CONTRIBUTION OF THE EUROPEAN GAMING AND BETTING ASSOCIATION TO THE PUBLIC CONSULTATION ON SPAIN'S DRAFT PRELIMINARY GAMBLING LAW

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1 CONTRIBUTION OF THE EUROPEAN GAMING AND BETTING ASSOCIATION TO THE PUBLIC CONSULTATION ON SPAIN'S DRAFT PRELIMINARY GAMBLING LAW The European Gaming and Betting Association (EGBA) welcomes the Spanish decision to carry out a regulated opening up of the online gaming market. Spain is following other European Union Member States that have already chosen such an option, recognising that online gaming is clearly the gaming model which has the greatest transparency and which offers the greatest possibility of control, once reputable operators have been granted a licence in the country and once clear standards have been laid down. The EGBA would likewise wish to express its gratitude for the willingness to initiate a debate with the private online gaming industry during the industry's process of regulation in Spain. As the representative of the industry's leading online gaming and betting operators, the EGBA was set up to promote the implementation of a fair, regulated and competitive gaming market for online gaming operators within the European Union that is in accordance with Community Law. The EGBA firmly defends the opinion that this regulated market should be based above all on the protection of consumers without neglecting the cross-border nature of the Internet. This means taking into account the guarantees and controls already offered by companies on the basis of licenses granted by other EU jurisdictions in order to avoid duplications. The key to a successfully regulated market lies in effective cooperation, both at European as well as at international level. That is why the EGBA trusts that this document may serve as a first step aimed precisely at initiating such dialogue in order to ensure that the opening up of the Spanish market focuses its efforts on the creation of a regulatory framework: which offers operators and consumers a proportional, non-discriminatory system in accordance with Community Law, which is totally in line with the cross-border nature of the Internet and which offers sufficiently attractive conditions for European Union operators to invest in the Spanish market. Experience has shown that only a regulated market like the one described above can provide benefits to the Spanish State and its citizens, as well as to the world of sport, to which so much attention is paid in Spain. Through appropriate regulation the Spanish State would obtain taxes levied on this economic activity and employment levels would increase. At the same time, this would ensure a secure transparent online gaming and betting environment for consumers by safeguarding strict consumer protection standards. This would undoubtedly mean that major issues like fraud or money laundering would be clearly reduced. Additionally, the benefit of such a regulation for the world of sport should be highlighted. Clubs and federations could thus enjoy a favourable regulatory environment for sponsorship. Taking into account this public consultation, the EGBA would like to submit a series of observations and suggestions concerning the Spanish Preliminary Draft Law on Gambling, as it considers that some of the requirements set forth by it, could constitute an obstacle to 1

2 ensuring an attractive legal offering, the absence of which would promote the black market's growth. In keeping with all of the above, the EGBA would like to underline the importance of the following topics: The requirement for permanent establishment set forth in the Spanish Preliminary Draft Law is not compatible with Community Law and does not respect the principle of freedom of establishment as laid down by Article 49 of the TFEU. A) Numerous jurisdictions of the European Union like, for instance, the Italian or the French jurisdictions, which had already regulated their online gaming markets, sooner or later achknowledged that excluding operators for being domiciled in another Member State contradicts Community Law and that it is not an effective or justifiable measure in the fight against fraud. The exclusion of online gaming operators located in a territory considered to be a tax haven is discriminatory. A) According to Article 13.2.g any operator located in a place considered a tax haven would be excluded from applying for a license. This prohibition does not differ between operators from EU Member States or non-eu countries. By imposing such prohibition, the Spanish draft law discriminates against operators located in places of other EU Member States; places which Spanish authorities might qualify as tax havens. Firstly, such discrimination is not compatible with EU law, namely with the freedom to provide services (Art 56 TFEU). Secondly, this provision gives without any justification an unbalanced and wide discretion to the Spanish authorities to determine what they consider a tax haven when evaluating potential applicants. In this respect, no difference should be made between EU member states that already regulate online gambling (Malta, France, Italy and the UK) and others that don t. B) Of course, there are several countries outside the EU to which the fundamental freedoms of the EU are not fully applicable (e.g. Channel Islands, Cayman Islands, Isle of Man), but the Article 13.2.g does not even specify this. For the sake of completeness it shall be added that several other Member States' territories, e.g. Gibraltar, are falling under Art. 355 para 3 TFEU for which reason the EU freedoms are fully applicable. Many online gaming operators are based and licensed in Gibraltar due to the fact that Gibraltar was one of the first jurisdictions to effectively regulate online gaming. Therefore, as the freedom to provide services (Art 56 TFEU) also applies to territories such as Gibraltar, the discrimination of operators from Gibraltar would constitute an infringement of EU law. 2

3 C) In order to avoid a violation of EU law, EGBA recommends to abandon Article 13.2.g or redesign its application so that operators from other EU Member States and from territories according to Art 355 para 3 TFEU are not excluded. Highlighting the need for a clarification on the coexistence between national and regional regulations in the 17 Spanish regional authorities and autonomous cities (Ceuta). A) The coexistence of a national regulation and different regional regulations (Madrid, Aragon, Ceuta) turns out to be rather confusing. Article 2 should be mentioned in this regard, pursuant to which we understand that in certain cases it may be necessary to hold a national licence in addition to a regional licence. From our point of view, this would mean a hindrance for international operators that could find themselves obliged to conduct formalities and file licence applications not only at national level but also at regional level. Should the requirement for parallel licences be maintained, this would mean that the conditions laid down by the Spanish regulation would not be sufficiently attractive for EU operators to invest in the Spanish market. B) Another topic that turns out to be rather confusing is Article 48.7, which makes reference to a regional tax surcharge. On this point, we feel it is necessary to pose the question of the reasons behind and the definition of this regional surcharge, which we feel would erode the regulation's attractiveness for European Union operators. Emphasising the vital importance of a reasonable and competitive taxation scheme that takes into consideration the reality of the Internet. A) The debate on taxation is without doubt one of the keys to a fair regulation and successful opening. The gaming market s competitiveness depends on taxation levels that enable operators to compete with the black market. It is important to stress that we recognise that regulation requires taxation, but it is equally important that it is not so high as to prevent regulated companies from making a reasonable return on their investment as failure to do so will only drive customers towards the unregulated sites defeating the overall objective of regulation in the first place. B) All EGBA members pay tax within the European Union and in this way make an important economic contribution in the Member States in which they have licences, including the investments they make in local economic activities, social security contributions, company tax as well as gaming and betting taxation. 3

4 C) Numerous member states like Denmark or the United Kingdom have already opted for a tax model based on gross gaming revenues (GGR). Experience has shown that the tax base applied to online gaming should be based on GGR, that is to say on the actual revenue earned by online gaming companies, which results from subtracting the prizes received by consumers from the amounts previously wagered by them. D) In our opinion, this point has not been adequately considered in the Spanish Preliminary Draft Law. According to its current wording, different tax bases will be applied (in some cases turnover, in others GGR) to different business models (totalisator betting, fixed-odds betting, betting exchanges etc.). E) It is of vital importance to understand that, if Spain wishes to create a regulated market that is competitive at an international level, it should establish a taxation system based on GGR at a reasonable level., as this is the only way through which it will be able to encourage competitiveness and obtain an appropriate positive tax collection model. Highlighting the significance of a responsible gaming policy and the need for cooperation between the online gaming industry and the regulatory authority A) Since its formation, EGBA has championed the role of industry self-regulation both to develop a consistent approach throughout Europe and to stay ahead of legal and regulatory evolutions. All EGBA members are required to comply with stringent Standards which cover all elements of their business from consumer protection, social responsibility to responsible and ethical marketing practices. These EGBA Standards are a commitment by all members to: the highest levels of corporate, financial and social responsibility; providing customers with a safe and secure playing environment where gaming can be enjoyed as a leisure and entertainment activity ensuring high responsibility in the promotion of online gaming and betting services B) Due to all of the above, the EGBA would like to highlight the great importance of an appropriate and consistent responsible gaming policy. C) Similarly, the EGBA would like to stress that in order to achieve the regulation s goal of providing a secure gaming environment, it is essential to rely on scientific research and best practice protection tools. In this context, EGBA would be glad to provide its expertise as well as scientific literature dealing with player protection tools in online gaming. See link to EGBA studies ( 4

5 Emphasising the necessity for a clearer definition of the products that are to be governed by this Preliminary Draft Law. A) From our point of view, it would be important to include in the Preliminary Draft Law a precise definition of the online gaming products to be regulated. After conducting an analysis of the draft law, we are not sure whether important products such as casino games, poker or live betting are to be included in the regulated online gaming market. B) We believe that failing to include such products would deprive the State of additional tax income and control, the consumers of highly regulated online gaming products and the European Union's online gaming companies from remaining competitive in view of the black market offer. C) This is why we are convinced that it would be important to broaden the definitions of the products set forth in Article 3 of this Preliminary Draft Law in order to clarify potential doubts its present wording may raise. D) As an example, Italy and Denmark are two countries where poker, casino and sports are all (to be) allowed, controlled, regulated and taxed. Highlighting the importance of clear and appropriate advertising standards, which should also include the regulation of sports sponsorship to the benefit of sports. A) The world of sport will benefit from a regulated opening up of the gaming market. According to a study conducted by Sport Business in 2008 that compared two funding models for sport the UK and the French models, it was finally shown that a regulated competitive market like the one in the UK reports a greater variety of benefits to sports funding without it being detrimental to funding mass sports. B) The need for clear, appropriate regulation of sports sponsorship, which many Spanish football clubs benefit from, should be highlighted. Sponsorship allows clubs to obtain new sources of revenue and an additional marketing opportunity for operators. C) Hence, the EGBA is in favour of online gaming regulation, having as an additional goal the regulation of advertising and, more specifically, sponsorship that is in tune with the market's reality. Drawing attention to some topics that, in our opinion, do not meet the market reality of the Internet or of the EU online gaming industry. 5

6 A) In our view, Article 9 which makes reference to the co-existence of regional and national licences leads to confusion. B) Another crucial issue is the tendering procedure as set forth in Article 10. Only by allowing licensed operators to offer products that meet the existing consumer demand in terms of product range and pricing, supported by advertising and sponsoring activities, the Spanish authorities will be able to effectively combat the black market and thus secure a high level of consumer protection and control. Consumer protection and fraud prevention can effectively be achieved through a stringent licensing system which is open to all gaming enterprises domiciled in the EU, taking into consideration the regulatory measures imposed by the authorities in their home countries. C) From our point of view, the criteria listed under Article 13, 2 a) - j) does not take into account the reality of the European Union's online gaming industry, in which many companies are publicly listed (EGBA members, for instance, are listed on stock exchanges in London, Vienna and Stockholm). Article 13, 2 a) - j) might hence pose a challenge for publicly listed companies with a considerable free float. Brussels, 3 December