Analysis: Dutch incumbents fight on for bigger break
The publication of draft regulations in the Netherlands has left online operators queuing up for a licence but incumbents are preparing to fight back, as Tom Washington reports
The publication of the Netherlands’ draft egaming regulations brought few surprises last month. The 20% tax rate had been widely speculated, all products were legalised as expected and the 2015 target launch date wasn’t overly aggressive. With estimates of the online market’s value ranging between 140-800m in gross gaming revenue, the opportunity for both incumbent operators and Europe’s leading brands is sizeable.
But while the Dutch opportunity is gradually beginning to take some form, the consultation period is likely to see a couple of major spanners thrown into the works by the existing operators. One such incumbent in real need of uplift in revenues is Holland Casino, the company which, despite having a monopoly in the country, posted losses of 652,000 in 2012. The firm, along with local slot machine operators and lotteries, should in theory be well positioned to take advantage of the regulation. But perhaps not as well as they had hoped.
In November 2012 several non-local firms including Betfair and PokerStars agreed in principle to a supporting regulatory measure designed to effectively strengthen the incumbent lotteries’ and other operators’ chances of success. This ‘sector agreement’ stated that in exchange for no back tax demand or blackout period enforced by the government, existing licence holders would be able to offer full online products offerings months ahead of others. The aim was to create an equal starting point at the moment that online licences are awarded.
Indeed, the explanatory memorandum accompanying last month’s draft regulation admits that “illegal providers” have acquired market share “in the meantime” and describes how incumbents have pushed hard to emphasise they are at a “great and unequal distance” in terms of starting positions for the transition to a licensed market. It goes on to say these operators called for a “transition or prelaunch phase” in which they can offer remote games of chance prior to the opening of the market.
But the concession for incumbents stops there. In what it describes as a “strict interpretation” of the Betting and Gaming Act, the government only sees “limited opportunity” for such an accompanying policy. “The agreement hasn’t been respected by the government,” says one source who preferred not be named and adds that incumbents might try again to push for a head start on foreign operators.
Meanwhile Justin Franssen, a lawyer with Kalff Katz and Franssen, says: “There is a feeling among some of the incumbents that not all of the elements in the sector agreement have been implemented into the draft text. It is very hard to define exactly what represents a level playing field. It means different things to casinos, lotteries and slots operators.”
This will no doubt have irked the likes of De Lotto, the state-owned monopoly operator, which is still reeling from a lost unfair competition case in which it called for all non-Dutch operators to be blocked in 2012. That’s not to mention Holland Casino, which, just a few years ago when regulation was first discussed, looked set to be allowed to retain its offline monopoly in the online market.
The unnamed source says local operators are still adamant they will receive a head start of sorts. There has even been talk of incumbents doing something drastic such as ceasing their combined tax payments should the government not cede to their wishes, the source says.
A spokesman for Holland Casino said it “did not expect” the draft to outline such proposals, but confirmed: “We still expect to discuss [the leveling of the playing field] with authorities and will be pushing hard for it in weeks to come.”
Incumbent operators are also digging their heels over the proposed 20% tax on online gross profits tax. They have suggested there is no reason for the online rate to be different to the offline rate of 29%, especially as the lower tier will be benefitting their newly licensed competition. “The tax issue is still very much on the table and could cause disagreements in the future,” says Franssen.
There remain a few obstacles in the way of the market opening, with the demands of the incumbents keeping the Dutch market tantalisingly out of reach for now. But as an open licensing system a far cry from the complex and restrictive frameworks of France and Germany, it’s a jurisdiction which is likely to bring more joy than pain in years to come.