Corruption in Sports: the French position

Corruption[1] in Sports: the French position

by Alexandre Manasterski and Michael Camilleri

Six months after the enactment of the Law on the Opening Up to Competition and Regulation of the French Online Gambling Market, the French Government entered into the second phase of its scheme. This seeks to limit the potential negative consequences of the liberalisation and the risks of corruption in sport by implementing new rules and procedures. How is corruption in sports understood in France? What is the French answer to sports corruption?

After many years of attempting to prohibit the entry of remote gambling operators into the French market, French authorities last year finally began a process of managed liberalisation, through the introduction of a new law regulating remote gaming services (the “Act”).[2]

To deal with concerns regarding criminal activities associated with the liberalisation of gambling[3], the French Government enshrined the following objectives in article 3 of the Act:

1) ensuring integrity, safety and reliability of procedures for gambling; and

2) preventing fraudulent or criminal activities.

Corruption is generally considered together with other criminal activities associated with the gambling sector, such as money laundering, fraud, tax avoidance and consumer protection[4].

To understand the French approach, it is necessary to distinguish between two different types of behaviour which could lead to corruption:

• Direct corruption: Organised crime has the potential to corrupt sports participants such as referees, judges or athletes and manipulate sports results. Betting operators are not involved in this type of corruption and are generally the first victims of this kind of illegal activity.[5]
• Indirect influence: In France, media groups have invested a considerable amount of money in the gaming sector by concluding partnerships[6] and joint ventures with sporting entities and gambling businesses. No collusion between media groups, betting operators and/or organisers of sporting events has come to light but the relationships raise doubts in the minds of the general public and cynicism about the role of money and the media in society[7]. This form of influence is difficult to gauge accurately and consequently makes it harder to distinguish between the simple confluence of interests and wrongful conduct.

New provisions have been introduced to ensure integrity and reinforce the public’s trust in sporting activities that are the subject of betting.

In order to address any kind of corruption, the French Government has already undertaken several measures, namely by:

(1) limiting the opening of the online betting market; and

(2) implementing a principle of transparency in the gambling sector

1.  A controlled opening of the online betting market

Preferring a cautious “step by step” approach in the first phase of the liberalisation, the French Government decided to place restrictions on the opening of the online betting market by limiting (a) the type of authorised betting operations; and (b) the list of events subject of betting activities.

(a) Limited type of authorised betting operations

Due to the fact that the risks of corruption are considered by French public authorities to vary according to the type of betting services which are provided, the French Government has decided to limit the scope of authorised betting activities.

Considered as too readily capable of manipulation, the following betting operations have been forbidden under French law:

• Spread betting: authorities have taken the view that, as a result of the high stakes and risks typically involved with spread betting, this form of betting could encourage corruption and attract undesirable operators. In addition, athletes could be tempted to reduce or to increase the score difference in accordance with the instructions given before the match which could have a significant effect on the amount of customers final winnings or losses.
• Betting exchange: authorities initially were prepared to permit betting exchanges but a subsequent amendment prohibits the practice. Concerns have been expressed about the anonymity of bettors and lay bookmakers (who could not be subject to as strict control as professional operators for practical purposes), and the potentially greater risk of corruption and money laundering. This restriction may be reconsidered as the process of liberalisation continues.

While arguments exist concerning the potential for corruption in connection with live betting, considering the fact that it is one of the primary sources of bookmakers’ income, the French Government decided to authorise this practice, albeit with strict monitoring procedures.

Authorities similarly relaxed their position about how odds could be determined. After initially finding that fixed odds betting gave rise to greater risks than pari-mutuel betting[8], the Government came to the view that a prohibition on all forms of fixed odds betting would mean that licensed sports betting operators would not be able to offer an attractive product that is competitive with illegal gambling services. Accordingly, fixed odds betting is permitted under the new regime.

Nevertheless, due to the “heritage of the French tradition”[9], betting on horse racing sector is limited to pari-mutuel betting.

(b) Limited scope of betting operations

Article 12 of the Act provides that sporting events can be the subject of betting operations only if these events have been previously authorised by the government regulator ARJEL. Decree No. 2010-483 of May 12, 2010 (the “Authorised Competitions Decree”) provides direction to ARJEL on how it should determine which event to authorise. In making its determination, ARJEL is to have regard to the different criteria set forth in article 2, namely:

• the organiser of the event;
• the regime applicable to the competition and notably provisions connected to the publication of sporting results;
• the age of the participants in the competition; and
• the fame and the importance of the competition guaranteeing a sufficient number of punters.

Under article 3 of the Authorised Competitions Decree, ARJEL determines the different phases of games which could be subject of betting operations for each sport and each category of sporting event. Importantly, ARJEL is limited to authorising betting on the “final result” of competitions or phases of a competition. Article 3-III of the Authorised Competitions Decree defines the term “result” as any event occurring during a sporting competition and expressing an “objective” and “quantifiable” sporting performance realised by the athletes taking part in the event.

Accordingly, betting activities that do not meet these requirements remain prohibited in France. These include:

• bets on losing/negative outcomes[10] or on events that are not connected with the final result[11] (The French Government considers these types of activities as favouring corruption because they involve contingencies which could be easily manipulated by an individual without giving the impression that the final result is skewed by corruption);
• bets on virtual events (the scope for expansion of this type of betting and the difficulty in monitoring such betting led the French Government to take the view that these activities are more susceptible to corruption); and
• bets on exhibition matches (as the result has no broader consequence, the Government considered athletes could be too easily manipulated).

In order to avoid uncertainty on the results, the Authorised Competitions Decree states that wagering operations must rely on the results of a sporting event as first announced by the organiser of the event to determine the outcome of an event.

2. Enforcement of a principle of transparency in the gambling sector

2.1 Prevention of conflicts of interest

Article 32 of the Act addresses potential conflicts of interest. Six months after the enactment of the Act, Decree No. 2010-1289 of 27 October 2010 (the “Conflicts of Interest Decree”)

provides practical direction to authorities on how article 32 should be enforced.

The body of rules attached to the prevention of conflicts of interest can be separated into three parts:

a) prohibition of certain categories of persons from using betting services;

b) restrictive measures ensuring shareholding transparency; and

c) specific obligations of transparency applicable to entities involved in the gambling sector.

(a) Prohibition of certain categories of persons from using betting services

Article 32-I of the Act sets forth a list of persons who are prevented personally or indirectly (through a third party) from using betting services. These include:

• owners, directors, company representatives and the personnel of the betting operator;
• sports governing bodies;
• organisers of sporting events; and
• participants in sporting events[12].

Accordingly, sports governing bodies must include provisions in their respective codes of conduct preventing their employees from participating in betting activities in any way (directly or indirectly through a third party) and from communicating to a third party any confidential information obtained through their employment.

In the same way, organisers of sporting events must enact rules which apply to persons competing in events which are the subject of betting activities. Organisers of sporting events are in charge of, and responsible for, the enforcement of these rules.

(b) Restrictive measures ensuring shareholding transparency

In order to avoid collusion between gambling businesses and persons involved in sporting events, the Act prohibits direct[13] or indirect[14] control (as define by Article L.233-16 of the “Code du Commerce”) by a betting operator over any participants taking part in a sporting event that is the subject of betting services which it provides. The converse (a participant in a sport competition controlling a betting operator) is also forbidden by the Act (Article 32-IV of the Act).

However, there is uncertainty about the exact scope of the prohibition as the Conflicts of Interest Decree is written in more general terms than the Act. In fact, the Decree does not specify whether or not the provisions it sets out are applicable to any relationship between betting operators and participants in the sports sector or only between betting operators and sporting entities taking part in sporting events which are the subject of betting activities.

As the Act refers only to the connection between betting operators and sporting entities taking part in sports competition which are the subject of betting activities, it would appear that the scope of the prohibition is strictly limited to these parties.

(c) Specific obligations of transparency applicable to betting operators and ARJEL

Betting operators

Terms which apply to licences issued to operators ensure transparency by imposing numerous disclosure requirements linked to article 32 of the Act. Notably, article 10 of the terms prescribes that betting operators must:

• inform ARJEL of any partnership with an organiser of horse racing or sports competitions or any person taking part in such an event;
• declare any interest held by its owner, one of its directors, company representatives or employees in a horse racing or sporting event;
• provide to ARJEL a list of organisers and participants in a sporting competition which they control – or are controlled by – directly or indirectly (through a third party) and give a copy of all the documents attesting of the connection between these parties (agreements, voting rights, etc); and
• implement and provide to ARJEL internal rules or employment contracts prohibiting directors, social delegates or employees from placing a bet on any  game they offer.

Online Gaming Regulatory Authority (“ARJEL”)

Members of ARJEL must inform the Chairman of details regarding any participation or position in an economic or financial business held prior to their appointment, which they hold or would hold after the term of their mandate. In addition, members must satisfy the obligations set out in article 39 of the Act, including confidentiality and impartiality. Members must avoid any conflict between their ARJEL position and any other position they hold.

2.2 Creation of a new “right to offer bets”

With the aim of establishing a collaborative relationship between sports federations, organisers of sporting events and betting operators, the French Government has introduced a right unique in Europe, namely the “right to offer bets”.

This new sui generis right implies that, before providing betting services on a specific event, betting operators must have reached an agreement with the organiser or the rights holder of the competition which is the subject of betting activities (Articles L.333-1 and L.333-1-1 of the “Code du Sport”).

In consideration of the right to provide betting services on a specific competition, betting operators must provide a financial return to organisers of sporting competition[15] proportionate to the amount of bids collected (ie. calculated on a turnover basis)[16].

In order to balance negative effects of the new “right to offer bets” and the potential collusion between sports governing bodies and betting operators which could result, articles L333-1-2 of the “Code du Sport” and 2 of the Decree No. 2010-614 relating to trade agreements connected to betting operations in relation with sporting events[17], state:

• prior to signing, any draft covenant settled between a sporting event organiser or a sports governing body and a betting operator should be sent to ARJEL and to the Competition Authority[18] for advisory opinion;
• organisers of sporting events must not provide exclusive rights to any betting operator;
• any refusal to conclude an agreement with a betting operator must be immediately notified to ARJEL (including the reason or reasons why such an agreement was not concluded);
• the aforementioned contract between a betting operator and the sporting event right owner specifies the obligations imposed on the betting operator regarding the spotting and prevention of fraud, particularly the practical details related to information sharing requirements between the parties.

In spite of concerns raised by the European Commission and criticism from betting operators[19], French authorities have enforced the new right which has been supported by the organisers of sporting events (including those outside France)[20] and the European Parliament[21].

2.3 ARJEL monitoring

One of the most important functions of ARJEL is to monitor compliance with the objectives of the Act (article 34 of the Act).

ARJEL sets the technical requirements for online betting software to be used by betting operators and must approve any gaming software to be used by online operators. ARJEL must periodically evaluate the safety level of authorised gaming and betting platforms and may be required, where appropriate, to determine the technical parameters of online games (article 34-III of the Act).

In order to ensure integrity and avoid fraud in wagering operations, betting operators are required to provide ARJEL with ongoing access to all personal data of customers (including the customer’s name, sex, age, date and place of birth, physical address, electronic address, login, profile), all gaming events recorded for the customer for every type of game and all activities which result in any change to the customer’s balance. Moreover betting operators must provide information concerning games which are offered on their websites, betting inducements, technical incidents, the management of their betting platform, the monitoring of gaming operations and maintenance of equipment. (See article 38 of the Act and article 8 of the Decree No. 2010-509 of May 18).

Conclusion

Highly concerned by the consequences of opening the French remote betting market, the former Minister for Public Health and Sport, Roselyne Bachelot asked Jean-Francois Vilotte, Chairman of ARJEL, to conduct an inquiry and issue a report about the risks threatening the sporting sector as a result of the liberalisation of online betting, particularly in respect of the continued integrity of the sporting competitions[22].

This is the first time in the gambling sector that the French Government has attempted to anticipate and minimise a problematic situation rather than waiting for it to develop. It shows a shift in the Government’s approach, which has traditionally been combative towards betting operators.

The final report will provide valuable information to assist the Government in establishing a long-term scheme for the evolution of the wagering sector in order to remain competitive in the worldwide market while ensuring both interests of consumers and sport.

At the European level, Michel Barnier, Internal Market and Services Commissioner for the European Commission, has announced the launch of a green paper which is expected to be published in the next couple of weeks.  This report will help to determine coherent EU rules on gambling and will devote a section to the protection of integrity in sporting event.

Meanwhile, UEFA President Michel Platini has called the setting up of an international sport police as “necessary” in the battle against corruption and match-fixing in football[23]. Mr. Platini makes a clear distinction between sporting matters that are under sports governing bodies monitoring and criminal activities as corruption which should be handled by a specific police agency even if connected to the sporting sector.

At the international level, SportAccord[24] has recently released common standards on sports integrity in relation to sports betting for all International Sports Federations and Organisations[25] including several recommendations concerning the model rules, disciplinary procedures and sanctions required to regulate properly sporting competitions.

In the next couple of months, the effectiveness of the French policy should assessed and broadly commented by specialists while international and European authorities will try to set strict and coherent harmonised measures to fight corruption in sports. Accordingly, 2011 will probably be a milestone in the development of both betting and sporting sectors.

***

The assistance and valuable advice of Jamie Nettleton, Partner, of Addisons Lawyers in the preparation of this article are greatly appreciated.

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[1] Article 2 of the Civil Law Convention on Corruption (Council of Europe, – STE no.174) gives a broad definition of “corruption” which embraces most of the cases which could occur in the sporting sector. Article 2 defines “corruption” as meaning requesting, offering, giving or accepting, directly or indirectly, a bribe or any other undue advantage or prospect thereof, which distorts the proper performance of any duty or behaviour required of the recipient of the bribe, the undue advantage or the prospect thereof.

[2] Law No. 2010-476 of May 12, 2010 on the Opening Up to Competition and Regulation of the French Online Gambling Market

[3] France has been free of sporting scandals in recent years and there were fears that the opening of the market would incite corruption rather than reduce it with some studies showing that corruption grows in proportion to the level of betting on offer. See D Forest et al, “Risks to integrity of sport from betting corruption: A report for the Central Council for Physical Recreation by the Centre for the Study of Gambling”, University of Salford, February 2008.

[4] According to the Report on the Integrity of Online Gambling issued by the Committee on the Internal Market and Consumer Protection (2008/2215(INI)), “integrity” means a commitment to preventing not only fraud and crime but also problem gambling and under-age gambling by compliance with consumer protection and criminal laws and by protecting sporting competitions from any undue influence associated with sports betting.

[5] Knowing the result before the official result of a competition, criminal groups bet massively on the winner resulting in large pay outs from betting operators.

[6] Media groups maintain very close relationships with sports clubs and associations through sponsorship and broadcasting activities and have staged extensive advertising campaigns for gambling operators. Media groups have also recruited famous retired sportsmen or women (many of whom act in commercials for betting operators) to comment on sports events or to present TV show which include references to sports betting. Such activities have been accompanied by a large increase in money coming from gambling operators to sports associations (sponsorship from betting operators to football clubs increased by 56% compared with 2009 levels according to the Agence France Presse (AFP)).

[7] “Les paris en ligne à la limite du hors-jeu” by Guillaume Dasquie in Liberation, 12/10/2010

[8] In a report issued by Bruno Durieux, a government official responsible for reporting on the opening of the French remote gaming market, Mr Durieux found that fixed odds betting was riskier than pari-mutuel betting because betting operators were directly interested in the result of sporting events (which could incite them to encourage the cheating and the manipulation/fixing of competitions); and the amount of return, known before the competition starts, could favour fraud and cheating or even money laundering activities. See further Report issued by Mr. Bruno Durieux on the opening of the French online gaming market, March 2008, http://lesrapports.ladocumentationfrancaise.fr.

[9] Eric Woerth’s statement, Report issued by Francois Tucy on the opening to competition of the French online gaming market, January 2010.

[10] For example: number of injuries, number of faults, number of substitutions, time-out etc.

[11] For example: colour of players’ shirt, colour of players’ shoes, etc.

[12] In a broad sense “participant in a sporting event” includes sports association, sporting companies, corporate bodies who provide services helping for the organisation of the event (logistic services) and all accredited individuals such as athletes, judges, sports governing bodies employees, organisers employees, officials, their relatives and their entourage, etc…

[13] According to the article L. 233-16 of “Code du Commerce”

A sole control of a company exists:

–        When a majority of its voting rights are held by another company;

–        When a majority of the members of its administrative structures are designated by another company for two successive financial years. The consolidating company is deemed to have effected such designations if, during that financial year, it held a fraction of the voting rights greater than 40%, and if no other partner or shareholder directly or indirectly held a fraction greater than its own;

–        When a dominant interest is exerted over the company by virtue of a contract or the terms and conditions of its memorandum and articles of association, when the applicable law allows this.

A Joint control exists when control of a company operated jointly by a limited number of partners or shareholders is shared and decisions are made on the basis of agreement between them.

A Significant influence over a company’s management and its financial policy is deemed to exist when another company directly or indirectly holds a fraction of its voting rights equal to at least one fifth.

[14] Article 2 of the Conflicts of Interest Decree specifies the concept of “indirect” control by setting forth different examples of connections between parties susceptible to lead to a conflict of interest, namely:

A betting operator is considered as indirectly controlling an organiser of a sporting event which is the subject of betting activities, a participant in a sporting event or a sport governing body (hereafter mentioned as the “entities involved in the sports industry”) when:

–        a third party controls, directly or indirectly, both a betting operator and one of the entities involved in the sports industry

–        a betting operator controls, directly or indirectly, a third party which controls, directly or indirectly, one of the entities involved in the sports industry

One of the actors of the sports industry is considered as indirectly controlling a betting operator when:

–        a third party controls, directly or indirectly, both a betting operator and one of the entities involved in the sports industry

–        one of the entities involved in the sports industry controls, directly or indirectly, a third party which controls, directly or indirectly, a betting operator.

[15] The fee to gain the right to offer bets is currently fixed at a minimum of 1% of turnover. According to Jean-Francois Vilotte, ARJEL’s chairman, the value of the “right to offer bets” was estimated at 330 000 Euros after four months of implementation, “Jeux en ligne: 2,5 millions de comptes-joueurs désormais ouverts”, 15/11/2010 in Les Echos.

[16] Article 3 of the Decree n° 2010-614, 7 June 2010, related to trade agreements connected to betting operations in relation with sporting events

[17] Decree n° 2010-614, 7 June 2010, related to trade  agreements connected to betting operations in relation with sports events

[18] “Autorité de la Concurrence”, responsible for regulating competition

[19] The European Gaming and Betting Association (“EGBA”) has recently started proceedings before the “Conseil d’Etat” in order to impugn the legality of the Decree n° 2010-614 which states that the financial remuneration to organisers of sporting competition should be calculated on a turnover basis. EGBA criticizes the fact that the right to offer bets, initially created to safeguard integrity in sports, is now implemented with the mercantile aim of making profits. See further http://www.egba.eu/en/

[20] For instance the UEFA recently wrote to French betting license holders regarding payment for the right to offer bets on the Europa League and the Champion’s League.  The European Professional Football Leagues (“EPFL”) recently called for a strong regulation of the sports betting market in Europe to preserve the integrity of competitions insisting on the need to enable sport with a fair financial return from the betting industry for the use of competitions organisers’ content.

[21] The Report on the Integrity of Online Gambling (2008/2215 (INI)) issued by the Committee on the Internal Market and Consumer Protection (the “Schaldemose Report”), highlighted that sports bets are a form of commercial exploitation of sporting competitions and recommended that Member States protect sporting events from any unauthorized commercial use, notably by recognition of a specific right given to sports organisers, and by implementing agreements to ensure “fair financial returns” for the benefit of all levels of professional and amateur sport.

[22] Mission of  Prevention and fight against integrity threats in sports competition (Mission de “Prévention et de lutte contre l’atteinte à la sincérité des compétitions sportive”)

[23] Interview of Michel Platini, in Sonntag newspaper, 21/11/2010

[24] Formerly the General Association of International Sports Federations (GAISF).

[25] “Common standards on sports integrity in relation to sports betting”, 15 November 2010, available on http://www.sportaccord.com