After months of talks, French government officials and the EU Commission announced on 7th November that they had laid down the foundations for a global agreement on opening up the French on-line betting market, both for horse racing – until then the chasse gardée of the Pari Mutuel Urbain (“PMU”) – and other sports betting – the “hunting ground” of the Française des Jeux (“FDJ”). Yet, however significant an announcement this may appear, this was no surprise at all. It felt on the contrary like the unravelling of a foregone conclusion.

First, successive French governments have progressively understood, since the early 2000s, that the French regulatory framework was looking increasingly suspect and in more ways than one. This state of affairs has been much commented upon, especially since the European Court of Justice’s Placanica ruling last March (ECJ joined cases C-338/04, Massimiliano Placanica, C – 359/04 Christian Palazzese and C – 360/04, Angelo Sorricchio, 6 March 2007).

Secondly, in July of this year the French Supreme Court, the Cour de cassation, handed down a judgment in effect reversing the French courts’ traditional position of upholding the horse betting monopolistic regime as being Gambelli-compliant. (ECJ C-243/01 6 november 2003). By then, most pundits sensed that it was game over for France’s monopolies (see for instance Carl Rohsler’s Opinion piece "The beginning of the end?", World Online Gambling Law Report, August 2007).

Yet, the unprecedented wind of change of recent months has been somewhat sudden. The French “model”, as it is often referred to within its own boundaries, is decades old and, for the great majority of that time-span, was not regarded as controversial at all. It is only since the combined advent of the Internet and of European harmonisation and liberalisation that its fortunes have started to change. Let us briefly review the history behind the setting up of this regulatory framework and explore ways in which this booming industry may soon be transformed in France.

In Ancient Greece, Plato declared that “You can learn more about someone in a one hour game than in a year-long conversation”. Observing our modern society, from Las Vegas to poker cyber-tournaments, not to forget mass-betting during major competitions like the FIFA World Cup, one can only agree that playing games is an integral part of human nature.

Horse racing was the first sport on which wagers were placed, many centuries ago. England was the scene of the first Modern Era horse races run for prizes, reinventing under the rule of King Richard the Lionheart a tradition that found its roots deep inside the great steppes of Central Asia and, in Europe, in the Olympic Games in Greece and later, in the first monument ever built for horse racing, the Rome Hippodrome. The 1512 Chester fair is the first documented race where the winner was awarded a trophy. From the mid-16th century, cross-country races gained in popularity; the race at Epsom, for example, held ever since those times, remains a fixture in the racing calendar. As bets on horse racing became more widespread, and other forms of games such as raffles at street fairs continued to develop, the need for increased regulation eventually arose and Henry VIII promulgated the first piece of legislation to regulate horse races organised during fairs.

At the time, in France, lotteries were the main type of game, organised for special occasions and at village fairs. Their rules lacked in consistency and were often somewhat dubious, leading King Francis I to describe their organisers as “charlatans”. For this reason, he promulgated an Edict setting out regulations for the holding of lotteries, but this measure only concerned the City of Paris. Although France’s cavaliers had acquired a solid reputation at battlefields across the continent throughout the 17th and 18th centuries, racing horses for sport was an area in which French riders lagged behind. However, under the late 18th century reign of Louis XVI, the first cross-country duels “with betting” between affluent landlords were organised, followed shortly by the first international race on French soil. In this growing sentiment of “Anglomania”, new competitions with large prizes were gradually launched, such as the Vincennes cross-country race. Whilst Emperor Napoleon I encouraged military parades and various forms of military competitions, he banned horserace betting. But once the Monarchy was restored, King Charles X, a keen punter, allowed such betting, founded the Prix du Roi from 1824 and encouraged the organisation of other races. In 1834, the Comité du Cercle was set up to “encourage the improvement of the equine race amongst Paris’ aristocratic and anglophile circles”.

Fixed-odds and pari-mutuel (or pool) betting quickly grew in popularity, but non-horse race betting was outlawed in 1836 together with other types of games and lotteries. This Act of 21 May 1836 is still in force and is the legal instrument that prohibits private organisations from entering the French betting market. However, this prohibition did not encompass bets on horse races and the fortunes and merits of French horse racing continued to improve throughout the mid-to-late-19th century, with the inauguration of tracks (hippodromes) at Longchamp, Deauville and Auteuil – still three major tracks today. In the 1870s the English word “bookmaker” appeared in the dictionary and the authorities noted that pool-betting had developed greatly, an oft-criticised form of betting as the punter’s potential gain is not known in advance. Yet, on 2nd June 1891, French Parliament decided to ban fixed-odds betting, an activity that had been “monopolised”, as it were, by private bookmakers. The law prohibited pool-betting as well, but carved out racetrack bets, offered under the aegis and control of the Ministry of Agriculture. A State-backed organisation was set up for these purposes: the Pari Mutuel Hippodrome (“PMH”), but which, today, with its £70 million p.a. turnover, is dwarfed by its outside-of-racetracks sibling, the Pari Mutuel Urbain (PMU). Similarly, legislation passed in 1983 and 1997 specifically authorised pool-betting on greyhound races and Basque pelota, but, again, this betting market is marginal in France.

Under the 1891 Act, only non-profit-making racing associations that are licensed by the Ministry are authorised to hold competitive races. There are currently 51 such race organisers – there were more until a couple of years ago, when many race tracks operators accepted that too many hippodromes were operating at a loss and let the government curtail the number of licences down from nearly 70. These organisations are grouped together in an Economic Interest Group (the PMU), a body corporate akin, in this context, to a charitable trust: its function is not only to self-regulate the sector, but also to redistribute wealth generated by the organisation of races throughout the industry, including down to the “grass roots” via the racing associations. Founded in 1920, the PMU has been reformed several times since; currently it operates under a framework laid down by Decree in 1997 and modified in 2002. It is monitored by no fewer than four ministries (Agriculture, Finance, Budget and the Home Office) and the Trésor Public (Treasury) rakes in a substantial part of this non-profit-making body’s margin, which is why many observers justifiably describe this monopoly, as a State-backed regime.

The non-horse bets monopoly of the FDJ came about differently. Since 1836, it has been forbidden to organise games of chance generally – except for small-scale local lotteries or raffles. Parliament allowed the French State, in 1933, to organise a National Lottery. Created at a time of national solidarity in the wake of the Great Crash, a feeling that was accentuated post World War, this lottery thus developed as a means to redistribute funds to the most needy, such as war casualties or, later, those hit by agricultural hardships. This body did not survive as the Loterie Nationale, yet despite changes, the basic derogation from the 1836 prohibition remained unaltered. The FDJ, as it is now named, is a private limited company owned 72% by the French State. The handful of fortunate stakeholders are a mix of non-profit-making organisations and private profit-making companies such as IDSUD SA, a listed company that is the FDJ’s largest privately-held shareholder with 2.6% of its stock and a dividend windfall in 2006 of €6 million. Nonetheless, regardless of the minority shareholders’ identity, the State definitely holds a controlling stake and the French President himself appoints the Chairman.

In 2001, the FDJ and the PMU received governmental authorisations to launch their services on the Internet. This source of income is minimal for both corporations, at around, respectively, 1 and 4% of overall turnover. 16 of the FDJ’s 26 games are available on-line. Yet, the €10 million that the FDJ’s customers bet on-line each year is insignificant compared to the turnovers of bwin, Unibet, Victor Chandler (mainly in agencies), Paddy Power and many others – not to mention cyber-casinos in the different yet competitor market of on-line casino games and notably poker. The two French operators are acutely aware of the commercial threat posed by these private operators – licensed generally in jurisdictions like Malta or Gibraltar. Several other European monopolistic operators have adopted the same strategy of expanding their activities to the Internet, eg Svenska Spel in Sweden and Holland Casino in the Netherlands. In the early 2000s, these operators indeed sensed that the wind was turning and that their regulatory haven would come under pressure from Brussels’ anti-trust drive.

Yet, however unpalatable the French model may be to liberal-minded commentators, and to some factions within the EU’s institutions, the PMU, established in 1920 by derogation to the 1891 prohibition, and the FDJ, set up in 1933 by derogation to the prohibition of 1836, have one weighty argument in their favour: they greatly contribute to the financing of sports in France. Whilst the PMU operates in an autarchic environment, that of horse racing, which it both regulates and self-funds, the FDJ redistributes large amounts of its cash (€250 million in 2005) to a governmental agency called the Centre National de Développement du Sport (“CNDS”), which helps fund numerous local clubs, small federations, some professional athletes preparing for major competitions etc. For this reason, it is often claimed – and with much truth – that sports betting money, in France, is a significant source of financing for sports in general (much like, but perhaps to a greater extent, the National Lottery’s funding of various sports projects in the U.K.). The White Paper published by the Commission last July (COM(2007) 391) encourages Member States’ respective governments to propose a type of regulatory framework for sports bets that may durably sustain the financing of sports in Europe.

As we have seen, the French model is ensconced in history and tradition, stretching back to the mid-19th century. For decades, the two public operators have helped finance sports in France – so, some anti-liberals ask, why suddenly change a system that works? Turning the clocks back to less than a decade ago, the European institutions did not dare interfere with the restrictive frameworks in France and elsewhere. The Rome Treaty of 1957 enshrines as key legal principles the core freedoms (services, establishment and the circulation of people and funds), but never have the EU institutions had authority to legislate over the betting market. A long debate resulted, in 2005, in this industry being specifically excluded from the “Bolkenstein” Services Directive (2006/123) ; the EU Parliament’s Reporter, Evelyne Gebhardt, justified the amendment as follows: “as gaming activities by definition raise concerns in terms of preserving public order and protecting consumers, they are therefore excluded from the EC institutions’ sphere of competence and must remain a field in which Member States are free to regulate activities as they deem appropriate.” Since the EU Treaty does not purport to set out rules governing as such the sports betting sector, and since, moreover, no secondary legislation regulates this area, it may legitimately be asked why Member States are not entirely free to maintain whatever regime they see fit?

Indeed, in the early case law, the European Court of Justice itself concluded in 1994 (Schindler C-275-92) that the restrictive measures in place in the U.K. at the time (prohibition to import lottery tickets and associated advertising materials) were fully justified, on grounds of protecting the public interest, for instance vulnerable consumers, and were proportionate to the goal sought. In Läärä (C-124/97), this position was confirmed and again the framework, which granted a monopoly in Finland over slot machines to Raha-automaattiyhdistys (“RAY”), was deemed legal. In Bosman (C-414/93) as well, the Court was satisfied that a restrictive football transfer regime was, in principle, justifiable on grounds of public order considerations – although the given (FIFA) rules were held not to be proportionate, as the same objectives could be achieved by other less restrictive means. Nevertheless, through this breach opened up in 1974 (Walrave C-36/74) when the Court ruled for the first time that sport was an “economic activity” (art. 2 of the EU Treaty) and as such fell under the ambit of EU Treaty principles, the Court has made inroads into the legal rules regulating the sports betting market, ultimately culminating in the Gambelli/Placanica test, which requires a State’s gaming policy, if restrictive, to be systematic and coherent.

Interestingly, the ECJ’s position was not followed by the EFTA Court in a couple of recent judgments (E-1/06 EFTA Surveillance Authority v. Kingdom of Norway and E-3/06 Ladbroke ltd v. Government of Norway) , despite the latter grounding its reasoning on ECJ jurisprudence and explicitly discussing the Gambelli test. Studying the Norwegian regime, the Court interpreted the ECJ case-law (pre-Placanica, it should be added) as boiling down to the following test: “the necessity test consists in 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 licensing regime”. The Court thus compared the relative effectiveness of alternative restrictive measures (the effectiveness is measured as against the level of public protection which the State intends to achieve ). It concluded that the Norwegian regulations, which set up an “exclusive right system”, were “likely to be more effective in order to achieve the objectives of the legislation [… than ] other means”. However, this modified test may well not be endorsed by the ECJ in future decisions. In the Loi Evin case (in relation to the prohibition in France to advertise for alcoholic beverages and tobacco) Advocate General Tizziano commented that “what must be verified is not whether other measures may be envisaged that would be more effective, but whether the concrete measures adopted by the Member State in its sole discretion are adequate to reach the level of public health protection intended by that Member State”. This approach has led to the following test: “whether the [restrictive] measure is suitable for achieving the objective invoked by the Member State” . Yet, is the ECJ likely to follow the EFTA Court’s route by extending the “suitability test” to a test that measures restrictive systems’ comparative effectiveness, i.e. determining whether a less restrictive framework could be more effective?

Monopolies in the sports betting market have therefore been, for a very long period of time, and remain, potentially justifiable regimes. In any case, would it not be surprising and somewhat illogical for the EU Commission to push France towards anything over and above a measured opening up of its market, given that part of the Commission’s criticism of the French rules is based on the two operators not complying with the government’s posted objectives of limiting gaming opportunities? Indeed, a sudden and vast liberalisation of the market may potentially lead to a sharp rise in the on-line betting offer, thereby increasing the risks of addiction, minors accessing such sites, money laundering and other such problems. Further, whilst a few weeks ago the French Budget Minister, Mr. Eric Woerth, was trumpeting in Brussels with Commissioner Charles McCreevy that a new dawn was on the horizon for betting regulations in France, Mr. Woerth, like all able politicians, seems to change his tune somewhat in front of a French audience. At the end of November, talking about the horse racing industry to the Senate’s Finance Committee, he described himself as a defender of the “French model”, stressing that he would firmly stand to defend the interests of the 60,000 people employed in this sector. Mr. Woerth also mentioned that the 8% of its revenue that the PMU currently redistributes to the horse industry would be a useful benchmark, so the rate of special tax that any duly authorised French market operator may expect to be obliged to pay is likely to be in that ballpark. Whilst the French market will certainly be liberalised in the not too distant future, the negotiations may last longer than perhaps initially envisaged. One certainty is that the French government will use every argument that it can to justify its restrictive position: the EFTA’s Court decisions upholding the Norwegian monopoly on the basis of its greater effectiveness in curbing gaming, arguments of concerns for public health and money laundering (that may finance terrorism), not to forget the funding of sport… which is a consideration that the Commission itself highlights in its recent White Paper.