Spain issues its first online gambling licences

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

On June 1st 2012, Spain's Gambling Directorate[1], a division within the Ministry of Finance, issued the first online gambling licences in the country. Since then, a total of 53 companies have been legally authorised and are allowed to operate in Spain (including gambling operators, media groups and advertising companies).

Since we published our last update (click here) on the country in December 2011, there have been various developments in the Spanish gambling market. As we discussed in our last post, the granting of licences was expected by the end of December 2011. However, the change of government after the parliamentary elections on November 20th altered the initial plans and the issue of licences was postponed for six months[2].

Today, most licensed gambling operators have already begun operating. However, the road has not been easy, and a great deal of related legal issues have surfaced since December, highlighting the following:

Aggressive campaigns from some land-based operators against online gambling rivals, which have resulted in many legal disputes. Judgements resulting from these controversies have done little to help solve the problem at hand, as they have been found to be contradictory. In many cases[3], Spanish Courts have rejected the injunctions requested by land-based operators, who argued that the activities of their online competitors represented unfair competition. However, on December 15, 2011, Commercial Court no. 10 of Madrid[4] decided to provisionally close the websites www.miapuesta.com and from the Sportingbet group, generating a great deal of uncertainty.

Equally important and controversial has been the regularisation tax process. As a parallel (and connected) process to obtaining the licence, Spanish tax authority (Agencia Tributaria) has claimed millions of Euros from the largest gambling operators who for years have carried out their activities in our territory without paying taxes in Spain (most of these companies are based in Gibraltar). Although most of the online gambling operators have agreed to pay these taxes, the process was not without controversy and some companies even considered abandoning the Spanish market. It may well be that some licensees will commence litigation with regard to these taxes in the future.

Finally, it is worth noting important issues with advertising. The New Gambling Act 13/2011 established a general prohibition on advertising by non-licensed gambling operators. However, the controversial ninth transitional provision of the Act continued to allow sports sponsorship by gambling operators up until the issue of the first online gambling licence. This legal provision enabled major agreements between important companies to remain in effect. Despite this, in April 2012, the Commercial Court no. 2 of Madrid accepted the case brought by Codere against the gambling group Bwin and the Real Madrid football team for unfair competition, in which Codere claimed that the advertising sponsorship contract between them was unlawful.

But there are still a number of issues that remain to be clarified. It can most certainly be said that the Gambling Act 13/2011 has marked a turning point in the regulation of the gambling industry in Spain. However, it is very likely that we will witness new short-term changes in the regulation in order to increase the efficiency of the law. Presently there are a number of remaining problems which will give rise to new changes including the following:

Online poker players' taxation. Especially in the case of professional poker players, online gamblers aim to obtain the best tax treatment. Online poker players are currently taxed on their gross winnings from which they are not entitled to deduct their stakes on losing bets. This fact is crucial as the current taxation system may eventually lead to many Spanish players ceasing to participate, which will, in turn, result in less buoyant revenue for the public finances. The Gambling Directorate has declared its willingness to modify the current tax system. Accordingly, gambling players in future may be able to deduct losses from annual revenues in order to declare only their net profit. Nevertheless, the debate is still open.

Disputes between the State and the Autonomous Communities are expected. Spanish regions have legislative powers on gambling activities within their territories; the region of Madrid for instance has already issued licences for online gambling activities. The problem arises when gambling activities involve several regions. According to the Constitutional Court in its recent judgement 35/2012[5], the State is not competent in these cases due to the fact that the gambling activity, although supra-regional, has no national implications. Potential future conflicts remain beyond the scope of the Gambling Act 13/2011 (only applicable at national level), generating a great deal of legal uncertainty.

Some aspects of the Gambling Act have already become obsolete. For instance, the Gambling Act 13/2011 created the National Gambling Commission, but it has apparently already been decided that this commission will not be established. Its functions for the time being will be assumed by the Gambling Directorate, under the control of the Ministry of Finance. This change has caused a great deal of uproar among operators, given that from their point of view, their interest is put at risk due to the national regulator's lack of executive independence.

The eventual arrival of what has come to be known as EuroVegas in Spain will almost certainly bring considerable legal changes. At this time, Madrid and Barcelona are both vying to host the ambitious project being led by the gambling industry giant Sheldon Adelson who is looking to continue expanding the reach of his business in Europe after his success in Las Vegas, Singapore and Macao. Although its location is still undecided, Adelson has demanded significant legal changes from the national and regional governments as prerequisites to carrying out this mammoth project in Spain. According to press reports the project will have an investment of US$35 billion.

Additionally, for the next issue of licences, operators must go through an eighteen-month waiting period. This obligation makes sense in legal systems where only a limited number of operators can enter the market. However, Spanish legislators have decided to not limit the number of online gambling operators in the market and will grant a licence to any company that complies with the legal requirements. For this reason legal changes are expected in relation to the length of the waiting period.

The Game catalogue (the list of permitted games) approved by law also generates controversy. Many gambling operators have requested the inclusion of new games in the catalogue that have been ignored by legislators (e.g. online slots, some traditional horse racing events, etc.).

In essence, the online gambling sector is still immersed in a legal framework susceptible to important changes and challenges. A majority of the problems seen to date have arisen from the largely passive legislative stance maintained by the government. Prior to 2011, legislators took little notice of the changing situation in the sector and its considerable economic potential. Given the history and the current status of the situation, it may be the case that in order to provide online gambling operators and consumers with a more certain legal framework to work (and play) within, increased government involvement will be necessary in the future.

[1]Dirección General de Ordenación del Juego

[2] Royal Decree-Law 20/2011, dated 30th December, on urgent budgetary and financial measures for the correction of the excessive public deficit.

[3]For instance, Order (Auto) 766/11 Commercial Court no. 5 of Madrid, 11th May 2012; Order (Auto) 12/2012 Commercial Court no. 4 of Barcelona, 16th January 2012

[4]Order (Auto) 658/2011 Commercial Court no. 10 of Madrid, 15th December 2011, confirmed by Order (Auto) 19/2012 Audiencia Provincial of Madrid, 20th January 2012

[5]Constitutional Court, Judgement 35/2012, 15th March 2012.