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).
However, due to strong lobbying, things are about to change.
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 2008, 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 for 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 the its exclusive right to run the event and for unfair competition practices.
On 11 June 2008, 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 struggle 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.
Nine months after this announcement (delay due to the economic crisis), the law was presented to the government on 25 March 2009, and should come into force on 1 January 2010.
On 5 March 2009, the Minister presented the bill to the press.
2/ A “controlled” opening
The Minister announced the controlled opening up of the market to competition, 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 come to an 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, 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”), such as blackjack, are subject to discussions with the operators and lobbying is likely to be very intense over the next few months.
3/ The License: a discretionary method of control
New operators will have to obtain a five-year renewable license although a strict schedule of conditions. This licence will be granted independently in respect of each gaming 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 talk about an “invitation to tender” process being instituted in respect of each gaming 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 a 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 the instigation by non-licensed operators (or those to whom the government refuses a licence) of a legal challenge before the European Court founded on the application of mutual 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 (ARJEL – Autorité de Régulation des Jeux En Ligne) 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 such rules in an objective, transparent and non-discriminatory manner;
supervise respect for public and social order, in particular, with regard to the fight against illegal websites, criminal conduct and money laundering; public health and the 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.
A potential operator will have to provide a large number of documents demonstrating its management/solvency, its knowledge of the business sector, its guaranteed share capital, its French bank accounts, the state-of-the-art servers and software it operates, the policies it has in place to protect minors, its internal control procedures and cash flow follow-up … these requirements may dissuade the less determined applicants. They amount to the price paid for being permitted to enter such an important market. However, it is highly likely that being granted such a license will open the door to equivalent markets in other countries.
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 between 5 and 7 billion euros per year). The licensees should be inspected regularly by a certified organisation.
Similarly, it is highly likely that the French government will require servers that are used to conduct related activities to be located on French soil, so that on-site spot checks can be carried out. This matter has already been raised at European level, and the UK has been forced to abandon similar controls on the grounds of freedom of trade and industry.
The creation of illegal games on the internet will be subject to a penalty of 3 years’ imprisonment and a fine of €45 000, extended to 7 years imprisonment and a fine of €100 000 if it is the result of organised crime. Advertisement by these illegal sites will be subject to a minimum fine of €30 000 and the government has advised that it will monitor this very strictly. This project provides for the freezing of bank transactions undertaken by the illegal sites.
The government also wishes to create a « CCJ – Comité Consultatif des jeux » responsible for ensuring the appropriate use of games and that action plans have been put in place by the operators to that effect; the supervision of research into addiction; the prevention of monopolies; and the regulation of the whole sector.
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 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.
The government has already stated that tax will be levied on stakes. The rate is to be :
– 7.5% for the bets
– 2% for the poker
and the amount paid to the player should be between 80% and 85%.
According to the Minister, the subsidisation of sport and the equine sector by operators will continue. A specific levy will be applied to all gambling and betting transactions based on stakes :
– 1% on sports bets
– 8% on horse ridding bets
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 Assembly, 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 has drafted the bill though which the gambling market is to be opened up to competition. The draft has been sent to the European Commission for comment, who has approved the outline proposal.
The French parliament should vote on the bill early this summer. It is proposed that it will come into force on 1 January 2010.
The regulatory authority should be set up during the second half of 2009 and details of the conditions to be fulfilled by the operators, provided soon afterwards. The first licenses are unlikely to be issued before the first half of 2010.
Until then, and to ensure an orderly transition, prospective operators 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.
One can already see that certain European gaming operators, some of whom have openly declared their intention to apply for a license, have not waited for the opening up of the market. They have already established large-scale advertising campaigns in the media (TV, internet, press) in order to increase their brand awareness in France. No penalties have been imposed so far; however, caution remains the watchword.
In any case, operators should be well underway in planning their strategy for their entry into the multi-billion euro French gambling market. To avoid being burdened by iron collar regulation, operators will also need to lobby forcefully and launch publicity campaigns both to gain the recognition of the French authorities and for the purposes of negotiating outstanding issues in the bill during the discussions that are to take place in the Assembly.
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.