Published on the Malta Independant, issue Wednesday, 26th September 2010
Imagine, if you can, Malta voting not to join the EU (a Switzerland in the Med) while at the same time trying to attract multi-national remote gaming companies to host their servers and offer bets to foreigners. This would have been very difficult but, since accession, our EU membership provides a bedrock protection against barriers to trade. Online gaming in Malta has blossomed and is its pride and the envy of others.
Just consider that in less than five years it attracted over 250 companies. The protection that the EU Treaty guarantees its member states to allow freedom of establishment and freedom of provision of services would not be available for tiny Malta outside the EU, and of course the attractiveness of its well-regulated online gaming regime would be blunted.
Malta has licensed operators who hail from all corners of the world, providing first class regulation and fair play efficiently monitored by the Lotteries and Gaming Authority. This silent revolution has generated a good proportion of our recent 3.9 per cent GDP increase from a negative last year. This is commendable. It provides well-paid jobs to over 2,500 people together with the economic multiplier effect of fees generated – to lawyers, accountants and IT engineers – and acts as the backbone support for the burgeoning ICT sector through extensive use of bandwidth. But the going was not easy. Starting with our neighbour, Italy has been blocking non-licensed betting sites from offering bets to their citizens unless an Italian licence is granted. Such licences were jealously guarded by the Italian State monopoly and not readily available. In a famous ECJ decision, namely that of Gambelli, it was ruled that Stanley Leisure, a UK licensed online betting provider, was not acting illegally when it offered bets to Gambelli (representing a group of Italian bettors). The same can be said for state monopolies that resisted entrance to their markets in France, the Scandinavian countries, Austria, Germany and The Netherlands.
As a general comment, it is only a minority of European countries that endorsed in a comprehensive manner their gaming market. Such countries include Malta, Britain, France, Italy and Ireland. By comparison, others like Finland and Denmark have regulated only parts of the market. Typically, we see that Estonia has started to issue licences and will open the market completely next year. Switzerland is considering plans to open the online casino market. Typically, Greece only allows gambling in a casino environment. But there are a number of countries that remain steadfast in their opposition to foreign competition and would rather protect their own revenue from jealously guarded state monopolies. These include Sweden, Norway, The Netherlands, Poland, Austria and Luxembourg, which still protect state-run monopolies, even if some of them, such as Germany, have started to question the validity of its all-state treaty and only just recently lost a case at ECJ level, which confirmed that the ban is illegal. Sweden holds a monopoly on all forms of gambling; Norway has signed a new ban on the processing of unauthorised online gaming payments into law; in The Netherlands no licences are issued for online poker, casinos or bingo, although online gambling is legal, and Poland is facing tough consequences following the introduction of a controversial online gaming ban.
There are other jurisdictions in Europe facing challenges concerning gaming exclusion, such as Hungary where players are irritated due to the incredible high taxes on poker. Spain has a progressive attitude, but no uniform regulation. In the UK, one might soon need a licence from the government to advertise remote gaming, otherwise it could be a criminal offence. Belgium has tightened its measures again and now it is nearly impossible to get a licence as a new operator. A substantial number of the above-mentioned European countries are involved in infringement procedures with the European Commission due to their not being compliant with EU law regulations.
Thus we meet with the latest bastion of resistance to foreign competition, which is Germany. The German Interstate Treaty (Glücksspielvertrag), which was signed two years ago and which prohibits any organisation or brokering of public games of chance on the Internet, has come more and more under fire in recent days (not least because of Europe’s current worst case of football match fixing). In addition, 16 lander (states) have a regional monopoly for the organisation of sports betting and lotteries, while the organisation of betting on horse races and the operation of slot machines and casinos is liberalised and entrusted to approved private operators.
Since its implementation on 1 January 2008, the law has been the trigger for several cases, like C-316/07 Markus Stone, which ended up in front of the ECJ and was therefore a supervision object of the European Commission due to the fact that the prohibition was neither in compliance with the freedom of establishment (Article 43) nor with the free movement of services (Article 49). Further-more, such an interstate treaty not only challenges the suitability and necessity of the general prohibition but also combats significant technical instruments that hinder local players from using online services. Critics have always questioned how effective this is, due to the decentralised structure of the Internet, which makes it easy to circumvent blocking measures. Furthermore, most agree on the technical inability of each gaming operator to identify the precise location of the user in order to be able to enforce the treaty.
It is not surprising that in the Carmen Media case, the ECJ ruling against gaming monopolies in Germany has been described as a “breakthrough” judgment. It is also directly a “major step forward for Malta” for German-owned betting outfits licensed in Malta. ECJ ruled that the German state monopoly on most forms of gambling was “unjustifiable” and had to end at once.
In brief, the ECJ judgement in the Carmen Media case, as represented by the Hambach & Hambach law firm, was a landmark decision for the liberalisation of trade in the single market. It concerned Carmen Media being refused a betting licence in Germany. The applicant is a global gaming and entertainment group that was incorporated in Gibraltar in 2002.
The ECJ stated that the German authorities could not act arbitrarily when deciding on the granting of a licence to Carmen Media, and that the issue of such licence must be based on objective, non-discriminating and pre-established criteria. The chief judge expressed her view of the legal situation – that a state gambling monopoly could only be justified with the objective of combating gambling addiction if all legal regulations and actual measures taken by a member state in the entire gambling market, rather than merely the provisions on which the monopoly on sports betting and lotteries is based, are made subject to examination as to whether restrictions on games are systematic and consistent.
Another important ruling concerns Austria where the ECJ found that “the obligation on people holding concessions to operate gaming establishments to have their seat in Austria constitutes a restriction on freedom of establishment”. This is another blow to monopolists and paves the way to an orderly opening of foreign licensees to locate their seat in the country. France’s Parliament has passed a bill to end state monopoly on online gambling and allow the privately owned websites to offer bets on football, poker and horse racing. According to a Reuters’ report, the Bill was passed by a parliamentary majority of 299 votes to 223 on 6 April. The Draft Bill came into force in the beginning of June. So far, 11 companies have been licensed and registered by the French government to conduct online betting on sports and horse races, as well as poker.
Three months since new French gambling laws were introduced, the number of applicants wanting to join keeps growing. Last month, the country’s gambling regulatory body Autorité de Régulation des Jeux En Ligne (ARJEL) issued another five licences to provide online poker sites in France, two for horseracing betting, and two more for those supplying sport books. The total number of approved licensees for online gambling in France now stands at over 27.
According to Manchester-based consultancy H2 Gaming Capital, with the new legislation, the French online gambling revenue could reach €1.25 billion by 2012. This is confirmed by Awedacity Ltd, which goes a step further and forecast €1.4 billion by 2011.
Regrettably, the new Draft Bill did not scale down tax to a moderate level comparable to that charged in other jurisdictions. The state plans to tax sports and horse betting up to 7.5 per cent and up to two per cent on online poker.
To conclude, monopolies are effectively barriers to trade. Ideally, they should be moderate in size and be genuinely intended to channel gaming into a regulated and controlled system, rather than striving to maximise profits to swell state coffers.
The writer is a partner in PKF Malta, an audit and business advisory firm.