Gemma Boore discusses the recent regulatory developments across a range of online gaming jurisdictions.
In Europe, there’s is a new trend: the country-by-country regulation of online betting and gaming. In fact, in recent months, it’s been rare for a month to go by without another country announcing impending regulatory amendments on the horizon. At the time of writing, Portugal, Poland, Romania and Italy have all (within the past 30 days) proposed, introduced or amended existing online gaming regulations causing ripples across the sector. In this article, Gemma Boore of Bates Wells Braithwaite discusses some of the factors that may have caused the new trend for regulation, and summarises the key regulatory changes across Europe that gaming operators and services providers should be aware of, both in the past and in the upcoming year.
Even though it’s a relatively young industry, online gaming is one of the fastest growing service activities in the European Union and there is wide availability and take-up of online betting and gaming services with 6.8 million consumers regularly participating in online gaming of some sort. In 2012, online services represented more than 12% of the EU’s gambling market with annual revenues of over €10 billion and today, annual revenues in for online gambling are expected to hit €13 billion. Despite this, many countries have in the past been reluctant to regulate online gaming, fearing that regulation will result in an increase in problem gambling or have a negative effect upon existing land-based operators. However, in reality, a lack of regulation or a general prohibition can be more dangerous than permitting and supervising gaming in the first place. Prohibition and/or out of date laws can result in illegal circuits and ultimately less control for the authorities and, as was clearly demonstrated in Italy when it implemented new online gaming regulations in 2007, many operators are quite happy to keep on working in a market without a licence by exploiting loopholes in legislation whilst agreement is reached with the authorities.
And it’s not just the operators that are flaunting the rules: it’s incredibly difficult to stop online gaming by methods such as ISP, or payment, blocking and consumers have repeatedly demonstrated that they will persist to access a product, whether or not their government permits it. Accordingly, introducing and updating regulation can raise the quality of products available, enable stricter supervision of operators, raise the reputation and credibility of the overall industry and encourage responsible gambling. All things that every government should want to achieve.
But it doesn’t just end there. Even those European countries that already have regulatory frameworks in place have had hurdles to overcome and some have even been forced by external forces to update and amend existing regulations. This is because, although there is no specific EU legislation on online gaming services, and the European Commission accepts that online gaming should regulated at a Member State level, online gaming is considered an economic activity which falls under the free movement of services and establishment rules, which means that even though Member States are permitted to regulate and control their internal gaming markets in accordance with their traditions and cultures, restrictions on the provision of services must be proportionate, necessary, non-discriminatory and based on a valid public interest in order to be compliant with EU law; and this is a hurdle many Member States have fallen foul of.
Voluntarily or not, many European countries are jumping on the regulatory bandwagon and are looking to either exploit previously untapped gaming markets and/or amend existing legislation, with the ultimate aim of taking a robust stance on consumer protection and social responsibility whilst maximising the economic benefits that arise from effective regulatory control. As can be seen below, this has resulted in the introduction of a plethora of different proposals and policies – some of which have put larger gaming operators off from providing online services altogether.
Just days ago, it was announced that Portugal would launch a legalised online gaming market on 28 June 2015, which will be compatible with European competition requirements. The new regulatory framework (which follows more than a decade of discussions) will enable players both inside and outside of the country to access Portuguese gaming sites and National regulator Santa Casa de Misericordia de Lisboa will oversee the licensing process. Online operators will face a taxation rate of between 15% and 30%, whilst those offering sports betting services will pay turnover tax of between 8% and 16%: with the exact levy determined by reference to gross gaming revenue. The Portuguese government has been vocal that it wants to sign up as many operators (particularly international) as possible. However, at the time of writing, the appetite for licences remains unclear. UK-listed online operator William Hill has already announced that it is withdrawing from the Portuguese market and Amaya-owned PokerStars and Full Tilt have confirmed that they are to withdraw their online services but expect to return to the country in the near future. Will more operators follow? Watch this space.
Romania’s National Gaming Office (NGO) implemented a new framework in May 2015 that will considerably change the future of its online gaming market and requires operators to fulfil a steep entry requirement if they wish to obtain a licence. To the horror of many operators already providing services to the market, the NGO is demanding back taxes to the tune of 20% of all revenue generated from Romanian players over the past five years and an in-depth breakdown of revenue by online gaming channels will be required for potential applicants to initiate the licensing process. One of the first authorised sites www.winmasters.com has already paid €500,000 worth of taxes and guarantees. However, other operators such as William Hill, which wasted no time in signalling its opinions by exiting the Romanian market on 2 June, are less keen to sign up to the new rules. bet365 was also quick to exit the market, choosing to withdraw back in autumn 2014 and Ladbrokes also departed Romania in January of this year. Despite the initial rush to exit, Romanian officials have indicated that they still expect to collect taxes, licensing and entry fees of up to €90 million this year from those operators choosing to stick it out and make the most of the newly opened up market.
The implementation of the Gaming (Licensing and Advertising) Act in the United Kingdom on 1 November 2014 caused woes for UK facing gaming providers as any operator who wished to continue advertising that it provided remote gambling services to customers in the UK was required to obtain a licence from the Gambling Commission and pay a 15% levy on profits. In addition, software providers that supply gaming technology to operators and affiliates which advertise on operators’ behalf have also been affected. A wave of operators including Mansion Poker and Pinnacle Sports left the market after the new licensing requirement increased the underlying cost of providing services to the UK market. However, now the dust has settled, it’s becoming clear that most of the operators that did leave the UK did not have a particularly strong presence prior to the implementation of the Act and, according to a recent report by the Gambling Commission; the market is recovering well after the initial shock of implementation.
Gaming in the Czech Republic is incredibly popular, with the nation being recognized as having one of the highest levels of gaming in Europe. Today, companies that legally offer gaming and betting services are subject to 20% tax on gross gaming revenue and 19% corporation tax. However, back in December 2014, officials announced that gaming taxes would be significantly increased and as would be expected, their proposal attracted a lot of opposition. By way of an explanation, the Finance Minister commented that the existing regulations needed to be reviewed stating that "the proposed aim of the amendments is primarily to ensure high protection of citizens from pathological gaming, limit the number of casinos, improve state supervision and ensure proper taxation of all forms of gaming". Commentators are however, suspicious that the sudden interest has been ultimately stimulated by potential fiscal gain. Notwithstanding this, the Czech Republic’s sudden interest in its regulation of online gaming regulation has been undeniably been accelerated by external sources. As with many EU member states, the European Commission has been looking into the legality of the Czech Republic’s existing framework and Czech politicians and lawmakers alike are questioning whether the existing legislation is in accordance with European laws.
The gaming market in Spain is mature but it has recently undergone two key developments: it re-opened for new entrants and introduced several new and long-awaited games. The current law sets out different treatment of different gaming categories characterised by different access conditions, exclusive rights for certain kinds of activities and different tax regimes. Although the number of general licences that can be granted is, in principle, unlimited, the Spanish National Gambling Commission has the power to limit the grant of general licences to certain types of game, based solely on reasons of public interest protection, child protection and prevention of gaming addiction. Operators working in the Spanish market may love or hate the Spanish Gambling Act but it does, to a large extent, set out what is legal and what is illegal, something that has not been clear in most countries for the best part of the last 40 years.
Last but not least, the Netherlands has been for a long time working towards making online gaming activities legal in 2015. Lawmakers have been discussing potential Dutch legal frameworks for the past three years with the intention of defining the national regulation and implementing the Remote Gaming Bill, which is currently in parliament awaiting final approval. However, due to political issues, the legislation is to be postponed and is unlikely to progress further until 2016. Due to the delay, many commentators have argued that Dutch online gamblers remain unprotected against gaming addictions and illegal practices and lawmakers will be under pressure to ensure that regulatory amendments are pushed into fruition next year.
As can be seen from the above, Europe is a long way from achieving a consolidated or even cohesive set of gaming laws across its Member States. Nonetheless, it’s imperative that both operators and service providers fully comprehend the subtle differences between each regulatory landscape in order to properly assess their risk profile and identify opportunity. The fact of the matter is that every country wants a piece of the action and, in order to be part of this fast growing sector, operators must ensure they do so within the remit of proper regulation and compliance. After all, the regulations are, more often than not, aiming to stimulate service providers to offer a wide product range by offering commercially viable tax regimes under appropriate supervisory controls.
If things continue to develop as we have seen, it won’t be long until we live in a world where the legality or otherwise of online gaming in individual European states is crystal clear and operators will quickly establish strong market positions. For the time being, new and upcoming operators will do well to keep up to date with changes and keep their eyes firmly fixed on the prize.
This article was originally published by InterGaming Law magazine.
Posted on 28/07/2015 in Legal UpdatesBack to Knowledge