Feature: Betting and gaming in the European Union - January 2006  

Uncertainty prevails in the EU betting and gaming industry as the Gambelli saga continues, explains Tom Lippiett, a solicitor at Berwin Leighton Paisner LLP, and proud Exeter City FC fan [Note from the Editor: “Come on you Grecians”].

As a result of the ease of access provided by online casinos and gambling operators, betting and gaming is a rapidly growing business within the European Union. A number of interested parties have sought to benefit from the vast revenues a successful gambling enterprise will generate. Historically, the biggest winner has been governments, who have imposed state monopolies on gambling activities in order to retain the benefit exclusively. Such activities, whilst often based on little more than simple financial considerations, have been justified by public morality issues: governments have argued that they need to retain tight controls over, for example, problem and underage gambling. These justifications have long appeared weak in countries that operate large scale state-run gambling operations for huge profits.

The Gambelli case

Many industry observers hoped that the inconsistencies between state policy and practice would be cleared up by the Gambelli case. Mr Gambelli, an agent for a UK betting company, was charged with a criminal offence for breach of an Italian law forbidding companies not licensed in Italy from accepting bets from Italian residents. Mr Gambelli claimed that the law was in breach of EU law on the freedom of establishment and freedom to provide services, and a reference was made to the European Court of Justice (ECJ).
The ECJ held that public interest considerations may justify limitations on the free movement of gambling services, provided that the objectives to be achieved were not disproportionate to the restrictions imposed. Accordingly, the test was whether the restrictions on the freedom to provide gambling services was genuinely (and proportionately) in the public interest. The ECJ held that it was for the national courts to decide whether, in the circumstances, the government measures were justified on the basis of the protection of the public interest.
The Gambelli decision made it clear that restricting gambling activities to state-licensed undertakings is unlawful if such a decision is based on purely financial grounds. Restrictions can only be justified on public policy grounds if there is an overriding public interest: any restrictions need to be justified, proportionate and applied in a consistent manner. The ECJ emphasised that Member States cannot simultaneously incite consumers to participate in gambling activities that benefit the state monopolies, while using public order concerns to exclude private operators. This requirement for consistency in state practice has been a key area of debate following Gambelli and, two years on, matters remain unclear and unresolved.

The post Gambelli confusion

After Gambelli, Member States have acted on, and national courts have interpreted, the public interest grounds set out by the ECJ in different ways. In Germany, Italy and Holland in particular, significant case law has arisen; some judgements have upheld the government’s restrictive approach to private operators, others have declared it illegal, while in some cases Gambelli has been ignored completely.
Recent events in Holland provide a clear example of the post-Gambelli uncertainty. Proposed legislation granting a state operator a monopoly on internet games of chance has been criticised by the European Commission, predominantly because the principal reason for the new law appears to be to enhance government revenue rather than to protect public morals or restrict gambling opportunities.
Despite the government’s behaviour, the Dutch Administrative Court of Breda has, at almost exactly the same time as the state monopoly’s proposed online expansion, made a notably restrictive post-Gambelli judgment. The Court recognised that legitimate reasons could be given by a government to restrict gambling activity, but held that the restrictive casino monopoly operated by the Dutch government did not comply with the principles of consistency and coherency set forth in the Gambelli judgement, and it ordered the state to reassess its decision to maintain the monopoly.

What can be learnt from Gambelli?

Whilst Gambelli was hailed by many as a landmark case, the reality is that the position could have been made significantly clearer. In maintaining the “public interest” justifications, and merely following the case up with mutterings about misuse of this restriction, the EU failed to set defined guidelines that Member States must follow. At present, Gambelli is playing into the hands of Member States, who have interpreted it as they wish. The fact that the European Commission has taken a dim view of such an approach is (in the absence of unequivocal case law or legislation) not a mandatory legal restriction on Member States.
The failure of the EU to set any defined parameters has resulted in EU-wide uncertainty from legislators to operators, with separate arguments put forward by the EU institutions and Members States’ governments. Contradictory domestic court decisions have merely compounded this.
The effect of Gambelli on the industryThe ideal outcome for the gambling industry would be EU legislation expressly providing that gambling be subject to general free movement of goods and services, and freedom of establishment, principles under EU law. Under such provisions, gambling operators licensed in one Member State should (subject to any restrictions in the legislation) be free to operate on an EU-wide basis. At present, there is a clear risk in attempting to offer gambling services EU-wide. Operators are best-advised to market themselves only in those jurisdictions where their private gambling operations are expressly permitted, and await EU guidance on the legality of operating in those states where domestic law currently prohibits such behaviour (regardless of the prevalence of state gambling operators in a Member State). Operators not complying with domestic laws otherwise face heavy fines. In September 2005, Ladbrokes was defeated in its action to offer online betting and gaming services to Dutch residents. Ladbrokes’ argument that the gambling monopoly in Holland was in contravention of EU policy was rejected in favour of the Dutch court’s judgment that the laws in question were justified by the government’s aims of limiting gambling related fraud and addiction, a justification that brought it in line with EU law (although the later decision of the Dutch Administrative Court of Breda set out above suggests that the Dutch domestic courts attitude may be changing).

The solution to the Gambelli issue

There is clear uncertainty over the post-Gambelli behaviour of governments and courts: a key issue is whether the unlawful behaviour is that of the gambling operators or the restrictive governments themselves.
The solution would be for the ECJ to use a case referred to it, or European Union legislation (as has been mooted on several occasions) to make specific provision for gambling (through, for example, a specific set of guidelines for Member States to follow) so that Member States act consistently, and the rules are transparent to operators. The problem with this approach, of course, is that different Member States have different attitudes towards betting and gaming. However, the very nature of the European Union is such that a degree of autonomy is lost by Member States in the interest of the free market. Legislation should, at the very minimum, make express provision for Member States who operate large-scale betting monopolies to open up the market to private operators, rather than deny access to private operators on questionable public interest grounds. It is hard to see how a state that actively promotes a sophisticated state monopoly can justifiably rely on public morality grounds to ban private undertakings.

Conclusion

Gambelli has highlighted interesting cross border issues that have arisen as a result of new technology such as the internet: online gambling operators have been able to appeal to a wider market, without the limitations that bricks and mortar betting shops face. However, such widened appeal will invariably face jurisdictional issues where services are provided across borders. A principal aim of the EU is to break down these border restrictions and it is up to it to provide a clear framework through which this can be achieved in the gambling sector.
Much as industry insiders would like regulation to be a ‘level playing field’, betting and gaming brings its own set of moral issues: an area which has allowed governments to vigorously regulate the sector. What is needed is a consistent approach, best brought through an ECJ judgment or EU legislation. Public and industry demand for gambling services means an opening up of the market is inevitable, although timescales for this remain unclear. Perhaps the most likely initial development will be a compulsion on Member States that operate large scale gambling monopolies to open up the market to private competition. Despite intense pressure from the gambling industry in Germany, such liberalisation of the market is unlikely to occur before this year’s FIFA World Cup, a blow to those hoping to make money from punters in Germany in June and July.

For more information on the content of this article, betting and gaming regulatory or general commercial contract advice, please contact Tom Lippiett at tom.lippiett@blplaw.com

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