Steps taken to open gambling services in the EU and beyond

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

We have previously reported on the Commission's latest round of proceedings initiated against EU Member States which continue to restrict licensed online gambling operators from competing with State monopolies. Below we report both on Member States' responses to the Commission's action and the ways in which gambling operators have been seeking to protect their commercial rights in the national courts of EU Member States.

Mixed news in France

We reported in December's gambling update that France had been given a deadline of spring this year to find a solution to keeping its national betting laws in line with EU rules. Since then, the French government has insisted that there will be a controlled opening of the French sports betting services market which is currently dominated by two state-owned monopolies Français des Jeux (FDJ) and Pari-Mutuel Urbain (PMU). The French Government presented its proposals to Charlie McCreevy of the European Commission and the French press at the beginning of June. The infringement proceedings have been suspended pursuant to the production of a draft bill (expected in the autumn) but until France adopts such proposals it continues to be at risk of being taken to court by the Commission, something that it will want to avoid as it took over presidency of the European Union last month.

Meanwhile at the end of May a Paris court ruled in two separate decisions that two Malta-based online betting companies, Unibet and Expekt, must stop accepting bets on the French Tennis Open. Both operators were ordered to pay significant damages to the Federation Française de Tennis (FFT) and an additional €25,000 for each day they continued to take bets on the French Open. The court ruled that the operators were guilty of commercial free-riding i.e. seeking to profit from the reputation and IP of the FFT without contributing to the organisation of the event. The court also ruled that both sites "violated the operating monopoly conferred on the FFT, the organisers of the tournament". According to a statement by the European Gaming and Betting Association, both firms intend to appeal the ruling.

This ruling came as a surprise to many as it only recently followed the FFT's failure to prevent Bwin, Ladbrokes and Betfair from taking bets on the French Open applying similar arguments in a Liege court.

In yet another case which suggests ongoing uncertainty when it comes to judgments in this area, the same Parisian court which ruled in favour of the FFT rejected similar claims by the French football team Paris Saint-Germain at the end of June. Paris Saint-Germain had accused three online betting operators from exploiting the club's trademark for commercial gain. However, the French high court rejected these claims against Bwin, Unibet and Sportingbet.

National courts refer key questions to the European Court of Justice

References made to the European Court of Justice (ECJ) by Portuguese and Dutch courts could result in landmark rulings for the European gaming industry.

The Portuguese reference has arisen 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. In August 2005 Bwin entered into a €10m four-year sponsorship deal with the Portuguese Football League (LPFP), pursuant to which the parties agreed that the top two league divisions would be renamed "Bwin Liga". SCML objected to this sponsorship deal and imposed a fine on both the football league and Bwin for allegedly illegally promoting and advertising online gaming services exclusively reserved to SCML.

The Portuguese court deciding the appeal referred the following questions to the ECJ:

Whether the monopoly rights granted to SCML and enforced against Bwin (a service provider established in another Member State in which it lawfully provides similar services) constitute an impediment to the free provision of services, contrary to the EU Treaty principles of freedom to provide services, freedom of establishment and the free movement of capital?

Whether it is contrary to these principles of Community law for national laws to grant such a monopoly over the operation of lotteries and betting, especially one which covers the entire national territory and even the internet?

The ECJ invited comments from interested parties, and held a hearing on 29 April 2008 attended by the parties, the Portuguese government, the European Commission and various Member States. SCML and the Portuguese government argued that a monopoly is greatly preferable to other methods of regulating betting and gaming (such as licensing), as it combats criminal activity and fraud. However, no factual evidence was submitted to support these arguments.

In March, a second Portuguese court also referred further questions to the ECJ regarding the compatibility of a State-owned monopoly of betting and gaming services, from an action by SCML to annul the sponsorship deal. The ECJ has postponed its consideration of this case pending the outcome of the first reference. The judgment of the first case is expected in spring 2009.

In mid-June the Dutch Supreme Court also referred questions to the ECJ. The case in question is an appeal by Ladbrokes against an injunction taken out by the Dutch betting monopoly, De Lotto, in 2002 which prevented Ladbrokes and other gaming operators from accepting bets online from Dutch citizens.

The Dutch Supreme Court has requested that the ECJ clarifies the following issues:

Applying European case law, should operators be permitted to introduce new games and advertise their gambling services as a means of preventing potential gamblers from placing bets with illegal (unlicensed) persons?

Must the national court determine whether the application of the national gambling legislation is justified in each specific case?

Can a Member State prevent an online gaming operator licensed in another Member State from offering its services due to national rules implementing a monopoly licensing system?

These judgments will clearly have important ramifications both for those Member States in which there is a monopolist betting and gaming provider, and for remote gaming operators looking to operate in those markets.

Sweden's gambling restrictions subject of continued attack

We have previously reported that the European Commission began an inquiry in January to determine whether Sweden's national gambling legislation (which restricts the supply and promotion of certain gambling services, in particular online poker games and tournaments) is compatible with Article 49 of the EC Treaty, which guarantees the free movement of services. If Sweden fails to respond to the Commission's objections adequately the Commission may refer the matter to the European Court of Justice. In May it was reported in the Swedish media that Sweden is considering options including the liberalisation of some of its state-run gambling services in order to bring its national laws in line with the European rules on the freedom to provide cross-border services.

Meanwhile, the Swedish Prosecutor General has ordered national prosecutors to postpone prosecution against illegal gaming advertisements until the European Commission's infringement proceedings against Sweden have been concluded. Prosecutors were also warned not to initiate new proceedings against media bodies carrying betting advertisements. This order followed a decision by the Swedish Supreme Court in February 2008 which questioned the validity of Swedish gaming law. The legal position is likely to remain unclear until the outcome of the Commission's proceedings.

Italy continues steps to license remote operators

We have previously reported that the Italian government is taking steps to liberalise the Italian betting and gaming market. The Italian regulatory authority the Amministrazione Autonoma dei Monopoli di Stato (AAMS) has recently published information about the process for obtaining skill gaming authorisations. Applicants must declare that the operation of the game will comply with both the gambling and copyright laws and must submit details of the game including its rules, finances and the applicable method of allocating winnings together with a demonstration of the game.

It has also been reported that Italy is close to issuing a response to the Commission's objections raised in relation to its draft remote gambling decree as described previously.

Denmark gambling monopoly's days may be numbered

Comments made by the Danish Minister for Taxation to a national radio station in April 2008 clearly indicate that the government is preparing reforms with a view to opening up the gambling market to regulated competition. The Minister noted that, due to the nature of the internet, Danes are already able to gamble illegally on sites based outside of Denmark, and suggested that it would be preferable to license and regulate gambling operators within Denmark in order to prevent money laundering and loss of taxes. The Minister emphasised, however, that the State's monopoly over lottery gaming is not under consideration for liberalisation.

These statements are made in the context of the Reasoned Opinion delivered to Denmark by the European Commission in March 2007, criticising its restrictive approach in the sports betting market.

June 2008 saw the Danish state-owned broadcaster TV2 enter the gaming market claiming to have found a loophole in the monopoly currently held by Danske Spil. TV2 has set up a website offering games of skill (including card, board and mind games), stating that it is confident that the laws protecting Danske Spil's monopoly only cover games of chance. The Danish Minister for Taxation has also publicly stated that, "TV2 isn't providing gambling. It is a competition, and that is regulated by gaming laws".

Spain to regulate online gaming operators by 2009

In June 2008, gambling authority officials and government representatives in Spain met to discuss plans for the regulation of online gambling in accordance with EU law. These rules will allow operators based in EU Member States to offer their services legally in Spain. The following issues also require clarification: how the tax revenue from online gambling will be divided between the 17 Spanish regional gambling authorities; how to ensure that vulnerable consumers are protected; and how to prevent unauthorised operators from participating in the market.

It is expected that a draft Bill will be published by the end of this year. The authorities could potentially be ready to issue licences to EU licensed operators by June 2009.

Another recent development in Ireland is the announcement by the Department of Finance that it will launch a tender process in Spring 2009 inviting bids for a new National Lottery licence provider. The current operator is postal service An Post, which recently had its licence extended until the end of 2011. A full competitive-bid process is now expected to be run with a view to awarding a new exclusive 10-year licence to operate the Irish National Lottery from 1 January 2011.

Legislative reform planned in Ireland

National gambling legislation in Ireland is currently the subject of political debate. The proposals include the legalisation of casinos and the creation of a regulatory authority to be responsible for all gaming issues. A report prepared by an inter-departmental Casino Committee was published on 10 July 2008, examining the existing laws regulating gaming and lotteries in Ireland, gambling regulation in other countries (and in particular the UK regime), and possible approaches to be used in Ireland going forward (including the introduction of licenses for remote gaming). The report specifically states that betting should be reviewed separately to gaming (other than where there is potential for overlap, for example FOBTs) and therefore outside the remit of the Casino Committee.

The Irish Minister for Justice has indicated that proposals will not be adopted without cross-party agreement and a public consultation, and has set up a Cross-Party Committee for the purposes of such scrutiny.

Poland also plans legislative reforms

According to national reports, the Polish government is preparing legislative proposals to allow online gaming and betting in the country. These proposals will be sent to the European Commission for approval pursuant to EC Directives 98/34/EC and 98/48/EC, which impose an obligation upon each Member State to notify to the European Commission (and to each other) all draft technical regulations concerning products and Information Society services before they are adopted at a national level.

Turkey to privatise national lottery

In June 2008, the Turkish press reported that the Turkish authorities have decided to privatise the operation of the country's national lottery, offering a ten-year licence to the international market. It will be a condition of the licence that 20% of total revenue generated is donated to the National Lottery Authority. Bidding for the licence begins this month. According to press reports several software and foreign lottery companies have already expressed an interest in the privatisation including Ladbrokes, Intralot and the US/Italy's GTech-Lottomatica.

US dismisses RGA complaint

At the end of June a number of US federal authorities and gaming industry representatives responded to a formal complaint filed in December last year by the European Commission on behalf of European online gaming operators for practices in violation of the World Trade Organisation (WTO) rules. The Remote Gambling Association (RGA), the operators’ trade association, filed the complaint and is aggrieved that the US trade representatives dismissed the contents of the complaint by responding that there was “no basis for any allegation of ‘discriminatory enforcement’ of US gambling laws”.

The Commission's complaint addressed several issues including the alleged discriminatory treatment of European and other non-US online operators by the US Department of Justice in relation to their involvement in gambling operations which took place before December 2007 when the US withdrew from its WTO commitments. The US trade representatives have argued that the compensation deal struck by the European Commission sufficiently counters the RGA's concerns. Unsurprisingly Clive Hawkswood of the RGA disagreed: “It’s a completely different aspect. The deal was on them withdrawing their commitments, not applying the Treaty unfairly while we still had the commitments.”

The response will inform the Commission's decision as to whether or not there are sufficient grounds for referring the complaint to the WTO. The RGA has indicated that it would be interested in a settlement being negotiated and, in particular, an undertaking being provided by the US that it will not prosecute or pursue individuals involved in the European online gaming industry while the US applied the WTO commitments.

A delegation led by EU Trade Commissioner Peter Mandelson met with Washington legislators at the end of July to discuss, amongst other trade related issues, this ongoing dispute.

Shake-up of gambling regulation in Victoria, Australia

The Australian state of Victoria has opened a public consultation on its plans for a radical overhaul of the state's gambling industry, following a review of the sector which began in 2004. The consultation closed in early July 2008 and will be followed by discussions with industry stakeholders.

The new proposals follow 2007's abrogation of the state monopoly on lotteries, with a second lottery licence having been granted to Greek-owned Intralot. Amongst the proposals are changes to the law regarding gaming machines. It is anticipated that from 2012 individual premises will have ten-year licences to operate gaming machines on their premises. The gaming machines will be fitted with 'smartcard' technology, allowing punters to set spend and time limits on their gambling. The Victoria state government plans that these proposals will be formally adopted by 2010.