France: update on the liberalization of the gaming and betting market

Opening of the French online gaming and betting market: the presidency has not yet decided on the “hows”, but the process is now irreversible.

1. Durieux report

Mr Sarkozy declared it publicly a few weeks ago: France will open its online gaming market. The process has thus now become irreversible.

At the beginning of this month, the report issued by Mr. Bruno Durieux on the opening of the French online gaming market was given to the Prime Minister, Mr. François Fillon, and to the ministry of budget, Mr. Woerth. The President of the French Republic, Nicolas Sarkozy, is due to “validate” it in a near future.

2. Exclusion of lotteries and gaming machines

The online opening would only concern the online sports betting, casino and poker sectors. Lotteries and gaming machines would apparently be excluded from the scope of the opening.

3. Operators are preparing to enter the market

Big European and French groups such as TF1 are preparing for the opening of the market. Capital risk funds and investment companies focused on the online gaming industry are being created in France, getting ready to move in. Partouche and Barrière, the two main casino operators have already been granted licences respectively in Gibraltar and Malta.

4. Partnership with EU members

According to public declarations made to the press by the budget ministry, Mr. Woerth, France will work on the legal framework of the reform in partnership with some of its European partners (Finland, Germany, Belgium, Netherlands, etc.). A first meeting is envisaged at the end of April.

5. Interdepartmental structure

Moreover, a new interdepartmental structure should be created with the mission of granting licenses to online gambling operators. Authorized online gambling operators will have to meet very strict requirements relating to money laundering and addiction of players in order to be granted a licence.

6. Scientific study

A scientific study will be carried out during two years with the purpose of gathering reliable information on these subjects (fight against money laundering and protection of players).

7. “Regulated and controlled opening”

In an interview to the daily newspaper Le Parisien, Mr. Woerth indicates that, together with Mrs. Michele Alliot-Marie (Minister of Interior) and Mr. Michel Barnier (Minister of Agriculture), he will propose to the President of the French Republic and to the Prime Minister to set up a regulated and controlled opening of the online gambling market.

Mr. Woerth expresses several recommendations in connection with the opening of the French gambling market:

• Horserace betting

 Mutual betting system only (and thus exclusion of fixed-odds betting and bookmakers).

 Players will have to participate to the financing of the State and of the equine sector.

 The horserace betting market should be opened in two successive stages:

First stage: Private operators should be authorized to distribute horserace betting. In this case, PMU retains exclusive rights to organize horserace betting in France and private operators should be approved and have a license.

Second stage (eventually): Private operators are authorized to organize horserace betting. In this case, private operators should be subject to the same requirements and tax treatment as for PMU.

• Sports betting

 Opening of the sector but with a limitation of the forms of sporting bets. The bet must be related to the performance of the athlete. Other bets disconnected from sports (e.g. a bet relating to the color of the tennis player’s eyes), should be prohibited.

 The rights of the organizers of sports events will have to be addressed.

• Casino games

 Blanket prohibition of online slot machines (insofar as they represent a danger in terms of addiction).
 Possible opening to the poker and the other traditional casino games.

Taxation

Concerning taxation, the question remains open. Mr. Woerth simply states that the system will have to preserve the financial resources of the State and of the equine sector.

8. Timetable

According to Mr. Woerth, the schedule of the opening belongs to the President of the Republic and to the Prime Minister.

Moreover, he believes that France should not rush into the opening of the market, which could be effective in 2009 or at the beginning of 2010. The Ministry for Budget is much worried about the general budget of the State and thus is less inclined to open the market shortly.

However, Mr. Woerth’s position is not shared by all in the government and especially not by the French President who seems more favorable to “speeding up” the process, especially for reasons relating to the financing of sports.

The question of setting up of a transitional period in between now and the opening, whereby operators could start offering their services on a contractual basis with the government, is also on the agenda but has not yet been decided upon.

Operators are indeed eager to be granted as soon as possible for a limited period of time and have suggested contributing financially to a sports fund. Sponsoring deals with major football clubs are indeed a major concern for operators such as Bwin.

It is expected that the weeks to come will show more visibility on the exact method France intends to use in order to regulate the transitory period.

The European commission warns France against the blocking of financial flows from online gaming

On November 30, 2007, France notified, on the basis of directive 98/34/EC laying down a procedure for the provision of information in the field of technical standards, the draft decree taken pursuant to the law on the prevention of the delinquency which requires financial institutions to block transfers of funds from unauthorized gambling websites.

Blocking financial flows from unauthorized gambling websites

The draft decree thus provides, through provisions which will be codified under Articles R. 565-1 to R. 565-4 of the monetary and financial code, that the minister of finances and the minister of interior draw up a list of persons identified as organizing a prohibited gaming and betting activity on the French territory for which a prohibition to carry out transfers of funds has been decided. This system would prevent persons who play illegal games to receive their profits.

However, a departure from this prohibition is envisaged when the financial institutions will not have sufficient information to identify the unauthorized online gambling operators. Moreover, the decree provides the methods according to which the ministers will eventually accept the requests of putting aside the prohibition which could come from the persons organizing unauthorized gambling activities, when the latter prove that certain transactions they initiate are realized within the framework of operations which are not prohibited on the French territory.

European commission opposed to the project

The European commission has just addressed, last February 29, a detailed opinion to France, thus prolonging standstill period to March 31, 2008.

This prolongation means that France is not authorized to adopt the decree before the expiry of this date. France must during this time submit a report to the European commission to explain how it will take into consideration the detailed opinion (withdrawal of the text, justification of its preservation or amendments to certain provisions in order to make it compatible with the rules governing the internal market).

The Commission will then appreciate the actions to be undertaken against France according to its response, by indicating if the measures may eliminate the barriers to free movement of goods, freedom to provide services or freedom of establishment of the operators of services which would have resulted from the adoption of the text, or if the justification put forward for its preservation proves to be acceptable.

Free movement of capital in question

The European commission considers that the draft decree is a restriction of the free movement of capital principle enshrined in Article 56 of the EC Treaty.

In order to comply with EC law, these restrictions must be justified by reasons of overriding general interest and be:

•- Non discriminatory

•- Proportionate with this objective

•- Necessary to achieve the objective pursued: in this case, France puts forward an important danger for public order (money laundering) and for social order (risk of addiction).

It should underlined that the European commission has just opened an infringement procedure against Germany, which treaty relating to gambling that came into effect on January 1, 2008 also implements measures to block the transfers of funds from and to unauthorized gambling wesbites.

For the Commission, this system does not comply with Article 56 (2) of the Treaty which prohibits restrictions on payments.

The Commission also considers that when a profit is due to the player, the transaction is a transfer of money necessary for the execution of a service, so that its prohibition is also a restriction to the free movement of capital principle provided by Article 56 (1) of the EC Treaty.

The Commission had already warned Germany by the sending of a detailed opinion in May 2007, which is similar to the one which was sent to France, against the potential unlawfulness of such measures. However, the justifications put forward by Germany did not appear to be acceptable.

What next?

If France decides to ignore the detailed opinion and adopt the decree, the Commission could launch a new infringement procedure against this Member State, which thus would come in addition to the pending one.

Nevertheless, such evolution seems very improbable insofar as France is currently in negotiations with the European commission to suggest a model for a regulated opening-up of is online gambling market.

A meeting must thus take place in March between them which could lead the Commission to accept the fact France blocks financial flows initiated by operators which do not hold a French license or which are not recognized by France, this in exchange of a regulated opening-up of its online gambling market. In short, these measures would be applied to authorized European operators but to unauthorized operators only…

Not to forget that France will access the presidency of the European Union next July and will certainly wish by then to have put a term to its conflict with the European commission.

To be continued…

Commission enquires about Swedish poker

On 31 January the European Commission sent an official request for information to Sweden. This investigation targets various issues relating to poker and tournaments.

In Sweden, poker games used to be exclusively offered in “offline” casinos, but in 2006 ,Svenska Spel the state gambling monopoly was granted a license for online poker.

At the same time other EU licensed operators were banned from offering online poker games and tournaments in the country. The national legislation sets restrictions and criminal sanctions for promoting and providing online poker even when providers a duly licensed in another Member State.

In addition, Svenska Spel uses very aggressive advertising methods and practices very low rakes compared to the rakes offered by average operators.

The official request for information from the European Commission, is the second infringement procedure opened against Sweden, since in April 2006 the Commission launched a similar procedure concerning the sports betting market. Further to this first infringement procedure the Swedish government had set up a committee to review Swedish gambling legislation.

In the same way as it did for the betting market, the commission will research if the restrictions placed by Sweden on online poker operators, are in conformity with article 49 of the EU Treaty, and whether the general interest objectives are consistent and systematic.

According to a consistent case law from the ECJ; Member States cannot invoke the need to restrict its citizens’ access to betting services if at the same time it incites and encourages them to participate in State lotteries or games of chance which benefit the States finances.

For more information:

http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/118&format=HTML&aged=0&language=EN&guiLanguage=en