What Future for the Regulation of Gambling within the Internal Market? CLEEN Workshop 11-13 June 2008 ESRC Centre for Competition Policy University of.

What Future for the Regulation of What Future for the Regulation of Gambling within the Internal Market?Gambling within the Internal Market?

CLEEN Workshop11-13 June 2008

ESRC Centre for Competition PolicyUniversity of East Anglia, Norwich, UK

Alan Littler ([email protected]) Tilburg Law and Economics Center (TILEC) /

Faculty of LawTilburg University, the Netherlands

Aim & contents of today’s presentationAim & contents of today’s presentation

• To introduce research project• To highlight (regulation of gambling) issues which arise

in a multi-jurisdictional environment• To illustrate how Member States approach the

regulation of gambling• To discuss what the requirements of the Internal Market

are regarding gambling• To identify competition and regulatory issues

Research project: Backing the winning horse; determining the appropriate form of regulation

for the EC gambling market (I)

• Relevance– Important economic sector in terms of employment and consumer

spending– Important source of revenue for charities/good causes &

governments– Important source of revenue for organised crime– Source of social costs particularly resulting from those who gamble

beyond their means (& perhaps engage in crime as a result)– Gambling services are readily provided by means of distance

communication; easily cross national borders (especially via the internet)

– Free movement principles apply to gambling activities >> challenges to established regulatory regimes

• How to balance Internal Market with Member States’ interests????

Research project: Backing the winning horse; determining the appropriate form of regulation

for the EC gambling market (II)

• How do Member States regulate gambling (FR/NL/UK)?• To what extent should the freedoms of the Internal

Market apply to gambling?• Are national regulatory objectives only achievable at the

national level? I.e. consumer protection – prevention of addiction, revenues for good causes, charities and general purposes

• To what degree should regulatory competence remain at the national level?

• Are national monopolies compatible?• What is the impact of the internet on this debate?

ACADEMIA:Economics

oSocial impact/costsCrimePsychology of addiction/addictiveness

GOVERNMENT

Regulators Sub-national authorities

Supra-national ‘authorities’, e.g. WTO and EU

GAMBLING SERVICE SUPPLIERS

Private (licensed)

Public (monopoly)

SECONDARY MARKETS

Software

Data for betting (e.g. football leagues)

Horseracing industry

PLAYERS

CRIME

Organised crime (gambling supply)

Fraud / money laundering

As a result of excessive gambling

SPORT

CHARITIES/GOOD CAUSES

HEALTHCARE - prevention/treatment of addiction

OTHER CIVIL SOCIETY

REVENUES

Issues arising in a multi-jurisdictional environment

• Demand, and in some cases supply, takes place across national borders

• However, most Member States take a state-centric approach to regulating gambling

• Consequently, regulation does not correspond to demand and supply patterns– Facilitated by the widespread use of the internet– ‘Benefits’ will arise in different jurisdictions than ‘costs’– Organised crime does not respect national borders

• Similar issues arise in federal systems, e.g. Australia & USA• Competition between jurisdictions

– Residents of A purchase services of B – attractiveness of gambling products/winnings

– Operators relocate/locate in A instead of B – regulatory costs and tax burdens

How do Member States approach the regulation of gambling? (I)

• Prohibition – Of a form of gambling, e.g. casinos in Ireland– Of a particular means of gambling, e.g. internet gambling in the

Netherlands• Exclusive rights model

– State monopolies, e.g. Holland Casino/Française des Jeux– Licensed monopoly following competition (competition for the

market), e.g. UK National Lottery (Camelot)• Licensed operators

– Subject to numerous clausus• Specific quantitative limitation – 9 casinos in Belgium (why 9?)• Criteria provides a de facto limit – casinos in France are

restricted to tourist resorts– Unlimited; granted so long as licencing criteria satisfied, e.g. UK

bookmakers (Gambling Act 2005 saw the removal of the requirement to show that (the new) supply would satisfy unstimulated/latent demand)

How do Member States approach the regulation of gambling? (II)

• Online gambling– Only some MS have specific legislation for online

gambling– If permitted, reflect approach taken in offline market

• Limit to existing monopoly holders, e.g. Française des Jeux in France & Svenska Spel in Sweden

• Limit to licence holders for bricks & mortar venues, Belgian proposal offers licence holders of casinos & gambling arcades licences the opportunity to apply for an internet gambling licence – all other operators are excluded (whether in Belgium or elsewhere in the EU)

How do Member States approach the regulation of gambling? (III)

– Unlimited operator• Import & export – UK’s Gambling Act 2005

– Establishes a licensing regime for UK based operators» to serve the UK market» to export remote gambling services to non-prohibited

territories » Allows non-UK (wider than EU) based operators to

serve UK residents» only those based in the EU or on the ‘white list’ of

approved jurisdictions can advertise to UK residents• Export only – Maltese Remote Gambling Regulations 2004

– must establish a presence in Malta but can only serve markets outside of Malta

Different models have differing capacities to comply with the Internal Market logic

How do Member States approach the regulation of gambling? (IV)

• Do similarities exist between the objectives of the various regulatory regimes?– UK licensing objectives – Gambling Act 2005

• Preventing gambling from being a source of crime or disorder, being associated with crime or disorder or being used to support crime

• Ensuring that gambling is conducted in a fair and open way• Protecting children and other vulnerable persons from being

harmed or exploited by gambling– FR objectives of Française des Jeux - Décrets nº 2006-174 &

2006-175 • Assure the integrity, security and reliability of gambling

operations and to ensure their transparency• Canalise the demand for gambling into a circuit controlled by

public authorities, so as to prevent the risk of gambling being used for criminal or fraudulent purposes and to fight against money laundering

• Limit the consumption of gambling services with a view to preventing dependence

How do Member States approach the regulation of gambling? (V)

• Are there cases where these objectives could be better achieved by action at the European level? – Particular forms of gambling?– Particular means of providing gambling?

• Are monopolies better suited to executing these objectives or can regulated & supervised markets achieve these aims?– To what extent should cross-border supply be

stimulated?• What institutional set-up would be required to support

this?

Internal Market requirements: Case-law of the ECJ (I)

• Cases which directly concern the provision of gambling– C-275/92 Schindler (24 Mar. ‘94)– C-124/97 Läärä (21 Oct. ‘99)– C-67/98 Zenatti (21 Oct. ‘99)– C-6/01 Anomar (11 Sept. ‘03)– C-243/01 Gambelli (6 Nov. ‘03)– C-42/02 Lindman (13 Nov. ‘03)– C-338/04 Placanica (6 Mar. ‘07)

• Cases which relate to other aspects of the gambling market– C-338/02 Fixtures Marketing (9 Nov. ‘04) – databases– C-260/04 Comm v. Italy (13 Sept. ‘07) – renewal of licences– C-432/05 Unibet (14 Mar. ‘07) – judicial protection

Internal Market requirements: Case-law of the ECJ (II)

• C-275/92 Schindler– Gambling activities are services within the meaning

of the EC Treaty– Lotteries have a ‘peculiar nature’, based on 4

elements1.Moral, religious & cultural aspects2.High risks of crime & fraud3.Damaging individual & social consequences4.Generate revenues for benevolent or public

interest activities– Only the last element cannot form a basis for

restricting the cross-border provision of gambling services

Internal Market requirements: Case-law of the ECJ (III)

• C-124/97 Läärä– When assessing whether a restriction can be justified

attention does not have to be paid “systems of protection” used in other Member States

• C-67/98 Zenatti– National legislation must be genuinely directed at limiting

the harmful affects which are given as reasons to justify restrictions on cross-border services

• C-243/01 Gambelli– Develops notion of ‘systematic & coherent’ policy– Margin of discretion of Member States is reduced

• C-42/02 Lindman– Evidence must show causal relationship between aim of

restrictive measure & actual danger

Internal Market requirements: Case-law of the ECJ (IV)

• C-338/04 Placanica– Restrictions on the number of operators – must

reflect a ‘genuine diminution of gambling opportunities’, limitation must be consistent and systematic

– Channelling gambling into a controlled environment to combat crime & fraud can constitute an objective justification for a restrictive measure

– In such a context the expansion of gambling services was deemed compatible with the aims of the legislation

• Expansion could include advertising, extending the range of games and using new distribution methods

Internal Market requirements: Limitations of the case-law

• Member States are free to define the objectives and standards of national gambling policies; the ECJ is more interested in the application thereof

• Finding a restriction to be contrary to EC law will not necessarily lead to the fall of the regulatory model but the amendment of the offending requirement(s)

• Regulatory regimes can migrate to new means of distance communication – leading to the replication of off-line models in the online world? Is the online world comparable to the offline world?

Internal Market requirements: A limited role for secondary legislation

• Directives which include gambling in their scope do not contain any harmonisation measures but are of a procedural nature– Distance Selling Directive (97/7/EC) – procedural/contractual

issues for B2C contracts concluded at a distance– Information Society Directive (98/48/EC) – notification

procedure• Directives using the ‘country of origin’ principle and the Services

Directive exclude gambling– E-Commerce Directive (00/31/EC)– Television Without Frontiers Directive (89/552/EC) as

amended by the Audiovisual Services Directive (07/65/EC)– Services Directive (06/123/EC)

Internal Market requirements: Any clarifications on the horizon?

• Catalogue of preliminary references before the ECJ, from– Austria (C-64/08)– Belgium (C-525/09)– Germany (C-409/06, Joined Cases C-358/07, C-359/07, C-

360/07, C-409/07 & C-410/07, & C-46/08)– France (C-212/08)– Italy (C-395/05 & C-397/05)– Netherlands (questions of the Raad van Staat of 14 May

’08 in Betfair v De Lotto proceedings)ECJ can hardly be considered as the most appropriate forum for designing a regulatory regime

• Infringement proceedings of the European CommissionSeeks to apply current understanding of ECJ’s case-law, lacks systematic approach

Require a coherent debate, preferably not one in the courtroom!

Competition & regulatory issues (I)• Same service & different operator (type of)

– Slot machines in the Netherlands, offered by the state casino monopolist, Holland Casino and by private undertakings in amusement centres

• Different service & same operator (type of)– Française des Jeux - monopoly position in two markets,

lottery products and sports betting services (not horserace betting)

• Different sectors with different levels of regulation & supervision– Extremely tight regulation of the casino market in France –

only avenue for private operators– FDJ & PMU in contrast do not appear to be so tightly

regulated or is this appearance due to a lack of transparency within the overall regulatory structure?

Competition & regulatory issues (II)• Regulatory bodies – a question of independence…

– Lack of transparency and clear evidence of supervision and enforcement regarding public gambling providers by government departments/ministries

– Seemingly more stringent regulation, supervision & enforcement of those sectors where private operators are permitted

– Are independent authorities preferable to ‘in-house’ supervision, e.g. the UK’s Gambling Commission?

– A question of hypocrisy, maintain monopolies, regulate them in a non-transparent manner and collect revenue raised by them – makes penetration of cross-border trade all the more difficult compared to an independent regulator, regulating a transparent non-discriminatory market

• Could there be a network of independent gambling regulators?

Competition & regulatory issues (III)

• Lotteries • the larger the player base (residents in a jurisdiction)

the larger the jackpot; theory which makes EuroMillions attractive whereby different national lotteries sell tickets for a pan-European draw

• attractive from the view of the individual customers – EU economies of scale

• permitting residents of small MS to play in larger MS’ lotteries would undermine the revenue generation capacity of small MS’ lotteries – governments would have an interest in demand being met a the national level

• unless revenues could be redistributed geographically

Competition & regulatory issues (IV)

• Online gambling• potential to redistribute wealth internationally;

stake from player in NL to UK based operator, tax benefits home Member State (UK) while social costs from addiction and substitution effects are costs for NL

• Member States attempt to restrict on basis of consumer protection/crime arguments – could such objectives be better obtained at an international (i.e. EU) level to reflect the level at which the activity takes place?

Competition & regulatory issues (V)• Casinos & slot machines (amusement arcades)

– require physical presence; the service is not mobile– Competitive tendering procedures for licences which do

not discriminate on the basis of nationality, respecting freedom of establishment, allow cross-border movement while Member States could tailor requirements to locality – clearer case for national level regulation?

– cross-border consequences?• demand moving across borders – many instances of

casinos being located in border regions to capture rents from neighbouring jurisdictions

• French merger cases in the casino industry defined the relevant markets as being in France but noted that regulatory requirements in neighbouring states would have an impact upon competition in the French casino and slot machine market

Competition & regulatory issues (VI)• Abusing a dominant position

– Can a state operator (monopolist) in the market for one form of gambling abuse its position regarding another form of gambling?

– NL: slot machines can be found in Holland Casino venues and privately operated arcades; can Holland Casino abuse its position in the casino games market to leverage power in the slots market – or are the products sufficiently distinct for there to be little substitution effects?

– FR: complaints made regarding the Française des Jeux abusing its monopoly in the offline world by offering products online to the detriment of French casino operators whereby the casino operators considered all online gambling products to be substitutable