European egaming: harmony or discord?

Although the September European Court of Justice (ECJ) rulings in Germany(1) and Austria(2) found in favour of the operators (a welcome stem in the trend of judgements that supported or bolstered the monopoly position), they do not give European-facing online operators the comfort they need. The freedom to trade and freedom of establishment rights enshrined in Articles 56 and 49 of the Treaty on the Functioning of the European Union probably do and should apply to gambling, but the political impetus for real harmonisation appears to have evaporated.

Even the UK (previously a supporter of the free gambling market) has announced it is likely to introduce a local licensing system to permit offshore operators to access the UK market.Still, some positives did come out of the German and Austrian cases including the assertion made by the ECJ that there could not be an inconsistent approach over what products were to remain the preserve of a monopoly; and furthermore that tendering for any monopoly licences had to be an open and transparent process.

However, it is difficult to extrapolate from this a general positive that it is helpful to the online industry:

• The Engelmann case in Austria arguably only applies to a bricks and mortar supply.
• The ECJ in the German cases commented that monopolies were the most sensible vehicle by which supplies of gambling could be controlled and social responsibility issues addressed.

However, the German decision will prompt the federal government to reconsider the blanket ban on online gambling imposed by the Interstate Gambling Treaty and introduce a limited licensing regime. After all, the Netherlands, despite the ECJ case finding in favour of its ongoing monopoly in the Ladbrokes/Betfair cases, has announced it will consider introducing an online poker regime.

This is a confusing position for operators. Inevitably, governments in some EU member states (despite expressing the view that a limited number of suppliers protect consumers against wider social harms), have come to realise that providing consumer choice can stimulate participation and provide a much-needed source of revenue if a domestic licensing system exists. In addition, by making the operator accountable and accessible by creating an appropriate licensing regime, issues such as problem gambling, sports integrity and data rights can also be addressed. In any event, governments have to rely on clumsy enforcement processes against operators who are technically light years ahead of them.

Local licensing

So, if local licensing becomes inevitable, what will happen? We suspect, rather like the polarised positions operators were forced to take in relation to the US market post the Unlawful Internet Gambling Enforcement Act (UIGEA), operators will quickly fall into licensed/non-licensed camps.

There are a number of benefits to local licences. First, it shows consistency. There is, rightly in my view, an accusation of hypocrisy that could be levelled at operators who have pushed for local licences, but have elected not to obtain one now that one is available.

In addition, despite any unfairness, the European Commission seems not to want to challenge even the very limited licensing regimes such as France. Also, by staying close to the newly appointed regulator there is more opportunity to work with it. Finally, and most importantly, the certainty created by a licensing system adds value from an investor perspective.

The prevailing mood in Europe gives scope to operators to consider hedging their bets with B2G supplies even in advance of a licensing regime opening up. There are very few EU member states that forbid all forms of outsourcing. It would be nonsensical if a monopoly cannot competitively source some support services from third parties.

It does not, however, make the current situation fair or right. The fact that we could end up with a fairly ludicrous regime where an operator will require myriad licences to operate in one economic area is a nonsense given the reality, which is that the political drivers are fiscal rather than moral.

For whatever reason, the online operator message has been not successfully put across. What about consumer choice? The US lobbying profile has had a significant boost as a result of formalised and high-profile consumer lobby groups.

Therefore, maybe change in Europe would be better carried out (and be more politically acceptable) by emphasising that individuals’ rights should be protected too.

This article appears in the forthcoming print edition of eGaming Review.