So far, it has been rather clear that Member States should comply with three European Union principles when working on their local online gambling framework: coherency, no discrimination, and rules that do not go beyond what is necessary to achieve the goal of protecting public interest. Consequently, key pillars of any local regulation have been an indeterminate number of licenses and no local establishment.
Furthermore, these three principles also include the need to regulate all products. This is not only relevant against the backdrop of the coherency question, but also against the backdrop of channeling consumer demand towards the controlled market. However, exceptions were established early in the multi-licensing process: France has never opened up for casino products and only regulated sports bets and poker by classifying them as ‘skill games.’ Austria has never opened up for casino and poker either. For its part, Belgium has always linked online to offline licenses, which automatically restricted the number of licenses that were issued.
If exceptions have no consequences, the way is paved for further deviations. The reasoning behind this is often understandable, of course. It is indeed difficult to manage a high number of licensees. They all need to be controlled and audited, and a large team of specialists is to be hired for the respective Ministry or Authority. A high number of licensees also means a lot of advertising in a market, which creates problems with consumer advocacy groups, with anti-gambling associations or the public in general. The massive competition within the sector very often leads to operators stretching the law which again means more need for control. Last but not least, it means a stronger competition for the incumbents. These are all very good reasons to think about creative ways of limiting the number of licensees.
HIGH TAX, LOW NUMBER OF LICENSEES
One of the first approaches in this regard has been the introduction of a comparably high gambling tax which forced operators to either adjust their business model or leave the market. That’s what France did, as well as Poland or Portugal, all highly taxed markets when it comes to sports betting. This high taxation, in combination with certain product limitations, has reduced the number of licensees substantially. Twelve years after the granting of its first license, France still has only 18 licensees compared to 70 in Italy or over 170 in the UK. In Poland, only 14 share the licensed sports betting market, and in Portugal, 16 licensees are active.
The downside of this model has been a larger black market compared to lower taxed jurisdictions and often the departure of big international operators, who would have been able to offer the technologically most advanced products and services. Incumbents, however, had got some opportunity to build their business without being confronted with an overly challenging international competitive environment. Generally speaking, those markets were able to develop their revenue curve, hence, per se, they succeeded and mitigated the side effects of too many operators in the market. (1)
RETROACTIVE TAX TO CREATE A LEVEL-PLAYING FIELD
A second approach that could be observed was retroactive tax payments, as Spain, Greece or Romania had foreseen, for instance. The reasoning behind this move has been that international operators, active for many years in the market without paying gambling tax, should pay a one-off amount in order to create a level-playing field with new entrants or incumbents who would apply for online licenses.
However, this obstacle has not substantially reduced the number of licenses. In Spain, over 50 operators sought a license, and in Greece, the number of licenses during the interim period was at around 24, and has been growing since the final regime came into force in the summer of 2021.
BLACKOUTS VERSUS HEAD STARTS
Now that new technologies allow for better Internet barriers and a more efficient enforcement when it comes to black market issues (not to forget soon to be introduced EU legislation such as the Digital Services Act), alternative models have popped up since a high tax and fewer regulated products are not the only way of reducing the appetite of applying for a license. Holland was the first jurisdiction to introduce the so-called prioritization criteria, i.e. operators who wanted to apply as soon as the legislation was ready-to-go were recommended to not directly address Dutch customers via advertising, sponsoring, the offering of a Dutch version or special payment methods mostly used in Holland, etc.
Even though many operators complied with most of these criteria for numerous years, the major part of them received fines from 2014 to 2021. In addition, prior to the issuing of the first licenses, Holland abruptly decided to introduce a blackout period for all those who had been active in the market previously. The combination of these provisions kept most international operators out of the market and gave a head start to ten licensees, many of them incumbents. The question of whether a blackout period is compliant with EU law is more a theoretical one, since the European Commission decided to stop major activities around online gambling in the fall of 2017.
Hungary, which presented their amendments to the gambling act by introducing sports betting, seemed to get inspired by such moves. One crucial paragraph in the revised text says that only operators who have not worked in a grey area during the last five years prior to the license application are eligible for a license. This seems to be quite an effective way of keeping the international industry out without not allowing a multi-licensing system.
INTERNAL MARKET IDEA TO BE REVIVED FOR IGAMING?
Although one can question to what extent it makes sense to have dozens and dozens of providers in a market (with a population of only 10 million, Sweden counts nearly 100 operators), all those provisions circumvent the idea of an internal market and real competition where the best wins. Arguments such as the protection of customers should to be investigated further, since prevalence rates not only remain stable, but are quite similar whether we look at monopolies or countries with several operators. The latest figures in the UK in this regard also noted stability.
Interestingly enough, newly regulated countries in the Americas, such as Peru or Uruguay in South America or Ontario in Canada, do not follow this path even though they have looked at EU markets. Instead, they seem to have understood that only by integrating formerly active non-licensed business in the regulated system does the market become fully competitive with all the positive side effects, like highest developed products and services as well as a more comprehensive control.
(1) For further info, please, check the following: Portugal: https://www.srij.turismodeportugal.pt/pt/publicacoes-e-estatisticas/estatisticas/; France: https://anj.fr/rapports; and Poland: https://igamingtv.com/sports-betting/polish-regulated-gambling-growth-helps-slash-offshore-market-share/.