Legalisation of online games of chance in the Netherlands: lost chance?

There was quite a commotion in the Netherlands in January 2016, following the announcement of a sponsorship agreement between KNWU (the Royal Dutch Cycling Union) and the Maltese online gambling company, Unibet. The Netherlands has a very strict regulatory framework for its games of chance market and maintains a closed system. Offering online gambling services is prohibited because there is no legislative scope to grant appropriate licences. The Dutch House of Representatives finally adopted a legislative proposal aiming to modernise and relax gambling legislation on 7 July 2016, by amending the Wet op de Kansspelen (the Dutch Betting and Gaming Act (Wok)).

Current regulation of online games of chance in the Netherlands

Broadly, EU Member State regulation of gambling markets takes one of two forms: an open system that allows various national and international operators to enter the national market; or a closed system that provides for a monopoly or oligopoly in the national market. The Netherlands operates a closed system. Section 1(1)(a) of the Wok stipulates that the “opportunity to compete for prizes or bonuses if the winners are selected through any chance determination over which the participants, in general, have no dominant influence” is prohibited, unless a licence has been granted. In certain categories, for example, the organisation of a state lottery only one licence is granted. It is well known that Holland Casino holds the exclusive licence for the operation of slot machine casinos in the Netherlands (Section 27h of the Wok). The proceeds of Holland Casino benefit the Dutch public finances (Section 27h(2) of the Wok).

Furthermore, only one licence is granted for a lottery and sports betting. In the Netherlands this licence has been granted to the Lotto (Section 27b in conjunction with Section 16 of the Wok). The Lotto is the sole licence holder and, therefore, the only lawful operator of sports betting competitions in the Netherlands. The Lotto is also one of the most important sponsors of the Nederlands Olympic Comité Nederlandse Sport Federatie (Dutch Olympic Committee Dutch Sports Federation (the ‘NOC*NSF’)). The NOC*NSF strives to unite 88 individual sports organisations and approximately 28,000 smaller sports clubs in the Netherlands. The proceeds from the Lotto are the NOC*NSF’s largest source of income although its 2015 financial report shows that Lotto funds declined from about €53.1 million in 2011 to €35.9 million in 2015. Given the NOC*NSF not only relies on subsidies received from the government but also on the proceeds received from the Lotto, and that the NOC*NSF, in turn, distributes these proceedings among the sports associations, the Lotto –via NOC*NSF – is indirectly the largest sponsor of sports associations in the Netherlands.

Sponsorhip agreements between the sports world and online gaming operators

Preventing businesses from resorting to illegality is a primary reason for the Dutch legislature intervening in the gambling market with the main purpose of the proposed legislative amendments being to channel the industry towards a “legal, responsible, reliable and verifiable offer”. The legislative proposal relating to the offer of online games of chance has, however, come rather late in the day, a fact made painfully obvious by the sponsorship deal concluded between Unibet and the KNWU.

Unibet and KNWU announced in January 2016, that they had concluded a sponsorship agreement due to have taken effect on 1 January 2017. Unibet is an online gambling operator offering sports betting competitions, among other things. The four year sponsorship agreement is reportedly worth seven million Euros. The agreement is, however, subject to the legislative proposals tabled in July 2016 taking effect and the Dutch tax rate of 29% as laid down in the legislative proposal, being reduced to 20%. According to Unibet, a tax rate of 29% would result in profit margins that are too low for the offering of online gambling services to the Dutch market. A legislative framework that is too strict and a tax rate that is too high would also lead to less income for the public finances and a further decline in sponsorship funds for Dutch sports, not to mention the risk that operators might decide to bypass the Netherlands altogether, or of leading to more unprotected players in the online market (the smaller the legal offering is, the more vanishes into the illegal market).

The Unibet/KNWU deal has been extensively discussed in the media. The Lotto responded quickly and condemned it which was not surprising, given its very active role in the cycling world. The NOC*NSF, also voiced surprise and queried whether such sponsorship agreements should result in the NOC*NSF discontinuing sponsorship funds. Prior to the announcement of the Unibet deal, the NOC*NSF had already set up the special Werkroep Externe Financiering (the Work Group for External funding (Work Group)). The Work Group focused on the how such sponsorship agreements should be dealt with in a changing gambling market. Various media claim to have documents belonging to the Work Group which suggests that the NOC*NSF intends discontinuing the provision of sponsorship funds if sponsorship agreements are concluded with other gambling companies and arguing that the ‘sector-exclusivity’ of the Lotto should be respected. What’s more, the NOC*NSF is reportedly considering reclaiming sponsorship monies paid out in such cases and is being “informed and advised” by the Lotto on this issue. A definitive decision should be taken on whether the sponsorship agreement concluded between Unibet and the KNWU should result in the NOC*NSF discontinuing its sponsorship contribution. Whether the agreements between the NOC*NSF and the national sports union allow such exclusions of sponsorship monies or for them to be reclaimed, remains to be seen.

A further issue is whether such imposed ‘sector-exclusivity’ is anticompetitive or whether it could even be qualified as an abuse of the NOC*NSF’s dominant position. The monopoly position of the Lotto and its influence on the NOC*NSF are controversial. Critics say that the Lotto is incapable of adapting to the ever-changing online gambling world. In addition, the financial support of the Dutch sports world by other parties is more than welcome, not least because the Lotto’s contribution to the NOC*NSF sponsorship funds has declined sharply over the past years.

We share the view that operators of online gambling services should be tolerated as sponsors – in anticipation of the forthcoming sound legal framework – because more competition in this market will lead to more potential sponsors and thus ensure that more financial support of sports associations is possible, mirroring other EU countries where parties like Unibet and Bwin are allowed as sponsors of sports clubs. Moreover, we believe it naive to think that a monopoly on the gambling market will indeed discourage parties, such as Unibet. After all, it’s easy to create an online account and, as a Dutch citizen, to use the services of foreign operators.

Legislative proposals on online games of chance

The Wok dates from 1964 and deperately needs a facelift, but discussions on amendments to the Wok have been going on for years. The modernisation of the Wok was first announced in the 2012 VVD-PvdA (Dutch People’s Party for Freedom and Democracy-Labour Party) coalition agreement. Since then the legislature has been trying to modernise the legislation governing the Dutch gambling market. They are focusing on three key objectives: to make the provision of online gambling services possible subject to strict conditions; to restructure the market by the partial privatisation of Holland Casino and allowing more room for other initiatives; and to prevent gambling addiction, fraud and other criminal behaviour, also through the strengthening of consumer protection.

In the legislative process, these key objectives were separated. Legislative proposal 33 996 focuses on the amendments to the Wok, the Betting and Gaming Tax Act and other acts with a view to ensuring that the organisation of remote games of chance (online) is possible subject to strict conditions. Legislative proposal 34 471, seeks to amend the Wok in connection with the modernisation of the slot machine casino regime.

Initially it was thought that the new legislation would take effect in January 2015, but the House of Representatives only adopted the legislative proposal on online games of chance on 7 July 2016. In summary, a licensing regime will be introduced with a special tax rate (29%) and a compulsory payment to the addiction fund (0.25%) and a contribution to the Gaming Authority (1.5%). In addition the administrative enforcement powers of the Gaming Authority have been extended.

If the Senate concurs, it is anticipated that it will be possible to apply for a licence to offer online games of chance from the second quarter of 2017. This means that legal online games of chance will only be offered from the beginning of 2018. The legislative proposal relating to the modernisation of the slot machine casino regime is currently still being debated in the House of Representatives.

Tax rate

One of the controversial issues in the legislative proposal for remote games of chance was the tax rate. In the end the House of Representatives adopted a legislative proposal providing for a tax rate of 29% for online games of chance, revising the initial proposed tax rate of 20%. The 29% gaming tax will be imposed on the gross gaming result of online gambling operators.

As stated above, the sponsorship agreement between Unibet and KNWU was concluded subject to the condition that the new law would comprise a tax rate of no more than 20%. What the consequences of the approved tax rate will be for the sponsorship agreement between Unibet and KNWU are, at the time of writing, still unknown although there are unsubstantiated reports there was a fallback position of a non-exclusive sponsorship agreement of one year for 1m Euros. Neither Unibet nor KNWU have given any official response to the adopted legislative proposal. Furthermore, it remains to be seen whether the tax rate increase from 20% to 29% will actually attract legal operators of games of chance, which the government implicitly doubts, having argued in favour of the 20% rate in 2015:

“To strengthen the position of legal operators of remote games of chance and to achieve a channelisation of at least 80%, it is proposed that the tax rate on remote games of chance be set at 20% of the gross gaming result.”

Moreover, a rate of 29% is a step further away from the rates enforced in our neighbouring countries where they vary between 11% (Belgium), 15% (UK) and 20% (Denmark). The question is whether the increased rate of 29% hinders rather than helps the Dutch gaming market and drives Dutch gamblers towards foreign online games of chance, a view the Gaming Authority appeared to hold in 2015:

“In addition, a tax rate of 20% on games of chance was assumed: higher taxes could lead to slower channelisation.”

Licensing regime

In addition to the tax rate, the introduction of a licensing regime for the offering of online games was an important aspect of the reforms. The proposed licensing regime states, among other things, that the applicant must be an entity established in the European Union, the company structure must be clearly set out and it may not be opaque. After the licence has been granted, the licence holder must offer remote games of chance in a responsible, reliable and verifiable manner. Players are only allowed to play games of chance on the internet after they have registered themselves. The licence holder must systematically analyse the player’s gaming behaviour in order to identify and prevent excessive participation.

In anticipation of the legislative proposal, the Gaming Authority adopted a tolerance policy with regard to the offer of online gambling services by large parties like Unibet. In 2012, Unibet received a letter from the Gaming Authority requesting them to refrain from targeting the Dutch market. Furthermore, they were advised that if they complied with the request, they would be able to join the ranks of pre-selected parties for a licence as soon as the market was regulated. The Gaming Authority denies that they pursue a tolerance policy but instead states that enforcement takes place according to prioritisation criteria. What is clear is that companies which target the Dutch market and Dutch consumers are indeed being penalised by the Gaming Authority, illustrated by the judgment delivered by The Hague District Court dated 20 April 2016. In addition, enforcement action is also currently being taken against operators of gambling apps explicitly targeting the Dutch market. The Gaming Authority announced on 11 May 2016, that enforcement sanctions were in the making. Many companies were required to remove these gambling apps from the Dutch market.

Advertising for online gaming operators

The Gaming Authority also presented its new ‘Advertising Guideline for Games of Chance (Guidelines) in February 2016. General assumptions are that only those operators of games of chance which hold a licence granted by the Gaming Authority, may advertise. In addition, advertising must lead the public to the legal offer of games of chance (i.e. licensed), and keep them away from illegal offerings provided by unlicensed operators. Advertising for games of chance may not actively promote participation. The Guide also stipulates that ‘disguised advertising’ will be frowned upon.

Coming back to the sponsorship deal between Unibet and the KNWU, an interesting detail is that during the press conference announcing it, several banners and future cycling gear displayed six green balls in a row without the UNIBET letters. What most people will know, and what was made abundantly clear during the press conference, is that this represented the Unibet logo. Although KNWU and Unibet ostensibly attempted to avoid advertising gambling services in the Netherlands, this use of part of the Unibet logo would, strictly speaking, be considered as advertising for (as yet illegal) online gambling services in the Netherlands. Because of all the commotion, Unibet has, though, arguably gained significant publicity and has probably already achieved (part of) its commercial objective in the Netherlands.

Influence of Unibet deal on the legislative proposal

During the debate on the legislative proposal for remote games of chance, the Unibet deal was not given any special attention. Only within the framework of the debate by the House of Representatives on the second, pending legislative proposal. did the CDA (Christian Democratic Alliance) MPs ask questions about it.

“These MPs specifically asked the government to respond to the facts that Unibet had bound itself to a Dutch sports association at the beginning of 2016 as sponsor, that when typing in the website www.unibet.nl the user is directly redirected to https://www.unibet.eu/ and that contact can still be made with a Dutch speaking customer service via a Dutch telephone number. They asked the government to describe what action the Gaming Authority had taken against Unibet and whether it could still qualify for a licence. They also asked whether the government found it desirable that such an ‘illegal operator’ would qualify to run a privatised casino and what expectations the government harbours regarding the manner in which the operator would comply with applicable rules and regulations, including the current legislative proposal?”

As yet there has been no response from the government. It is still unclear whether Unibet will qualify for a licence if the legislative proposal is approved by the Senate. It is possible that Unibet’s current mode of operation could impede this. On the other hand, there has not been any sign that the Gaming Authority has taken enforcement action against Unibet’s conduct within the framework of the sponsorship agreement with the KNWU.

Conclusion

Years after the legalisation of the online gaming market was first mentioned in the coalition agreement, and much later than other European countries have introduced legal online gaming, there is still no absolute clarity on this subject in the Netherlands. It is, however, clear that the Lotto’s income has declined drastically and the most obvious reason for this is that the Dutch gambler has long since turned to the illegal online operators. The access to these operators has not been prevented but the losers in this game are, among others, the players themselves due to lack of supervision, the public finances and the sports associations, because the revenues flow to other countries, associations and sports clubs. Time, therefore, to introduce a realistic gambling policy matched by appropriate legislation.