initial findings of the Advocate General.

Italy conducts tender for licences to operate further slot machines

In October the Italian regulatory authority AAMS conducted a tender for 56,697 licences to operate video lottery terminals ("VLTs") with a €15,000 price tag per licence. The VLTs are permitted in dedicated areas such as amusement arcades, betting shops and bingo halls. AAMS allowed each of the 10 current licensed network operators to bid for further VLTs licences up to a maximum amount equal to 14% of their existing slot network made up primarily of Amusement With Prizes ("AWP") slot machines. It was understood that any licences left over would be put up for tender by new entrants. Given that slot machines are reportedly the most important gambling activity in Italy in terms of revenue generated, it is not surprising that all current licence holders applied for the maximum number of licences permitted.

A re-tender for licences to run online networks (to which all AWP and VLT machines must be connected) will take place in April next year. Operators awarded these network licences will have the right to manage networks for 9 years from 1 November 2010. This re-tender will be open to all EU-based operators with a turnover of at least €30m from similar activities during the last complete financial year of 2008-2009. Applicants will also need to have managed similar online networks and commit to building a network of at least 5,000 AWPs and VLTs within a matter of months. On this basis, current operators could well be in an advantageous position when it comes to meeting these conditions.

More recently (in mid-November), a regional administrative court in Rome annulled a scratch card tender which had been awarded by AAMS to the incumbent operator, Lottomatica (an operator controlled by the De Agostini Group). The tender deadline was 12 October and only Lottomatica submitted a bid. SISAL subsequently lodged an appeal against the tender with the regional administrative court. The judges considered the bid conditions to have been discriminatory. The AAMS tender process was also criticised for not allowing competition in the market and for not allowing potential operators based outside of Italy to have an equal opportunity to bid contrary to the EU principles which seek to ensure the freedom of establishment. SNAI and Intralot had also criticised the way in which the tender process had been run (SNAI's president was quoted as saying that the conditions were "made-to-measure for Lottomatica") claiming that the conditions of participation in the tender were particularly onerous for potential entrants.

In particular, bidders needed to have: annual turnover from the sale of gaming products for each of the preceding 3 years of €500m or more; managed a network of at least 3,000 points of sale in 2008; and a bank guarantee to the value of €800m. Once the tender had been awarded, the winning operator(s) would also need to establish a network of at least 10,000 outlets by the end of next year spread over the whole of Italy in order to escape financial penalties.

The undersecretary of the Economy Ministry has subsequently stated that "AAMS respected the rules when it launched the tender and for this reason we will appeal to the High Court". At the time of publication, no formal steps have been taken by AAMS and it remains to be seen whether the authority will launch an appeal against the annulment or commence a new tender process.