French Flunk EU E-Gaming Test

by Ulrika Lomas, Tax-News.com, Brussels

12 June 2009

The European Commission (EC) has issued a detailed opinion on France’s draft e-gaming legislation, addressing the maximum payout ratio operators are allowed to give back to players, the restrictions on the freedom to provide services and the use of sporting events’ names. The European Gaming and Betting Association (EGBA) stated that the draft legislation is supposed to regulate the online gaming and betting market in France, but says it is under increasing criticism for only serving to protect the French monopolies.

The EC concluded that the legislation does not comply with European law, and extended the standstill period until July 8, during which time France cannot adopt its draft legislation. If France subsequently decides to adopt this draft without taking into account the Commission’s objections, the Commission can launch infringement proceedings.

Maarten Haijer, EGBA Director for Regulatory Affairs said: “The Commission action underlines that online gaming and betting is a cross border economic activity where EC legal requirements prevail. It makes no sense to create a local Internet market in France. We are confident that France will reconsider its proposal to avoid litigation”. The French draft law was notified to the European Commission and the other Member States on 5 March. EGBA flagged a number of key provisions that are highly questionable under EC law. These include:

• Limiting the opening of the gaming market to the online segment only;
• Limiting the opening of horse betting to pool betting only - justified by the government because it is ´French tradition´;
• Limiting the average pay back ratio (percentage of stakes paid back to players) to the same level as those currently applied by historical operators. There is no evidence about the impact of such a measure on the protection of consumers;
• The proposed license system fails to take into account securities and controls already offered by other EU jurisdictions, in conflict with well known jurisprudence of the European Court of Justice;
• The creation of a ´sports betting right´ in favour of sports federations which hardly can be called a credible means to prevent match fixing, especially when operators already have developed early warning systems to prevent those risks.

The Commission considered that a fixed maximum pay-back ratio of 85% could restrict the freedom to provide services under Article 49. Gaming operators established in a EEA Member State would be prevented from taking normal business decisions or utilising efficiency advantages in order to offer higher pay-back ratios and thus become more attractive to customers. The maximum payout ratio for sport betting was also inappropriate when compared with the existing minimum payback ratio of 85% for slot machines, which is considered a much higher risk gaming activity.

The Commission did not call for an automatic granting of authorisation in France to providers legally operating in another member state, but any restrictions on the freedom to provide services had to be justified on particular grounds such as consumer protection and the prevention of fraud. In this context, the UK's and Hungary's notifications of similar legislation included recognition of licences issued in other EU states.

With regard to the requirement for operators to obtain permission from event organisers when offering betting products on their activities, the Commission was not able to note any 'valid justification for this restrictive policy'.

France plans to implement betting levies of 8.5% on sports and horse racing bets and an additional 7.5% levy on French horse racing events. With maximum pay out ratios of 85%, this is effectively a tax of over 50%, 8.5% of the gross income compared to a 15% net return. In an interview with e-Gaming Review, Nicolas Beraud, chief executive of Betclick, said that such taxation levels were hardly conducive to running a profitable business in any industry, never mind one that started with such a handicap. Beraud believed businesses would not be able to function profitably or make an impact on the French market until the legislation offered a more favourable environment in which to work.

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