Europe vs France: The Debate

France’s proposal for regulating the online betting and gaming sector has produced many column inches and comments from all stakeholders. But beyond the headlines, is the argument about a fair environment for private operators, or about compliance with European law?

THE FOCUS OF MUCH of the response to the French draft regulation on online gaming and betting announced in early March centred around the economics of the proposal and whether private operators would be able to run profitable egaming operations under the conditions laid out by France.

From this initial and understandable viewpoint, the debate has moved on to how the proposed legislation fits in with European law and key tenets of the European Treaty: freedom of movement and services and establishment, mutual recognition of EU-licensed companies.

eGaming Review has interviewed three actors in the French legislation debate to get an understanding of how they view the situation and what they feel are the ultimate aims of the French government. They also provide some perspective on how this momentous reform for France may pan out following on from its initial implementation early next year.

The tax levels that France plans to implement are 8.5% on sports and horse racing bets with an additional 7.5% levy on horse racing bets towards the French horse racing industry. The pay out ratios allowed will be capped at a maximum 85% of operators’ gross gaming revenues (GGRs). For sports betting-companies, this effectively means a tax 8.5% on 15% margins, or over 50% of their GGRs.

As Betclick’s Nicolas Beraud points out, such taxation levels are hardly conducive to running a profitable business in any industry, never mind one that starts with such a handicap. Beraud goes further than other stakeholders in that he believes businesses will not be able to function profitably under the proposed set up and will not make an impact on the French market until the legislation offers a more favourable environment in which to work.

Working in a restrictive regime

But for all the disapproval expressed by the industry, the question has to be whether operators can still work under such constraints. Furthermore, the European egaming sector could hardly have expected a red carpet from the French authorities and has to be pragmatic in how it enters markets such as France, especially in these early stages.

If this means working under a restrictive regime that prevents it from offering truly competitive products, then so be it. After all, the opening is the same for everyone and regulation applies across the board and the French have a right to police their market, the fact that operators may not like the product put forward isn’t a reason not to respect it.

In fact, even though the proposed tax levels are high, operators will have to pass on the costs to their customers via less attractive offers, those same customers having nowhere else to go as the government’s url and ISP blocking of non-licensed sites takes effect. To which operators will respond that previous attempts to block access to banned sites have failed repeatedly, as have attempts to ban illegal downloading of music and films.

Is the regulation compliant with EU law?

But as European Gaming and Betting Association secretary general Sigrid Ligné comments, it’s not about what products and services France should or shouldn’t allow private operators to offer in the market. “It’s a question of law first and foremost,” she says.

This brings back the fundamental question of whether the likely regulation is compliant with European law and its objectives: protection of the consumer and of the public and social order. The European Commission is the guardian of the European Treaty and will give a strong indication of whether it feels the French legislation does comply when it announces its findings following the notification period due to end on 8 June. As Ligné explains, if restrictions are imposed and are justified and backed up with evidence that clearly demonstrates they are necessary, then the industry will have no problem in conforming and agreeing to them and the Commission will find it complies with European law.

In fact, one could even argue that the French regulatory debate ultimately is not really about fairness or whether operators can still function in the proposed environment, rather, to paraphrase Ligné, it is a legal issue and comes down to European law. ✜

Q&A: Sigrid Ligne, secretary general, European Gaming and Betting Association (EGBA)

EGR: The European Commission wants markets open to fair competition. However, should operators be pragmatic in what to expect from the French?

SL: It’s a question of law first and foremost. We accept that member states can impose restrictions on a market when there are good reasons to do so, and those are protection of consumers and of the public order. If all the restrictions, which are numerous in the context of the French draft, are all clearly justifiable in respect of consumer and public order protection, then the Commission will have no problem with it because it is in line with the goals set out by EU law.

But if they serve no objective when it comes to those two points it will raise serious issues ““ as an example, horse racing being open only to pool betting because it is a French tradition has to be questioned. If all states can regulate their markets according to traditions, there is no Europe left. That’s pragmatism, there is no dogma.

EGR: What does EGBA and its members want?

SL: It can seem complicated because of the legal issues, but it’s based on the European approach. We are not asking for immediate and complete access to all EU jurisdictions just because we have an EU licence. But if an operator with a French licence can offer its services in the UK, which it can, the opposite scenario is not possible. So it goes back to fundamental questions: EGBA members are willing to take into account certain requests and French conditions and go the extra mile in terms of consumer protection, but there has to be clear and convincing justifications for any such restrictions and conditions.

And that is the crux of the problem: to fulfil all these technical, legal and administrative requirements, which potentially are already fulfilled by a UK or Gibraltar licence, just doubles up the workload and the costs and adds nothing to the levels of consumer protection and doesn’t benefit players. As such, those alone are barriers to fair competition and that’s what Europe is trying to avoid.

EGR: If other states produced similar draft laws such as France has done under pressure from the EC, we’re in for a long struggle?

SL: The issue in France is connected to many others but there is logic to it all and a clear line we can take because for us it’s also about recognition of a business model.

But to force us as a sector, which works on the internet and is cross-border by its very nature, to conform on every point from A to Z and reframe our entire product offering to fit into a model that is totally French in its outlook doesn’t make sense.

It also shows that EU rules drawn up some 50 years ago are based on market realities, why we want barriers to come down, the economic gain to be had by all parties involved: avoiding the doubling up workload, costs, administration. These are essential stakes when it comes to protecting consumers and Europe has the opportunity to be a world leader and set the standards in this field.

Q&A: Nicolas Beraud, chief executive, Betclick

EGR: As an operator with a strong presence in France, you must be happy about the draft law to regulate the sector?

NB: It’s a good thing that France is conforming with European law but allowing only horse racing and sports bets and poker to be offered is too restrictive from our point of view, why not allow regulated casino games as well? Also, the tax levels are very high and if you cap pay out ratios at 85% of gross gaming revenues (GGR) and then tax those revenues at 8.5%, you’re taxing more than half the operators’ GGR. What this means is that it will be very difficult, nigh on impossible, to have a profitable business in France under such circumstances.

EGR: So you clearly don’t agree with the argument that it’s a level playing field for everyone?

NB: Monopolies already have a dominant position and the opening only concerns the online sector. We’re not on an equal footing because the monopolies have such scale and brand recognition, while we can only compete online. So yes the costs and tax levels are the same for everyone but we’re not starting from an equal position. If you taxed other businesses at more than 50% of their GGR they wouldn’t be profitable for long.

It’s also very difficult to compare a monopoly environment with one where there is competition: Française des Jeux and Pari Mutuel Urbain operate on the same basis as they have always done, while operators are left to compete under a very difficult model.

There’s also a problem that we’ve seen in Italy: high taxes mean less attractive offers to players. The consequence of that is that you’re inciting players to bet on non-licensed sites that have better offers or odds.

EGR: What about the blocking of all non-licensed sites?

NB: No one has ever managed to prevent illegal downloading of films and music, in the US people can still play, and pay, online, and in Italy there are many players betting on foreign websites. It’s very difficult to block in a secure way. We are worried because we want to get local licences and invest in domestic markets, but if that means being hindered and operators without a licence can continue taking bets from players in those markets, there will be major problems.

EGR: What about the influence the industry can have on the government, are you optimistic?

NB: We do as much as we can, the draft says there will be a “˜test’ period for two years and after that the conditions will be reviewed, so we’re hopeful. Of course it’s good that the market is opening but we hope the authorities understand that it’s not healthy to overtax our business and we hope that something similar happens to what has happened in Italy and the tax levels are lowered progressively to enable private operators to develop in France. On a more Francophile note, there is no French operator in Europe apart from Betclick and we hope the working conditions in France will allow other French operators to come up and even expand into Europe. We’re in a positive mood but the working environment has to respect EU law and the tax levels have to be reasonable.

EGR: What are the key points, and the reasons behind them, of the French draft regulation on online gaming?

DM: One of the key reasons for the draft regulation is that the French government has realised that the opening of the market could generate between €2bn and €3bn in tax revenues each year. According to the French Treasury Minister Eric Woerth, the goal of the French draft regulation on online gaming is to ensure the protection of public order rules and minors, and to fight against illegal gaming websites.

EGR: Does the ISP blocking strategy the government wants to implement have good chances of working?

DM: We reserve our opinion on the said strategy and its chances of success because it has been tried before in other matters without success. From a practical and technical point of view, it should be very difficult, if not impossible, for ISPs to block illegal websites from offering their services in France. Proof of that is that today, many websites are offering their services in France although no regulation has been passed yet.

EGR: For all the talk of operators being unhappy, can they work in the proposed environment?

DM: Operators might be satisfied that the draft regulation does provide for an effective opening, although it remains limited. However, operators might not be satisfied with the taxation levels proposed. Operators could have hoped for more favourable rates than the ones offered (8.5 % for horse races and sports betting and 2 % for poker) such as the 4% rate in Italy. However, the draft regulation should be a first step allowing the French government to evaluate the situation and adjust it later on.

EGR: What steps can private operators take to change the legislation before it is approved by the authorities?

DM: The option for private operators to change the legislation before it is voted by the French Parliament is to lobby at a national and European level by explaining how the market opening, as provided for by the draft regulation, is not fair for trade, for it remains impossible. As an example, private operators can’t compete with La Française des Jeux on th traditional lottery activity. We are currently lobbying the French authorities for some major industry players in order to make them aware of the issues mentioned above.

EGR: Does everything rest with the European Commission?

DM: The adoption of the French regulation should not rest with the European Commission as the latter does not interfere with the French legislative process. However, the French draft regulation on online gaming should comply with European standards, especially to avoid legal proceedings brought by private operators before the European Court of Justice. With the draft regulation on online gaming, France now complies with the European Commission queries and especially with the main one: the opening of the French online gaming market to fair trade and competition. However, the European commission might find the opening as it stands not sufficient.

Q&A: Diane Mullenex, partner, Ichay & Mullenex law firm

EGR: What are the key points, and the reasons behind them, of the French draft regulation on online gaming?

DM: One of the key reasons for the draft regulation is that the French government has realised that the opening of the market could generate between €2bn and €3bn in tax revenues each year. According to the French Treasury Minister Eric Woerth, the goal of the French draft regulation on online gaming is to ensure the protection of public order rules and minors, and to fight against illegal gaming websites.

EGR: Does the ISP blocking strategy the government wants to implement have good chances of working?

DM: We reserve our opinion on the said strategy and its chances of success because it has been tried before in other matters without success. From a practical and technical point of view, it should be very difficult, if not impossible, for ISPs to block illegal websites from offering their services in France. Proof of that is that today, many websites are offering their services in France although no regulation has been passed yet.

EGR: For all the talk of operators being unhappy, can they work in the proposed environment?

DM: Operators might be satisfied that the draft regulation does provide for an effective opening, although it remains limited. However, operators might not be satisfied with the taxation levels proposed. Operators could have hoped for more favourable rates than the ones offered (8.5 % for horse races and sports betting and 2 % for poker) such as the 4% rate in Italy. However, the draft regulation should be a first step allowing the French government to evaluate the situation and adjust it later on.

EGR: What steps can private operators take to change the legislation before it is approved by the authorities?

DM: The option for private operators to change the legislation before it is voted by the French Parliament is to lobby at a national and European level by explaining how the market opening, as provided for by the draft regulation, is not fair for trade, for it remains impossible. As an example, private operators can’t compete with La Française des Jeux on the traditional lottery activity. We are currently lobbying the French authorities for some major industry players in order to make them aware of the issues mentioned above.

EGR: Does everything rest with the European Commission?

DM: The adoption of the French regulation should not rest with the European Commission as the latter does not interfere with the French legislative process. However, the French draft regulation on online gaming should comply with European standards, especially to avoid legal proceedings brought by private operators before the European Court of Justice. With the draft regulation on online gaming, France now complies with the European Commission queries and especially with the main one: the opening of the French online gaming market to fair trade and competition. However, the European commission might find the opening as it stands not sufficient.

This article first appeared in the May edition of eGaming Review.