La Revue Squire

The long-awaited liberalisation of the French gambling market


Rédigé par Alexandre Le Ninivin le 13 Août 2008


The French gambling regulations are founded on the general ban that has prevailed since the 19th century, pursuant to the laws of 21 May 1836 and 2 June 1891.

The casino business is very strictly regulated and the French state has maintained until now a strict monopoly on betting and lotteries through the “Francaise des jeux” (FDJ) , and horse and greyhound racing, through the “Pari Mutuel Urbain” (PMU)

1/ Nothing left to chance


Both increasing pressure from Brussels (an infringement procedure was initiated in June 2007) and the forthcoming French presidency of the European Union compelled France to speed up the process and proclaim a “controlled” opening that had been several months in the planning (as set out in Bruno Durieux’s report on the opening of the gambling market).

On 4 June, the Minister of the Budget, Eric Woerth, explained to the European Commissioner Charlie McCreevy the outline of his plan for the opening of the betting, horse racing and gambling markets.

Mr Woerth set out the big picture of the reform at Roland Garros on 6 June, shortly after the Paris Civil Court judgment on 28 May 2008 deciding the dispute between the French Tennis Federation and UNIBET and EXPEKT. The court ordered both betting companies to pay substantial damages to the FFT for infringement of its exclusive right to run the event and unfair competition practices.

On 11 of June, Mr Woerth presented his programme to the French Cabinet and the rumours about a possible privatisation of at least 20 percent of the capital of FDJ continued in earnest.

In the interests of pragmatism, and faced with the ongoing struggling to maintain its archaic monopoly - in particular since the growth of the Internet - the government has chosen to pursue a “controlled” opening of the gambling market in order to organise and control a fast growing and largely unregulated sector.

2/ A “controlled” opening


The minister announced the controlled opening up of the market to competion, with the notable exception of lotteries and slot machines. This liberalisation will not therefore affect gambling in casinos in respect of which the monopoly of the state and FDJ will remain intact.

The monopoly of the PMU in respect of horse racing will end but the state intends to allow only “pari mutuel” bets. The EGBA, a European association that groups together the main private gambling and betting companies (Bwin, Bet-at-home.com, Carmen Media Group, Digibet, Expekt, Interbetten, Partygaming Plc and Unibet), and that supports fixed odds betting, has already reacted against this proposal but without success.

In all other sectors of sports betting, the fixed odds betting system that currently dominates the market should prevail.

Poker will be liberalised but other games ("jeux de cercle") are subject to discussions with the operators and lobbying is likely to be very intense in the next few months.

3/ The License: a discretionary way of control


New operators will have to obtain a five-year renewable license with a strict schedule of conditions. This licence will be granted independently for each game sector: sports betting, horserace betting, and casino games. An operator will have to obtain three different licences to cover the whole French market and to pay three "entry" fees and three annual royalty fees as well.

There has been some talks about an “invitation to tender” process being instituted in respect of each game sector but , at this stage, this idea seems to have been pushed to one side. The minister has mentioned no limit on the number of licenses that were to be granted.

Only operators licensed in some other European and EEA states (UK, Italy, Malta…) will be entitled to seek a license in France. Other European licenses will be taken into account for the purposes of the French licensing process but will not entail an automatic “right” to obtain the license, since the French government has rejected the principle of mutual recognition in the gambling area.

Observers have already begun to consider the scope for potential breaches of the law and the potential for instigation by non-licensed operators (or those to whom the government refuses a licence) of legal challenge before the European court founded on the application of mutal recognition. Future operators will have to be very careful and take legal advice at the earliest opportunity to file the license application and complete the process.

4/ Creation of a regulatory authority


The government will create a regulatory authority to control the market and grant the license, with a mandate to:

  • define the schedule of conditions to be respected by applicants and the operational rules of the market once open to competition;
  • deliver the licence and ensure compliance with the rules in an objective, transparent and non-discriminatory way;
  • supervise respect of public and social order, in particular with regard to the fight against illegal websites, criminal conduct and money laundering; public health and regulation of sporting events; the ban on gambling for minors; measures to prevent gambling addiction and rules in relation to sponsorship and advertising.
Operators wishing to enter into the market will need to build strong, solid relationships with the new regulatory body.

Meanwhile, the opening up of the online gambling market will be accompanied by the implementation of provisions designed to control , on a day to day basis, data processing, financial transactions and tax compliance with a view to combating illegal gambling -a market currently worth 5 to 7 billion euros per year.

5/ Tax - a stumbling block


According to the government, the long-standing restrictions on gambling were justified by the potential but considerable loss of revenue derived from its monopoly – in the order of 5.3 billion euros per year. During the current financial crisis the government will not jeopardise such a valuable source of funding..

Tax on gambling will therefore be maintained at a high level. The government will fix appropriate rates for each sector taking into account the economic and budgetary environment, the level of gambling consumption and the fight against money laundering.

According to the Minister, the subsidising of sport and the equine sector by the operators will continue. A specific levy will be applied to all gambling and betting transactions. Discussions with the main leagues, federations, clubs and event organisers will follow

Finally, the Minister has confirmed the rights held by event organisers in respect of the event they host and has announced the possibility of concluding non-exclusive contracts. This question remains largely open and may well lead to lengthy discussions in the Asembly, as both financial and competition related consequences could be significant. The negotiation of agreements between operators and organisers is likely.

6/ The reform timetable


The government is currently drafting the bill through wich the gambling market is to be opened up to competition. The draft will be sent to the European Commission for comment before the French parliament votes on it early this autumn.

The regulatory authority should be set up during the first half of 2009 and details of the details of the conditions to be fulfilled by the operators provided soon afterwards. The first licenses are unlikely to be issued before the second half of 2009.

Until then, and to ensure an orderly transition, prospective operators will will have to adhere to the current law prohibiting advertising and the Minister has stated that the regulatory authority will take their conduct during this interim period into account when allocating licenses.

Operators should now be well underway with the planning of their strategy to enter the multi-billion euro French gambling market. They will also need to mount strong lobbying pressure and launch communication campaigns to both gain the awareness of the French authorities and negotiate the outstanding areas of the bill so as to avoid an iron collar of regulation.

The starting gate to the market is about to open. There isn't going to be enough space for everyone, so to your starting blocks, on your marks, get set, go !

Hammonds has substantial worldwide experience in the gambling and sports betting sectors, providing advice on a global level to major gaming and online betting companies as well as casinos, investments funds and insurance companies.

Contact
Alexandre Le Ninivin for any queries.






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