On 24 March 2011, the European Commission published its much-anticipated Green Paper (available here) on on-line gambling in the Internal Market, together with a Staff Working Paper, which provides additional factual background.

According to the accompanying press release, the aim of the consultation launched by the Green Paper, which runs until 31 July, is "to obtain a facts-based picture of the existing situation in the EU on-line gambling market and of the different national regulatory models".

The Commission is therefore collecting information and contributions on:

  • the different methods for defining and regulating on-line gambling and related services across the EU;
  • the public interest objectives pursued by different regulatory systems, including consideration of the existence and extent of public order risks associated with on-line gambling and the regulatory and technical means used by Member States to ensure consumer protection, preservation of public order or other public interests, such as funding good causes and other benevolent activities; and  
  • the effectiveness of current enforcement methods, in view of the need for proportionality and a consistent and systematic approach to on-line gambling within each Member State.  

Ultimately, the Commission's aim is to determine if the different national regulatory models for on-line gambling can continue to coexist as they are or whether specific action may be required at an EU level to establish a common legal framework.

Political sensitivities

In doing so, the Commission will be forced to acknowledge the extreme political sensitivities around this issue. There is a fundamental tension between the freedom to provide services across national borders within the EU, which is guaranteed by the EU's founding treaties, and the desire of Member States to control gambling, whether to protect their citizens from harm or to protect the revenues that are generated by national betting and gaming monopolies and limited licences. Similarly, while some Member States are potentially significant beneficiaries of the development of cross-border on-line gambling (indeed, gross gambling revenues apparently account for nearly 8% of Malta's total GDP), others (such as France, Italy and Germany) have fought hard to protect national monopolies.

Given this inherent tension, and the size of the financial interests at stake, it is hardly surprising that the Commission has until now avoided pushing an EU-wide approach to this area.1 As a result, time and again it has fallen to the European Court of Justice (ECJ) to determine the extent to which Member States may limit the provision of on-line gambling within their territories, with at least 28 gambling cases having been heard to date and more on their way. Although this Green Paper marks a first, tentative step by the Commission to increase its engagement with this issue, it is explicitly approaching the consultation with an "open mind", to accommodate the sensitivities of Member States. The consultation is also explicitly described as about proper regulation, rather than liberalisation. Indeed, the Commission presents it as little more than an information-gathering exercise, with the results determining whether any EU follow-up (for which the support of the Member States would be required) is needed.

The fragmented regulatory framework of on-line gambling

Although the provision of cross-border gambling is classed as an economic activity that falls within the scope of the Treaty rules on the free movement of services, under Article 56 of the Treaty on the Functioning of the European Union (TFEU), the ECJ has accepted that Member States may prevent on-line gambling operators established in another EU Member State from offering their services to their own citizens if this is justified by overriding public interest reasons, such as the need to protect minors or prevent fraud or problem gambling. Such measures must, however, be proportionate and applied in a consistent and systematic matter. While due recognition will be given to the potential benefits of restrictions on foreign service providers for the financing of public interest activities (i.e. out of the revenues generated by the national monopoly provider), the ECJ has made it clear that such a motivation does not in itself justify such restrictions.

Given the lack of action at the EU level, there is no common regulatory framework for gambling in the EU2. As a result, restrictions imposed on gambling in each Member State vary considerably. Operators have little legal certainty, since definitions of permissible gambling differ widely and a legal offer in one Member State may be illegal (and even criminal) in another. Efforts by Member States to adapt local rules to comply with the developing EU law regime have led to more than 150 draft acts and regulations relating to gambling being notified to the Commission since January 2005, without really resolving the uncertainties. This has led to absurd situations in which, for example, cyclists wearing jerseys advertising an on-line gaming company that operates perfectly legally in their home Member State have been arrested by local police when participating in a racing event in France for advertising a criminal activity. This is hardly the single market of which the founders of the EU dreamed.

According to the Commission, on-line gambling in the EU is expected to double in size by 2013 and already accounts for roughly €6.16 billion in total annual revenues, or 7.5% of the overall gambling market. Of this total, €1.9 was generated from on-line gambling in the UK alone. This rapid increase in on-line gambling offers, whether in the 'black market' of wholly unlicensed on-line gambling or the 'grey market' of operators licensed in one Member State providing gambling services in other Member States in which they have no licence, has brought the unsatisfactory state of regulation into greater focus.

Given this unsatisfactory state of affairs, it is not surprising that, since 2008, successive Presidencies of the Council and the European Parliament have invited the Commission to initiate a consultation with stakeholders and Member States in view of action within this field. This Green Paper is the Commission's response.

Council Conclusions

Shortly before publication of the Green Paper, in its Conclusions on the Framework for Gambling and Betting in the EU Member States,3 the Council (which represents the Member States) set out its own views on this issue. In so doing, it implicitly recognised the funding of good causes as a legitimate public interest objective, but only in relation to national policies for state lotteries or lotteries licensed by competent state authorities. The Council also emphasised that "the specific role [of such lotteries] should be recognised in discussions at the European level, as well as making clear its view that any problems arising from the provision of cross-border gambling services should be resolved through greater cooperation between gambling regulatory authorities of Member States, rather than EU-wide harmonisation.

The Commission appears to have heeded the Council's position on the matter of lotteries. Indeed, the Commission has not limited its questions to the role of national lotteries as a source of finance of good causes. It has invited views on all gambling revenue channelling schemes for public interest activities and, in particular, has requested opinions from stakeholders on the issue of redirecting a proportion of gambling revenues to fund sports. The Commission's position in relation to the use of gambling revenues to finance sports appears to take account of the EU's newly acquired competence for the promotion of sport.4 While the Commission is not obliged to follow the Council's view, the reality is that it will have to take the Council's view into account when reaching its conclusions or risk any subsequent legislative proposal in this area being blocked by the Council.

The outcome of the consultation remains to be seen

It remains to be seen what the outcome of the consultation will be. Any progress towards a more harmonised EU regime is bound to be slow, if it happens at all.

In the meantime, the current situation in Germany demonstrates the problems that continue to arise on a day to day basis. On 6 April, the German federal states agreed to open up the state betting monopoly to private companies, to bring the regime into conformity with EU law. However, the conditions to be placed on private operators, including a 16% levy on gross bets and a prohibition on the offering of poker and casino games by on-line operators, will significantly limit the impact of the move. This was amply demonstrated by the fact that shares in the large on-line gaming operator Bwin (which apparently generates a quarter of its revenues from Germany, notwithstanding the current restrictive regime) fell by almost a third in the two days following announcement of the German proposal. Unsurprisingly, Bwin has criticised the proposed changes as inadequate. This will certainly not be the last word on this particular issue. Whether moves at the EU-level will be more encouraging for Bwin and other on-line gambling operators remains to be seen, but they are unlikely to be holding their breath.