Betting Market

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 also had a joint venture with Codere, it has 79 locations trading in Madrid and the Basque Country. In its most recent results, William Hill said;

"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."

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.

For years, the UK's leading bookmakers have campaigned for the liberalisation of the European betting market. Over the past ten 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, when it comes to tackling international markets, the reality on the ground has proved to be somewhat different to the spin.

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 that can not 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 new gambling industry legislation backed by the French budget minister Eric Woerth is currently working its way through parliament.

The French are going out of their way to resurrect barriers to entry, whilst at the same times appearing to liberalise their market. They have stated that companies that currently break French law, will not be looked on kindly when it comes to the granting of betting licences. They are also seeking to introduce a law whereby the organiser of sporting events will be recognised as the rights owner; thus ensuring that they will have the final say as to whether there can be betting on their event. Moreover, it now also seems that the propoased levy payable to France's sporting bodies will be similar to that that is currently paid by Francaise des Jeux.

In the wake of the European Court of Justice's ruling in "Bwin Liga" France's Budget Minister Eric Woerth said that the ruling had served to justify the manner in which his country had sought to regulate their betting market;

"En indiquant que la restriction imposée par la législation portugaise aux opérateurs non autorisés offrant des jeux de hasard dans le pays peut être considérée compatible avec la liberté de services, la cour considère qu'il n'est pas nécessaire de maintenir le principe de la reconnaissance mutuelle dans le secteur de l'Internet jouant. Un Etat membre est donc justifié en interdisant un opérateur, autorisé dans un autre état, des jeux de offre dans son propre territoire s'il n'a pas lui-même accordait à l'opérateur la droite de faire ainsi."

For both Ladbrokes and William Hill, the headlong rush into the European betting market has backfired. It is to be hoped that the lesson will not be lost on other operators. Betfair's recent sponsorship deal with Catalan giants Barcelona is living proof that there are better and more sophisticated ways of entering European markets.

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