EU legal trends

There is a power struggle in Europe about the regulation of gambling. France and Germany are trying to maintain state-controlled betting monopolies, while the European Commission is attempting to enforce Article 49 of the Treaty, which should undermine monopolies.

However, the trend towards overall liberalization on laws is being supported by successes in Spain,  Italy and  Belgium.

Germany

The legal situation on gaming has been very ambiguous since the groundbreaking decision of the Federal Constitutional Court in March 2006. The Court deemed the interstate treaty on gaming incompatible with the freedom to choose one’s profession (granted by the German Constitution).

Since then, a transitional period runs until the end of 2007, during which state operators must restrict advertising and inform gamblers on the dangers of addiction. German states agreed on a draft Interstate Treaty on Gambling. On 1 January 2008, this treaty should become effective and replace the current one. The draft contains provisions relating to the blocking of funds from illegal games of chance and prohibiting Internet Service Providers to cooperate to unauthorized games of chance. It appears inconsistent with the constitutional court’s requirements and with Community law, namely under the suitability and proportionality test carried out by the Commission.   The draft has been notified to the Commission but the EU commissioner for the internal market Charlie Mc Creevy announced it would fight the infringement complaint against Germany to the last instance. The European Commission has delivered its opinion on 22 March. It remains to be seen whether the Commission decision will have any impact on the adoption of the treaty or not.

Recently, Chief Executive Norbert Teufelberger of Bwin backed a resolution to the drawn-out wrangle that would allow states to maintain full monopoly in the lottery sector, while regulated online gaming companies are given the opportunity to provide sports betting, casino games and poker services with a 15 percent tax on gross winnings offered in exchange for their new privilege.

The European Commission may have broken the impasse between German states defending their online gambling monopolies against gambling companies from other EU nations and EU policies requiring free access to goods and services between EU nations.

German states have energetically opposed intrusion on their monopolies by foreign betting companies but were informed earlier in the year by the European Commission that denying access to companies from other EU nations could result in legal action.

Europe’s largest newspaper claims that Charlie McCreevy, the European Commissioner in charge of Internal Markets and Services, has proposed a compromise solution that would see the 16 German states retain sole authority over lotteries and casino gambling in return for opening up German sports betting activities to private companies. The Irishman is responsible for setting the EU’s policy on the functioning of an overall market of some 480 million people spread across 27 member states and presumably the concession would involve sports betting within as well as outside Germany but confined to companies within EU states.

Der Spiegel stated that the European Commission would ‘in no way challenge the existence and continuation of the states’ monopolies on lotteries and other forms of gambling’ in return for an opening up of the sports betting market but it is not yet known whether the German states are receptive to McCreevy’s proposal.

France

The French government has been told by the European Commission to modify its draft law on online gambling to allow foreign operators access to the market. EU spokesman Ton Van Lierop confirmed that the Commission had sent a 'detailed opinion' to France concerning the draft law, in which it highlighted the countries violation of article 49 of the EU treaty, pertaining to the free provision of services.

Van Lierop added that the French government now has one month, until Aug 24, 2007, to change the draft law.

France's highest court, the Cour de Cassation, overturned a previous ruling which barred Malta's Zeturf from operating in France. The Court said a monopoly would break EU competition laws.

France operates a state monopoly on gambling and Pari Mutuel Urbain (PMU) is the operator for horse racing betting. It brought the case against Zeturf, which was allowing French people to gamble online on horse races.

The Court, though, ruled against PMU, saying that the monopoly it enjoyed was not consistent with EU competition law. Article 49 of the EC Treaty guarantees free movement of services within the EU.

One French legal expert said that the ruling will probably open up France's betting market, but only in those areas where French monopolies already operate. "I think France will have to open sports betting to all EC companies, but only in the case there was already a market with only one actor, such as horse race betting," French law expert Cedric Manara told online news service The Register.

There is a power struggle in Europe about the regulation of gambling. France and Germany are trying to maintain state-controlled betting monopolies, while the European Commission is attempting to enforce Article 49 of the Treaty, which should undermine monopolies.

Italy

The speed with which Italy reversed its prohibition against online gambling to embark on a more liberal and regulatory approaches still a talking point in gambling circles.

The report stated that the recent European Court of Justice’s favorable decision in the Placanica case was a watershed in Italian gambling affairs. This was followed by the invitation to tender, which allowed online and land-based gambling operators to enter the liberalized Italian market with possibilities in the region now the focus of many major gambling groups.

Since this ruling, Italy has granted 14,000 new betting licenses, mainly for sports and horse race betting shops and terminals, from the beginning of 2007 to leading international gambling operators including include Ladbrokes, Intralot, William Hill, Betfair and Gala/Eurobet.

MECN said that, overall, Italy’s gambling market is expected to reach $84 billion in total turnover by 2010, an increase of 64 percent, with the retail betting market to grow to around $19 billion, twice its current size. It also said that interactive gambling could reach $5.1 billion by 2010, growing by nearly 240 percent.

Denmark

A court in Denmark has ruled that Texas Hold’em poker is a game of skill and not chance, allowing poker competition organizers to avoid prosecution under Danish law. The case was brought against the Danish Poker Association by the Police Commissioners Prosecution Service, which argued for a violation of the criminal code, after casino operators claimed that Association members were organizing 'illegal' gambling events.  Danish prosecutors have until the end the July to appeal the ruling, which could end up before the Danish High Court. Operators and organizations around Europe and the US are reported to be watching the case closely.

Spain 

The European Commission is preparing a legal challenge to Spain's policy of taxing winnings paid by foreign lotteries while exempting Spanish lotteries.

The progressive-rate income tax is discriminatory, the Commission claims, and violates trade protections guaranteed EU Member States.

Spain has responded that it exempts its own lottery organizations because they are charitable, not because they are Spanish.

The country's Ministry of Finance, meanwhile, has launched an investigation into Spain's burgeoning Internet gambling industry for possible tax liabilities. Law enforcement officials are studying whether to prosecute Web operators for violating a statute that forbids gambling activities run by unlicensed foreign entities.

Issues surrounding the growth of Internet gambling also have made their way to the national legislature. The Senate, the upper house of the Cortes Generales, recently passing a bill presented by the governing PSOE to legitimize and regulate online gambling. PSOE (Spanish Socialist Workers Party) garnered the support of smaller parties such as Entesa Catalana del Progrés, a coalition of mostly Catalonian Leftist parties, and the Catalonian-based CiU coalition on language in the bill essentially calling on government to take formal control of an industry in which Spaniards are spending an estimated 500 million euros a year.

The main opposition party, the probusiness Partido Popular, voted against the measure. The PP has labeled all foreign online operators illegal.

AUC, the country's communications watchdog, has in the meantime filed a formal request with the Ministry of Economy and Taxes for an investigation into online operator Bwin's sponsorship of football powerhouse Real Madrid and sponsorships of the Seville and Figueres clubs by 888 and Miapuesta.

A report by Gaming Intelligence Group said the AUC (Asociación de Usuarios de la Comunicación) believes current Spanish legislation renders online gambling services illegal in Spain, and so the promotion of such services is also illegal. The PP also has called for government action.