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Rien ne va plus in the French Casinos

December 4, 2008 2008

The French Casinos have decided to have their voice heard. They have reached a situation of extreme difficulties whereby they require the French public authorities, at both the federal level as well as local level, to know of their concerns regarding the current state of the French gaming market. The French Casinos have requested the government to enact remedies which will allow French Casinos to become more competitive.

The French Casinos have decided to have their voice heard. They have reached a situation of extreme difficulties whereby they require the French public authorities, at both the federal level as well as local level, to know of their concerns regarding the current state of the French gaming market. The French Casinos have requested the government to enact remedies which will allow French Casinos to become more competitive.

Despite many warnings over the last number of years, the French Government now finally appears ready to undertake a series of initial action to assist French Casinos. But to what extent will these actions allow the Casinos to regain a competitive edge?

The Casino industry in France consists of 197 casinos, which employ 18,200 employees, and operate 22,000 slot machines in addition to roulette and poker. At the end of 2006-2007, the gross revenue reached
€ 2.8 million, which represented an increase of 3.07% over prior years. In comparison, the gross revenue fell by 13.5%, with a decrease of 20% recorded in September alone, during 2008.

French Casinos have expressed their dissatisfaction with the current legal system and tax regime. French Casinos have warned the public authorities for years. In the words of a director of one of the leading French Casinos: “[w]hen the casino coughs, the municipality gets a cold.”

As an example, Barbazan (a municipality in southern France) received € 529 000 in 2007 from casino tax payments, which represents 74% of its budget. Barbazan was a town of 350 inhabitants before the opening of its casino. One hundred new inhabitants relocated to Barbazan as a result of the construction of the casino, which has generated hundreds of jobs and commercial opportunities.

In total, € 245 million in taxes have been paid by French Casinos to municipalities. This tax figure excludes additional revenue received from employee wage payments and revenue derived from connected activities (such as resorts and entertainment, etc…).

Considering that some of the French Casinos are now in the process of laying-off employees, or even face the prospect of ceasing operations, the economic crisis will not only affect the French Casinos, but also the municipalities where the casinos are located.

Reasons for such a crisis

There are multiple factors which have directly and indirectly caused the French Casinos to face losses in revenue during 2008.

First, the smoking ban which became effective on January 1, 2008, has radically changed the habits of players. Players were used to being able to smoke and drink while playing. Instead of quitting smoking, players have preferred to neglect the casino properties and now play at home via the internet in order to keep smoking while gambling.

Second, as a consequence of the financial crisis and a general declining economic atmosphere, casinos have experienced an even greater decrease in players frequenting their properties.

Third, the strict identification and registration process for anyone to enter casinos premises in France has had a negative effect on the number of players entering casinos and, thus, likely contributed to a decline in gaming revenue. Such traceability of players and money may have contributed to regular casino patrons electing to play at foreign casinos in countries bordering France.

Finally, the French Casinos suffer from unfair competition from online gaming operators. According to French law, internet gaming is generally prohibited except in limited circumstances. Specifically, online gaming is only authorized by virtue of an exemption for the historic gaming actors in France: the two State monopolies, the Française des Jeux (FDJ) and the Pari Mutuel Urbain (PMU). Hence, these two majors gaming businesses are free to offer gaming opportunities which French Casinos are otherwise strictly prohibited from offering. Newly authorized casinos have even been sued in French courts when they attempt to enter the online market, whereas operators licensed by other Member States of the European Union are “free” to proceed to offer online gaming in France.

Opening of the market… any prospect for French Casinos?

On June 11, 2008, the French Government announced it would open its gaming markets as a result of pressure from the European Commission.

The imminence of a new legal framework has been confirmed; the main features of the new liberalized gaming law has been announced. However, because the legal process to open the French gaming market is still at a political stage, the new law is still an evolving work in progress. The French Parliament must still enact legislation and final amendments to the law may be made by the President. Therefore, the details which have been announced may be subject to subsequent changes. Moreover, implementing the new legal framework may not begin until the second half of 2009.

Opening up the French gaming market will primarily be directed at on-line gaming (which excludes off-line gaming such as lotteries, which will remain within the scope of the State monopoly “la Française des Jeux”, as Casinos being subject to special authorizations of the Ministry of Home Affairs and as Gaming Clubs (Cercles de Jeux) or Phone Gaming).

On-line gaming which may be authorized under the new gaming law regime include:

– betting on sport events;
– mutual betting on horse races and fixed odds betting for all other sports betting;
– poker and maybe a limited number of other games currently offered in Casinos and Gaming Clubs (“Cercles de jeux”), such as backgammon.

As a result, betting on virtual events, the financial market, spread betting or on results not linked to a true sports event are excluded from the liberalization of the French gaming laws. These games will remain prohibited under the new gaming law, as is the case under current French law. In addition, lotteries and slot machines will be excluded from the new law, even for online versions.

As far as French Casinos are concerned, the restrictions represent for online lotteries and slot machines their main point of contention because it prevents the French Casinos from developing a very lucrative business activity within the “information society.” It is well known that la Française des Jeux competes in these sectors of the gaming market. La Française des Jeux holds a State monopoly, which is officially justified by reasons of social health and public order. In reality the activities of la Française des Jeux represent a huge source of income for France.

On the positive side, as a result of the opening of the French gaming market, French Casinos will finally be officially allowed to operate online poker. Hence, the new regulation aims at creating a real opportunity for larger operators, which are able to fulfill all licensing criteria, to target the French online gaming market. This system tends to promote already operating and licensed large operators willing to adopt some responsible gaming measures and be subject to France’s control, as opposed to illegal or smaller entities. That is, the terrestrial casinos may have some preference in obtaining an online gaming license.

However, the new system is far from being adopted and implemented and does not even meet the main expectations of the French Casinos.

Latest measures announced in order to help the Casinos

Following up to a meeting held by the French Minister of Home Affairs, Michèle Alliot-Marie, with French Casinos representatives on November 14, 2008, the Minister officially proposed some measures to support terrestrial casinos facing the dramatic impact of the economic crisis.

Taking into consideration the popular success of poker tournaments, Michèle Alliot-Marie announced a relaxation of restrictions with regard to the organization of such tournaments. By the end of 2009, the number of tournaments will no longer be limited. In addition, French Casinos will be authorized to organise competitions off their premises, which is not authorized under the current gaming law.

Moreover, the Ministry assured casinos that the procedure authorizing new games will be considerably reduced.

Finally, conditions to request additional slot machines or further casinos games will be also relaxed with the aim of bringing players back to casinos.

Even if casinos representatives have expressed some satisfaction from the already announced changes, they are still waiting for answers regarding their main requests.

Main requests still unsatisfied

The Casinos have repeatedly pointed to the loss of revenue due to competition from online gaming. The new gaming law, which would potentially allow casinos to partially develop online activities, is still at a drafting stage. Considering the unfair competition domestic French casinos face and overall economic difficulties, French Casinos have requested a global review of the tax system. They have officially called for:

– an immediate decrease of or exemption from taxes until the new gaming law is in place;
– an update of the rates for the progressive tax, which has been obsolete for 22 years because of inflation;
– a distinction in the tax applicable to, on the one hand slot machines and, on the other hand table games, whereby the tax rate on table games should take into account the value generated from the greater employment table games generate in casinos;
– a strict limitation of 15% of the global tax payments should be shared with the municipalities.

These requests have been unfulfilled thus far and the draft legislation authorizing online gaming has been too restrictive for French Casinos. As a result, some French Casinos are seeking alternative solutions to contain their losses.

When the Casinos start to bet on the law…

Losing patience and excited by the success of online poker free rolls offer (up to 4000 players online simultaneously), The Partouche Group, one of the European leaders in terrestrial casinos, decided to promote a new online poker game with real money – which is absolutely illegal under current French law. This new offer is now available for French players on https://poker.partouche-game.com.

Partouche is the first French casino to cross the red line and challenge the French government. Nonetheless, as long as the current French gaming law system is the subject of criticism by the European Commission and the liberalization reforms for online gambling are still in progress, it is very unlikely that any prosecution will be made. On the other hand, who knows what will be decided under the future licensing system: could one bet that the new French gaming law will have some future consequences for Partouche to obtain a License?


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