Further progress in liberalising the gambling sector in Europe

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

Over the past few months there have been promising signs of liberalisation of the gambling sector within the EU both in terms of the European Commission's latest round of proceedings against EU Member States (which continue to limit licensed gambling operators' ability to offer their services) and in legal challenges brought by operators seeking to protect their commercial rights in the national courts. Furthermore, on 6 November Stanleybet International launched a campaign to lobby the European Commission to enforce the EC Treaty obligations on free trade in relation to the betting sector. What impact this campaign will have on the Commission's current round of proceedings remains to be seen.

Below we report on this interesting case and other recent developments affecting gambling operators' ability to provide their services in Europe.

European legislators consider the integrity of online gambling

On 17 October 2008, the European Parliament published a draft report, prepared by the Danish MEP Christel Schaldemose, on the integrity of online gambling. The objective of the draft report is to highlight the potential problems linked to the integrity of online gambling (namely the avoidance of fraud and criminal activities and the potential problems of addictive and underage gambling) and recommends a number of measures to deal with these problems. The key recommendations are as follows:

• the Commission should clarify the competences of the Member States and the EU in the field of online gambling;
• the European Court of Justice should not define the European gambling market. The report highlights that 50% of cases currently referred to the European Court of Justice are in some way related to gambling issues;
• Member States should co-operate to solve the problems arising from cross-border online gambling (e.g. gambling addiction and misuse of data/card fraud); and
• EU Member States should be able to restrict the freedom of gambling operators to provide online gambling services in order to protect consumers.

The European Parliament's political groups will consider the draft report and will have the opportunity to table amendments prior to the adoption of a final report (likely to be made in spring 2009). Once adopted, the report will be forwarded to the European Commission and the European Council. It is not a legally binding document but could stimulate further debate about the way in which this sector is regulated.

According to recent press reports, ministers of the Council of the European Union (the principal decision-making body of the EU) have also been considering whether legislation ought to be introduced to harmonise online gambling throughout the EU. The news agency Reuters reported that on 1 December 2008 European ministers met and discussed a paper which suggested that the EU should develop a common approach to gambling regulation. According to the Reuters report the Commissioner for the Internal Market, Charlie McCreevy, voiced his concerns about such an initiative because of the lack of consensus between EU Member States. Ministers representing the UK and Malta were also said to strongly oppose the suggestions. Whether or not this debate will be continued when the Czech Republic takes over the Presidency of the Council of European Union on 1 January 2009 will largely depend upon the political will of the ministers concerned.

Portuguese Government facing increased pressure to amend legislation

In August we reported on a reference to the European Court of Justice ("ECJ") from a Portuguese national court. In brief, the reference arose from an appeal brought by Bwin, the Vienna-based gaming provider, against a fine imposed upon it by La Santa Casa da Misericordia de Lisboa (SCML), the government-endorsed monopoly provider of betting, lottery and online gaming services in Portugal. SCML objected to Bwin's sponsorship of the Portuguese Football League and fined both parties for allegedly illegally promoting and advertising online gaming services exclusively reserved to SCML.

The Portuguese court deciding the appeal referred several questions about the legality of SCML's monopoly rights to the ECJ. As we have previously reported, the ECJ held a preliminary hearing in April attended by the parties, the Portuguese government, the European Commission and various Member States. At the hearing, representatives of Belgium and Germany strongly argued, amongst other things, that Member States should be free to have a gambling monopoly in one sector and a licensing system in place in another sector.

The Opinion of Advocate General Yves Bot presenting his preliminary arguments to the ECJ was published in mid-October. The Advocate General's key finding was that the EC Treaty does not preclude legislation which extends an exclusive right to operate lotteries and off-course betting within a Member State to the internet (such as that imposed by the Portuguese) if justified by overriding reasons relating to the public interest as established under European case law. He made the following points in relation to the application of the 'public interest' conditions:

(1) the national courts must ascertain whether the 'public interest' conditions are fulfilled;

(2) a Member State may legitimately restrict the right to operate certain games in order to protect consumers and to maintain public order (in view of the risks created by gambling and games of chance on the internet);

(3) legislation may be appropriate for pursuing those aims if it enables the Member State to direct and control effectively the operation of gambling and games of chance by the monopoly and as long as the Member State does not manifestly exceed its margin of discretion; and

(4) the grant of an exclusive right to a single State owned non-profit making entity may be a proportionate measure.

Another interesting aspect of his Opinion was that the Advocate General noted that where legislation providing a State owned entity with the exclusive right to organise and operate lotteries and off-course betting is extended to "all electronic means of communication in particular the internet" this constitutes a 'technical regulation' which requires pre-notification to the European Commission in accordance with EC Directive 98/34 as amended. This Directive lays down formalities which must be followed where a Member State wishes to implement a technical regulation. In particular, other Member States and the Commission must be given the opportunity to propose amendments to a contemplated measure in order to remove or reduce barriers to the free movement of goods or services and the Member State in question must take these amendments into account before finalising the measure proposed. Without notification such legislation cannot be relied upon against individuals such as the Portuguese Football League and Bwin

The ECJ is likely to publish its final judgment in early 2009 and the matter will then be referred back for the Oporto court to decide on the initial questions about the validity of SCML's monopoly. The ECJ is not in any way obliged to follow the Opinion of the Advocate General (although statistically this is most often the case) but if the ECJ accepts the Advocate's arguments it could have wide reaching implications for the gambling sector throughout Europe. Namely, State owned entities such as SCML would not be able to rely on their monopoly rights in the off-line betting sector to enforce the same level of exclusivity on the Internet unless such regulations have been formally notified to the Commission in accordance with EC Directive 98/34 as described above.

Meanwhile, in September the European Commission sent the Portuguese Government a formal request to amend its discriminatory tax laws. The Commission is concerned that winnings earned in Portugal from competitions, games or gambling are subject to taxation whereas winnings from lotteries and games organised by SCML are tax exempt. The Commission considers that this exemption constitutes discrimination against other EU operators carrying out activities of social interest such as SCML. Moreover the Commission stated that "Taxing the winnings from foreign but not national lotteries cannot possibly be justified as a measure to avoid the damaging consequences of gambling." If the Portuguese government does not adequately address the Commission's concerns, the Commission has the ability to refer the case to the European Court of Justice.

Progress amending French sports betting laws

In August's gambling update (click here), we reported that the French Government had presented an overview of its proposals for a controlled opening of the French sports betting market to the European Commission this summer. Although the extent to which that market will be opened will not be confirmed until the submission of a long awaited draft bill to Parliament, the French government indicated its intention to privatise the state-owned lottery monopoly Français des Jeux (FDJ). There has already been press speculation that several UK operators including Camelot and Ladbrokes are interested in acquiring FDJ.

Further information was released in October when the secretary of the Finance Commission indicated that under the proposed legislation new online licences will be made available for periods of five years. For an initial period of the licence, betting on horses and sports would be permitted together with some skill games, including poker and backgammon. The range of products would expand during the term of the licence, potentially to include live sports betting. However, the French government has indicated a total lack of willingness to license the playing of casino games online.

It is expected that the text of the draft gambling law will be presented to the other French government ministries and be released for debates and voting in the French Parliament in mid-December.

Norway proposes laws to bar payments to foreign remote operators

Following public consultation, the Norwegian Government has proposed new legislation that if enacted will prohibit companies from processing payments to remote gambling operators. Under the proposed law, processing payments to unlicensed operators will be a criminal offence. Anyone infringing the law could potentially be fined for non-compliance. These draft proposals were submitted to the European Commission earlier this year. Although Norway is not a Member of the EU the European Free Trade Association ("EFTA") Surveillance Authority has the power to challenge Norwegian legislation which contravenes the EFTA obligations.

Meanwhile, Ladbrokes continues its legal campaign to provide its services in Norway. An Oslo court ruled in October that Ladbrokes could not offer its gambling services in competition with the Norwegian monopoly Norsk Tipping. The court also ruled that Norwegian laws were fully compliant with its EFTA obligations. Ladbrokes has indicated that it will appeal the Oslo City Court judgment.

Netherlands to tax earnings from overseas online gaming

The Dutch Senate recently approved a Bill amending the Dutch Gaming Tax Act (DGTA) which will reverse the burden of taxation from the online host to the prize-winner where the host is not based in the Netherlands. All online hosts deemed to be resident in the Netherlands will be taxed annually at 29% on their net winnings. Dutch prize-winners will be taxed monthly at 29% on their net winnings. All prizes may also be taxed as income from investments under the Dutch Income Tax Act, but any Dutch Gaming Tax (DGT) paid by prize-winners is deductible from tax due as PAYE. Prize-winners will not be liable for DGT on prizes that are subject to an equivalent tax in another country, though guidance on what is an equivalent tax is far from comprehensive.

In light of comments by the Secretary of State for Finance suggesting that online gaming would be domestic if the site could be accessed through a computer in the Netherlands there is still some uncertainty as to exactly what constitutes an online host resident in the Netherlands. The current draft of the legislation also leaves open to taxation under the DGTA affiliates which provide click through access to gaming sites.

Impact of the Interstate Gambling Treaty in Germany

The Interstate Gambling Treaty (the "Treaty") which came into force in January 2008 preserves the various German state monopolies over sports betting services and lotteries (but not casinos or slot machines) and heavily restricts the way in which all operators can advertise betting services in Germany.

Since the Treaty was ratified there have been a series of legal challenges by commercial operators objecting to the application of these restrictions. These proceedings have been brought in various courts at federal level and in a number of the German regions. The most recent judgments are briefly described below:

In August the High Administrative court of Rhineland-Palatinate granted Happybet a temporary injunction to allow the sports betting operator to offer over-the-counter sports betting services in Rhineland-Palatinate. The court granted the injunction on the basis that the State betting monopoly operator in that region is in fact privately owned rather than by the State. Although the injunction applies only to Happybet the judgment paves the way for approximately 50 pending claims for injunctions by other operators to be granted. Under the terms of the injunction Happybet is not permitted to promote its services and must ensure compliance with the Treaty's player protection requirements.

In September the Vienna-based operator Bwin failed in an attempt to overturn a ban on it offering its online gambling services in the German state of Lower Saxony. The regional Administrative court in Hanover held that the state monopoly was lawful under EU legislation. Bwin has indicated that it will appeal this decision.

In October Germany's Federal Constitutional Court rejected claims by the online lottery broker Tipp24 that the bans on online brokerage and advertising under the Treaty were unlawful. The court justified its decision on the basis that the ban is necessary in the fight against gambling addiction.

Operators will no doubt be keeping a keen eye on further legal challenges to the Treaty.

Belgian Senate recently proposed amendments to its gambling legislation

The Belgian Senate has recently drafted proposals to amend the 1999 Act on Games of Chance. Importantly, if adopted, the proposals could pave the way for operators already holding licences for land-based casinos, and betting and gaming operations to apply for online betting licences. Although this proposal is likely to be welcomed by the current Belgian licence holders, it is likely to be challenged because online licences could not be granted without an offline licence and this therefore discriminates against purely online operators. It is possible that the legislation will be enacted by March 2009.

News in Italy

On 13 September 2007 the ECJ ruled that the Italian government had acted illegally by extending 329 "historic" licences for betting on horseracing and seeking to extend the term for Superenalotto the Italian based operator. The Italian authorities were forced to set a date for a new tender for these licences and the process was duly announced at the end of August 2008. There was then a delay in releasing crucial tender documents and as a result Stanley International has made a legal challenge seeking to postpone the process.

We have previously reported on the progress of the new licensing regime and further discussions between the European Commission and the Italian regulator Amministrazione Autonoma dei Monopoli di Stato took place at the end of October. At the beginning of November the Italian Government approved a number of amendments to the country's licensing regime in order to bring it closer in line with the EU principles. The key amendments include:

• 3,000 new betting shop licences (a portion of which will allow current holders of only a sole licence i.e. sports betting only or horserace betting only to expand their licences to offer a complete betting package);
• betting shop operators holding one of the disputed 329 horseracing licences (due to be revoked in line with the ECJ judgment) will be able to bid for a replacement licence in the same region; and
• operators will be able to offer a wider range of products than previously permitted.

These changes are likely to be enacted unless the Italian Senate opposes any of the details. Bookmakers will need to await the final amendments to be sure of the exact details of the licences including the duration, locations covered and the costs of application.

A new regime proposed for the Czech Republic

The Czech Ministry of Finance is expected to propose new legislation to regulate online gambling by the end of 2008. The current legislation governing lotteries and games of chance does not clearly define rules on internet betting. However, it is still unclear whether the new proposals will prohibit or approve online betting, with strong arguments raised by both sides. Another important issue which may be included in the proposals concerns the regulation of foreign entities in the gambling sector in the Czech Republic. Under the current legislation, permission to operate lotteries or games of chance is only granted to companies established in the Czech Republic and not to a Czech company with a foreign ownership interest or one which is partly owned by a foreign company. These provisions are clearly discriminatory and contrary to the EU Treaty. It is therefore hoped that the new legislation will lead to a regulated system which will allow foreign entities to operate in the Czech market.

Stanleybet challenges Greek betting monopoly

On 29 October Stanleybet opened betting outlets in Athens and Thessaloniki. The betting outlets operate in a similar way to Stanley's Italian CTD model (an agency transmitting bets overseas) which Stanleybet believes ought to be considered legitimate applying the Gambelli and Placanica case law. Stanleybet and William Hill have applied for betting licences in Greece for the past three years and are waiting for the highest court in Greece to respond to their applications.

It will have come as little surprise that the Greek betting and gaming monopoly operator OPAP immediately threatened legal action against Stanleybet. OPAP (which is part owned by the Greek state) is currently the only operator licensed to offer betting in Greece until 2020. It is thought that the Greek government has been under pressure from the European Commission to amend its laws but Greece is likely to continue to counter any objections on the basis that the monopoly is maintained for reasons of social welfare.