On 28 February 2018, the Court of Justice of the European Union (“CJEU”) issued a preliminary ruling which found the Hungarian licensing regime for online gambling operations incompatible with EU law. The reference to the CJEU was made in the context of a case brought by Sporting Odds Limited disputing a fine imposed by the Hungarian tax authorities.

The Hungarian court sought guidance, in particular, on whether a requirement for companies to operate a land-based casino in Hungary in order to obtain an online casino licence could be compatible with the freedom to provide services established by Article 56 of the Treaty on the Functioning of the European Union (“TFEU”). In response the CJEU stated that “It is clear that such a restriction, which amounts to reserving access to the market for online games of chance to casino operators situated on national territory, goes beyond what may be considered necessary as proportional, since less restrictive measures exist which enable the objectives relied on by the Hungarian Government to be attained”.

Further questions from the Hungarian court related to the compatibility with Article 56, of national legislation which introduces a system of concessions and licences for the organisation of online games of chance. Similar questions arose in a recent case in which the CJEU found Hungary’s blocking of Unibet’s websites to be unlawful under EU law (see our update here). Following that decision, the CJEU held that such legislation will be incompatible with Article 56 if it contains discriminatory rules with regard to operators established in other Member States or if it lays down rules which are not discriminatory but which are applied in a manner which is not transparent or are implemented in such a way as to prevent or hinder an application from certain tenderers established in other Member States.

The CJEU also confirmed that any penalties imposed by the Hungarian regulator pursuant to a licensing framework that was in breach of EU law will be invalid.

It is now for the Hungarian court to provide a judgment in this case which is consistent with the CJEU ruling. However, reports suggest that there is limited political appetite in Hungary to deviate from current practice of penalising online operators who offer services to Hungarian consumers without a local licence. Operators should therefore be wary that, in practice, they may still face obstacles to providing online gambling services in Hungary.

Of course, at an EU level, the regulation of online gambling has long been politically charged. This was further evidenced in the withdrawal of infringement proceedings against a number of Member States in December 2017. Consequently, operators are likely to face similar court battles in future with the CJEU, alongside national courts of the Member States, as the sole enforcers of the TFEU’s fundamental freedoms in this sector.