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i-Gaming Global Legal Update Italy

November 12, 2010 News & Reports

The Italian approach to i-Gaming – Historical background and current landscape

Over the last four years Italy stood out as the pioneer, champion and leader of a new regulatory approach to remote gaming that eventually became a reference model in Europe for those jurisdictions (like France and Denmark) willing to open up the respective gaming markets without however giving up their ruling powers in crucial areas like licensing, compliance and taxation.
Although traditionally Italy has a very solid track record of slow-paced and highly controversial decisions whenever it comes to introducing unprecedented reforms in any business sector, it must be acknowledged that in the case of gaming things happened fairly quickly and smoothly.  Indeed the three triggers of the Italian landmark reform of remote gaming were: (i) a mounting political pressure from the Brussels authorities on Italy for its heavily monopoly-driven legislation which resulted in several infringement proceedings being launched against Rome, (ii) the consistent jurisprudence of the European Court of Justice in various cases involving local agents of a Liverpool-based bookmaker who accepted bets in Italy that were then sent and remotely processed in England via a data transmission system without however holding a betting licence granted by the Italian gaming authority (see in re Gambelli, in re Placanica), and last but not least, (iii) the large Treasury budget deficit that early in late June 2006 induced the then Prodi-led cabinet to pass overnight emergency legislation aimed at feeding the Italian state’s coffins with new sources of tax revenue to be generated from the partial liberalisation of the domestic gaming market and the simultaneous launch of a fresh licence tender contemplating for the first time ever the award of pure remote gaming licences.  On 2 August 2006 the governmental decree (soon re-branded “Bersani Decree” after the name of the then Minister of Industry) was converted into law by the parliament.
The main features of the landmark 2006 reform can be summarised as follows.

  • Legalisation of interactive peer-to-peer remote betting on fixed odds (betting exchange)
  • Legalisation of real-money remote skill games
  • Possibility for operators based in any EU and EFTA country and even in an offshore jurisdiction, to apply for an Italian gaming licence provided they comply with certain fit & proper requirements and re-locate their gaming servers to Italy
  • New licence tender aimed at redesigning and reorganising the offline network of betting shops and betting corners as well as legalising online gaming yet strictly under the scope of a remote gaming licence to be granted by AAMS (the Italian gaming regulatory body) subject to payment of a one-off licence fee of €300,000

The tender process was officially completed and relevant licences adjudicated on 28 December 2006.  A total of 33 remote gaming licences were also granted mainly to large foreign-based online gaming operators such as Betfair, Unibet, William Hill, Ladbrokes, Intralot, and 888.
As the AAMS licences were still ink-fresh, the Finance Act 2007 (“FA07”) kicked in on 1 January 2007.  Two provisions contained therein are particularly worth being mentioned to fully appreciate the way the Italian authorities in fact handled the opening up of the domestic market by coupling the progressive legalisation and regulation of ever more gaming products with the simultaneous enforcement of illegal site blocking measures intended to restrict access from an Italian IP address to ‘.com’ gaming sites unlicensed in Italy.
Game-wise, FA07 required that “Card games of whichever type are deemed skill-based games provided (i) they are organised in the form of a tournament, and (ii) the stake is limited to the entry fee charged to play in the tournament”.  This provision was stuck in the text to legalise online poker tournaments that thus automatically fell into the skill game category.
The other relevant FA07 provision deals with the controversial restrictions that were already successfully enforced in Italy in 2006 against foreign-based gaming sites accepting business from Italy residents without holding an AAMS-granted licence.  These restrictions had been introduced by the Finance Act 2006 (“FA06”) and eventually implemented by an AAMS decree of February 2006 accompanied by a 500-plus blacklist of “illegal” gaming sites which the local ISPs were required to make not accessible from Italy on pain of heavy sanctions.
Notably FA07 fell into place on 1 January and as early as the day after AAMS promptly reiterated its site blocking measures by enacting a decree mirroring the one it had already issued the previous year.
The stick and carrot policy pursued by the Italian authorities seems to have worked pretty effectively as on the one hand the legal gaming business has been growing healthily and consistently since (the first 9 months of 2010 showed a total turnover of nearly €44bln, up by 12,82% over the previous year), and on the other, the blacklist restrictions greatly reduced and  disincentivated the offer of ‘.com’ gaming services to Italian residents with a vast majority of the international operators over the last three years opting to seek an AAMS licence and become fully legal in Italy.
The 2009 year was the one that marked if not the end, definitely the most important turning point of the gaming reform process that Italy begun in mid 2006.  Indeed in this year two important pieces of legislation were enacted.
Soon after the earthquake that in April 2009 rocked down the city of L’Aquila and other parts of a mountaneous region of Central Italy, 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:

  • Legalisation of online fixed odds games of chance (online casinos and Vegas-style games)
  • Legalisation of online poker and ring games
  • Mandate to AAMS (the Italian gaming regulatory authority) to regulate betting exchange, betting on virtual events and video lottery games (“VLTs”).  Notably such games had already been legalised in 2006 yet AAMS had since failed to implement the relevant rules so they had been since placed in a sort of regulatory limbo
  • 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 however 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)

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 finally became effective setting the stage for a new licensing round devising the award by AAMS (not by way of tender like in 2006 but rather upon simple application) of up to 200 fresh gaming licences that will enable operators to offer a wider range of remote gaming services under the scope of fresh and more European-friendly regulations whose features are discussed in greater detail in the following chapter.

The New Regulatory Framework

The main features of the Italian-style remote gaming re-shaped under Law 88/09 that are on the verge of being implemented by AAMS are highlighted below,

  • An AAMS-granted, 9-year licence is required for the offer of remote gaming services
  • The one-off cost of the licence is €350.000 (plus Vat at 20%) payable upon licence issuance
  • The remote gaming licence currently covers: fixed odds/pool sports and horserace betting, skill gaming (including online poker tournaments and any other card tournaments all eligible for skill gaming classification), online scratch-and-win (subject to a sub-distribution agreement with the current exclusive lottery licence holder), BUT
  • When AAMS regulates fixed odds games of chance (ie online casino) online poker and other cash games (and at a later stage, bets on virtual events and betting exchange too), also these games will be included in the remote gaming licence.  Having all the proposed secondary regulations stemming from Law 88/09 just been vetted and cleared by the European Commission (the notification period successfully ended on 15 October 2010), the relevant AAMS decrees are now expected to be published very shortly and in any case by the end of 2010
  • The AAMS licence application is open to any gaming operator based in an European Economic Area jurisdiction (“EEA” ie. European Union countries plus Iceland, Norway and Liechtenstein)
  • The licence may be issued directly to a foreign applicant provided it holds an EEA passport, hence it is no longer required for the applicant to incorporate an Italian company
  • The licence may be granted also to a non-operator (such a startup or a company coming from a totally different business sector) subject to: (i) release in favour of AAMS of an €1,5 million bank guarantee and (ii) an audit to be provided by an independent certificator to the extent that the applicant holds the required technological infrastructure, know-how and management resources to run the AAMS licence
  • Remote gaming services can only be offered to Italian residents through a dedicated and ring-fenced platform identified by the ’.it’ suffix which must be fully linked up the centralised control system ran by AAMS via its technological partner SOGEI, so that each bet/wager/stake placed by an Italian customer can be duly 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 ways other than those 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
  • AAMS licensees are allowed to keep their gaming servers abroad provided they are located in the EEA space and a real time connection with the AAMS centralised control system is in place subject to all appropriate checks and tests to be carried out remotely by the Italian regulator.  This is achieved by having the operator’s platform run certain interface dialogue codes and other technical specifications established by AAMS and set out in the so-called “communication protocols”, aimed at delivering in real time player information and other key gaming transactions details from the operator’s platform to the regulator’s database
  • Both the operator’s platform and the software concerning the newly-introduced games (namely online casino, poker and ring games) must be duly certified by an AAMS-approved testing laboratory

Tax-wise, as already mentioned in the previous chapter, the model that will be enforced once the AAMS regulations are published is a hybrid 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 11,5%).  All brand new remote games soon to be introduced by AAMS namely online casino, poker and ring games, betting exchange and bets on virtual events (albeit these two games are not poised to be regulated until sometime in 2011 or so), will instead be subject to GPB taxation at a flat 20% rate.
It should also be noted that once AAMS rolls out the various decrees carrying the new remote gaming rules, also the existing licensees will be required to deal with a bit of extra red tape in order to put their licences on a par level with those that will be awarded afresh by AAMS.  Indeed as the current licences do not cover the new games to be regulated by AAMS nor are the platforms of the current licensees already certified pursuant to the certification standards that AAMS is about to publish, once the new rules are out the current licensees will have to timely: (i) upgrade their AAMS licence agreement by signing the appropriate addendum document, (ii) get their platform and cash games duly certified, and then (iii) apply to AAMS to be authorised to go live with the online casino and/or poker offer.

2011 Forecasts
At this point in time, the major reform of the Italian gaming sector started in 2006 is almost completed although there still are certain important matters to be dealt with by AAMS, hopefully during the course of 2011.  The areas where the regulator’s action is urgently required can be pinpointed as follows:

  • Bingo.  Currently it is not very palatable specially to mono-product foreign operators because the game management is largely centralised and the only type of bingo game allowed by AAMS is the typical 90-number based, tombola-like formula, very popular in Italy.  As a result of these regulatory restrictions, the still very limited offer of online bingo on the Italian platforms shows an extremely homogenous offer, similar from one platform to another, with very little leeway (if indeed any) for the various operators to diversify their respective bingo product.  It is therefore hoped that in order to encourage and enhance the offer of online bingo in Italy, AAMS will in due course introduce fresh changes aimed at affording the operators the possibility to customise their own product by developing and launching new versions thereof instead of simply replicating the traditional Italian-style bingo formula.  On top of that, another important innovation should concern the possibility to generate the number combinations directly from the operator’s platforms as opposed to  this service being centralised and ran by the regulator itself as it currently happens
  • Betting Exchange and Betting on Virtual Events.  These are indeed the last two important products still missing from the AAMS games portfolio hence even in this case AAMS is expected to take the initiative and issue ad hoc regulations which are a condition precedent for said gaming products to go live
  • Mobile Gaming.  While the AAMS rules generally refer to ‘remote gaming’ which is meant to include Internet, interactive television and mobile (hence the latter business definitely falls under the scope of the regulations discussed in the previous chapter), there is quite a widespread perception that mobile gaming is not yet regulated in Italy.  This is wrong as the main issues that have so far hindered and delayed the launch of the first mobile gaming platforms in Italy are of technical rather than regulatory nature.  It would therefore be advisable for AAMS to entice new operators willing to invest in the mobile gaming business by issuing a set of clearcut guidelines to shed a bit more light on this very product

If and to the extent during the course of next year AAMS will set off to definitely tackle the outstanding regulatory issues shortlisted above, Italy will be fully entitled to claim to have been the first jurisdiction in Europe to complete in a rather comprehensive, consistent and sustainable way the liberalisation of the domestic gaming market: quite a remarkable achievement for a country where local lobbying centres and oligopolistic cartels of various origin and nature are still thriving in many other sectors of the national economy.

Quirino Mancini

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