TABLE OF CONTENTS

1. Introduction. 4

2. Definition. 6

2.1. Games of chance. 6

2.1.1. EU.. 6

2.1.2. Member States. 7

2.2. Online gambling. 7

3. The market for online gambling services in Europe, and beyond. 9

3.1. Global Market 9

3.2. Gambling market in Europe. 9

3.3. Cross-border dimension. 11

3.4. Technology. 13

3.5. Data and understanding. 13

4. The regulatory situation in Europe and national frameworks. 15

4.1. EU secondary legislation relevant to online gambling. 15

4.2. The notification procedure. 18

4.3. Regulatory framework for online gambling in Member States. 19

5. EEA case-law on games of chance. 21

5.1. Introduction. 21

5.2. The organisation of games of chance is an "economic activity" covered by the fundamental freedoms rules of the TFEU 23

5.3. Restrictions on the free movement of services and the freedom of establishment 24

5.4. General interest reasons which may justify restrictions on gambling activities. 27

5.5. The provision of gambling services via the Internet 29

5.5.1. Specific characteristics of on-line gambling. 29

5.5.2. Taking account of the checks on operators of games of chance carried out in other Member States 30

5.6. General criteria for assessing the proportionality (suitability and necessity) of national restrictions under different types of regulatory frameworks. 31

5.6.1. A ban on games of chance. 32

5.6.2. An exclusive right/monopoly. 32

5.6.3. A system of licensing. 41

5.7. Assessing the proportionality of specific corporate requirements imposed on gambling operators 45

5.7.1. Seat requirements. 45

5.7.2. Legal form for operators of games of chance. 47

5.7.3. Minimum share capital requirements. 47

5.8. Application of State aid rules. 47

6. Administrative cooperation and efficient enforcement 49

6.1. The regulatory authority. 49

6.1.1. Role and competences of regulators. 50

6.1.2. Institutional arrangements. 50

6.2. Administrative cooperation. 50

6.2.1. Existing administrative cooperation. 51

6.2.2. Areas for administrative cooperation. 52

6.2.3. Tools for administrative cooperation. 54

6.2.4. Cooperation with other enforcement bodies and stakeholders. 56

6.2.5. Cooperation with third countries. 57

6.3. Enforcement measures. 57

6.3.1. Preventive enforcement measures. 57

6.3.2. Responsive enforcement measures. 59

7. Protection of consumers and citizens, including minors and other vulnerable groups. 67

7.1. The current framework. 67

7.2. A safe and regulated offer to protect consumers. 68

7.2.1. A Recommendation on common protection of consumers. 70

7.2.2. The Commission Proposal on Electronic Identification. 71

7.2.3. Consumer Survey of Gambling Services. 73

7.3. The protection of minors. 75

7.3.1. Initiatives to protect minors. 76

7.4. Responsible Advertising. 77

7.4.1. A Recommendation on Responsible Gambling Advertising. 79

7.5. Problem-gambling and gambling addiction. 80

7.5.1. Key challenges. 82

7.5.2. EU Initiatives. 86

8. Fight against fraud and money laundering. 89

8.1. Commission initiative on identity theft 89

8.2. The EU Anti-Money Laundering Directive. 91

8.3. Certification of gambling equipment 92

9. Integrity of sport and match fixing. 94

9.1. Existing anti-match fixing measures. 96

9.2. Criminalisation of match fixing. 98

9.3. International cooperation on match fixing. 99

10. Financing Systems for benevolent and public interest activities. 100

10.1. Societal activities benefitting from revenue derived from gambling. 101

10.2. Sport, including horseracing: a main beneficiary. 102

1. Introduction

The online gambling services sector accounts for 10.9% of the gambling market share in the EU with a growth rate for 2015 estimated to be double that of 2008, which stood at €6.6 billion. In parallel, online technology is developing at a face pace. A large number of Member States has engaged in a review of gambling legislation particularly over the last few years. Given the cross-border nature of online gambling improving and sustaining the protection of consumers and the regulatory environment is in the interest of all Member States. This is achievable by the Member States and the EU working together.

Against this backdrop the Commission launched the Green Paper[1] in March 2011 primarily aimed at obtaining a facts-based assessment of the EU online gambling market and of the different national regulatory frameworks of the Member States. The consultation focused on six key interrelated themes: 1) Definition and organisation of online gambling services; 2) Rules and practices relating to services performed and/or used by online gambling service providers; 3) Consumer protection, including minors; 4) Public order (fraud and money laundering); 5) Financing of benevolent and public interest activities and events; 6) Enforcement of applicable laws.

The responses to this consultation encompass close to 260 contributions from a diverse range of stakeholders: public authorities, commercial and public operators, intermediary services providers (e.g. media, internet, data storage, payment) beneficiaries of societal organisations, researchers and academia. An overwhelming majority of Member States contributed to the consultation. A Resolution[2] was adopted by the European Parliament whilst the Economic and Social Committee adopted an Opinion[3] on the Green Paper.

The Commission services complimented the consultation with five thematic workshops organised around key issues identified in order to benefit from the knowledge and experience of experts in the field. The workshops focused on sports integrity (fight against match-fixing), detection and prevention of problem gambling and gambling addiction, financing mechanisms regarding public interest activities benefitting from revenue derived from gambling and the prevention of crime and enforcement.

The Commission services have assessed the contributions to the Green Paper in detail and have drawn from the resourceful information and valuable insight provided together with the workshop conclusions, the expert group meetings with the regulatory authorities of EU/EEA jurisdictions, meetings with stakeholders as well as other sources of information.

Whilst the Green Paper focused on the online segment of gambling services and topics linked to the free movement of services (Article 56, Treaty on the Functioning of the EU), a number of these are pertinent to all forms of gambling services.

Finally, the supply of online gambling services is influenced by evolving information and communications technology. It includes forms of gambling using means of electronic or distance communication such as digital TV, mobile phone technology, telephone and fax.

It is within this context that the present staff working document addresses the challenges in the EU. The staff working document accompanies the Communication "Towards a comprehensive European framework for online gambling". The Action Plan, seeking to enhance legal clarity and establish policies based on evidence, identifies the prevailing issues across the Member States, examines the shortcomings and explores solutions for:

- compliance of national regulatory frameworks with EU law

- enhancing administrative cooperation and efficient enforcement

- protecting consumers and citizens, minors and vulnerable groups

- preventing fraud and money laundering

- safeguarding the integrity of sports and preventing match-fixing

This document is structured along these parameters, substantiating the issues and shortcomings as well as the mix of actions being proposed to strengthen the impetus to tackle the shared challenges. In addition, this document delves into the definitions, the market for online gambling services, the regulatory situation in Europe, the fundamental principles of the EU Treaty and the financing systems for public interest activities. The evidence in the report stems from the Green Paper public consultation; case-law of the Court of Justice of the EU and the EFTA Court, and other sources referred to earlier.

The proposed list of actions and the timeframes for taking forward the initiatives in this area can be found in the Action Plan.

The summary of replies to the Green Paper consultation is published alongside the Communication and this staff working document. All the non-confidential contributions and the conclusions of the workshops can be consulted on the Commission website[4].

This is an indicative document of the Commission services, which cannot be considered in any way binding on the Commission as an institution, and it is without prejudice to the interpretation of EU law by the Court of Justice of the European Union.

2. Definition

The term "online gambling" refers to a range of different gambling services and distribution channels[5]. Definitions at national level vary or do not exist.

The term "games of chance" when the activity is offered online can cover a number of different gambling services, such as

• Betting services (including horse and dog racing, event betting and pool competitions),

• Poker and casino services,

• Bingo services,

• Gambling services operated by and for the benefit of recognised charities and non-profit making organisations,

• Lottery services,

• Media gambling services (i.e. games in the editorial content of the media),

• Sales promotion services consisting of promotional games with a prize or where participation is exclusively linked to purchase.

It is not only the cooperation between gambling authorities and the exchange of information that depends on a common understanding of what online gambling means but also the development of policy initiatives and actions online. In order to ensure a successful and sustainable policy such common understanding therefore needs to be established in the EU.

2.1. Games of chance 2.1.1. EU

The long-standing definition that exists for gambling activities in general in EU secondary legislation is that relied upon to exclude such services from the Electronic Commerce Directive[6]:

"gambling activities ... involve wagering a stake with monetary value in games of chance, including lotteries and betting transactions."

In later texts such as the Services Directive[7] and most recently in the Audiovisual Media Services Directive[8] a slightly different definition is "games of chance involving a stake representing a sum of money, including lotteries, betting and other forms of gambling services". While the Anti-Money Laundering Directive[9] refers to the term 'casino' it does not define it.

To date, the Court of Justice of the European Union (CJEU) in its rulings on games of chance has not given specific guidance on the interpretation of the definitions used in secondary legislation[10].

2.1.2. Member States

While not all Member States have a legal definition of the concepts of “games of chance” and of “gambling”, in most jurisdictions a game of chance is defined as a game that offers an opportunity to compete for prizes, where success depends completely or predominantly on coincidence or an unknown future result and cannot be influenced by the player. At least one of the players loses his or her stake. The first important element characterising a game of chance is that of stake money or monetary value. The second essential characteristic of a game of chance is the element of chance. Success or loss must depend completely or predominantly on coincidence and not on abilities and knowledge. Success is considered to depend in any case on coincidence, if the relevant aspect is the occurrence of an uncertain event.

In order to avoid that certain games are not covered by the definition because a skill element can prevail in playing a particular game and therefore risking that a common policy would be incoherent, the understanding of games of chance should also comprise games of chance and skill. This concerns games where the result is not totally accidental but depends, to a certain extent on the skill and/or knowledge of the participant (such as poker or sports betting). However, the distinction between games of chance and skill and games of skill is not always easy to make and has been subject to numerous court proceedings at national level.

2.2. Online gambling

Many Member States do not yet have a definition of online gambling at national level. In the Green Paper contributions Member States and stakeholders alike stressed that there is a need for any definition to encompass all forms of gambling and all forms of electronic or distance communication, such as internet, mobile phone, digital TV. A number of jurisdictions therefore do not refer to online gambling but to remote gambling in order to have a more technology neutral term given evolving information and communications technologies.

Gambling services offered by the media are typically covered by national gambling laws. Generally no distinction is made between gambling and promotional games if these fulfil the conditions of application of the respective gambling law (stake, prize, random outcome). In some cases specific rules for commercial communication games are laid down in the gambling law. In other cases Member States have specific rules in their consumer protection regulations or have established specific acts or codes of conduct for promotional games. Promotional games not involving a stake but promoting other games of chance may also fall within the scope of the national gambling law.

In the Green Paper on online gambling in the Internal Market the Commission took the view that the definition as set down in the e-Commerce Directive should be maintained for gambling and that it should be combined with that for information society services as set down in Directive 98/34/EC, as amended by Directive 98/48/EC[11]. In this respect, the following common definition for online gambling services should be applied as defining the scope of the consultation:

Online gambling services are any service which involves wagering a stake with monetary value in games of chance, including lotteries and betting transactions that are provided at a distance, by electronic means and at the individual request of a recipient of services.

Most responses to the Green Paper consultation supported this definition as a basis for discussions at European level. At the same time some respondents raised concern that such a definition is too restrictive, in particular because of the criteria "individual request of a recipient of services", and would incorrectly exclude certain activities from the term "online gambling".

The Commission services will, together with the Member States, further develop a common understanding of types of games and the means of electronic or distance communication used to be covered by the term "online gambling".

3. The market for online gambling services in Europe, and beyond

The gambling sector is a growing market, both land based and online. In 2011, the annual revenues generated by the gambling service sector, measured on the basis of Gross Gaming Revenues (GGR) (i.e. stakes less prizes but including bonuses), were estimated to be €84.9 billion (EU 27), with an average annual growth rate of 2.8%. Online gambling services accounted for annual revenues in excess of €9.3 billion, 10.9% of the overall gambling market. The average annual growth rate for online gambling services is 14.7%. In 2015 online gambling is estimated to generate annual revenues of €13.0 billion, 14.2% of the overall gambling market[12].

Online gambling is not only developing at a rapid pace economically but also technologically. Gambling services are increasingly used and offered on mobile phones, tablet computers and IPTV. Furthermore, gambling operators are also using and relying on business-to-business services (B2B) and intermediaries, for managing gambling platforms, providing software, payment services, internet services or marketing.

The consistent growth of the market fuels the need for a comprehensive and technology neutral set of rules and measures at EU and national level. New technologies create new challenges and regulation needs to adapt to keep up the pace.

3.1. Global Market

In 2010 the global gambling market (land-bases and online) generated GGR of €275 billion. With a GGR of €80 billion the EU had a market share of 29% of the world market. The total global internet gambling market (all products) was worth €23.28 billion. The EU online gambling market represented 45% of the world market share.

Worldwide online gambling profits (GGR) amounted to €16.39 billion in 2008. Approximately, €4.7 billion of this total comes from the 6.84 million European consumers who participate in online gambling (compared to 4.32 million consumers in Asia & Middle East and 4.21 million consumers in North America).

Asia is the fastest growing market. It is already bigger ten the European market and will most probably soon overtake the US as the biggest gambling market in the world. The US is currently debating and preparing the opening of the online gambling market.

3.2. Gambling market in Europe

The overall gambling market in Europe is growing, both land-based and online. Lotteries and gambling machines remain the biggest sectors in the overall gambling market.

Source: H2 Gambling Capital

The online gambling market is growing though at a faster pace. With annual growth rates of almost 15% the market will most probably double in size between 2008 and 2013. However, with a market share of 10.9% online gambling is still a relatively small part of the overall market.

Source: Global Betting and Gaming Consultants (GBGC), year?

Compared to the overall gambling market the online gambling market shares are slightly different. Betting is the biggest sector followed by poker and casino games.

Source: H2 Gambling Capital

The size of the online gambling market differs significantly between Member States. In Austria, Denmark, Finland, Ireland, Sweden and the UK online gambling already constitutes 20% or more of the overall gambling market.

Source: H2 Gambling Capital

3.3. Cross-border dimension

In many Member States no data exists on the scale of the cross-border gambling market. Member States stress that it is difficult to quantify the cross-border dimension of online gambling services as these services are very often not regulated in the respective Member State. A number of Member States however have conducted studies and surveys whilst for others third party studies are available:

· In the UK the regulator concludes that players appear to gamble on UK regulated sites. There is little, if any evidence, of an unauthorised market.

· In Sweden the number of players gambling with foreign operators is growing: from 3% of the population in 2008/2009 to 4.5% in 2009/2010. 29% respectively 38% of the players was gambling only with foreign operators. The market share of foreign online operators is estimated to be 10% of the overall gambling market.[13] 150 foreign commercial operators are estimated to be active in the market. Their marketing expenses rose from SEK 437 million in 2000 to SEK 1.6 billion in 2010. Licensed non-EU operators are only a small proportion of the total online market.

· The government estimates the turnover of the unauthorised sports betting market in Germany (land-based and online) to be at least €2.7 bn (€350 million GGR), about 60% is generated online. Germany is considered to be the biggest cross-border online poker market in the EU with a market size of around €320 million and almost 600 000 players.[14]

· In Finland the value of gambling on foreign sites totalled €120 million in 2008 (betting €40 million, casino games €40 million, poker €30 million and bingo €10 million)[15]. In 2009 the total amount of sports betting by players located in Finland using service providers outside Finland was approximately €50 million[16].

· In France regular data collection and reporting has been introduced by the new gambling law in 2010 and studies are under preparation. Previously unlicensed operators now have a market share of 65% for betting, 12% for horse racing, 90% for casino in the regulated market. Out of 35 operators that have been issued a licence since the introduction of the new law 14 operators already had a license from another Member State and 12 are part of a group with a license in another Member State.

· In Greece government estimates that around 250 unauthorised online gambling sites, 60 of which have Greek language versions, are active in the country. 20 000 gaming machines and 150 000 computers in public places are offering unauthorised online games. The annual turnover of illegal online betting in Greece is estimated to reach €2 billion, equal with brick and mortar betting of state monopoly. Also, the turnover in the betting exchanges, illegal poker and casino games reaches a €1.5 - 2 billion.

· In 2008 1 million Dutch citizens used unauthorised gambling services. 5.1% of the population or 500 000 citizens gamble online; with an average stake of €12-13[17].

· In Slovenia the number of players placing sports bets with foreign operators has increased in comparison with previous years while the number of players gambling in casinos or playing the lottery decreased. An increasing number of players from Slovenia are gambling with foreign online gambling providers (almost 40% of those surveyed), for example betting an average of over €30 during the 2010 World Cup in South Africa[18]

· In Slovakia the government estimates that 90% of online players gamble on foreign sites.

· In 2010 380 000 Norwegians gambled online; 55% only in Norway, 25% only with foreign operators, 20% both. The total turnover amounted to NOK 7.2 billion while foreign sites only generated NOK 5 billion (suggesting that players set higher stakes on foreign sites)[19].

3.4. Technology

The change in information and communications technology is also influencing the supply of online gambling services. Online gambling does not only include gambling services offered and used on the internet but any type of gambling using a means of electronic or distance communication (including digital interactive TV, mobile phone technology, telephone and fax).

The provision of remote gambling services through mobile telephone technologies is gaining popularity and market share. In France for example the number of players using mobile phones and tablets has doubled for sports betting, and tripled for poker from 2011. Within a year the number of players using mobile phones for sports betting and poker increased to 15 %. 12% of all horseracing bets are done via mobile phones[20]. Digital interactive TV seems to be an obvious distribution channel for gambling services and with the development of Digital interactive TV services the offer of gambling services through this channel will most probably increase.

The gambling platform hosting the online game of chance is not necessarily provided and managed by the gambling operator dealing with the player but will often be managed and provided by a different operator. The platform operator is providing B2B services to the gambling operator offering the game to the player. It is rather common that the platform is established and authorised in a different jurisdiction than that of the gambling operator. The possible take-up of cloud computing solutions in the gambling sector may add further complexity to this situation. A new and important development is also the offering of games of chance for money or money's worth in social media networks.

3.5. Data and understanding

While data and information exist for some markets a comprehensive overview of the market is missing. There is a need for further information on the size and the development of the online gambling market (domestic and cross-border, intra EU and global, authorised and unauthorised offer). Furthermore, there is a need for a better understanding of the market (in Europe and globally), its dynamics and the technological challenges.

The Commission services will, together with Member States and all stakeholders concerned, discuss and develop means of improving statistics on online gambling services and of fostering understanding of the technological and market developments.

4. The regulatory situation in Europe and national frameworks

Gambling services are not regulated by sector-specific regulation at EU level. Nevertheless gambling services are subject to a number of EU acts. In other cases gambling services have been explicitly excluded from the scope of EU law.

The regulatory situation at national level shows a very diverse picture across the EU. Member States have regulated online gambling services in very different ways,: by banning them, by establishing a monopoly for the offering of online gambling services or by issuing licences for the operation of these services. Few Member States do not have any rules at all covering this service activity.

4.1. EU secondary legislation relevant to online gambling

In addition to benefiting from horizontal rules such as those pertaining to Intellectual Property Rights (IPR) protection, the following texts are relevant to online gambling: the Audiovisual Media Services Directive, the Unfair Commercial Practices Directive, the Distance Selling Directive, the Directive on Consumer Rights, the Anti-Money Laundering Directive, the Data Protection Directive, the Directive on privacy and electronic communication, the e-commerce Directive and the Directive on the common system of value added tax.

The Audiovisual Media Services Directive (AVMSD)[21] aims at coordinating certain provisions laid down by law, regulation or administrative action in the Member States concerning the provision of audiovisual media services. Gambling offers, where any audiovisual content is merely incidental to the service and not its principal purpose, are not considered AVMS.

The Unfair Commercial Practices Directive (UCPD)[22] aims at protecting consumers from unfair practices which are likely to induce a transactional decision which they would otherwise not have taken. Common rules and principles provide consumers with protection against unfair practices whether they are buying from their corner shop or purchasing from a website based abroad. Businesses can advertise and market to all consumers in the EU, in the same way as to their domestic customers. Although the UCPD is without prejudice to authorisation regimes such as the rules related to gambling activities, advertising and marketing practices fall within its scope. As a consequence, gambling advertising falls foul of the Directive if it is contrary to the requirements of professional diligence and if it is distorting the economic behaviour of the average customer or a clearly identifiable group with an underlying vulnerability, e.g. minors, where the gambling provider can reasonably expect such a distortion. The UCPD bans in particular misleading and aggressive commercial practices.

The Unfair Contract Terms Directive[23] aims to protect European consumers against unfair terms in the contracts they conclude with professionals. It introduces a notion of "good faith" in order to prevent significant imbalances in the rights and obligations of consumers on the one hand and sellers and suppliers on the other hand. This general requirement is supplemented by a list of examples of terms that may be regarded as unfair. Terms that are found unfair under the Directive are not binding for consumers. The Directive also requires contract terms to be drafted in plain and intelligible language and states that ambiguities will be interpreted in favour of consumers.

The Distance Selling Directive[24] applies to most contracts where a consumer and a supplier running an organised distance-selling scheme do not meet face-to-face at any stage until after the contract has been concluded. "Distance communication" includes traditional means of distance communication but also covers more technologically advanced means of distance communication such as teleshopping, mobile phone commerce (m-commerce), and the use of the internet (e-commerce). The Directive provides a number of rights for consumers in order to ensure consumer protection throughout the EU, including provision of comprehensive information before the purchase, right of withdrawal, protection from unsolicited selling and protection from fraudulent use of payment cards. Article 6(3) however excludes the right of withdrawal for contracts for gaming and lottery services, unless the parties have agreed otherwise. The Directive will be repealed once the rules of the Directive on Consumer Rights will have to be applied in all Member States, i.e. by 13 June 2014. The Directive on Consumer Rights incorporates the provisions of the Distance Selling Directive.

The Directive on Consumer Rights[25] aims at achieving a real business-to-consumer (B2C) internal market, striking the right balance between a high level of consumer protection and the competitiveness of enterprises. The Directive contains requirements on the information to be provided by traders prior to the conclusion of all consumer contracts, provides for specific information requirements and regulates the right of withdrawal distance and off-premises contracts and for rules on delivery and passing of risk applicable to contracts for the sale of goods as well as certain rules applicable to all types of consumer contracts. These include rules on the costs for the use of means of payment (e.g. credit or debit cards), on telephone hotlines operated by traders as well as on additional payments and pre-ticked boxes. In comparison with the Distance Selling Directive, the Directive on Consumer Rights however does not apply anymore to contracts for gambling (Article 3(3), sub (c)).

The Anti-Money Laundering Directive (AMLD)[26] requires certain institutions and businesses to apply a series of preventive measures with a view to prevent money laundering and terrorist financing. For the gambling sector the AMLD explicitly covers casinos. Member States can however extend the rules to other categories of undertakings with a particular risk to be used for money laundering and terrorist financing purposes. Those subject to the Directive are obliged to:

– verify the identity of their customer and to monitor their business relationship with the customer (casino customers must be identified and their identity verified if they purchase or exchange gambling chips with a value of EUR 2000 or more),

– report suspicions of money laundering or terrorist financing to the public authorities; and

– take supporting measures, such as ensuring a proper training of personnel and the establishment of appropriate internal preventive policies and procedures.

Competent authorities should ensure that the persons who effectively direct or will direct the business of such entities and the owners of such entities are fit and proper persons. It furthermore imposes enhanced due diligence procedures in certain situations which carry higher risks of money laundering, e.g. where the customer has not presented himself physically.

The Data Protection Directive[27] and the Directive on privacy and electronic communication[28] provide for the legal data protection legal framework in the EU. The Data Protection Directive sets out the general framework for the protection of individuals with regard to the processing of personal data and the free movement of such data while the Directive on privacy and electronic communication contains specific rules on processing of personal data and the protection of privacy in the electronic communications sectors, and regulates areas such as confidentiality, billing and traffic data, rules on spam/unsolicited commercial communications, cookies, etc. For gambling services these rules not only cover static data such as contact or financial information but also behavioural data, like gambling frequency and pattern or the stake.

The E-Commerce Directive[29] sets up an Internal Market framework for electronic commerce. It establishes harmonised rules on issues such as the transparency and information requirements for online service providers, commercial communications, electronic contracts and limitations of liability of intermediary service providers. While Article 1(5)(d) excludes gambling activities which involve wagering a stake with monetary value in games of chance, including lotteries and betting transactions from the scope of the directive the liability regime for information society service providers hosting or transmitting illegal content, Articles 12 to 15 of the Directive, also applies to gambling-related content.

Article 135(i) of the Directive on the common system of value added tax[30] exempts betting, lotteries and other forms of gambling, subject to the conditions and limitations laid down by each Member State, from the common system of value added tax. This however means that, in practice, a margin of discretion is available to Member States and in practice, not all forms of winnings from gambling are exempt in all Member States. In some cases, the tax exemption extends only to a limited number of forms of gambling (typically lotteries and some forms of betting) and in practice it may not specifically cover all forms of online gambling.

4.2. The notification procedure

The notification procedure under Directive 98/48/EC[31] (the "Transparency Directive") allows the Commission and Member States to follow legislative developments in the Member States.

The Transparency Directive lays down a procedure for the provision of information about rules on information society services. The Directive is intended to help avoid the creation of new barriers to trade within the EU. The Directive requires Member States to notify their rules on information society services in draft form, and generally observe a standstill period of at least three months before formal adoption, in order to allow other Member States and the Commission to raise concerns about potential barriers to trade. Where notified drafts are liable to create barriers to the free provision of information society services under primary or secondary EU law, the Commission and other Member States may submit a detailed opinion, or comments in the case of more minor concerns, to the Member State that has notified the draft. Private stakeholders can submit contributions, thereby assisting the Commission and national authorities in identifying possible trade barriers at an early stage.

Over the years, the active participation of Member States in assessing the notified draft has generated an effective dialogue between them and the Commission. In the period 2009-2011, around 100 notifications were submitted by the Member States on online gambling. Recent notifications have dealt with issues such as seat requirement, server location, limitations on the number of licences and exclusive rights systems.

However, Member States do not always respect the obligation to notify draft rules on information society services under the Transparency Directive or do not provide the information as required by the Directive to properly assess if restrictions contained in the notified texts are justifiable. Moreover, Member States do not always take into account the Commission's position or provide only brief responses to the Commission's comments and detailed opinions. The Commission services will remain vigilant so as to ensure that unlawful barriers to online services are detected at the earliest possible stage. In this respect the Commission promotes an open and constructive dialogue with Member States in the notification process.

4.3. Regulatory framework for online gambling in Member States

A number of Member States prohibit gambling on their territories, except in so far as exceptions are provided by law. This restrictive policy normally aims to safeguard the interests of consumers and to prevent fraud, illegal gaming and problem gambling or addiction. It also aims at ensuring that the profits derived from the gambling market are attributed to the public’s general interests. In certain Member States, it is unlawful to facilitate participation in foreign games of chance. In a similar manner, it may be unlawful to deliberately participate in a game of chance offered by an operator not licensed by the competent national authority of the Member State where the participant resides.

For online gambling services different regulatory frameworks exist:

• Ban

A few Member States (e.g. Germany, The Netherlands) prohibit the offering of games of chance on the internet, either for all games of chance or for certain types of games, such as poker and casino games.

• Monopoly

Some European jurisdictions (e.g. Finland, Portugal, Sweden) have set up monopolistic regimes for the offering of online gambling services. These services are offered either by a state-controlled public operator or by a private operator on the basis of an exclusive right.

• Authorisation/licensing

The notifications received over the past years show that a growing number of Member States establish licensing systems for the offering of online gambling services, allowing more than one operator to offer its services on the Member State's market (e.g. Denmark, Estonia, France, Italy, Spain). The vast majority require every operator of online gambling offering services on their territories to obtain a licence within the jurisdiction. These gaming licenses can only be issued by national or regional authorities; whether or not the operator disposes of a gambling licence from one or more EU Member State is not always taken into consideration. Some Member States accept proof and documents demonstrating compliance with domestic licensing requirements. A few Member States recognise licences issued in other EU Member States. In general, the policy of granting licenses is elaborated and potential licensees have to comply with a series of strict requirements. In some Member States, there are also specific requirements as to the type of legal entity entitled to run a specific gambling activity. In a few cases, licences are only issued to non-profit national companies.

Online licences at large do not only cover online gambling services but all types of remote offers of gambling services, including mobile phones, tablet computer and IPTV.

While most Member States issue only one type of online licence, for business-to-consumer (B2C) services, some jurisdictions issue B2C and B2B licences. B2C licenses are the individual licences for the offering of different types of games (lotteries, betting, poker and casino type games) and for the promotion of gambling services. B2B gambling licences are issued for the hosting and managing of remote gambling operators, i.e. the provision of management and hosting facilities on a platform.

• No specific regulation

A few Member States (e.g. Ireland, Lithuania) still do not have any rules on the offering of online gambling services.

5. EEA case-law on games of chance 5.1. Introduction

Since its land-mark decisions in Schindler (1994) and Gambelli (2003), the Court of Justice of the European Union (CJEU or "Court") has delivered over 20 judgments on games of chance in the area of the free movement of services and the freedom of establishment. In recent years the Court's jurisprudence has increasingly dealt with national rules on online gambling.

The Court's case-law in this field has been developed mainly on the basis of references for preliminary rulings from national courts under Article 267 TFEU. In those cases, the Court provided general principles and criteria for the interpretation of Articles 49 and 56 TFEU in the area of games of chance, so as to enable the referring national court to take the final decision on the compatibility of the relevant national law with EU law.

The EFTA Court has also established case-law with respect to the fundamental freedoms of the internal market in the area of gambling. It issued two judgments in 2007.

This section provides a summary of the main jurisprudence developed by the CJEU and the EFTA Court ("the courts") on gambling rules. It is structured in the following manner:

· the qualification of the organisation of games of chance as an "economic activity" covered by the fundamental freedoms of the Treaty (chapter 5.2);

· restrictions on the free movement of services and the freedom of establishment (chapter 5.3);

· recognised reasons of general interest which can justify restrictions (chapter 5.4);

· specific characteristics of gambling services provided via the Internet (chapter 5.5);

· criteria for assessing the proportionality (suitability and necessity) of the national restrictions under the different types of regulatory frameworks: a ban on games of chance (chapter 5.6.1), an exclusive right/monopoly (chapter 5.6.2) and a system of licences (chapter 5.6.3), as well as in the case of specific corporate requirements (chapter 5.7).

The main focus of this section is on the circumstances under which restrictive national gambling laws can or cannot be justified on grounds related to the general interest, which are also the basis for the Commission to assess the compatibility of national gambling laws under the Treaty.

It is important to underline that some of the principles enshrined in the case-law of the CJEU and the EFTA Court on gambling apply both to the online and the land-based games of chance. Other features of the case-law are specifically relevant for games of chance offered via the internet.[32] This section deals with both channels.

In addition, the document is limited to case-law developed by the courts in the context of national rules on gambling and the Treaty provisions on the free movement of services and the freedom of establishment. The following table provides an overview of the relevant cases:

CJEU judgments and pending cases

Preliminary Rulings

Judgment of 24/03 1994 || Schindler, C-275/92 || ECR [1994] I-01039

Judgment of 21/09 1999 || Läärä & Others, C-124/97 || ECR [1999] I-06067

Judgment of 21/10 1999 || Zenatti, C-67/98 || ECR [1999] I-07289

Judgment of 11/09 2003 || Anomar & Others, C-6/01 || ECR [2003] I-8621

Judgment of 06/11 2003 || Gambelli & Others, C-243/01 || ECR [2003] I-13031

Judgment of 13/11 2003 || Lindman, C-42/02 || ECR [2003] I-13519,

Judgment of 06/03 2007 || Placanica & Others, C-338/04, C-359/04 & C-360/04 || ECR [2007] I-1891

Judgment of 08/09 2009 || Liga Portuguesa de Futebol Profissional & Bwin International (Santa Casa), C-42/07 || ECR [2009] I-7633

Judgment of 03/06 2010 || Sporting Exchange & Others (Betfair), C-203/08 || ECR [2010] I-4695

Judgment of 03/06 2010 || Ladbrokes Betting & Gaming and Ladbrokes International, Case C-258/08 || ECR [2010] I-4757

Judgment of 08/07 2010 || Sjöberg & Gerdin, C-447 & C-448/08 || ECR [2010] I-6921

Judgment of 08/09 2010 || Winner Wetten, C-409/06 || ECR [2010] I-8015

Judgment of 08/09 2010 || Stoß & Others, C-316/07 etc. || ECR [2010] I-8069

Judgment of 08/09 2010 || Carmen Media Group, C-46/08 || ECR [2010] I-8149

Judgment of 09/09 2010 || Engelmann, C-64/08 || ECR [2010] I-8219

Judgment of 30/06 2011 || Zeturf, C-212/08 || ECR [2011] I-0000

Judgment of 15/09 2011 || Dickinger and Ömer, C-347/09 || ECR [2011] I-0000

Judgment of 16/02 2012 || Costa and Cifone, C-72/10 & C-77/10 || ECR [2012] I-0000

Judgment of 12/07 2012 || HIT and HIT LARIX, C-176/11 || ECR [2012] I-0000

Judgment of 19/07 2012 || SIA Garkalns, C-470/11 || ECR [2012] I-0000

Pending Cases

Joined cases C-186/11 & C-209/11, || Stanleybet International & Sportingbet || [Opinion of the Advocate General of 20 September 2012]

Joined cases C-660/11 & C-8/12 || Biasci & Rainone ||

Case C-390/12 || Pfleger and others ||

EFTA Court Rulings || ||

Judgment of 14/03/07, || EFTA Surveillance Authority v The Kingdom of Norway (gaming machines), Case E-1/06, || EFTA Court Report 2007, p.11

Judgment of 30/05/07, || Ladbrokes Ltd. v The Government of Norway, Ministry of Culture and Church Affairs and Ministry of Agriculture and Food (Ladbrokes), Case E-3/06, || EFTA Court Report 2007, p.89

This section is not intended to provide an exhaustive overview of all EU and EFTA courts' case-law that might be potentially relevant in future cases of national legislation on gambling, nor does it cover certain requirements of general application which are not limited to the gambling sector. For example, restrictions on the participation of foreign capital and certain banking requirements may also be incompatible with (secondary) EU law but are not dealt with here.[33]

A separate part of this section is dedicated to the application of the state aid rules in the gambling sector (chapter 5.8).

5.2. The organisation of games of chance is an "economic activity" covered by the fundamental freedoms rules of the TFEU

The CJEU ruled for the first time in its judgment in Schindler that the organisation of all games of chance or gambling[34] such as lotteries can be considered an economic activity since there is a particular service provided for remuneration and an intention to make a cash profit.[35] Hence, they are subject to the fundamental freedoms of the Treaty: the free movement of services (Articles 56-62 TFEU) and the freedom of establishment (Articles 49-55 TFEU). The Court held in Gambelli that services offered by electronic means are also covered by these Treaty principles.

The notion of “services” within the meaning of Articles 56 and 57 TFEU applies not only to activities allowing users to participate in gambling, but also to the activity of promoting gambling, given that such an activity merely constitutes a specific step in the organisation or operation of the gambling to which it relates.[36]

Magazine competitions involving crosswords or other puzzles in which a number of readers who have given correct answers receive a prize following a draw, do not constitute an economic activity in their own right. They are merely one aspect of the editorial content of a magazine, and are organised on a small scale, with small stakes. The CJEU has assessed restrictions on the organisation of such competitions under the Treaty rules on the free movement of goods.[37]

5.3. Restrictions on the free movement of services and the freedom of establishment

Articles 49 and 56 TFEU require the abolition of all restrictions on freedom of establishment and freedom to provide services – even if those restrictions apply without distinction to national providers of services and to those from other Member States – if they are liable to prohibit, impede or render less attractive the activities of a service provider established in another Member State in which it lawfully provides similar services.[38]

National rules in the area of gambling constitute an obstacle to the freedoms guaranteed by the internal market freedoms if they:

· ban the exercise of an economic activity in the area of gambling;[39]

· confer exclusive rights to organise and promote games of chance on a single operator;[40]

· make the exercise of an economic activity subject to a licensing requirement.[41]

The freedom to provide services involves the freedom of the provider to offer and supply services to recipients in a Member State other than that in which the provider is established, and also the freedom to receive or to benefit as recipient from the services offered by a provider in another Member State. The freedom to provide services therefore is for the benefit of both providers and recipients of services.[42]

Restrictions on freedom of establishment for nationals of a Member State in the territory of another Member State are prohibited by Article 49 TFEU, including restrictions on the setting-up of agencies, branches or subsidiaries.

As regards the delimitation of the scope, respectively, of the principles of freedom to provide services and freedom of establishment, it is necessary to establish whether or not the economic operator is established in the Member State in which it offers the service in question.

According to the Court´s case-law, for there to be “establishment” within the meaning of the Treaty, a commercial relationship entered into by an operator established in a Member State with operators or intermediaries established in the host Member State must make it possible for the operator to participate, on a stable and continuous basis, in the economic life of the host Member State and must thus be such as to enable customers to take advantage of the services offered through a permanent presence in the host Member State, which may be done simply by means of an office managed by a person who is independent but authorised to act on a permanent basis for the operator, as would be the case with an agency.[43]

On the other hand, every provision of services which are not offered on a stable and continuous basis from an establishment in the Member States of destination constitutes a "provision of services" for the purposes of Article 56 TFEU. In this context, the Court has ruled that no provision of the Treaty affords a means of determining, in an abstract manner, the duration or frequency beyond which the supplier of a service or of a certain type of service can no longer be regarded as the provision of services. Accordingly, "services" for the purposes of the Treaty may cover services varying widely in nature, including services which are provided over an extended period, even over several years.[44]

The CJEU has recognised that that "any restriction concerning the supply of games of chance over the internet is more of an obstacle to operators established outside the Member State concerned, in which the recipients benefit from the services, those operators, as compared with operators established in that Member State, would thus be denied a means of marketing that is particularly effective for directly accessing that market".[45]

In Dickinger and Ömer, the Court clarified which fundamental freedoms may apply in a situation where gaming services are marketed over the internet in the territory of a host Member State by an operator established in another Member State but with a certain infrastructure in the host Member State. It ruled that the mere fact that a provider of games of chance marketing over the internet makes use of material means of communication (such as a server, a helpdesk) supplied by another undertaking established in the host State is not in itself capable of showing that the provider has, in that Member State, a fixed establishment similar to an agency, which would have the consequence that the Treaty provisions on freedom of establishment would apply.[46] The Court answered the questions of the referring court under the provision of Article 56 TFEU on the free movement of services.

In practice, in the area of gambling, the importance of the difference between the application of the Treaty provisions governing the free movement of services or the provisions on the freedom of establishment is rather limited. Under both Articles 49 and 56 TFEU, the case-law provides for a similar interpretation of whether there is a restriction to the free movement and whether such a restriction can be justified on the basis of a general interest.[47]

Concrete examples of national rules in the gambling sector which constitute a restriction on the freedom to provide services and/or the freedom of establishment, as interpreted by the courts, are:

· the ban on the importation of lottery advertisements and tickets into a Member State with a view to the participation by residents of that State in a lottery operated in other Member States;[48]

· the prohibition of promoting gambling organised legally in other Member States and of unlicensed gambling nationally thus ensuring that national consumers only take part in gambling in the context of the national licensing system;[49]

· where a company established in a Member State pursues the activity of collecting bets through the intermediary of an organisation of agencies established in another Member State, any restrictions of the activities of those agencies would constitute such an a obstacle[50]

· the conferral of exclusive rights on a single operator (set up either under public or private law) to organise and promote games of chance, and whereby all other operators, including operators established in another Member State, are prohibited from offering, over the internet, services falling within the scope of that regime in the territory of the first Member State;[51]

· the prohibition on individuals to connect by internet from their home to a bookmaker established in another Member State;[52]

· the limitation of the number of licences or operators;[53]

· the prohibition of activities in the betting and gaming sector without prior authorisation from the administrative authorities;[54]

· restricting the right to operate games of chance or gambling solely to casinos in permanent or temporary gaming areas created by decree-law;[55]

· treating foreign lotteries differently for tax purposes from national lotteries;[56]

· the obligation that persons wishing to operate gaming establishments must adopt the legal form of a public limited company, which prevents, inter alia, operators who are natural persons and undertakings which, in the country in which they are established, have chosen another corporate form, from setting up a secondary establishment;[57]

· the obligation on persons holding concessions to operate gaming establishments to have their seat in the national territory.[58]

Finally, the CJEU has made clear that restrictions which are incompatible with the freedom of establishment and the freedom to provide services, because they do not contribute to limiting betting activities in a consistent and systematic manner, cannot continue to apply, not even during a transitional period.[59]

5.4. General interest reasons which may justify restrictions on gambling activities

Member States may justify restrictions to the fundamental freedoms for reasons related to the general interest.[60] A restriction to the freedom to provide services or to the freedom of establishment may be:

· allowed as a derogation, on grounds of public policy, public security or public health, as expressly provided for by Articles 51 and 52 TFEU, which are applicable in the area of services by virtue of Article 62 TFEU,[61] or

justified, in accordance with the case-law of the CJEU, by overriding reasons in the public interest.[62]

With regard to the justifications which are capable of being accepted, the CJEU has observed that the objectives pursued by national legislation adopted in the area of betting and gaming, considered as a whole, usually concern:

· the protection of the recipients of the services in question and of consumers more generally, and

the protection of society.

Within these two general categories of objectives, the courts have identified more specific interests such as the fight against gaming addiction, the reduction of gambling opportunities, the fight against crime and malpractice, and the general need to preserve public order.

On the other hand, the general interest objectives must be of a non-economic nature. Other reasons put forward by Member States have been rejected by both courts, owing to their economic or financial nature. These reasons include:

a) the diminution of the reduction of tax revenue[63] / maximising public revenue;[64]

b) the need to ensure continuity, financial stability and a proper return on past investments of licence holders[65] / protecting the market positions of existing operators;[66]

c) the contribution to the rural development by financing horse breeding.[67]

It is also settled case-law that a “ground of economic nature” such as the financing of benevolent or social or other public-interest activities through a levy on the proceeds of authorised games of chance may constitute only “an incidental beneficial consequence” and not the real justification for restricting the freedoms of establishment and the provision of services related to games of chance.[68] Therefore, a Member State is not entitled to rely on reasons of public policy relating to the need to reduce opportunities for gambling in so far as the public authorities of that State incite and encourage consumers to participate in games of chance so that the public purse can benefit.[69]

The Member State concerned should in each case determine which legitimate objectives may justify the restriction, and the justification grounds put forward by a Member State must be taken together and considered as a whole.[70]

The Court has acknowledged that, when analysing the betting and gaming sector, it is not possible to disregard the associated “moral, religious or cultural factors” or the “morally and financially harmful consequences for the individual and for society” associated with betting and gaming.[71]

According to settled case-law, in the absence of harmonisation on the games of chance, all those particular factors justify national authorities having “a sufficient margin of discretion [...] to determine, in accordance with their own scale of values, what is required in order to ensure consumer protection and the protection of society”.[72] The Member States are therefore “in principle free to set the objectives of their policy on gaming of chance and, where appropriate, to define in detail the level of protection sought".[73]

The Court has also held that, in the context of legislation which is compatible with the Treaty, the choice of methods for organising and controlling the operation and playing of games of chance or gambling falls within the margin of discretion enjoyed by national authorities.[74]

However, the restrictive measures imposed by the Member States must be applied without discrimination and must satisfy the conditions laid down in the case-law as regards their proportionality. Thus, they must be suitable for ensuring the attainment of the objective pursued and not go beyond what is necessary in order to achieve that objective. In this connection, it is settled case-law that national legislation is appropriate for ensuring attainment of the objective pursued only if it genuinely reflects a concern to attain it in a consistent and systematic manner.[75]

5.5. The provision of gambling services via the Internet 5.5.1. Specific characteristics of on-line gambling

Internet constitutes a "channel" through which games of change may be offered.[76] In light of the assessment of whether the establishment of a public monopoly on the offer of games of chance via the internet is necessary, the Court has however made clear that gambling services offered via the internet have several specific characteristics which enable the Member States to adopt measures restricting or otherwise regulating the provision of such services, in order to combat gambling addiction and protect consumers against the risks of fraud and crime. Those specificities are the following:[77]

(1) In the sector of on-line gambling, authorities of the Member State of establishment encounter specific difficulties to assess the professional qualities and integrity of operators[78] (see further chapter 5.5.2).

(2) The lack of direct contact between the consumer and the on-line gambling operator gives rise to different and more substantial risks of fraud by operators against consumers compared to the traditional gambling market.[79]

(3) The particular ease and the permanent access to on-line gambling services and the potentially high volume and frequency of such an international offer, in an environment which is characterised by isolation of the player, anonymity and an absence of social control are factors likely to develop gambling addiction and lead to other negative consequences. The Court has also stated that the internet may prove to be a source of risks of a different kind and of a greater order in the area of consumer protection, particularly in relation to young people and those with a propensity for gambling or likely to develop such a propensity, in comparison with traditional markets for such games.[80]

According to the Court, when assessing a national restriction on the provision of gambling services, all the substitutable marketing channels should be taken into account, unless the consequence of using the internet is to increase the risks linked to games of chance beyond those that exist in relation to games marketed through traditional channels. In the context of a national single licence system for betting on horseracing which did not draw any distinction between the online and land-based marketing channels, the CJEU has clarified that an assessment of the scope of the restriction on the freedom to provide services should be made from the point of view of restrictions placed on the entire sector concerned.[81]

5.5.2. Taking account of the checks on operators of games of chance carried out in other Member States

The courts have ruled that, in the current state of EU / EEA law, there is no duty of mutual recognition of authorisations issued by the various EU / EEA States.[82]

Thus, the EFTA Court acknowledged in Ladbrokes that the EEA State where the services are provided has a right to require possession of a new licence even if the service provider already holds a licence in its home state. It added, however, that national measures must not be excessive in relation to the aims pursued. This would be the case if the requirements to which the issue of a licence is subject coincided with the requirements of the home state.[83]

The CJEU has similarly ruled in Stoß and Others that a duty mutually to recognise authorisations issued by the various Member States cannot exist having regard to the margin of discretion recognized to Member States and the absence of any EU harmonisation in this matter.[84]

This line of case-law has been recently developed by the Court in the context of the specific features of online gambling, referred to in the previous section.

In the absence of sectoral harmonisation of legislation at European Union level, the mere fact that an operator lawfully offers services in one Member State, in which it is established and is in principle already subject to statutory conditions and controls on the part of the competent authorities of that State, cannot be regarded as a sufficient assurance that national consumers will be protected against the risks of fraud and crime. The Court has justified such exemption to the rule in view of:

· the substantial differences between the objectives pursued and the levels of protection sought by the legislation of the various Member States; and

· the difficulties liable to be encountered in such a context by the authorities of the Member State of establishment in assessing the professional qualities and integrity of operator.[85]

Moreover, the mere fact that a Member State has opted for a system of protection which differs from that adopted by another Member State cannot affect the assessment of the need for and proportionality of the relevant provisions, which must be assessed solely by reference to the objectives pursued by the competent authorities of the Member State concerned and the level of protection which they seek to ensure.[86]

The Court has also accepted that various Member States do not necessarily have the same technical means available for controlling online games of chance, and do not necessarily make the same choices in this respect. The fact that a particular level of protection of consumers against fraud by an operator may be achieved in a particular Member State by applying sophisticated control and monitoring techniques does not permit the conclusion that the same level of protection can be achieved in other Member States which do not have those technical means available or have made different choices. A Member State may legitimately wish, moreover, to monitor an economic activity which is carried on in its territory. That would be impossible if it had to rely on checks done by the authorities of another Member State using regulatory systems outside its control.[87]

Consequently, the case-law which states that it is not compatible with Article 56 TFEU to make a provider subject to restrictions for safeguarding the public interest in so far as that interest is already safeguarded in the Member State where he is established does not apply, in the present state of development of European Union law, in a field such as that of games of chance. This area is not harmonised at European Union level, and the Member States have a wide discretion in relation to the objectives they wish to pursue and the level of protection they seek.[88]

5.6. General criteria for assessing the proportionality (suitability and necessity) of national restrictions under different types of regulatory frameworks 5.6.1. A ban on games of chance

The Schindler judgment remains the only decision where the CJEU ruled on a national (UK) general ban on a certain category of games of chance - the organisation of lotteries (subject to very limited exceptions). The Court decided that under the circumstances in question, the national legislation amounted to an obstacle to the freedom to provide services, but was not incompatible with the Treaty in view of the concerns of social policy and the prevention of fraud which justify it.

The conclusion was based on a number of considerations, in particular the moral, religious and cultural aspects of lotteries, the high risk of crime or fraud that lotteries involve and the incitement to spend which may have damaging individual and social consequences. In addition, the general ban on lotteries could not be considered to be discriminatory based on the nationality of the operators.[89]

National legislation on gambling may also contain bans on the organisation and promotion of games of change through certain channels, in particular via the Internet. In Sporting Exchange and Ladbrokes Betting & Gaming and Ladbrokes International, the Court decided that in the light of the specific features associated with the provision of games of chance via the Internet, a total ban may be regarded as justified by the objectives of combating fraud and crime.[90]

5.6.2. An exclusive right/monopoly

Most of the case-law on gambling of both the CJEU and of the EFTA Court deals with national legislation which:

· creates a public entity which enjoys an exclusive right to offer certain games of chance and which does not itself operate such services but instead manages a network of “concessions”, i.e. natural or legal persons which are allowed by an act of the competent administration to operate on the market on behalf of the public entity holding the exclusive right;[91]

· establishes an exclusive right/legal monopoly for a public or State-controlled operator directly by law, [92] or

· limits the organisation and promotion of games of chance to one public or private operator through the grant of a single licence.[93]

The courts have developed a number of specific requirements which should be met by national regimes of exclusive rights/monopolies in order to be considered proportionate under the free movement principles. These include the need for a strict state control (chapter 5.6.2.1); the need for a particular high level of protection of consumer protection (chapter 5.6.2.2) and the need for a detailed analysis of the consistency of the national gambling policy, in particular as to the commercial strategy of the holder of the exclusive licence/monopoly and as to the overall national policy pursued in the field of games of chance (chapters 5.6.2.3-5.6.2.5).

5.6.2.1. Strict state control

The CJEU has ruled that a Member State seeking to ensure a particularly high level of protection of consumers or of society may be entitled to take the view that it is only by granting exclusive rights to a single entity which is subject to strict control by the public authorities that it can tackle the risks connected with the gambling sector and pursue the objective of preventing incitement to squander money on gambling and combating addiction to gambling with sufficient effectiveness.[94]

The public authorities of a Member State may legitimately consider that the fact that, in their capacity as overseers of the entity holding the monopoly, they will have additional means of influencing its conduct, outside the statutory regulating and monitoring mechanisms, is likely to secure for them a better command over the supply of games of chance and better guarantees that their policy will be implemented more effectively than in the case where those activities are carried out by private operators in a competitive environment. This is the case even if private operators are subject to a system of authorisation and a regime of supervision and penalties.[95] The choice between granting exclusive rights to a public body whose management is subject to direct State supervision or to a private operator over whose activities the public authorities are able to exercise tight control falls within the margin of discretion which Member States enjoy in the context of games of chance.[96]

With respect to the objective of fighting gambling addiction caused by gaming machines, the EFTA Court admitted in the Gaming machines case that "it is reasonable to assume that a monopoly operator in the field of gaming machines subject to effective control by the competent public authorities will tend to accommodate legitimate concerns of fighting gambling addictions better than a commercial operator or organisations whose humanitarian or socially beneficial activities partly rely on revenues of gaming machines. Furthermore, it is plausible to assume that in principle the State can more easily control and direct a wholly State-owned operator than private operators. Through its ownership role, the State has additional ways of influencing the behaviour of the operator besides public law regulations and surveillance."[97]

The condition of strict state control has been elaborated on in Liga Portuguesa. This case concerned the granting of exclusive rights to organise online lotteries, lotto games and sports betting to Santa Casa, a "legal person, in the public administrative interest". It was submitted that the main objective pursued by the national legislation was the fight against crime, more specifically the protection of consumers of games of chance against fraud on the part of the operators.

The Portuguese Government argued that the grant of exclusive rights to Santa Casa would ensure that the system would function in a secure and controlled way. The CJEU analysed the national legal framework and acknowledged that Santa Casa operates under the strict control by the public authorities.[98] The Court concluded that, in circumstances such as those in the main proceedings, the granting of exclusive rights to operate games of chance via the internet to a single operator may confine the operation of gambling within controlled channels and be regarded as appropriate for the purpose of protecting consumers against fraud on the part of operators. In view of the specific features associated with the provisions of games of chance via the internet (see chapter 5.5.1), the CJEU also considered the restrictive measure to be necessary.[99]

In Zeturf, the CJEU assessed a national system conferring an exclusive right to a single operator to organise off-course betting on horseracing. It concluded that national legislation is appropriate to ensure the objective of combating the criminal and fraudulent activities linked to gambling, as well as that of protecting society, having regard to the effects of gambling on individuals and on society, in the situation where there appears to be particularly strict State control over the organisation of betting on horseracing. Thus, "the State exercises direct control over the functioning of the exclusive operator, the organisation of the events on which bets are placed, the types of bet authorised and their channels of distribution, including the proportion of the winnings to the stakes and the conduct and supervision of the regulated activities".[100]

5.6.2.2. High level of consumer protection

However, as a monopoly is an unusually restrictive measure, it must be ascertained that the national authorities really intend to ensure a particularly high level of consumer protection with regard to the objectives relied on, and whether, having regard to the level of protection sought, the establishment of a monopoly could actually be considered necessary.[101] In this context, it is the Member State wishing to rely on an objective capable of justifying the restriction of the freedom to provide services which must supply the court called on to rule on that question with all the evidence of such a kind as to enable the court to be satisfied that the measure does indeed comply with the requirements deriving from the principle of proportionality.[102]

In the Gaming machines case, the EFTA Court, examined the introduction of an exclusive right for the operation of gaming machines of a fully state-owned public company supervised by the relevant Norwegian Ministry. It considered that the national legislation did not opt for a total ban, but for a monopoly system with a view to reducing the risk of gambling addiction to a level which it deems acceptable and to reduce crime and malpractice. In such a situation, the necessity test consists of an assessment of whether the monopoly option is functionally needed in order to reduce the problems to the level opted for, or whether this reduction could equally well be obtained through other, less restrictive means such as admitting private operators under a stricter licencing regime. The EFTA Court noted, as regards the objective of reducing crime and malpractice, that Norway "failed to demonstrate that a licensing scheme allowing private operators, if necessary with more restrictive rules on who may qualify, will not be equally effective as an exclusive right [for the monopoly operator] in preventing money laundering and embezzlement”. Nonetheless, it concluded that taking into account the public interest objectives considered as a whole, including the one of fighting gambling addiction, the exclusive right system is likely to be more effective, in the end, than the other available regulatory means. [103]

On the level of protection, the EFTA Court ruled in the Ladbroke case that "if it turns out that the national authorities have opted for a rather low level of protection, it is less probable that a monopoly is the only way of achieving the level of protection opted for. In that case, it is more likely that less restrictive means, for instance in the form of a licensing system […] could suffice".[104]

National authorities will therefore be more easily able to justify an exclusive right scheme if they can demonstrate that the relevant legislation entails a high level of protection which could not be ensured with the same efficiency under a normal licensing system.

5.6.2.3. The consistency of the national gambling policy

Member States must not take, facilitate or tolerate measures that would run counter to the achievement of the stated objectives of a given national measure.[105] Thus, restrictions on gaming activities are suitable to achieve their public interest objectives only insofar as those objectives are being pursued "in a consistent and systematic manner", which involves a complete assessment of the gaming policy of the concerned Member State in respect of the level of players' protection it has freely chosen to ensure. The "consistency" requirement will apply, first, in regard to the games of chance which are subject to the exclusive right scheme and the way they are being marketed by the monopoly holder and, secondly, in regard to the gaming policy which the national authorities pursue in other sectors of the gambling industry.[106]

Concerning the commercial strategy of the exclusive right holders, the Court noted that there is a certain degree of conflict of interest for all operators, including those that are public or charitable bodies, between the need to increase their income and the objective of reducing gambling opportunities. A public or non-profit-making operator may, like any private operator, be tempted to maximise its income and develop the gambling market, thus undermining the objective of seeking to reduce gambling opportunities. The single operator may be encouraged to increase the income generated by the gambling in order to fulfil public interest objectives more effectively. The allocation of income to those objectives may, moreover, lead to a situation in which it is difficult to forgo the amounts generated by the gambling, the natural tendency being to increase opportunities for gambling and to attract new bettors. [107]

This is particularly relevant in situations where a single operator holds exclusive rights over the organisation of games of chance. That operator is then in a very favourable position to increase, should it so wish, gaming activities.[108]

In this context, the CJEU has underlined that:

"the establishment of a measure as restrictive as a monopoly must be accompanied by a legislative framework suitable for ensuring that the holder of the said monopoly will in fact be able to pursue, in a consistent and systematic manner, the objective thus determined by means of a supply that is quantitatively measured and qualitatively planned by reference to the said objective and subject to strict control by the public authorities."[109]

On the other hand, the overall national gambling policy of a Member State should also be consistent with the public interest objectives invoked to justify restrictions to free movement. This assessment needs to be made taking into account the game of chance for which the exclusive right/monopoly is provided, and the way in which other types of games of chance are marketed.

If the national legislation is based on more than one legitimate objective, the consistency of the gambling policy must be assessed in relation to each of these legitimate objectives. Moreover, as the objectives pursued may not apply equally to all games of chance covered by the national law in question, it may also be necessary to distinguish between the different games.[110]

The next sections will provide more details of the application of the "consistency" condition in the context of the main general interest objectives of reducing gambling opportunities and combating fraud and crime.

5.6.2.4. The commercial strategy of the exclusive right holder

The CJEU has accepted in steady case-law[111] that Member States may justify limitations on the number of operators allowed to offer games of chance by invoking the objective of "preventing the use of betting and gaming activities for criminal or fraudulent purposes by channelling them into controlled systems". The Court has also admitted that "a policy of controlled expansion in the betting and gaming sector may be entirely consistent with the objective of drawing players away from clandestine bettering and gaming – and, as such, activities which are prohibited - to activities which are authorised and regulated". It is for the Member States to demonstrate that such channelling measures including, if relevant, the development of new games may reasonably be assumed to serve their purpose.[112]

To be consistent with the objective of fighting crime and reducing opportunities for gambling, national legislation establishing a monopoly of games of chance which allows the holder of the monopoly to follow an expansionist policy must be based on a finding that the crime and fraud linked to gaming and addiction to gambling are a problem in the Member State concerned which could be remedied by expanding authorised regulated activities.[113]

According to the Court, "[s]ince the objective of protecting consumers from gambling addiction is, in principle, difficult to reconcile with a policy of expanding games of chance characterised, inter alia, by the creation of new games and by the advertising of such games, such a policy cannot be regarded as being consistent unless the scale of unlawful activity is significant and the measures adopted are aimed at channelling consumers’ propensity to gamble into activities that are lawful."[114] That fact that demand for games of chance has already increased noticeably particularly at a clandestine level, must be taken into consideration.[115]

The Court underlines the need for national authorities to bring all the necessary evidence in this regard.[116] In Placanica, the Court accepted factual evidence of the Italian Government (investigations carried out by the Italian Senate) which led to the conclusion that the activities of clandestine betting and gaming, prohibited as such, were a considerable problem in Italy as it appeared that half the total turnover figure of the betting and gaming sector in Italy was generated by illegal activities.[117]

In order to achieve the objective of drawing players away from clandestine betting and gaming, authorised operators must represent a reliable, but at the same time attractive, alternative to a prohibited activity. As such, this may require "the offer of an extensive range of games, advertising on a certain scale and the use of new distribution techniques".[118]

An increase in the commercial activity of an operator who has been granted exclusive rights in the field of games of chance and a substantial increase in the income received from those games require particular attention when examining of whether the legislation at issue is consistent and systematic, and hence whether it is appropriate for pursuing the objectives recognised by the case-law.[119]

The courts recognised[120] the following concrete features of such expansionist policy:

· the public monopoly extends to lottery games and the holder is engaged in intensive advertising campaigns for lottery games, emphasising the need to finance social, cultural or sporting activities to which the profits are allocated, thereby making it appear that maximisation of the profits destined for such activities is becoming an end in itself of the restrictive measures concerned;

· the development and marketing of addictive games by the monopoly holder;

· the public authorities are developing or tolerating policies of expanding supply of casino games and automated games, despite the fact that they present a higher risk of addiction than bets on sporting competitions;

· the public authorities tolerate the offering of new possibilities of casino games on the Internet;

· the relaxation, by the public authorities, of the conditions in which automated games may be exploited in establishments other than casinos, such as gaming arcades, restaurants, cafes and places of accommodation;

· restrictions on how often per week or per day games are on offer, restrictions on the number of outlets which offer games of chance and on sales and marketing activities of the outlets, as well as restrictions on advertising and development of new games (from the owner of an exclusive licence);

· the extent and effect of marketing and development of the games of chance, inter alia, how much the owner of an exclusive licence spends in that regard as well as the form or content of the marketing and the susceptibility of the targeted groups;

· the fact whether the advertising of the gambling and betting services is rather more informative than evocative in nature;

· the fact that the number of casinos has risen from 66 to 81 in 6 years;

· the fact that the exclusive right holder makes use of sustained and growing advertising for its products, including on the internet, is increasing the number of outlets for betting and for the products offered to bettors, and uses a commercial strategy seeking to draw in new audiences for the betting offered.

More specifically in the context of the objective to draw players from illegal gambling to controlled channels, the CJEU has considered a number of features related to advertising, relevant for the assessment of the commercial policy of the holder of the monopoly:

· any advertising by the holder of a public monopoly must remain measured and strictly limited to what is necessary in order thus to channel consumers towards controlled gaming networks. Such advertising cannot aim to encourage consumers’ natural propensity to gamble by stimulating their active participation in it. Examples are trivialising gambling or giving it a positive image because revenues derived from it are used for activities in the public interest, or increasing the attractiveness of gambling by means of enticing advertising messages holding out the prospect of major winnings.[121]

· in particular, a distinction should be drawn between strategies of the holder of a monopoly which are intended solely to inform potential customers of the existence of products and serve to ensure regular access to games of chance by channelling gamblers into controlled circuits, and those which invite and encourage active participation in such games. A distinction must therefore be drawn between a restrained commercial policy seeking only to capture or retain the existing market for the organisation with the monopoly, and an expansionist commercial policy whose aim is to expand the overall market for gaming activities.[122]

5.6.2.5. The overall national policy in the field of gambling

Consistency of the national policy should also be assessed by reference to the gambling sector taken as a whole, in particular in regard to other types of games of chance, which are not subject to the respective monopoly. In this context, the specific differences between games, including their addictive level, should be properly considered.

The Court has recognised that the various types of games of chance can exhibit significant differences, particularly as regards the actual way in which they are organised, the size of the stakes and winnings by which they are characterised, the number of potential players, their presentation, their frequency, their brevity or repetitive character and the reactions which they arouse in players, or by reference to whether, as in the case of games offered in casinos and slot machines in casinos or other establishments, they require the physical presence of the player.[123]

In those circumstances, the fact that some types of games are subject to a public monopoly while others are subject to a system of authorisations issued to private operators is not, in itself, capable of affecting the suitability of the monopoly to achieve the relevant objectives pursued.[124]

However, in the particular circumstances of the case, the Court acknowledged that the referring courts "may legitimately be led to consider that the fact that, in relation to games of chance other than those covered by the public monopoly […], the competent authorities thus conduct or tolerate policies aimed at encouraging participation in those other games rather than reducing opportunities for gambling and limiting activities in that area in a consistent and systematic manner, has the effect that the objective of preventing incitement to squander money on gambling and combating addiction to the latter, which was at the root of the establishment of the said monopoly, can no longer be effectively pursued by means of the latter, so that the latter can no longer be justified having regard to [Articles 49 and 56 TFEU]".[125]

Measuring the level of gambling addiction requires an assessment of the danger of certain games of chance. In the Gaming machines case, for example, Norway had chosen to fight gambling addiction through the reduction of gambling opportunities by subjecting the operation of gaming machines to a State-owned monopoly. The EFTA Court considered that an increase in gambling addiction had occurred simultaneously with the increase in gaming machine gambling, and that 81% of the callers of a helpline reported gaming as a problem. Studies presented pointed at gaming machines as the single most potentially addictive form of gambling, due to the structural characteristics of the machines, such as rapid event frequency, the near miss, and light and sound effects. From this, the EFTA Court concluded that gaming machines are more dangerous in terms of leading to gambling addiction than other games lawfully offered on the Norwegian market. Even though other games may also lead to gambling addiction, the EFTA Court could not see this on a comparable scale, and considered in this particular case the marketing and development of other games not relevant when assessing the consistency of the contested legislation.[126]

In this context, the EFTA Court clarified that "when assessing the consistency of the contested legislation, it is, in the light of the overriding legislative motivation of fighting gambling addiction, essential to put the focus on games with comparable effects with respect to creating such addiction. Whether and to which extent a given game can lead to gambling addiction must be evaluated by taking into account the specific circumstances, including its features, its presentation, the reactions of its potential consumers and the broader social-cultural environment".[127]

5.6.3. A system of licensing 5.6.3.1. General

Licensing systems for certain categories of offline gambling are common in many countries. A growing number of Member States is introducing licensing systems for the provision of online gambling services (see chapter 4). These licenses may be issued on the basis of a call for tender which sets out the eligibility requirements. Once awarded the licence, its holder will be subject to the national gambling laws and supervisory structure.

According to consistent case-law of the CJEU, a prior administrative authorisation scheme, even though it derogates from a fundamental freedom, may be justified on the basis of objective, non-discriminatory criteria known in advance, in such a way as to circumscribe the exercise of the authorities´ discretion so that it is not used arbitrarily. Also, any person affected by a restrictive measure based on such derogation must have a judicial remedy available to them.[128] In order to enable the impartiality of the authorisation procedures to be monitored, it is also necessary for the competent authorities to base each of their decisions on reasoning which is accessible to the public, stating precisely the reasons for which, as the case may be, authorisation has been refused.[129]

Case-law has developed as regards the procedure to grant such licences. The principles of transparency, equal treatment and legal certainty appear to apply both in the situation where a Member State opts for an "open" system of licences in which access to a certain gambling activity is granted to every operator which fulfils the requirements provided by the relevant national law (such as a bank guarantee, absence of previous offences, etc.), and in the situation where a Member State establishes a “closed” system of licenses under which only one or several licences are granted by the national authorities in respect of each of the games of chance authorised (see also chapter 5.6.2).

5.6.3.2. The principles of transparency, equal treatment and legal certainty

The case-law of the CJEU states that public authorities which grant betting and gaming licences have a duty to comply with the fundamental rules of the Treaties and, in particular, with Articles 49 and 56 TFEU, the principles of equal treatment and of non-discrimination on grounds of nationality and the consequent obligation of transparency.[130]

The obligation of transparency applies if the licence in question may be of interest to an undertaking located in a Member State other than that in which the licence is granted. It requires the licensing authority to ensure, for the benefit of any potential tenderer, a degree of publicity sufficient to enable the licence to be opened up to competition and the impartiality of the award procedures to be reviewed, without necessarily implying an obligation to launch an invitation to tender. The award of such licences must therefore be based on objective, non-discriminatory criteria which are known in advance, in such a way as to circumscribe the exercise of the national authorities’ discretion.[131]

The purpose underlying the principle of transparency, which is a corollary of the principle of equality, is essentially to ensure that any interested operator may take the decision to tender for contracts on the basis of all the relevant information and to preclude any risk of favouritism or arbitrariness on the part of the licensing authority. It implies that all the conditions and detailed rules of the award procedure must be drawn up in a clear, precise and unequivocal manner, to make it possible for all reasonably informed tenderers exercising ordinary care to understand their exact significance and interpret them in the same way, and to circumscribe the contracting authority’s discretion and enable it to ascertain effectively whether the tenders submitted satisfy the criteria applying to the relevant procedure.[132]

The principle of equal treatment requires moreover that all potential tenderers be afforded equality of opportunity and accordingly implies that all tenderers must be subject to the same conditions.[133]

The principle of legal certainty also requires that rules of law be clear, precise and predictable as regards their effects, in particular where they may have unfavourable consequences for individuals and undertakings.[134]

The CJEU ruled in Costa that the effect of an obligation for new licence holders to observe a minimum distance between their establishments and those already in existence is to protect the market positions acquired by the operators who are already established. This is to the detriment of new licence holders, who are compelled to open premises in less commercially attractive locations than those occupied by the former. Consequently, any such measure entails an unequal treatment which could not be justified on the basis of the general interest objectives. As regards the objective of combating of criminality by making the operators active in the sector subject to control and channelling betting and gaming into the systems thus controlled, the Court observed that the rules on minimum distances were imposed exclusively on new licence holders and not on those already established. It ruled that even if a system of minimum distances between outlets were in itself justifiable, it could not be acceptable for such restrictions to be applied in circumstances such as those of the cases pending before the national court, in which the only operators to be placed at a disadvantage would be the new licence holders entering the market.[135]

In Sporting Exchange, the CJEU elaborated the case-law on the principle of transparency. It had to rule on the validity of the renewal of a licence to operate games of chance granted to a single operator without a competitive tendering procedure.

The Court recalled that the obligations of equal treatment and transparency is also applicable in the situation of such “closed” systems of licences.[136] It accepted however an exception to the compliance with that obligation in so far as the operator in question is a public operator whose management is subject to direct State supervision or a private operator whose activities are subject to strict control by the public authorities”.[137] In such situations, granting an operator with exclusive rights to operate games of chance, or renewing such rights, without any competitive tendering procedure would not appear to be disproportionate in the light of the objectives pursued by the national legislation in question (protection of consumers and combating both crime and gambling addiction).[138]

5.6.3.3. Reserving the grant of licenses to non-profit entities

The CJEU assessed in Sjöberg and Gerdin the compatibility with EU law of national legislation which makes the award of a licence to organise gambling activities subject to the condition of the applicant being a public or a non-profit organisation. The Swedish law in question prohibited the promotion of gambling legally organised in other Member States and the promotion of unlicensed gambling in Sweden.

The Court underlined that the purpose of the national law was “to ensure that those consumers take part in gambling only in the context of the system licensed at national level, thereby in particular ensuring that private profit-making interests are excluded from that sector”, which is a restriction to the free movement of services.[139] It then ruled that “it might be considered unacceptable to allow private profit to be drawn from the exploitation of a social evil or the weakness of players and their misfortune” and consequently that “according to the scale of values held by each of the Member States, and having regard to the discretion available to them, a Member State may restrict the operation of gambling by entrusting it to public or charitable bodies”.[140] Moreover, the Court considered that the prohibition on the promotion of services of private gaming operators run for profit, who would never be entitled to obtain national licences for the operation of gambling, may be regarded as necessary to meet such an objective. [141]

In Ladbrokes, the EFTA Court recalled that the aim of preventing gambling of being a source of private profit may in principle justify restrictions on the right of establishment and the free movement of services. As an aim in itself, it must be based on a general resentment of games of chance for reasons of morality, in particular if it relates to non-addictive games. Thus, the aim of preventing gambling from being a source of private profit can serve as a justification only if the restrictive measure (such as the introduction of a State-owned monopoly offering a range of gambling opportunities) reflects that moral concern.[142] However, national authorities cannot be required to oppress all games of chance offered by socially beneficial organisations. The acceptance of certain games of chance of a limited volume offered by such organisations, typically in local communities, constitutes a reasonable use of statutory prohibitions which does not fatally undermine the moral position on which the aim is based.[143]

5.6.3.4. Limited number of licences

Some Member States limit the number of licences, for example to a maximum for a certain category of gambling. In Placanica, the national (Italian) law at issue limited the number of licenses for the management of sport bets on competitive events not involving horses (to 1000), and also the number of licences for the acceptance of bets on competitive horse events.[144] Similarly to the case-law on exclusive rights/monopolies (see chapter 5.6.2), the CJEU made clear that limits on the number of operators are restrictions to the fundamental freedoms which are in principle capable of being justified.[145]

Under the specific circumstances of Placanica, the Court first analysed the general interest objective of “reducing gambling opportunities”. It ruled that the restrictions on the number of operators “must in any event reflect a concern to bring about a genuine diminution of gambling o