Tuesday, September 22, 2009

EU Court Ruling Will Create Betting ‘Black Market’ Expert Warns - 19th September 2009

Hopes of online expansion by local gaming companies into the European betting market - which is seen to have as much potential for growth as the gambling-obsessed countries of the Far East - suffered a set-back last week when the European Court of Justice (the EU's highest court) ruled that governments could bar foreign gaming companies or bookmakers if they used the measure to combat fraud.

Europe's online betting industry is estimated to generate as much as eight billion euros a year, and the ruling followed an alleged breach of Portuguese law by the Gibraltar operations of Bwin and the Portuguese Football Federation in relation to sponsorship deals.

And it adds to the difficulties of online gaming companies - many of which are based on the Rock and provide a significant part of the local jobs market - which are attempting to win the legal right to expand their European operations.

There were fears that the ruling would allow European governments to use fraud prevention as an excuse to avoid opening markets to competition, an industry source told VOX. "It will not lead to job losses, but it will certainly curtail expansion," he said.

In a case brought by the Austrian operator Bwin - said to be one of the biggest online gaming companies in Europe - against the Portuguese state gambling monopoly, the judges ruled that European Union states should be allowed to restrict "freedom to provide services" in the gambling area if there was overriding public interest.

The court said prohibitions on online operators such as Bwin - one of Europe's biggest internet bookmakers - could be justified by the need to combat fraud and crime, "provided the restrictions were fairly applied and proportionate".

Although the court had previously accepted that national laws restricting gambling in an EU country could override the Union's general commitment to "freedom to provide services" principles, this was the first ECJ ruling to deal specifically with online sports betting.

"It represents a significant setback for online gaming companies, who have been battling for years to break down barriers preventing them doing business in many EU countries," Britain's influential Financial Times commented.

The case came in the wake of a sponsorship deal between Bwin's Gibraltar entity and the Portuguese football federation, which breached national laws and resulted in fines of about 75,000 euros each.

The European Court of Justice decided that online betting could be blocked in countries which operate state gambling monopolies such as Finland, Greece, Hungary, the Netherlands and Sweden. And in countries with more open gambling markets bookmakers will need licences.

"The prohibition imposed on operators... of offering games of chance via the Internet may be regarded as justified by the objective of combating fraud and crime," the Luxembourg-based court said in a statement.

It added that betting carried a high risk of fraud and that online betting carries an even greater risk of criminal activity, adding that bookmakers who sponsor competitions could "influence the outcome" of sporting events. (Although there has never been any suggestion of malpractice by the betting company, Bwin provided multi-million sponsorship for Spain's Real Madrid football club and Italy's AC Milan.)

The case in Portugal pitted Bwin, which has pumped millions of euros into such teams, against Lisbon's national gaming monopoly.

"You have to have a licence in a country to operate.... For me it is the beginning of a new era in the Internet gaming sector," said Friedrich Stickler, head of the European Lotteries association of state gaming organisations and a committed opponent of cyberspace gaming.

Stickler said there was now "room for legal action" against online bookmakers registered in Gibraltar, Malta, the Channel Islands and certain Caribbean territories which he accused of dodging taxes.

"Member states should investigate, because little tax is being paid in these tax havens and all these operators are avoiding paying gaming taxes in jurisdictions where the gamblers live," he said.

However, the European Gaming and Betting Association's legal expert Siegbert Alber argued the Court ruling was "not fair" because it lumped Bwin which is "a serious provider" together with "unscrupulous providers." The industry wanted harmonised EU online betting legislation and the ruling didn't solve the problem, he added.

"We need controls, but do we need monopoly to guarantee controls?"

Bwin director Karin Klein said online betting is "a market reality - prohibition won't work," and warned that EU states that refuse to allow online betting companies to operate "will end up with a huge black market."

More than a dozen similar challenges are in the pipeline at the European Court and could take a lead from last week's decision. The ruling could also have ramifications for about 10 cases brought by the European Commission, in which officials accuse individual countries of breaching EU principles through laws that protect state-owned gaming monopolies. The Commission said it was "studying the latest ruling very carefully". (Credit: VOX)

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