AUGUST 2018 Gambling Law & Regulation Newsletter Level 12 60 Carrington Street SYDNEY NSW 2000 DX 262 SYDNEY Tel +61 2 8915 1000 Fax +61 2 8916 2000 Gambling Law & Regulation Newsletter 2 AUGUST 2018 Overview Welcome to the August 2018 edition of the Addisons Gambling Law & Regulation Newsletter1 . This is a bumper issue reflecting on many of the industry developments that have occurred this year in advance of the 2018 Australasian Gaming Expo, including the following: a) The decision of the United States Supreme Court in Murphy v National Collegiate Athletic Association has opened the door for each state of the USA to introduce laws legalising sports betting. This decision has spurred frenetic regulatory development across the United States to put in place frameworks for the licensing of sports betting and raised numerous policy issues, many of which were addressed in Australia in the decade following the landmark Betfair decision: see “Sports betting in the United States – Lessons from Australia in connection with licensing of sports betting”. b) The introduction of stricter gambling advertising prohibitions in New South Wales, which came into effect on 2 July 2018, have significantly impacted the publication of gambling advertising by bookmakers and affiliate marketing websites, and prohibit the publication of any inducement visible to customers located in NSW: see “Rising Stakes in NSW: Everything you need to know about the overhaul of NSW Gambling Advertising Laws”. c) The Senate Environment and Communications References Committee is conducting an inquiry into the use of loot boxes in video games, a virtual feature included in some leading video game titles and causing controversy in the gaming world. For more information on loot boxes and the regulatory treatment of loot boxes in Australia and overseas, see “Are Loot Boxes Gambling? The War over Loot Boxes Continues – Australia Joins the Battlefield”. d) The Australian Federal Parliament has introduced amendments to the Interactive Gambling Act 2001 (Cth) prohibiting the operation of lottery betting services in Australia that will come into effect on 9 January 2019: see “The end of lottery betting in Australia: Australian Federal Parliament decides”. e) Following a number of reports that Crown limited betting options on its gaming machines, the Victorian Commission for Gambling and Liquor Regulation imposed a fine of $300,000 on Crown for varying buttons on its gaming machines without obtaining prior approval: see “Gaming Machines: Licence Conditions, Approvals and Variations in Playing Conditions”. f) Earlier in the year, as a result of laws passed by Australian Federal Parliament, it became mandatory for Australian companies who are required to comply with the Privacy Act 1988 (Cth), including those operating in the Australian gambling sector, to notify affected individuals and the Office of the Information Commissioner in the event of certain data breaches: see “Mandatory data breach notification in the Australian Gambling sector”. 1 The focus papers published in this Newsletter are for general information only and cannot be relied upon as legal advice. Gambling Law & Regulation Newsletter 3 AUGUST 2018 Announcements We are thrilled to announce that Karina Chong and Alexander Latu of our media and gaming team have recently been promoted to Senior Associate. This is in recognition of their expertise in their respective fields: Karina, for her expertise in gambling law and advising on issues relating to esports, traditional video gaming and social games, and Alexander for his expertise in media law, litigation and sports/racing integrity matters. We would also like to announce the launch of Addisons Gambling and Gaming Law Showcase Page on LinkedIn, where you can find regular updates on the latest developments in gambling law in Australia and details of events in which various members of our team are involved. We have also updated our overview on obtaining an online wagering licence in Australia. You can download a copy via this link. Finally, thank you to Nicola Austin for her efforts in editing this newsletter. Nicola leaves us at the end of this month to commence her Masters of Media & Communications Governance at the London School of Economics. We wish her every success in her future endeavours. We hope you enjoy this edition of our Gambling Law & Regulation Newsletter. If you have any queries relating to the issues discussed in this newsletter, or you wish to discuss, please do not hesitate to contact any member of Addisons media and gaming team. © ADDISONS. No part of this document may in any form or by any means be reproduced, stored in a retrieval system or transmitted without prior written consent. This document is for general information only and cannot be relied upon as legal advice. Gambling Law & Regulation Newsletter 4 AUGUST 2018 Contact Us © ADDISONS. No part of this document may in any form or by any means be reproduced, stored in a retrieval system or transmitted without prior written consent. This document is for general information only and cannot be relied upon as legal advice. Jamie Nettleton Partner Telephone +61 2 8915 1030 E-mail email@example.com Justine Munsie Partner Telephone +61 2 8915 1011 E-mail firstname.lastname@example.org Richard Keegan Special Counsel Telephone +61 2 8915 1075 E-mail email@example.com Cate Sendall Senior Associate Telephone +61 2 8915 1027 E-mail firstname.lastname@example.org Alexander Latu Senior Associate Telephone +61 2 8915 1039 E-mail email@example.com Karina Chong Senior Associate Telephone +61 2 8915 1060 E-mail firstname.lastname@example.org Gambling Law & Regulation Newsletter 5 AUGUST 2018 Contents SPORTS BETTING IN THE UNITED STATES – LESSONS FROM AUSTRALIA IN CONNECTION WITH LICENSING OF SPORTS BETTING 6 RISING STAKES IN NSW: EVERYTHING YOU NEED TO KNOW ABOUT THE OVERHAUL OF NSW GAMBLING ADVERTISING LAWS 13 ARE LOOT BOXES GAMBLING? THE WAR OVER LOOT BOXES CONTINUES – AUSTRALIA JOINS THE BATTLEFIELD 16 THE END OF LOTTERY BETTING IN AUSTRALIA: AUSTRALIAN FEDERAL PARLIAMENT DECIDES 20 GAMING MACHINES: LICENCE CONDITIONS, APPROVALS AND VARIATIONS IN PLAYING CONDITIONS 22 MANDATORY DATA BREACH NOTIFICATION IN THE AUSTRALIAN GAMBLING SECTOR: NEW LAW COMMENCED ON 22 FEBRUARY 2018 25 Gambling Law & Regulation Newsletter 6 AUGUST 2018 Sports betting in the United States – Lessons from Australia in connection with licensing of sports betting2 Authors: Jamie Nettleton and Shanna Protic Dib Overview On 14 May 2018, the United States Supreme Court ruled in Murphy3 that the Professional and Amateur Sports Protection Act 1992 (PASPA) was unconstitutional. The effect of the decision in Murphy is that each state of the United States is able to introduce laws to enable sports betting to be conducted lawfully. This provides a significant opportunity for the global gambling sector. This paper does not purport to comment on the effect of the invalidity of PASPA and whether it will result in the legal availability of sports betting throughout the United States. That is best done by US legal commentators: this paper comments on the imminent issues that each US State will need to consider before implementing a regulatory framework for sports betting, taking into account the precedent that occurred in Australia following the liberalisation of sports betting in this country, also as a result of a court decision. The Murphy case In the Murphy case, the National Collegiate Athletic Association (NCAA) challenged a law introduced in New Jersey in 2014 which repealed a New Jersey statutory prohibition on sports gambling and authorised the placement of bets on sporting events at horseracing tracks and casinos in Atlantic City.4 NCAA argued that the New Jersey law was in breach of PASPA. PASPA made it unlawful for a US State to “sponsor, operate, advertise, promote, license, or authorise by law or compact… a lottery, sweepstake, or other betting, gambling or wagering scheme”5 in connection with amateur or professional competitive sporting events, except in respect of activities covered by specific exemptions. New Jersey challenged the validity of PASPA, on the basis that a specific prohibition in PASPA on the authorisation and licensing of sports gambling by a US State was inconsistent with the Tenth Amendment of the United States Constitution. The Tenth Amendment of the United States Constitution, in essence, states that, where the Constitution itself does not delegate power to the United States Federal government, or takes power away from the States, that power is reserved to the States. Ultimately, the United States Supreme Court held that PASPA dictates unequivocally what a State legislature was both permitted and prohibited to do. Accordingly, the Court ruled in favour of New Jersey and accepted its argument that the United States Congress is not empowered to dictate matters to State legislatures6 . Due to the prohibitions in PASPA, there has been very limited sports betting conducted legally in the United States, as most legal sports betting was catered for by exceptions in PASPA (for example, pre-existing licensed sports betting that had been conducted prior to 2 We would like to thank Vic Gallo, General Counsel, Compliance Officer and Secretary of PlayAGS for his comments and feedback. 3 Murphy v. National Collegiate Athletic Association (2018). 4 The law did not repeal the prohibition on sports gambling relating to New Jersey-based college sports. 5 Professional and Amateur Sports Protection Act 1992, 28 U.S.C. § 3702. 6 While this was a chance for the US Supreme Court to reconsider more fully the distribution of power between the Federal and State legislature, the Supreme Court concluded the decision by summarising as follows: “The legalization of sports gambling requires an important policy choice, but the choice is not ours to make. Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own. Our job is to interpret the law Congress has enacted and decide whether it is consistent with the Constitution. PASPA is not. PASPA “regulate[s] state governments’ regulation” of their citizens…. The Constitution gives Congress no such power.”” 584 U.S. 31 (2018). Gambling Law & Regulation Newsletter 7 AUGUST 2018 its introduction). Among the limited exceptions that existed are the legal sports betting sector in Nevada, totalisator operations conducted at various horse tracks as well as the limited ability in a few States to conduct betting via lottery-style parlay cards. However, from a general perspective, most sports betting engaged by US residents has taken place with unauthorised operators.7 The Murphy case and the recognition of legal sports betting (that was limited previously) is not new! Betfair v Western Australia (the Betfair case) – the Australian precedent. The Betfair8 case was a watershed in Australian law in respect of the constitutionality (and enforceability) of legislative restrictions relating to the conduct of sports betting. In the Betfair case, Betfair Pty Ltd (Betfair) challenged the constitutionality of a statute in Western Australia which sought to prohibit sports betting operators licensed in another Australian state from providing betting exchange services in Western Australia. Betfair argued that the Western Australian statute was in breach of Australian constitutional law, as the legislation discriminated between Betfair (an operator licensed in another Australian state) and Western Australian licensed betting operators. The High Court of Australia (Australia’s highest court – the equivalent of the US Supreme Court) accepted Betfair’s argument, concluding that such discrimination was protectionist, and not reasonably appropriate and adapted to achieving a legitimate purpose. Accordingly, the relevant statutory prohibition was held to be unconstitutional. Although the arguments accepted by the Court in each of Betfair and Murphy were different, both cases resulted in prohibitionist laws relating to sports betting being declared invalid and the potential in each country for the expansion of the legal sports betting sector. In effect, the Betfair case liberalised the Australian betting sector as it recognised the entitlement of any betting operator licensed in an Australian jurisdiction to provide services to customers located throughout Australia. Subsequently, it was clarified that those licensed operators could promote those services throughout Australia: this resulted in an explosion in betting advertising throughout the country on all media. Similarly, commentators in the United States have suggested that the Supreme Court’s decision in the Murphy case will revolutionise the American gambling industry by providing unprecedented opportunities for sports betting operators to seek licences in the United States and provide services legally on this basis. This is clear from the many operators and other stakeholders, particularly international operators, which are openly preparing to pursue those opportunities as they arise. This is not a dissimilar position to Australia following the Betfair decision in 2008, almost a decade ago. Following the decision, the Australian gambling industry expanded quickly as major European operators, such as Paddy Power Betfair (Sportsbet), William Hill (now acquired by TSG), bet365, Kindred (Unibet) and Ladbrokes all entered the Australian market. So, what’s next? For those US States that decide it is appropriate to introduce a legal framework to enable sports betting to be licensed, the policy decision to do so is easy: there are many other issues that will need to be addressed. It is the manner in which the relevant legal framework is implemented that will pose a challenge. One of the most important considerations for each US State will be how its laws will interact with the laws of other US States that have introduced or propose to introduce a regulated 7 According to the American Gaming Association, “[t]oday, at least $150 billion a year is wagered illegally on sports betting in the United States.” Further, a report released in September 2016 concluded that, “rather than setting the standard, the United States is on par with Russia and China, having forced a groundswell of black-market gambling by prohibiting the popular pastime of sports betting.” 8 Betfair Pty Ltd & Anor v Western Australia  HCA 11. Gambling Law & Regulation Newsletter 8 AUGUST 2018 framework for sports betting. While many issues (such as taxation) can be dealt with on a state level, the licensing regime applicable to sports betting will give rise to a myriad of issues in the context of interstate sports betting. It is essential that US States ensure that the differing requirements that apply will not, in aggregate, make it too onerous for sports betting operators to conduct a viable business. This is more likely where overlapping and inconsistent laws are introduced. It is also important for each US State to understand that there are various stakeholders to be considered when introducing a regulatory regime for sports betting, and that each of those stakeholders has different interests and perceptions of how the regulatory regime should apply. Many of these stakeholders will have conflicting views as to the obligations that should be imposed on licensed sports betting operators, including the taxes and other financial imposts that should apply. In our experience, these obligations are often burdensome, inconsistent and are not considered in a “whole of industry” context. It must be remembered that one of the objectives in enabling licences to be granted is for a legal sports betting sector to be formed – the regulatory regime that is put in place must seek to ensure that a financially stable legal sports betting sector exists for the benefit of American consumers. On the other hand, the relevant State will need to keep in mind the interests of any existing stakeholders who have the right to conduct sports betting, particularly if they involve some element of exclusivity. To what extent should those exclusive rights holders be protected? Do they have a statutory or contractual right that must be retained? Will new entrants have the same or different rights? Does this give rise to potential further legal conflict against the State/between the rights holders? How will each State regulate sports betting? Each US State will need to consider whether (and, if so, how) betting operators will be licensed. This poses a further question, namely, the extent to which (if at all) recognition will be given in any US State to the licensing regime that exists in another State. Additionally, there remains uncertainty as to whether a betting operator licensed in a jurisdiction outside the United States will be permitted to provide sports betting services to customers located in a US State that permits sports betting and to what extent recognition will be given to the licensing regime under which it conducts its business. This might include the consideration of compacts under which sports betting risks and liquidity might be shared. The necessity for some form of recognition to be given by one jurisdiction to the standards of another jurisdiction has been recognised in the gambling sector internationally for many years. Examples include Australia’s national model in the 1990s, which enabled one state to recognise other states’ licensing regimes and contemplated the sharing of gambling taxes and the enactment of laws in various European countries which enables the sharing of liquidity of online poker operators across different countries. Similarly, consideration of this issue is required in connection with the licensing of sports betting, for example, the standards and conditions that should be applied. Among the issues requiring consideration by each US State are: • Must there be an office in the State? • Where must the systems infrastructure be located (noting that many betting operators are now hosted in the cloud)? • What systems infrastructure must be located in the State? • Will separate security be required? • What employees must be located and/or what business must be conducted in the State? • Will each State have its own technical specifications? Gambling Law & Regulation Newsletter 9 AUGUST 2018 • What probity inquiries will be conducted by a State in relation to the applicant, its stakeholders, ultimate beneficial owners and its personnel? • Will recognition be given to probity inquiries conducted elsewhere? In another State/overseas? • What integrity measures will apply and what fees should be paid to sporting leagues to enhance integrity measures? • What events/contingencies will be permitted? In looking at these issues, one factor more than any other factor will affect the manner in which the licensed sports betting market develops in the United States. Will recognition be given by a State in respect of any, or all, of the above, elements in the licensing process conducted in another State? To the extent that there is duplication or inconsistent standards, where the licensing regime involves each State having a separate licensing regime, there will be higher, and potentially significantly higher, costs, time delays and barriers to entry. This would mean, first, that only the largest operators with the greatest financial backing will be able to apply for licences on a multi-state basis and, secondly, that overseas unlicensed operators will remain the only manner in which many Americans will place sports bets. The Australian gambling industry faced similar questions. In the Betfair case, it was held that, to the extent that a gambling service is provided legally under a licence granted in any Australian State or Territory, that gambling service would be recognised as a legal service under the laws of the other States and Territories, subject to restrictions in the laws of the other States or Territories. However, those restrictions only apply to the extent that they are not protectionist and operate only on a non-discriminatory basis.9 Further, where specific regulatory requirements exist in various US States, the regulatory burden that will result will be so significant that very few betting operators will be able to operate nationally. Also, the costs of compliance will be so substantial that the capability of licensed United States operators to compete with offshore operators will be diminished. How will each US State tax sports betting? Each US State will need to consider whether sports betting operators will be taxed by the US State in which the operator is licensed (point of supply), and/or the US State in which customers are permitted to place bets (point of consumption). It may be the case that an operator will be taxed at both the point of supply and the point of consumption. Will there be any sharing of tax collected in one US State (the point of supply) with other States where bets are placed (the point of consumption)? In Australia, currently, States are introducing point of consumption taxes (at various rates of up to 15% of gross gambling revenue) which is in addition to tax imposed at the point of supply (10% of gross gambling revenue). These gambling taxes are in addition to other taxes and imposts (such as product fees – see below). For example, in Australia, betting operators are subject to income tax (like any business) as well as GST, Australia’s indirect sales tax. GST is applied to the margin of betting operators in accordance with a specific tax ruling. Similarly, the United States will need to address the interaction between gambling taxes (i.e. a point of consumption or supply tax, if any) and other taxes that may be applicable. 9 A prohibition will be non-discriminatory if it applies to all operators of a particular service (irrespective of whether an operator is providing services to customers in that particular State or Territory or providing services from that State or Territory to customers in another State or Territory). Gambling Law & Regulation Newsletter 10 AUGUST 2018 How will consumers be protected? An important consideration for each US State will be how to ensure, with the assistance of sports betting operators, that the sports betting sector will be regulated in a way that minimises problem gambling for individuals. States will often implement measures to target problem gambling that are specific to that State. This will result in the harm minimisation controls differing from State to State, with some States having additional or more stringent measures than other States. This has occurred in Australia, with some States having much more detailed obligations than other States. As a result, some licensed betting operators have taken the view that the level of regulation in one State, at least, is too onerous and that the appropriate response is not to provide betting services to customers in that State. This results in less competition in betting services being provided to residents of that State which, on the other hand, could result in customers in that State being more attracted to the services of offshore betting operators. This difficulty was recognised in Australia, when the Federal Government in 2017 announced the introduction of a National Consumer Protection Framework (NCPF).10 The NCPF sets out eleven harm minimisation measures to be implemented and met on a national basis by betting operators licensed in Australia. The NCPF comprises, amongst others, the following measures: • A national self-exclusion register for online betting – this facilitates the exclusion of an individual from accessing the services of multiple online betting operators through a single, centralised application process; • A voluntary, opt-out pre-commitment scheme for online betting – this imposes an obligation on licensed betting operators to offer each of their customers the opportunity to set pre-commitment limits to help control their betting activities; • A prohibition on the offer of lines of credit by online betting providers – this imposes an outright ban on licensed betting operators making available any form of credit betting to their customers; • A reasonable customer verification period to mitigate the risks associated with money laundering and terrorist financing, as well as preventing children under the age of 18 from opening a betting account and participating in betting activities; and • A nationally consistent approach to the regulation of gambling advertisements in respect of online betting operators to ensure that all betting advertising includes a nationally consistent responsible gambling message and a single national gambling helpline. How will sports betting operators be permitted to advertise? What general restrictions should be in place? Each US State will need to consider the appropriate balance between the right of the licensed betting operator to market their product, and the necessity for the operator to meet the general public’s standards and expectations relating to sports betting advertising. Of equal importance for US States will be the existence of consistency in gambling advertising regulation, as regulation on a state level may give rise to inconsistent and overlapping requirements from one State to another. In Australia, each Australian State and Territory has its own laws which regulate the promotion of betting services to customers in that jurisdiction. The Australian laws surrounding gambling advertising are complex, and differ from State to State. Indeed, many State laws overlap to impose obligations on betting operators to ensure (amongst others): 10 For further information on the NCPF, please see our Focus Papers: A National Consumer Protection Framework for Australian Online Licensed Wagering Operators: Proposed Changes and The National Consumer Protection Framework: An analysis of the regulatory impact statement and its effect on Australian online wagering. Gambling Law & Regulation Newsletter 11 AUGUST 2018 • a responsible gambling message is included in all betting advertising; and • betting advertising materials do not, among other things: - offer customers an inducement to participate in betting activity; - depict or target children under the age of 18; - make false, misleading or deceptive representations; or promote the consumption of alcohol while participating in betting activity. What restrictions on inducements should be in place? In Australia, betting operators are subject to an array of restrictions in respect of the promotion of their services, particularly in regards to offering customers an inducement to bet (or to open a betting account). The level of restrictions imposed on betting operators differ from State to State and it was one of the objectives of the NCPF to implement consistent requirements on a national basis. This has not yet occurred. Indeed, New South Wales (Australia’s most populous state) has introduced the most stringent measures relating to betting advertising that exists in Australia. This includes prohibitions on the promotion of inducements, and in particular, the requirement that no person in New South Wales must be able to view an inducement to engage in betting activity. As a result, Australian licensed betting operators and intermediaries (such as affiliates and media platforms) must install geo-targeting software to ensure that offending promotions cannot be viewed by people in New South Wales. It is a real risk that US States will perceive the necessity to implement restrictions that are considered specific to that State (and different from other States) to protect fully their residents from harm associated with sports betting and sports betting advertising. Without appropriate controls, there is likely to be significant advertising by licensed sports betting operators throughout the United States. On the other hand, controls along the line of those introduced in New South Wales will result in significant restrictions that are complex, costly and sometimes impractical to implement (many of which differ between States) leading to an inconsistent and disjointed regulatory approach. Protection of Integrity in Sports In Australia, the sports betting industry is regulated in a manner that results in the sporting sector enjoying part of the financial benefits associated with betting on the sport. This is achieved by imposing an obligation on licensed betting operators to pay product fees to Australian racing and sporting bodies for the use of race fields and sporting information. These obligations are imposed by laws at the State level which, in general terms, confer on a racing or sporting body a monopoly. This monopoly allows the relevant racing or sports body to grant approval to betting operators to take bets on events conducted in that State under the control of that body. (In the absence of approval, bets cannot be taken on events/contingencies controlled by that racing or sports body.) It is important to note that these arrangements exist as a result of the background to the Australian betting sector. These circumstances will not necessarily be relevant in the United States. In Australia the relevant approval is granted generally under the terms of an agreement and is referred to as either a product fee and integrity agreement or, in one case, an integrity and product fee agreement. Under this agreement, the betting operator is required to pay a fee (up to 4% of betting turnover11) and meet integrity controls imposed by that body. 11 These fees, when aggregated with other fees and taxes payable by licensed betting operators, results in a significant percentage of betting revenue being payable. Gambling Law & Regulation Newsletter 12 AUGUST 2018 In order to hold the right to grant these approvals, the relevant body is required to demonstrate that it has appropriate integrity controls and, in some States, that it complies with specified legislative conditions. Further, most Australian States have specific legislation targeting match fixing. This prohibits conduct, including betting transactions, which seek to influence the outcome of matches or contingencies that occur in those matches. This complex regime has taken many years to develop – and it is still being refined – with changes occurring in the manner of calculation of the fees, the fees being imposed and the restrictions on the manner in which betting can be conducted by licensed betting operators. The key lesson from the Australian perspective is that very careful consideration is required to be given to the manner in which integrity controls are imposed and the existence and calculation of any integrity/product fee arrangement. Although all stakeholders agree that sports integrity is fundamental, and a cornerstone of a successful sport, there is a real risk that this objective can be compromised through regulatory controls relating to integrity (including match fixing) being imposed inconsistently at a state level unless implemented in a harmonised and cooperative manner. Conclusion Australia and the United States have many cultural and political similarities – both countries have a deep appreciation of sports, love to bet on their outcomes and have a Federal system. Both political systems recognise that States have the inherent right to regulate gambling including sports betting. With the result of the Murphy case, the United States is in a similar position to that faced in Australia a decade ago in respect of the licensing of sports betting. Many issues, including those highlighted in this paper, will need to be taken into account and it is to be hoped that they are addressed in a manner which results in a consistent and transparent licensing framework that protects American consumers, sports and other stakeholders from offshore betting operators by enabling licensed betting operators to provide betting services with appropriate controls in place. Gambling Law & Regulation Newsletter 13 AUGUST 2018 Rising stakes in NSW: Everything you need to know about the overhaul of NSW gambling advertising laws Authors: Jamie Nettleton and Nicola Austin Overview On 2 July 2018, sweeping changes to the Betting and Racing Act 1998 (NSW) (NSW Act) came into effect, imposing greater restrictions on the advertising of inducements to residents of NSW and substantially increasing the penalties for the contravention of the prohibitions relating to gambling advertising in NSW.1 This new regulatory framework in NSW heralds in an era of tighter regulation for gambling operators and affiliates engaging in marketing in Australia. With these changes now in effect, we set out below guidance to assist your business in remaining compliant when advertising gambling services. Guidelines and Consultation Period Following the assent of the Liquor and Gaming Legislation Amendment Bill 2018 on 21 March 2018, Liquor & Gaming NSW (LGNSW) circulated for comment draft Guidelines clarifying the effect of the changes to the NSW Act and it’s “compliance approach” to the publication of betting advertising. LGNSW received submissions from many betting industry stakeholders, including wagering operators and affiliates. The final Guidelines were published on 19 June 20182 and provide valuable clarity on LGNSW’s policy position in relation to the application and enforcement of the revised gambling advertising laws in NSW. Inducements: disclaimer days are over The most significant impact of the amendments to the NSW Act relates to the ability of gambling operators to advertise inducements as a customer acquisition strategy. It has long been the case that the laws of NSW prohibit the publication of advertisements offering an inducement to participate in gambling activity, including any inducement to open a betting account (NSW Inducement Prohibition). This, in itself, remains unchanged. However, it had been also been the practice that the advertising of inducements would be acceptable provided that NSW residents were expressly excluded through a prominent disclaimer and measures were taken to prevent NSW residents from accepting the offer. This was reflected in the previous guidelines. The Guidelines make it clear that disclaimers will no longer be sufficient to prevent the publication of inducements from contravening the NSW Inducement Prohibition. Going forward, it will be an offence to advertise inducements to the world at large where those inducements can be viewed by persons in NSW, irrespective of whether or not the inducement is capable of being accepted by a person in NSW. That being said, the Guidelines provide limited scope for bookmakers to continue to advertise inducements without falling foul of the new NSW prohibitions. This is discussed in more detail below. 1 We touched on these developments in our Focus Paper entitled “The latest wave of gambling regulation: Advertising prohibitions and the expansion of Ministerial powers”. 2 The Guidelines can be viewed here. Gambling Law & Regulation Newsletter 14 AUGUST 2018 Geoblocking The promotion of inducements will not contravene the NSW Inducement Prohibition where the advertiser (whether a gambling operator or publisher) has taken reasonable steps to prevent the advertisement from being published to NSW residents, including through geoblocking functions. The Guidelines also clarify that this exemption extends to all forms of digital media marketing (including websites and social media) and that an operator will not be liable where a person in NSW uses a VPN to mask their location and circumvent the geo-blocking functions put in place by the publisher. Communication to existing customers The NSW Act introduces a defence for bookmakers in circumstances where they communicate an offer to existing customers via closed-loop communications, such as behind membership walls on the bookmaker’s website or app. This defence would also extend to other publishers, such as affiliates, where the publisher can be satisfied that the recipient of the communication holds an account with the bookmaker the subject of the offer. Affiliates: A one-size-fits-all approach Despite submissions made by affiliates, the Guidelines fail to fully address the business model of affiliates generally and reflect a “one size fits all” approach to the regulation of publishers of gambling advertisements in Australia. The NSW Act and the Guidelines clarify that liability will not arise for an affiliate (or publisher) where the gambling advertisement is in the form provided or approved by the gambling operator and where the publisher is not otherwise notified by the Minister that the advertisement may contravene the NSW Act. The Guidelines also create an exemption in relation to the inducement prohibition that is available to existing platforms which “solely and exclusively” publish racing content. The scope of the terminology of “solely and exclusively” remains unclear and in practice, the availability of this exemption is very much dependent on the subjective interpretation given by the regulator to the terms of the exemption and the website in question. Beyond this, however, the Guidelines do not specifically contemplate the full suite of content created and published by affiliates more generally, such as bookmaker reviews and comparisons, or the hosting of forums for public review and discussion. This means that affiliates will need to have regard to the increased risk that will arise as a result of content which they develop (including any user generated content hosted) which refers to offers being provided by gambling operators. Accordingly, in many cases, business practices will need to be adjusted to avoid falling foul of the NSW Act. Other In addition to the matters outlined above, the Guidelines also set out LGNSW’s policy position in relation to: • racing industry related arrangements; • the publication of gambling advertisements on other forms of media, including outdoor media, television and radio broadcasts and print; and • rewards schemes conducted by bookmakers. Conclusion The new framework for gambling advertising regulation in NSW will have wide ramifications for the gambling sector and publishers engaging in gambling advertising in NSW, Australia and potentially globally Gambling Law & Regulation Newsletter 15 AUGUST 2018 If you would like further information or wish to discuss how these legislative changes may affect your business and marketing strategy, please contact any member of the Addisons Media and Gaming Team. Gambling Law & Regulation Newsletter 16 AUGUST 2018 Are Loot Boxes Gambling? The War over Loot Boxes Continues – Australia Joins the Battlefield Authors: Jamie Nettleton and Karina Chong Overview The Australian Senate has joined the international battlefield over whether “loot boxes” in video games constitutes gambling. On 28 June 2018, following a motion proposed by Greens Senator Jordon Steele-John, the Australian Senate agreed to refer an inquiry into the use of loot boxes in video games to the Senate Environment and Communications References Committee (the Senate Committee). The Senate inquiry (Inquiry) has arisen due to growing concern from both the gaming community and the general public that the purchase and use of loot boxes in video games exhibit gambling-style mechanics yet are easily accessible to children playing the games. What are "loot boxes"1 ? Loot boxes are voluntary features available in some video game titles which allow players to purchase in-game boxes which contain virtual items which can be used to enhance a player's game and experience. In the majority of these games, loot boxes or similar virtual items can be found or earned as rewards for playing the game, uncovering the loot boxes or by earning points or other virtual items such as coins, crystals or tokens to obtain a loot box. In these games, the player never spends any real world currency to obtain the loot boxes. However, some AAA gaming titles (most controversially, Star Wars Battlefront II) have recently included an additional feature where players can choose to purchase additional virtual items (e.g. coins, tokens, crystals etc.) using real world currency. These can be used to purchase loot boxes at a faster rate, or alternatively, real currency can be used to obtain loot boxes. Further, in some cases, the items which can be obtained from opening loot boxes can be traded outside of the game on third party platforms. The availability of these features has sparked debate over whether loot boxes constitute a form of gambling and whether it is appropriate for them to be included in video games which are popular with, and accessible by, younger audiences. What will the Senate Committee consider? In its Inquiry, the Senate Committee will consider the extent to which loot boxes may be harmful, with particular reference to: a) whether the purchase of chance-based items, combined with the ability to monetise these items on third-party platforms, constitutes a form of gambling; and b) the adequacy of the current consumer protection and regulatory framework for ingame micro transactions for chance-based items, including international comparisons, age requirements and disclosure of odds.2 These Terms of Reference echo the recent community concern referred to in various publications and studies by psychologists3 which conclude that, in relation to a number of 1 For more information about loot boxes, please see our previous Focus Paper, 'The gloves are off on the gaming Battlefront: International and Australian gambling regulators weigh in on loot boxes' accessible at: https://bit.ly/2KjO503. 2 Full details of the Senate Committee inquiry and the full Terms of Reference are available at: https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and_Communications/Gaming micro-transactions/Terms_of_Reference. 3 Aaron Drummond and James D. Sauer, 'Video game loot boxes are psychologically akin to gambling' (2018) Nature Human Behaviour . 13 Commonwealth, Parliamentary Debates, Senate, 28 June 2018, 34 (Anthony Chisholm). Gambling Law & Regulation Newsletter 20 AUGUST 2018 The end of lottery betting in Australia: Australian Federal Parliament decides Authors: Jamie Nettleton and Nicola Austin Overview On 28 June 2018, Australian Federal Parliament passed the Interactive Gambling (Lottery Betting) Act 2018 (Cth) (Lottery Betting Act), prohibiting lottery betting in Australia. This follows months of mounting uncertainty surrounding the future of lottery betting businesses in Australia1 and reflects growing community concern regarding the perceived adverse effects of secondary lottery products on State/Territory revenue, small businesses (especially newsagents) and the community through greater ability of gambling. Lottery Betting Bill On 23 March 2018, the Lottery Betting Bill was introduced into the House of Representatives by the Honourable Mitch Fifield, Federal Minister for Communications. The Lottery Betting Bill was introduced with the intention of responding to community concerns that lottery betting products, such as those provided by Lottoland: • have an adverse impact on State/Territory taxation revenue and small business (newsagent) revenue derived from Australian lottery sales; and • present a problem gambling risk to consumers.2 The Lottery Betting Act amends Australia’s federal gambling legislation, the Interactive Gambling Act 2001 (Cth) (the IGA) 3 , with the effect of prohibiting the provision of betting services on the outcome of both Australian and overseas lottery draws (including “kenotype” lotteries) to persons located in Australia. Lottery betting services are now classified as a “prohibited interactive gambling service” under the IGA, the provision of which will attract both a civil or criminal penalty and fines of up to $5.25 million (criminal offence) or $7.875 million (civil offence) per day. The Lottery Betting Act was passed with the overwhelming support of Members of Parliament, with the exception of Independent Senator David Leyonhjelm, who labelled it a “shameful protectionist measure” during the second reading debate in the Senate. After a brief debate in the House of Representatives and the Senate, the Lottery Betting Act was passed on 28 June 2018 and will take effect on 9 January 2019 (6 months after the date of Royal Assent), giving secondary lottery businesses in Australia time to adjust their business models to comply with the law. Industry Response The Lottery Betting Act was the subject of considerable debate between industry stakeholders and the general public. Unsurprisingly, Tatts Group and the Australian Lottery and Newsagents Association (ALNA) continued to be strong opponents of Lottoland4 , lobbying actively the government in support of the Lottery Betting Act by highlighting the effects that the diversion of lottery customers to Lottoland will have on newsagent and State/Territory revenue. 1 For more information, please refer to our Focus Papers entitled: "The Lottoland Effect: the rise and risk of secondary lotteries in Australia" and "The Lottoland Effect Part 2: Weathering the Regulatory Storm in Australia". 2 The Explanatory Memorandum can be viewed here. 3 For more information on the operation of the IGA, please see our Focus Paper entitled “Update on the Australian Interactive Gambling Amendment Bill 2016 – What happens now and what does it mean for offshore online gambling operators looking to Australia?” 4 Many Australians will recall the highly publicised “Lottoland’s Gotta Go!” campaign launched in September 2017. Gambling Law & Regulation Newsletter 21 AUGUST 2018 Despite the high profile of the anti-Lottoland campaign, not all Australian newsagents shared the same view. Secondary lotteries found a supporter in Ian Booth, the CEO of the Newsagents Association of NSW and ACT Ltd, who was vocal in urging the government to abandon the Lottery Betting Act and cautioned that it would reinforce the monopoly enjoyed by Tatts which would be in the interest of neither the public nor newsagents. Lottoland lobbied actively the government against the passage of the Lottery Betting Bill and appealed for public support by circulating an online petition on social media and Lottoland’s website that garnered over 16,000 signatories. Lottoland also offered a revenue sharing deal to newsagents, which it suggested would have seen newsagents receiving more revenue per sale than offered by Tatts to its newsagent members. “Here to stay” Despite the commencement of the Lottery Betting Act, we doubt that this will be the last that will be heard in Australia from Lottoland and other lottery betting operators. Luke Brill, CEO of Lottoland, has assured customers that Lottoland is “here to stay”. We anticipate that it will only be a limited period until Lottoland’s further efforts to maintain its presence as an online gambling operator in Australia become known. Indeed, Lottoland’s 700,000 customers will be looking for the continuation of the services provided to date by Lottoland. A High Court challenge was also on the cards, with Lottoland indicating that it would consider a challenge of the validity to the Lottery Betting Act. However, The Australian has since reported that Lottoland has decided not to proceed with the challenge.5 If you would like to discuss how your business model may be affected by the Lottery Betting Act, please do not hesitate to contact any member of the Addisons Media and Gaming Team. 5 Will Glasgow and Christine Lacy, ‘Off-side call for Rio’s French boss Jean-Sebastien Jacques’ (2018) The Australian (online) 13 July 2018 Gambling Law & Regulation Newsletter 22 AUGUST 2018 Gaming Machines: Licence Conditions, Approvals and Variations in Playing Conditions Authors: Jamie Nettleton, Joseph Abi-Hanna, and Despina Bouletos Overview Over a three and a half week period between March and April 2017, Crown Melbourne Limited (Crown) conducted a trial on 17 Electronic Gaming Machines (EGMs) involving the use of blanking plates, or blanking buttons (EGM Trial). On 27 April 2018, the VCGLR confirmed that disciplinary action had been taken against Crown in relation to the EGM Trial. The VCGLR issued Crown with a fine of $300,000 and a letter of censure.1 This is not the first time that EGMs in Crown have been the subject of public attention. Earlier this year, Crown was involved in legal proceedings in relation to Aristocrat’s Dolphin Treasure EGM.2 EGM Trial The VCGLR considered that the use of blanking plates in the EGM Trial resulted in a variation to the EGMs. Blanking plates are devices which can be used to restrict the betting options available to customers using an EGM. The variation involved the use of blanking plates to hide play line options, meaning that customers could only select minimum and maximum betting options on the EGMs. The VCGLR stated that Crown’s failure to seek approval for the variation constituted a breach of the Gambling Regulation Act 2003 (Vic) (Act). The VCGLR considered the variation to be a breach of section 3.5.5 of the Act. This section states that, if a type of EGM is varied in a “material particular” from an approved EGM type: • the type of EGM will not be approved; and • the VCGLR must approve the variation before the EGM can be used. Throughout the investigatory process, Crown maintained that it was not obliged to obtain approval prior to conducting the EGM Trial. The VCGLR found that the breach was not intentional, as a small group of Crown employees decided to proceed with the EGM Trial without checking internally, or with the VCGLR, whether the EGM Trial required prior approval. Crown and the VCGLR both stated that the EGM Trial did not affect the Return to Player ratio, or the proportion of money wagered on the EGM that is returned to players. The VCGLR Decision In reaching its decision to take disciplinary action against Crown, the VCGLR considered the following circumstances: • Crown co-operated fully with the VCGLR investigation; • Crown ended swiftly the EGM Trial after it received a complaint; 1 The statements of Crown and the VCGLR are available here. 2 We have previously written about these legal proceedings in our focus paper entitled “Gaming Machines: Federal Court of Australia dismisses allegations of misleading and deceptive conduct in Shonica Guy v Crown Melbourne Limited & Anor” Gambling Law & Regulation Newsletter 23 AUGUST 2018 • Crown had not been subject to disciplinary action relating to EGMs by the VCGLR prior to the EGM Trial; • the seriousness of varying the EGM in order to increase operator revenue without prior approval; and • the significance of deterring operators from varying EGMs without approval. The fine of $300,000 was the largest fine the VCGLR had ever imposed on Crown. The letter of censure compels Crown to revise its compliance framework and demonstrate how the revised framework will prevent a repeat of this conduct in future. Recent Developments On 23 May 2018, Independent Federal MP Andrew Wilkie alleged that Crown had used plastic picks “to illegally modify a poker machine” after a video published on YouTube appeared to show a plastic pick being inserted into an EGM.3 On 11 July 2018, Mr Wilkie published: • a letter sent to the VCGLR; and • a statutory declaration by an anonymous customer alleging that a pick was inserted into a gaming machine to allow another customer to continuously play on that gaming machine without touching it.4 On 7 August 2018, the VCGLR published its report concerning its sixth review (the review) of Crown as a casino operator and licence holder. The VCGLR held that Crown “remains a suitable person to continue to hold its licence to operate the Melbourne casino”.5 The VCGLR found that “Crown Melbourne is complying with the relevant legislation and agreements, and it is in the public interest that the licence should continue in force”. The VCGLR made twenty recommendations as part of its review, proposing significant changes to Crown’s corporate governance, regulatory compliance and safeguards to combat problem gambling and money laundering. The VCGLR stated that it had “engaged” with Mr Wilkie in respect of his claims. The VCGLR dismissed Mr Wilkie’s claims that Crown had: • failed to adequately respond to instances of self-harm and family violence; • failed to properly test machines; • adjusted machines so they returned less than the prescribed level of winnings; • shaved gaming machine buttons; • cleared gaming machine memories; • relocated gaming machines within the casino without authority; • unlawfully disabled the gamble feature on gaming machines; and • was in possession of unregulated automated table games. However, the review did not address Mr Wilkie’s claim that Crown had unlawfully allowed patrons to play continuously on gaming machines in its Melbourne Casino. That claim remains under investigation by the VCGLR. 3 The video is available here. 4 The statutory declaration is available here. 5 The review is available here. Gambling Law & Regulation Newsletter 24 AUGUST 2018 Conclusion Casinos and gaming machine licensees are subject to both: • conditions imposed by the relevant State and Territory authority (whether in a licence or elsewhere); and • conditions imposed by State and Territory laws. State and Territory authorities, such as the VCGLR, monitor compliance with these conditions. The authorities will investigate licensees if they have reason to believe that a condition has been contravened and will take disciplinary action if there has been a contravention. Licensees must comply with these conditions. If approval is needed to conduct certain activities, a licensee should seek approval prior to conducting that activity. If the law is unclear, the most prudent approach would be to approach the regulator in question and confirm whether approval is required. The consequences of non-compliance are substantial and could be damaging to your reputation. Gambling Law & Regulation Newsletter 25 AUGUST 2018 Mandatory Data Breach Notification in the Australian Gambling Sector: New law commenced on 22 February 2018 Authors: Cate Sendall and Joseph Abi-Hanna The Privacy Act 1998 (Cth) regulates how personal information is required to be managed and protected. This law was amended to require businesses to notify affected individuals and the Office of the Australian Information Commissioner (OAIC) in the event of certain data breaches. Gambling operators and venues collect, use and hold a considerable amount of personal information, including identity document details. The ramifications of suffering a data breach involving this type of personal information can be substantial in terms of costs and disruption to the business and damage to affected individuals and the reputation of the business. Those gambling operators which are reporting entities under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) must comply with these new data breach notification requirements. Is your gambling business prepared to meet the new mandatory data breach reporting requirements? What is a data breach? A data breach occurs when personal information held by an organisation is lost or is accessed by, or disclosed to, unauthorised entities or individuals. This can happen when, for example, IT systems are hacked or a laptop is left on a train. Data breaches have become a fact of modern commercial life. Inadvertent disclosures, stolen data and cyber-security attacks cause substantial harm to businesses and customers alike. It has been estimated that more than 9 billion data records have been lost or stolen globally since 2013. Who has to comply with the new requirements? The data breach notification requirements apply to businesses with an annual turnover of $3 million or more. As stated above, businesses which are reporting entities under the AML/CTF Act must also comply regardless of their turnover. When does notice have to be given? Under the new mandatory data breach notification scheme (NDB scheme), notice has to be given when either a business or the OAIC has reasonable grounds to believe that an “eligible data breach” has occurred. There will be an “eligible data breach” where: • there is unauthorised access to, or unauthorised disclosure of, personal information; or • information is lost in circumstances where unauthorised access to, or unauthorised disclosure of, personal information is likely to occur; and • a reasonable person would determine that access or disclosure would likely result in “serious harm” to any individuals to whom the information relates. “Serious harm” is assessed from the standard of the reasonable person. Harm is defined broadly and includes serious physical and psychological harm, serious harm to reputation and serious financial or economic harm. On its own, an individual’s upset or distress as a result of a data breach would probably not be sufficient to require notification unless a reasonable person would consider that serious harm would likely result for affected individuals. A data breach involving the details of a person’s gambling account has the potential to result in serious harm to the affected person. Gambling Law & Regulation Newsletter 26 AUGUST 2018 What are the notification requirements? If a business has reasonable grounds to believe that an eligible data breach has occurred, it must promptly notify individuals who are likely at risk of serious harm. The OAIC must also be notified as soon as reasonably practicable. The notification to affected individuals and the OAIC must include, at least: • the name of the business and its contact information; • a description of the data breach and the information involved; and • recommendations to individuals about the steps they should take in response to the data breach. Businesses can use the methods of communication that they ordinarily use to contact these individuals. Notice can be given via emails, phone calls, SMS or a social media post. Where a business has outsourced services or entered into a shared services arrangement, if the breach involves more than one party, only one party is required to notify affected individuals and the OAIC. What are the exceptions? Notification of an eligible data breach will be mandatory unless an exception applies. Exceptions include: • if the business has taken remedial action promptly so that a reasonable person would conclude that the breach is not likely to result in serious harm to the affected individuals; or • if the OAIC grants an exemption from compliance to a business. What are the consequences of contravening the law? A failure to comply with the law has severe consequences. The maximum penalty for contravening the law is $2.1 million. Businesses may also have to pay compensation to individuals for any loss or damage caused by the data breach. Directors can also be personally liable for any failure to act with reasonable care and diligence in respect of cyber security. Class actions may also be brought in respect of data breaches. Beyond the legal consequences, data breaches have a substantial negative impact on businesses. Data breaches can erode the trust and goodwill of those engaging with direct selling businesses. The damage caused by data breaches to the reputation of a business is significant and may even be irreparable. What can your business do to handle a data breach? Be prepared! There are numerous steps that you should be taking, if you have not done so already. These steps include but are not limited to: • Perform a Cyber Health Check to assess whether your business is resilient against data breaches - This Check has been devised by Addisons in conjunction with leading technology and risk management experts. Conducting a Check will identify your business’ risks and vulnerabilities and provide recommendations as to how risks can be reduced. • Implement privacy enhancing technologies, such as access control, encryption and intrusion detection and ensure that the adequacy of systems is regularly monitored and reviewed. • Develop a data breach response plan - It is important that your business is able to react quickly to identify and contain breaches, comply with any reporting obligations under the NDB scheme (or other legislation if, for example, your business is a publiclylisted company), carry out remedial action, deal promptly with media and stakeholder attention and restore public confidence. Having a data breach response plan also helps a business meet their obligations under the Privacy Act, which includes taking reasonable steps to protect the personal information it holds. Gambling Law & Regulation Newsletter 27 AUGUST 2018 • Review your contractual arrangements with third parties with a focus on privacy issues. In some circumstances, it will be important to address issues, such as ensuring the expedient investigation of a breach by the contractor; that the contractor promptly notifies your business if it becomes aware of a suspected breach; and which party will be responsible for assessment and notification, if required. Indemnities should be sufficient and the costs of addressing breaches etc should be considered. • Conduct training to ensure staff and contractors are aware of security and fraud matters (as well as policies) and consider appointing a person / team who are responsible for these matters. • Consider whether your insurance is adequate. If you would like further information on mandatory data breach reporting and how you can be better prepared for the NDB scheme, please don’t hesitate to contact us.