A major setback for online gaming

The online betting industry has suffered a setback as the European Union said that member states could be allowed to ban gambling websites if its intention was to stop crime.

In a recent ruling, The European Court of Justice (ECJ) decided that a Portuguese state-run charity’s gambling monopoly is legal if it aims to combat criminal activity.

Referring to the recent case, which involved bwin and the Portuguese football league versus the Portuguese monopolist Santa Casa da Misericórdia de Lisboa, Sigrid Ligné, secretary general of the European Gambling and Betting Association (EGBA), said given the stringent anti-fraud regulations applicable to EU licensed operators which ensure a high level of integrity, transparency and traceability over online gaming transactions, “we do not believe those conditions are met”.

“Several jurisdictions in the EU already prove that it is possible to guarantee a high level of consumer protection and have a well regulated and competitive online gaming market at the same time,” said Ligné.

According to the Association, the judgment must also be seen in the context of the increasing number of Member States that are now in the process of rethinking and redrafting their gaming legislation. As has been obvious for all other consumer markets before, none of the Member States currently drafting legislation has chosen a monopoly model to regulate this modern Internet based market.

Overall, the sentiments have been fairly negative.

“It’s a bit disappointing because the hope was that the European Commission and the European Court of Justice were actually in favour of markets opening up,” said James Hollins, analyst of gambling stocks at Daniel Stewart & Company, according to Reuters. “It looks like (the ruling) would strengthen the hand of countries who want to continue to protect state monopolies, which include Portugal or Germany.”

Internet-based gambling operators are currently involved in a number of court cases and regulatory disputes over access to markets in Europe. The industry feels the recent verdict may adversely impact the pending cases.

Camelot asked to discontinue its email campaign

The Advertising Standards Authority (ASA) recently directed Camelot Group to drop its email advertising campaign for the National Lottery.

The Authority upheld a complaint that Camelot encouraged excessive gambling although it rejected the suggesting it implied gambling was indispensable.

According to Camelot, the ad was one of a series of e-mails which were sent to National Lottery players who had opted to receive marketing communications.

The advertiser explained that the ad did not imply that gambling was indispensable and reasoned that it merely suggested that, because of the advantages of playing the Lottery interactively, a good excuse was needed by recipients if they were to miss out. Also, it added that the ad was designed to stress some of the advantages of playing the Lottery interactively and mentioned features like automated ticket checking, advance play and win notifications. The ad did not encourage excessive play but provided information that helped recipients decide if they wanted to play Lottery games interactively.

But the ASA considered that the ad focused on the benefits of playing the Lottery interactively and invited recipients to use their interactive account repeatedly by stating “The more you play the more likely you are to win”.

It noted the ad suggested that recipients had a higher chance of winning if they bought multiple lines, across the numerous Lottery games on both the Wednesday and Saturday weekly draws, and concluded that, by referring to the greater chance of winning resulting from multiple entries, the ad encouraged repeated and potentially excessive gambling.

Violating laws by earning a living from gambling

The Danish Supreme Court has reportedly decided that an unemployed man, who allegedly had been earning a living as an online poker player, would have to be taxed as a professional gambler.

According to a report filed by the Copenhagen Post, the concerned player, whose identity wasn’t disclosed, earned nearly $28,000 playing online poker in one year. The court said in its ruling that the man violated the laws by using his poker winnings as his sole source of income and ordered him to surrender the money. The Court ruled that even though computer servers used to run the poker games are placed outside of Denmark, the individual computer used to play is located in the country and subject to Danish law.

The Supreme Court chose not to enforce a DKK5000 fine issued by a lower court.

Press Release PARR: ECJ fails to recognize the opportunities afforded by the internet and winds back the clock

published by Sports spokesman of the FDP Parliamentary Group, Detlef Parr on 8 September 2009

BERLIN. Sports spokesman of the FDP Parliamentary Group, Detlef Parr, comments on the ECJ ruling that the ban under Portuguese law on companies such as bwin offering games of chance on the internet is compatible with the freedom of services:

The ruling shows: urgent action is also needed in Germany – we have to rethink the existing regulations within the German Interstate Treaty on Gambling. Private gambling operators are just as able to meet the requirements for protection of gamblers as the state operators and indeed are already doing so.

The internet has long been able to offer effective protection for players. The Interstate Treaty on Gambling would, according to the latest ECJ ruling, only be deemed suitable for achieving the aim of combating addiction, if it did so in a coherent system. However, as comparable categories of gambling such as sports betting (state monopoly) and horse betting (private sector) are treated completely differently, this constitutes a clear violation of European law according to this latest ECJ ruling. The ECJ will thus withdraw recognition under European law of the Interstate Treaty on Gambling at the latest in the scope of the German preliminary ruling on Carmen Media.

The ECJ ruling is a step in the wrong direction. The ECJ has provided support for the national monopolies. The reasoning of the ECJ, that “the limitation of the freedom of services can be justified on compelling grounds in the public interest” is pure window dressing. Nobody has yet been able to absolutely define the specific conditions which must be met in order to justify government imposed limitations on betting operators.

The state has to provide such a definition. All those involved on a federal and Land level need to overcome their conventional, party mentality and find a solution which corrects the negative effects of the Interstate Treaty on Gambling.

Striking Developments in the Italian Gaming: Market Liberalisation Mission Accomplished

Undoubtedly the last four month were the busiest ever in terms of striking developments in the Italian gaming market. Such a boost to an otherwise traditionally patchy and slow-paced regulatory process was due to the combined effect of tragic events (the earthquake that rocked a Central Italy historic city called L’Aquila last April) and the Treasury’s permanent hunt of fresh taxable revenues to heal the Budget deficit.

Undoubtedly the last four month were the busiest ever in terms of striking developments in the Italian gaming market. Such a boost to an otherwise traditionally patchy and slow-paced regulatory process was due to the combined effect of tragic events (the earthquake that rocked a Central Italy historic city called L’Aquila last April) and the Treasury’s permanent hunt of fresh taxable revenues to heal the Budget deficit. These two factors together led to the completion of the domestic gaming market liberalisation process the Italian authorities had begun in the summer 2006.

Soon after the L’Aquila quake, the Berlusconi cabinet pledged to quickly rebuild the town by launching a highly-prioritised, very ambitious and predictably expensive reconstruction plan whose exceptional funding instruments were identified in a governmental emergency decree dated 28 April 2009 (“the Abruzzo Decree”) promptly converted with a few amendments by the Parliament into Law No. 77 of 24 June 2009. One of the most relevant chapters of the Abruzzo Decree deals with measures concerning the gaming sector which can be summarised as follows:

1. Legalisation of online fixed odds games of chance (online casinos and Vegas-style games)
2. Legalisation of online poker and ring games
3. Mandate to AAMS (the Italian gaming regulatory authority) within 60 days from the enactment of the Decreto Abruzzo, to regulate betting exchange, betting on virtual events and video lottery games (“VLTs”). Actually all such games had already been legalised in 2006 yet AAMS had since failed to implement the relevant rules so they had been laying for long time in a sort of regulatory limbo
4. Introduction of an unprecedented profit-based tax regime with a flat 20% rate applying to all new games listed above other than the VLTs. This provision is of paramount importance as it paves the way to the launch of games that otherwise could have never been offered in Italy given its penalising turnover-based tax regime which notably will continue to apply to sports and horse races betting, bingo, lotteries and skill games (including online poker tournaments that will thus continue to be taxed at 3% of the total tournament buy-ins sold by the operator)

AAMS is currently in the course of implementing the regulations concerning all the new games covered by the Decreto Abruzzo and while it will probably miss the 60-day deadline assigned to it by the government, it can still can be expected that the new rules will fall in place some time in the autumn season.

In the meantime, on 4 August 2009 another important governmental emergency decree was published in the Official Gazette of Laws and Regulations pushing urgent measures to tackle the worldwide economic crisis that is badly gripping Italians too (“the Anti-crisis Decree”).

One of the most important revenue-raising provisions is set out at article 21 of the Anti-crisis Decree wherein a lottery tender is called for the award of up to four brand new licences when the current exclusive one, held by Lottomatica-owned Consorzio Lotterie Nazionali, expires in 2010. These are the main tender guidelines on which basis AAMS will within 30 days have to draw up and issue the tender paper:

· Licensees will be entitled to an 11,90% fee (including the 8% fee due to the selling points) charged on all sold lottery cards
· Payout no higher than 75%
· Irrespective of the number of actual licence bidders (1 to 4), the minimum guaranteed bid (“MGB”) revenue will have to fetch €500 mln for the current year and to €300mln for 2010 (the MGB payment may be split in two instalments payable respectively in 2009 and 2010)
· Each licence bidder will have to set up an exclusive distribution network of no fewer than 10.000 selling points to be activated by no later than 31 December 2010
· Licences will last 9 years and may be extended only once. The 9-year duration period will be split in two phases respectively of 5 and 4 years. At the end of the first period AAMS will evaluate each licensee’s performance and subject to positive assessment thereof, it will allow the licensee to carry on for the second and final 4-year period

Article 21 of the Anti-crisis Decree also deals with the VLTs establishing that AAMS will have to take immediate steps to start the VLTs testing phase that will be initially limited only to the 10 operators currently holding a licence to remotely connect the terrestrial network of slot machines to the AAMS centralised system. Eventually AAMS will call a fresh VLT licence tender open to national and EEA-based bidders subject to certain operational terms as well as to payment of an €15.000 licence fee per each VLT terminal to be connected.

Last but definitely not least, on 29 July 2009 Law no. 88 of 7 July 2009 (“Law 88/09”) carrying the new remote gaming (ie. online, mobile and interactive television) frame rules became effective. At the time this article is being written AAMS has not yet implemented the relevant regulations and relevant licensing requirements although it is expected that also this process like the others quoted above will not take too long.

The main features of the Italian-style remote gaming as re-shaped under Law 88/09 can be listed as follows:

· A specific AAMS-granted, 9-year licence is required for the offer of remote gaming services
· The one-off cost of the licence is €350.000 payable upon licence issuance
· The remote gaming licence currently covers: fixed odds/pool sports and horserace betting, skill gaming (including online poker and any other card tournaments which are all eligible for skill gaming classification), online scratch-and-win (subject to a sub-distribution agreement with the current exclusive lottery licence holder), and online bingo, BUT
· When AAMS regulates fixed odds games of chance (ie online casino) online poker and other cash games, bets on virtual events and betting exchange, these games too will be included in the remote gaming licence. Such regulatory process is expected to be completed in the autumn 2009
· The AAMS licence is open to any applicant based in an European Economic Area jurisdiction (“EEA” ie. European Union countries plus Iceland, Norway and Liechtenstein). Up to 200 fresh remote gaming licences in addition to the existing ones may be granted by AAMS
· The licence may be issued directly to a foreign applicant provided it holds an EEA passport
· The licence may be issued even to a non-operator (such a startup or a company coming from a totally different business) subject to (i) release in favour of AAMS of an €1,5 million bank guarantee and (ii) a certification by an independent authority that the applicant holds all required technological infrastructure and management resources to run the licence
· Remote gaming services can only be offered to Italian residents through a dedicated platform identified by the ’.it’ suffix which must be fully linked up the centralised system ran by AAMS (via its technological partner SOGEI) so that each bet/wager placed by an Italian customer can be recorded, monitored, tracked, validated and taxed
· Provision of remote gaming services from a foreign-based ‘.com’ platform to Italian residents is strictly forbidden and subject to the blacklist restrictions mentioned in the previous chapter as well as to prosecution
· Whoever offers online gaming services in Italy without holding an AAMS-granted licence is subject to imprisonment from 6 months up to three years
· Whoever organises, offers and takes remote bets in Italy on any games regulated by AAMS but in a way other than that required by the AAMS rules, is subject to arrest from three months up to one year and to a fine ranging from €500 to €5000 even if the violator does hold an AAMS licence
· Foreign-based AAMS licensees are allowed to keep their gaming servers abroad provided they are located in the EEA space and a full, real time connection with the AAMS centralised system is in place
· The software running on all games offered on the ‘.it’ platform must be certified by an AAMS-approved testing laboratory

The very peculiarity of the Italian-style remote gaming model is that the operators’ platforms must be interconnected with the AAMS centralised system and database at all times for bet validation, compliance checks and taxation purposes. In practice this control system works as a three-way system where all player-related information received by the operator must be conveyed in real time on to AAMS that, if all required data have been collected, will validate the bet/wager and send a signal back to the operator who may then take the bet/wager and process it.

Tax-wise, as already mentioned above the model that will soon be enforced by AAMS is a blend of turnover-based (“TOB”) and gross profit-based (“GPB”). The following games will continue to be subject to TOB taxation (relevant applicable rates in brackets): sports betting (3,5% on average), horserace betting (nearly 10%), skill-gaming (3% flat), bingo (nearly 23,8%) and lotteries. All brand new remote games soon to be regulated by AAMS namely online poker and ring games, online poker, betting exchange and bets on virtual events, will instead be subject to GPB taxation at a flat 20% rate.

Altogether the three landmark pieces of legislation discussed above (Decreto Abruzzo, Anti-crisis Decree and Law 88/09) the enabled the Italian to brilliantly – or should we rather say smartly – achieve a dual goal: collecting more (and big) money from the gaming industry while further opening up the market and definitely modernising the laws and regulations on the gaming business.

On top of that, in addition to keeping its national licence regime fully in place with the official blessing of the Brussels authorities, Italy also became the champion of a pragmatic and reasonably flexible regulatory model which is currently the only realistic alternative to an Europe-wide harmonisation of the licensing rules. Indeed the Italian model (including a beefed up version of the “blacklist restrictions”) seems to have been adopted with appropriate changes by other EU jurisdictions like France and Denmark which have largely drawn from it to open up their respective markets thereby combining a system of internal rules and controls still issued and enforced at local level, with less administrative red tape and lighter operational hurdles for licence applicants based and licensed in other EU jurisdictions.

All the above regulatory developments occurred (and continue to unfold) so quickly over the course of the last four months so there is little doubt, if any, that Italy is indeed the country of miracles.