On 8 September 2009 the European Court of Justice ruled in the case of Liga Portuguesa de Futebol Profissional, Bwin International Ltd, formerly Baw International Ltd, v Departamento de Jogos da Santa Casa da Misericórdia de Lisboa (Reference for a preliminary ruling Article 49 EC Restrictions on the freedom to provide services Offer of games of chance via the internet).In a very significant departure, the Court said that as internet betting had not been harmonised in Europe, individual Member States were entitled to conclude that just because an operator like Bwin lawfully offered its services via the internet in another Member State, "in which it is established and where it is in principle already subject to statutory conditions and controls on the part of the competent authorities in that State", this did not amount to a sufficient assurance that national consumers would be protected against the risks of fraud and crime "in the light of 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 operators".
The Court noted that the lack of direct contact between consumer and operator, games of chance accessible via the internet involve different and more substantial risks of fraud by operators against consumers compared with the traditional markets for such games.
Interestingly, the Court also said that "the possibility cannot be ruled out that an operator which sponsors some of the sporting competitions on which it accepts bets and some of the teams taking part in those competitions may be in a position to influence their outcome directly or indirectly, and thus increase its profits".
The Court ruled that in the light of the specific features associated with the provision of games of chance via the internet, the restriction at issue in the main proceedings could be regarded as justified by the objective of combating fraud and crime;
"Consequently, the answer to the question referred is that Article 49 EC does not preclude legislation of a Member State, such as that at issue in the main proceedings, which prohibits operators such as Bwin, which are established in other Member States, in which they lawfully provide similar services, from offering games of chance via the internet within the territory of that Member State.
In a somewhat knee jerk response to what was clearly a bad judgement for the online betting industry, James Hollins, an analyst at Daniel Stewart, told The Times: "While the ruling has partially weakened the open-markets stance hoped for by operators, it should have zero impact on key territories that are moving towards regulation, such as France and Spain."
Whilst there may indeed be some truth to Hollins' remark, the reality on the ground is that the UK's leading bookmakers are finding it increasingly difficult to make inroads into the newly regulated European betting markets.
In July 2008 Hills announced the sale of the entire issued share capital of its Italian joint venture, William Hill Codere Italia Srl (WHCI) to INTRALOT International Holdings Limited. The gross consideration agreed was ?5.5m, which was shared equally between the Group and our joint venture partner, Codere. The sale followed a strategic review of WHCI within the Italian sports betting market.
Hills had been awarded 57 licences in an auction in July 2006, but the company ultimately came to the conclusion that this number was insufficient in scale to provide an attractive long-term return. Moreover, the company concluded that "the cost of acquisitions within the existing uncertain regulatory framework made further investment unattractive". This sale resulted in a loss on disposal of £1.2m, in addition to operating losses of £1.6m incurred in the first six months of the year.
In Spain, where Hills had formed a joint venture with Codere, called Victoria Apuestas, which had 98 locations trading in Madrid and the Basque Country, economic conditions a lack of regulatory transparency saw Hills take an early impairment charge of £5.4m against the book value of its investment;
"Following the substantive investment of amounts originally committed by each party, we are in discussions with Codere as to the future strategic direction of the joint venture and the levels of future investment expected to be required to develop the business in Spain. In light of this and as a result of the deteriorating economic conditions in Spain, we have reviewed the carrying value of our joint venture and recorded an impairment charge of £5.4m against the book value of our investment in Spain."
In May 2009 Hsill announced that it was withdrawing from the year-old joint venture, stating that progress had been hampered by the slow granting of local regulatory consents and slower-than-anticipated regulatory changes within the country's other autonomous regions; "These factors, coupled with the difficult economic situation within Spain, were likely to lead to additional capital requirements and a delay in achieving William Hill's target return for the venture".
When announcing its results for the half year ended 30 June 2009, Ladbrokes announced that it was also going to exit the Italian betting market. The company said that revenue growth had been below expectations "due to the continued presence of a number of illegal shops, the increased competition in the market place and the withdrawal of the protective distance rule".
Ladbrokes said that these factors, combined with the investment that would be required for the estate to achieve critical mass and the associated risk attached to achieving an acceptable return from that investment, had led to its decision to sell it retail business.
As regards Spain, Ladbrokes said that whilst bet volumes and amount staked were running ahead of expectations margins in the first six months of the year had been poor. It said that as of 30 June 2009 its estate numbered 68 corners and two stand alone shops. Ladbrokes said that "the long term success of the business remained dependent on regulatory change in other regions".
In July 2009 Sportingbet announced that it had sold its licensed Italian betting operation to local management for a nominal sum, in the process incurring an exceptional cost of £7.1m.
And then, on April 12 2010 Ladbrokes announced that it had agreed to sell its Italian retail betting and gaming business (head office in Milan, 82 shops and 51 corners located throughout Italy) to an affiliate of Cogetech S.p.A, a leading player in the Italian betting market. The expected cash consideration is ?5.25 million payable on completion, whilst Cogetech will assume responsibility for approximately ?18m of guarantees currently provided by Ladbrokes plc. In 2009 the it was reported that Ladbrokes' Italian retail business had made a loss of £9.9 million and at 31 December 2009 the carrying value of the business was £26.7 million. Ladbrokes took the decision to exit the Italian retail market in August 2009 due to revenue growth being below expectations, increased competition in the market place, and the high level of further investment required to achieve critical mass.
Then came the mass exit from the so called newly liberalised French betting market. On 14 May 2010 Betfair posted the following message on its forum; "On 6 April the French parliament passed a law relating to online gaming which came into effect on the 13th May, 2010. This law prevents us from allowing customers to access www.betfair.com and associated sites from France. We are considering our options for the future but in the meantime, as a result of this change in legislation, we can no longer accept bets from France or any of its territories. Please note that this restriction also applies to customers that may have accounts registered in a different location but attempt to use their Betfair account whilst they are visiting France."
On May 26 William Hill became the latest international betting company also announced its exit from the French betting market; "following the introduction of new laws relating to online gambling in France, William Hill Online is taking steps to cease accepting online gambling business from clients resident in France. In conjunction with the changes to the regulatory regime in France, William Hill Online is considering whether to apply for a licence to offer permitted online gambling products to French residents."
On Thursday 27 May 2010 Sportingbet said; "Legislation to issue license to permit online sports betting, online horse betting and poker for customers resident in France was adopted by the French Parliament on 6 April, 2010. Online casino and games of chance are not permitted. In accordance with required procedure, the legislation was notified to the European Commission for review. As such, the enacted legislation is unlikely to be subject to further challenge by the Commission and further recourse to the European Union Courts by operators is therefore limited. The law was enacted on 14 May 2010 and in compliance with the legislation the Group stopped taking wagers from French resident customers. The Board of Sportingbet hope the licensed market, with greater freedom to advertise, along with greater acceptance of the online gaming market will lead to market growth. Subject to concluding on the economic viability of operating under the new licensing and tax regime, the Group intends to apply for licenses to operate sports betting, pari-mutuel horse race betting, and poker. As the license issue process and the detailed regulations are only just being published, it is unlikely that the Group will be able to satisfy the French regulatory requirements until early in 2011. In the 9 month period to 30 April 2010, the Group earned a contribution of £2.6m from £6.0m of Gross Gaming Revenues ("GGR") derived from the Group's French language site. Approximately 60% of GGR was derived from sports betting, 15% from poker and 25% from casino. In total, GGR from France accounted for approximately 3.5% of Group GGR."
"Following 888's application on 21 May 2010 to obtain a licence to operate in the newly regulated French market, it is expected that trading could be further adversely impacted by the mandatory transition of business onto the regulated platform. This transition will require significant marketing investment, which in turn will have a short to medium term financial impact on the business."
In October 2010 the danger of rushing headlong into the partially liberalised European betting market, was once more brought to the fore, with the announcement, that six months after they had formed a headline grabbing joint-venture to enter the French betting market, the duo of Ladbrokes and Canal Plus had shut the venture down, and Ladbrokes have withdrawn from the French betting market.
If a company with as big a brand profile as Ladbrokes, in conjucntion with a leading French media company, feels that there is no strategic logic to being in this market, then what hope is there for the hundreds of other betting companies that are scrambling for the crumbs from the table? Gary McIlraith, Ladbrokes directeur général numérique, international et stratégie à Ladbrokes: "Nous avons conclu avec nos partenaires que le marché français est taxé à un niveau tellement prohibitif qu?il ne représente pas un investissement intéressant. Nous continuerons de suivre le marché français, mais pour l?instant, n?avons pas l?intention de progresser avec les plans de lancement."
For years, the UK's leading bookmakers have campaigned for the liberalisation of the European betting market. Indeed, over the past fourteen years, many betting industry executives have attended conference after conference, where they were told that the European Court of Justice's rulings in Gambelli and Placanica were going to throw open the doors to a free European betting market.
As always, however, when it comes to tackling international markets, the reality on the ground has proved to be somewhat different to the spin. As any A Level marketing student knows, cultural, legal and historical barriers cannot be brushed aside over night. Incumbent operators, with a long track record in their home markets, enjoy a signifciant competitive advantage both in terms of scale and reputation, that cannot simply be erased at the drop of a hat.
The notion of a European betting market free for all always was nothing more than wishful thinking, in that each of the individual European states was always going to move to protect its domestic industry. No where is this more in evidence than in France, where the new gambling industry legislation has effectively constructed barriers to entry through the introduction of high tax and betting duties, relatively low payback ratios and an arduous player registration process.
In September 2011 the European Court gave its reading in the case of Jochen Dickinger and Franz Omer, the founders of the online betting website bet-at-home.com. The Court stated that a monopoly on games of chance can be justified "by overriding resons in the public interest, such as the objective of ensuring a particularly high level of consumer protection." Moreover, the Court said that in the area of games of chance, "Member States have a wide discretion in relation to the objectives they wish to pursue and the level of protection they seek."
As we head into 2012, it is fair to say that the walled gardens that comprise the European betting market remain relatively undisturbed. And in those situations, where one or two bricks have been removed from the wall, restrictive measures, such as harsh taxation regimes, have ensured that the incumbent monopoly suppliers have remained very well protected vis a vis new market entrants.
For two of the biggest brans in the European betting market, Ladbrokes and William Hill, the headlong rush into the European betting market has backfired. Accordingly, one may conclude that the notion of a liberalised European gambling industry is something of a misnomer. Or to put it another way: Monopolies still rule OK.
Niall O'Connor
To cite this article: "Walled Gardens: The myth of European Gambling Industry liberalisation." Niall O'Connor (Bettingmarket.Com 2012).