This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
In this update we review recent legal developments in the gambling sector around Europe. In particular, we report on two important Court of Justice of the European Union ("CJEU") rulings concerning the compatibility of state gambling monopolies with European Union ("EU") law.
In references from the national courts of France and Austria, the CJEU was asked to rule on whether a restriction on the free movement of services in the form of the grant of monopoly gambling rights can be justified. Both judgments found that under EU law Member States are permitted to run gambling monopolies, but only where the legitimate aim of combating the dangers of gambling is pursued in a consistent and systematic manner.
In other news, we report on the French court case which held that poker is a game of skill and not a game of chance and the ongoing saga in Germany, where Schleswig-Holstein has now passed new gambling legislation but the new Interstate Treaty proposed by the other German states has been heavily criticised by the European Commission (the "Commission"). We also report on Bulgaria's difficulties as it prepares to introduce new gambling legislation and the news from Greece which, under pressure to raise funds to meet its fiscal targets, has committed to selling its stake in OPAP and passed a new gambling bill into law despite criticism from the Commission. In addition, we provide an overview of the current legal challenges to gambling legislation in Sweden and Italy. Finally, we look at developments in Denmark where plans to allow foreign server locations have been revealed and the Commission has cleared online gambling duties after an in-depth investigation, and the latest from Finland where the new coalition government plans to crackdown on offshore operators.
European Court provides preliminary rulings on the compatibility of national gambling monopolies with EU law
The CJEU has recently issued preliminary rulings in references made by the French and Austrian national courts questioning the compatibility of national gambling monopolies with EU law. The consistent message from the CJEU is that a national gambling monopoly will be justified only if it pursues the objective of combating the dangers linked to games of chance in a consistent and systematic manner. By way of background, a reference for a preliminary ruling allows the courts of the Member States to refer to the CJEU questions which arise in national proceedings about the interpretation of EU law. It will now fall to the French and Austrian courts to dispose of the cases in accordance with the CJEU's decisions. Notably, the CJEU's decisions are binding on other national courts before which a similar issue is raised.
The first ruling handed down by the CJEU (in June) was in the French case Zeturf Ltd v Premier Ministre. The case, brought before the French Council of State, involves a challenge to the national measures which confer a monopoly for the management of off-course betting on horseracing on Pari Mutuel Urbain ("PMU"). Zeturf is a Malta-based internet-betting operator which offers, inter alia, betting on French horse races. The French Council of State referred the following questions to the CJEU: (i) whether the existence of the French horserace betting monopoly, which constitutes a restriction on the free movement of services, could be justified; and (ii) how should the scope of the restriction on free movement of services be assessed and specifically, whether the market for online betting on horseracing can be regarded as distinct from the sector as a whole.
The second ruling, handed down on 15 September, involves criminal proceedings brought in Austria against Jochen Dickinger and Franz Ömer, the Austrian founders of the multi-national online games group Bet-at-home.com, on the grounds of alleged infringement of the Austrian law on games of chance. It is alleged that Dickinger and Ömer's company hosted a server in Austria used by its Maltese-licensed online gaming subsidiaries to offer casino games from their website. Such activity is in breach of the Austrian gambling law, which permits only one licensed operator to offer online casino games in Austria at any one time. The Linz District Court referred a number of questions to the CJEU, including whether the online gambling monopoly could be justified by overriding reasons in the public interest.
In both cases the CJEU confirmed that a national gambling monopoly may be justified, but only if it pursues the objective of combating the dangers linked to games of chance in a consistent and systematic manner. The cases will now be referred back to the national courts, which must decide whether, in establishing the national gambling monopolies in question, the authorities genuinely sought the particularly high level of consumer protection in the gambling sector that would be needed to justify their monopolies and whether the establishment of such monopolies was necessary, having regard to the level of protection sought. In following the CJEU's decisions, the national courts will be required to pay particular attention to the commercial policies of the national monopolies. In this context the CJEU has stated that only advertising which is moderate and strictly limited to what is necessary to channel consumers towards controlled gaming networks is permissible and furthermore, a policy whose aim is to expand into the overall market for gaming activities is not consistent with combating the dangers linked to games of chance.
Significantly, in responding to the second question from the French court, the CJEU held that, in the event that the French legislation treats online and offline gambling in the same way, any restriction on free movement of services must be assessed by looking at the horserace betting market as a whole, taking into account both online and offline operations. Such an approach will need to be followed in Austria as well as in France.
The CJEU's decisions are extremely helpful in providing clear guidance on the compatibility of national monopolies with EU law and demonstrate the clear emergence of a stricter approach to the grant of monopoly gambling rights in Member States.
French national court rules that poker is not a game of chance
In other news from France, a criminal court in Toulouse held on 20 July 2011 that Texas Hold'em poker is a game of skill and not a game of chance, reversing established case law which dates back to 1877. The decision, which is to be appealed, would have important consequences for the legal and fiscal regulation of poker in France if its interpretation is followed by other French courts. Indeed, if Texas Hold'em poker is a game of skill, organisers of online and offline games may not be required to hold a licence and could also avoid paying gambling taxes. Unsurprisingly, there have been calls for the French Government to initiate a change in the law in order to pre-empt further decisions of this ilk.
Germany: Schleswig-Holstein votes in favour of new online gambling legislation while European Commission raises doubts over Interstate Treaty proposed by Germany's other 15 states
On 14 September 2011, the parliament of Schleswig-Holstein, Germany's northernmost state, narrowly passed its new online gambling legislation. The relatively liberal regime will allow for an unlimited number of licences to be issued and an operator-friendly 20% tax on profits. The legislation, which has already been granted approval by the Commission, will come into force on 1 January 2012 with licences valid from 1 March 2012. This marks the beginning of regulated online sports betting in Germany and has been warmly welcomed by operators such as Betfair.
Meanwhile, plans to implement new legislation in Germany's 15 other states suffered a major setback in July when the Commission issued a detailed opinion on the draft Interstate Treaty stating that it is in breach of EU law. Although the Commission's report has not been made public, it is widely thought that the proposals to limit the number of online sports betting licences to seven and to only allow authorised casino establishments on German soil to offer online gambling are central to its concerns. The German authorities were given until 18 August 2011 to respond to the Commission's objections and are likely to implement changes to the legislation rather than risk formal infringement proceedings. Further developments can be expected in October 2011 when the heads of all 16 German states will again meet to discuss the shape of a new Interstate Treaty on gambling.
Although Schleswig-Holstein firmly rejected the joint proposal of Germany's 15 other states in favour of a more moderate regime, Schleswig-Holstein's government indicated in the days before the vote that it would prefer to see a joint German solution to gambling regulation. In delaying the introduction of licences under the new legislation until March 2012, there is sufficient time for further negotiation to take place amongst the 16 states, potentially with Schleswig-Holstein trying to convince the other states to accept a more liberal system of gambling licensing. One of the key differences between the positions of the two sides is the issue of taxation. It remains to be seen whether Schleswig-Holstein can persuade the 15 other states of the merits of a 20% gross profit tax or whether it will be forced to fall in line with the controversial 16.7% turnover tax preferred by the other states.
Stanleybet challenges Italian licensing regime
In our February update, we reported on Betfair's licensing difficulties in Italy. Italian licensing laws were again put under the microscope recently as British bookmaker Stanleybet told the CJEU that, despite previous landmark legal victories, it is still effectively blocked from obtaining an Italian licence. Stanleybet decided not to apply for one of the 16,000 new betting licences which the Italian Government introduced in an international public tender in 2006. That followed the CJEU's decision in the "Placanica" case that preventing sports bookmakers from one Member from operating in another violated European rules on the freedom to provide services.
However, Stanleybet argues that the tender still favoured incumbent operators and the licensing requirements were designed to block Stanleybet from applying. In particular, the fact that the directors of Stanleybet were under criminal prosecution in Italy at the time, would have meant the company automatically losing its licence and its €50m financial guarantee.
The Commission told the CJEU that they wanted to see the lawfulness of Italy's entire licensing system examined rather than just the issue of the 2006 betting licences. In particular, the Commission highlighted the fact that foreign operators could lose their licence if they offered unauthorised forms of gambling or if they lost the 'trust' of the Italian regulator AAMS. The Commission argues that such provisions risked undermining companies' freedom to provide services under EU law.
Other disputed issues, which are likely to have wider implications across the EU, include Italy's requirement for minimum distances between each betting outlet and the extent to which Stanleybet had forfeited any claim to protection under EU law when it chose not to apply for a licence. Stanleybet argues the minimum distances protect incumbent betting operators' choice spots in town and city centres and leave new entrants fighting over less lucrative locations. Germany's new Inter State Gambling Treaty contains similar provisions while Belgium is also seeing a number of gambling operators refusing to apply for a licence and would no doubt welcome a ruling that gambling operators who refuse in advance to apply for a licence leave themselves outside of the protection of EU law.
Greece passes new gambling law despite criticism from the European Commission and decides to privatise OPAP
In our last update we reported that Greece had failed to convince the Commission to fast track its new gambling laws despite the country's urgent need for the revenue which the proposals would generate. On 7 July 2011 the Commission issued a detailed opinion on Greece's draft online gambling legislation expressing concerns about its compatibility with EU law. At that time it looked as though the bill would be revised and potentially subject to further delay. However, the escalating financial crisis has acted as a catalyst to the bill being passed along with a raft of other measures designed to deal with the country's financial situation and to meet the onerous fiscal targets set as a condition of Greece's second "bail-out" package. As a result some commentators believe Greece is now on a collision course with the Commission over its failure to take on board the criticisms included in the Commission's July opinion.
The European Gaming and Betting Association recently cited a number of provisions in the draft law which in its view breach EU law including: a limitation on the number of licences; the obligation to establish a Greek legal entity, locate servers and process gambling transactions exclusively within Greece; and, the requirement for online customers to obtain a special player ID card. The requirement for a permanent establishment on Greek soil has since been dropped as a licensing requirement, but much of the original draft remains unchanged, including the imposition of a 30% tax on gross profits and an outright ban on betting exchanges. It remains to be seen whether the Commission will now initiate infringement proceedings.
In addition, the Greek government has decided to privatise a number of its state-controlled betting agencies. Such privatisation will include a sale of its 34% stake in OPAP, an organisation established in 1958 to deal with football betting. OPAP has been granted a monopoly until 2020 and is currently one of the country's most profitable companies. Other organisations which are lined up for privatisation are the horserace betting monopoly and the lottery.
Swedish appeal court rules gambling promotion ban breaches EU law
On 7 August 2011 the Swedish Court of Appeal acquitted two former editors of the Expressen and Aftonblat newspapers of charges that they allowed the unlawful advertising of foreign betting sites. In our September 2010 update we reported on the CJEU ruling in the same case, which confirmed Sweden was entitled to restrict gambling to its state-owned monopoly operator, Svenska Spel, by banning other operators from advertising online gambling services in the country. However, the CJEU also ruled that if the penalties for those carrying out the promotion of gambling organised in Sweden without a licence were less severe than for those who advertise gambling organised in other Member States then those arrangements would be discriminatory and should be unenforceable against the persons being prosecuted under them. The case was subsequently referred back to Sweden's national courts to determine whether the penalties were in fact different and therefore discriminatory.
The Swedish Court of Appeal decided that those found guilty of promoting games operated from another Member State were subject to harsher penalties and therefore acquitted the two editors, Otto Sjoberg and Anders Gerdin, on the basis of the prosecution being discriminatory under EU law.
State prosecutors are expected to appeal the decision to Sweden's highest court but if the Court of Appeal's approach is upheld then the case could pave the way for reform of the current ban on gambling advertising which would be welcomed by the Swedish media which, it has been estimated, could reap benefits of up to 1bn Swedish kronor in extra advertising revenue
Finland plans further offshore gambling crackdown
Finland's new six-party coalition government has announced plans to further crack down on foreign gambling companies as growth at its casino and poker state monopoly RAY remains stunted by offshore competition. The government did not go into detail on how it plans to deal with offshore operators but is committed to strengthening the current monopoly system by restricting offshore operators.
As we reported in February Finland has already strengthened the position of its three gambling monopolies with the introduction of legislation that imposes strict rules on advertising by non-Finnish gambling operators. The advertising ban led to British bookmaker Ladbrokes closing its dedicated Finnish-language website and Unibet, which has a strong presence in the Nordic regions, also shifting its marketing budget elsewhere. Kari Hyttinen, RAY's internet gaming director, welcomed the government's plans. He argues that many of RAY's online gambling rivals have found a way around the ban, which carries a two year jail sentence, through sending emails and letters to their Finnish customers.
Further delays to Bulgaria's online gambling regime
In our last update we reported that Bulgaria's new gambling law had been submitted to the Commission and that a number of its provisions could potentially breach EU law. The Commission has now issued a detailed opinion criticising the proposals and extending the standstill period for the new legislation. The Secretary General of the European Gaming Association commented that "some of the main requirements in the bill are not something that would motivate any operator to take a licence. There are lots of question marks still. We need to see how the government responds to the detailed opinion." In its current form those applying for an internet gambling licence would need to be in business with someone with five years experience in Bulgaria, channel bets and winnings through Bulgarian banks and locate some gambling equipment on Bulgarian soil. The Commission has consistently taken issue with such measures.
Denmark reveals foreign server plans as Commission clears Danish online gambling duties
We reported on Denmark's plans to allow licensed remote operators servers to be based offshore in our last update. The Danish Government has since published revised 'technical requirements' annexed to the 2010 draft gambling law which provide further detail on the proposals. Like Italy, which has permitted foreign server location since 2006, Denmark is set to allow games systems to be based in another country provided that country's gaming regulator has made an agreement with the Danish Gaming Authority (the "DGA"). That agreement will deal with the exchange of information on the supervision and control of the gaming operator in areas such as infringement of licence terms, suspicious transactions and financial problems. The annexed requirements do not mention any specific countries and areas but it seems likely the focus will be on the EEA as the DGA will look to countries which have similar security standards and control measures as Denmark.
Meanwhile, following an in-depth investigation, the Commission has concluded that a law liberalising gambling in Denmark and introducing an online gaming tax which, at 20 per cent, is significantly lower than the rates paid by land-based operators, is in line with the EU rules on state aid. As we reported in our February 2011 update, the Commission opened the investigation into the differentiated tax system following complaints from a Danish trade organisation that the lower rate would give online operators a competitive advantage. The Commission reached its decision on the basis that the positive effects of the liberalisation of the sector would outweigh any potential distortions of competition.
France and Italy's e-gaming regulators sign Memorandum of Understanding
France and Italy's respective gambling regulators have signed a Memorandum of Understanding to formalise information sharing and set up working groups to discuss common issues. In a statement both organisations said their main priorities are to work together on regulation and forthcoming regulatory developments, illegal sites, the control of legal operators and dealing with fraud and player protection.