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EU Gaming Law – is state by state legislation the only way?

The recent history of gaming regulation in the EU is like one of those indoor bicycle races where everyone goes off as slowly as gravity will allow, before someone makes a dash for it and all the others set off after him at great speed.

The United Kingdom was the first to go but made something of a false start as it wasn’t entirely sure why it was doing it. Ostensibly, it was about creating a fair and regulated market, which gave players the necessary guarantees of probity and afforded players protection from unscrupulous and potentially dishonest operators – so far so good. However, it was all done, if you remember, at a time when land based casinos were destined to spring up all over the country, creating significant employment and revenues all over the country, but particularly in those areas which were economically challenged. The UK government then lost its nerve and consequently, its way and ended up presiding over a regime with no increase in land based casinos to speak of and a tax rate which forced all UK based operators to go offshore. In the process, it had seemingly forgot that Gaming regulation is about revenue generation and very little else.

Italy then followed and set a model which demonstrated regulation of online gaming and significant contributions to the Government finances could go hand in hand; and now suddenly like the cyclists in the Velodrome, there is a stampede to introduce regulation. However, despite the success of Italy, it is by no means clear on what basis that regulation will come or even, more importantly, at what tax rate it will be charged.

And what is becoming clearer and clearer is that the driving force behind this Damascene conversion among European Governments to regulate is not a desire to provide players with a better structure in which to gamble. It is about money, whether that be the opportunity for Governments to earn more or the chance to defend the revenue they already get by enshrining their monopolies in some form of protection, a position that set them on a collision course with the EU.

However, none of the legal battles fought in recent years before the European Court of Justice by certain operators against national monopolies, have achieved much success. Their claim to be able to offer their gaming services across the EU has clearly not resulted in abolition of those monopolies and nor has it instigated a move towards a harmonisation of gaming legislation across Europe. Each individual State has its own agenda and its own way of going about things.

In Germany, a group of politicians is working to overturn the severe online gambling restrictions currently in place in what is the EU’s biggest economy. In France, a whole new raft of gambling legislation has been introduced ostensibly to legalise and regulate online gambling, but which in practice seem to make it extremely difficult for new operators to get a license. In Belgium, lawmakers are proposing a form of regulation, seemingly, in complete disregard for EU law; while Switzerland, which is not even a member of the EU, is calling its proposed online gambling regulation plans “a role model for other countries”. As Martin Oelbermann, a partner at MECN explains it “The Swiss liberalisation plans show how the pressure of foreign online offers on state operators and income forces some states to rethink the existing regulations”. However, the EU’s response to all this has neither been consistent nor backed up by any regulatory teeth. As Robin Le Provost of the AGCC said at the recent GTECH G2 Thought Leadership seminar: “we were always looking at Brussels for the answer and that was never going to come”.

Now at least, a certain reality has set in and it is generally accepted that the issue which underlines the whole debate is one of the tax revenue. As Quirino Mancini, Partner at Sinisi Ceschini Mancire from Italy, pointed out. For anyone to assume that any European jurisdiction would give up on its taxing prerogatives when it comes to gaming would be “very, very childish”. He went on: “this is not going to happen. We should not forget that the real trigger for the opening of the Italian market was taxes.”

Tom Lipiett, Associate with Berwin Leighton Paisner, of the UK, goes further, “Nobody” he says “is forced to go in the European free market. It’s a decision made by member states… and nobody is forcing any particular jurisdiction to set a tax rate”. Everybody can compete on this and, subject to their tax regimes being in line with the EU law, they are entitled to try and attract operators to be licensed within their jurisdiction. As he says: “as we can see from current practice, the UK tried it and failed because it got the tax wrong. Malta, on the other hand, got it spot on and has become a very popular licensing hub.”

So is state by state legislation the only way and, if so, what does that say about the ability of the EU to run homogonous policies throughout Europe? Some commentators have suggested that the reason all these different countries are adopting different and standalone positions is that they are testing the new Commissioner, who is just about to take office; while other industry insiders believe that the free market legislation encouraged by the EU would make it hard for new countries to compete with governments that have already established an online presence, when players are allowed to pick and choose between jurisdictions at will. And they have a point. The reasons American State Lotteries have guarded their jurisdictions so fiercely is that otherwise players will just choose the biggest Jackpot and all other states’ revenue would suffer. And in America, unlike the UK, where lottery proceeds seem either to be spent on eccentric fripperies or as a substitution for what should, by rights, be government expenditure, the state lottery proceeds tend to be allocated to a specific cause. In Pennsylvania, it is old people, for example, and in California, it is education. The States need that money and, as a consequence, jealously protect it.

In previous articles I have quoted the maxim that ‘a principle is only a principle once it costs you money’, but it is in the context of the current economic recession that all Governments are on the look out for additional revenues, which, when coupled with the inability of countries to prevent online gambling, has made the task of regulating the activity and so deriving the financial benefits for themselves rise rapidly up their list of priorities – with the glaring exception of the UK who just got it wrong and are now wondering how to get themselves out of the hole they have so perplexingly built for themselves.

Professor Peter Collins in a presentation he made some years ago on the future of Gambling in Europe highlighted a number of inherent conflicts of principle at work when faced at harmonising gaming regulation across Europe. His view was that gambling policy needs to be shaped by sensible policies about consumer choice, harm prevention and taxation. All European countries understand this in general, but nevertheless have radically different specific policies in respect of these objectives. “The European Court and the Commission don’t understand this, and, especially, they don’t understand why you can never have a free market in gambling”.

This then is the crux. The solution that the EU would want theoretically to impose is not a solution to the problems that the member states are, in reality, facing; and in a world where we cannot even agree on the desired shape of our bananas, the prospect of the EU persuading anyone to override their stark financial need for greater revenues is, I would guess, between nought and slim. And Slim has just left town.

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