Online gambling companies struggle to clear EU hurdles

Reuters News
Posted: Dec 14, 2012 6:28 AM

By Keith Weir

LONDON (Reuters) - A partnership stuck on Friday between Digital Entertainment and a Belgian casino group has defused one of many disputes pitting online gambling companies against governments across Europe.

The agreement came a month after's co-CEO was questioned by Belgian authorities in an escalating license dispute the company said was costing it 700,000 euros ($916,000) in monthly revenue.

By joining forces with Belcasinos, a unit of local casino owner Group Partouche, neatly met a requirement to have a presence in Belgium to win a license for online poker, casino and sports betting.

The agreement is a rare bright spot in a tough regulatory environment for online gambling companies across the continent.

Betting online on sports events or playing poker on the Internet are increasingly popular pastimes in Europe, where operators say they are held back by unfair and discriminatory rules in many European Union countries.

"It is not a European Union in any way, it is a patchwork of different countries who happen to be in the EU," said Professor Leighton Vaughan Williams, director of the betting research unit at Nottingham Business School in central England.

"Different countries have different vested interests and different ideas they are trying to promote. Are they trying to protect consumers or to maximize their tax take?" he said.

The 27 EU member states retain the right to regulate their gambling sectors as they see fit, but rules must comply with EU law, broadly meaning they must be consistent and proportionate.

Some companies are scaling back activities in European markets where, they say, regulatory risks are too high or tax rates are punitive.

Betting exchange operator Betfair for instance said this week it was halting marketing and investment in unregulated markets, including EU members Cyprus, Germany and Greece.

William Hill, Britain's largest bookmaker, has joined Betfair in pulling out of Greece and has also stopped offering sports betting to German residents because of a 5 percent turnover tax.


The stakes are high. Online gambling is growing at an annual rate of almost 15 percent in the EU and will be worth an estimated 13 billion euros ($17 billion) by 2015, according to EU figures.

The European Commission, the EU's executive, stepped in to the debate in October when it published a medium-term plan to clarify regulations and promote cooperation between member states, ruling out EU-wide legislation for the time being.

"All citizens must be adequately protected, money laundering and fraud must be prevented, sport must be safeguarded against betting-related match-fixing and national rules must comply with EU law," Internal Market and Services Commissioner Michel Barnier said, setting out his approach.

The online operators accuse the European Commission of failing to follow through properly on complaints lodged about regulation in no fewer than 20 or the 27 EU member states.

Barnier has written to member states accused of breaching EU law in the way they handle gambling, seeking an update on the situation by the end of the year.

However, the industry questions whether the EU will go into battle over gambling when it is facing so many other problems.

"They will chip away at some of the most blatant ones," said Clive Hawkswood, chief executive of trade body the Remote Gambling Association. "What we really need is for them to take some to the European Court and take enforcement action."


Gambling companies themselves have taken advantage of different tax regimes where they work in their favor.

This is illustrated in Britain, historically the biggest betting market in Europe and a place with a well-developed gambling culture where bookmakers have operated in town centers for 50 years.

In recent years, most betting companies have moved their British online betting operations to Britain's overseas territory of Gibraltar. There they are sheltered from a 15 percent tax on gross profit faced by operators based in Britain.

New legislation will close off that loophole after 2014. The shift to a taxation model based on the location of the consumer was expected to cost gambling companies as much as 270 million pounds ($435 million) by 2016-17.

Analyst Nick Batram at brokerage Peel Hunt said smaller players would likely be picked off because of the impact of higher tax and regulatory burdens across Europe.

"It is getting more complicated and more expensive. There is more change afoot but it should ultimately play into the hands of the better-capitalized companies."

In that vein, William Hill has provisionally agreed a 485 million pound takeover of smaller rival Sportingbet, keen to get its hands on the company's regulated Australian betting business.

"I think there is a lot more M&A activity to come," said Batram.

(Additional reporting by Rosalba O'Brien; Editing by David Holmes)