GPWA Times Magazine - Issue 19 - February 2012

definitions of concepts such as “remote gambling” (any gambling by which per- sons participate by means of remote com- munication), “game of chance,” “betting” and “betting intermediary,” it is possible to license just about any gambling concept which can be envisaged, on any kind of remote platform, provided the Gambling Commission can be persuaded as to which license is appropriate and there are no regulatory concerns. What was not legislated for was the fact that the rest of Europe would not fol- low the U.K.’s lead in terms of the basis on which remote gambling is licensed and regulated. With hindsight, this was rather naive, as the U.K. is often at odds with the rest of Europe – unfortunately when it comes to online gambling, David Cameron does not have a veto to exercise! What has changed? In the last few years, European jurisdic- tions (notably Italy, France, Spain and Denmark) have begun introducing re- gimes for the licensing of online gambling on a “point of consumption” basis. At first this ideawas controversial. Commentators argued that the European Treaty’s provi- sions on the free movement of goods and services meant that a gambling operator based in one jurisdiction should be en- titled to allow customers throughout the European Economic Area to participate in its games, and to advertise to those cus- tomers as well. Indeed, this is the basis upon which the U.K.’s Gambling Act is currently drafted: operators based in EEA (and also selected “white list”) states are entitled to advertise their services in the U.K. The U.K. magnanimously acknowl- edges that it does not have a monopoly on good regulation. Further, there is no re- striction on the jurisdictions from which operators may accept U.K. customers. However, European Court of Justice rul- ings and the results of infringement pro- ceedings in the European Commission have led to the position that member states have discretion as to how they choose to regulate online gambling, and may legitimately introduce national li- censing regimes where operators are re- quired to obtain a local license in order to target the market. Fortunately, from an industry perspective, it is still not ac- ceptable to maintain a state monopoly system unless this can be justified on public-interest grounds and gambling is restricted in a way that is consistent with these objectives. Given the U.K.’s failure to attract a single major online gaming operator and the substantial tax revenue which flows from a requirement to hold a local license, it is no surprise, at least from a political per- spective, that the U.K. should now seek to amend its legislation to regulate gambling on the same basis as others in Europe. Regardless of the developments in Europe, it could be said that the Gambling Act 2005, as drafted, was doomed before it even came into force. As soon as the Treasury set the rate of gaming and bet- ting duty at 15 percent, allied with an abil- ity to target the U.K. from offshore, it be- came apparent to operators that to remain in the U.K. would put them at a disadvan- tage as compared to those based overseas. What changes are proposed? In April 2009, the government announced that it would explore ways to “level the playing field” for U.K. operators. One of the options proposed was to require over- seas operators to contribute to the cost of regulating gambling in the U.K. When the review of the 2005 Act was first mooted over 18 months ago, it was unclear how a level playing field could be achieved without introducing some form of U.K. license requirement. By January 2010, proposals for a license requirement were announced and the government’s reasoning had evolved from enabling U.K. operators to be com- petitive, to protection of U.K. players. The government cited concerns as to the inconsistency of regulatory standards across Europe; indeed the Act allows operators based anywhere in the EEA to advertise in the U.K. even if there is no regulatory regime at all in their home jurisdiction. The consumer pro- tection angle reflects the basis on which other European jurisdictions have in- troduced “point of consumption” licens- ing regimes and perhaps also makes the legislative changes more palatable to Parliament and the British public. The government’s stated reasons for pro- posing to switch to a “point of consump- tion” licensing regime do not relate to the projected tax revenues. This is unsurpris- ing because the introduction of a new li- censing regime to increase tax revenues would contravene EU law. However, the extent to which DCMS and Treasury are working in tandem on the proposed re- forms is revealing. Following a consultation period, in July 2011 the government announced that the U.K. license requirement would definitely be introduced, although any indication of a timescale for the changes is still awaited. We now know that in the future all gam- bling operators advertising their services in the U.K. or contracting with U.K. cus- tomers will need a license from the U.K. Gambling Commission. Although the gov- ernment does not propose to introduce enforcement measures such as ISP block- ing, unless it proves necessary and the requisite technology improves, we antici- pate that it will become almost impossible to advertise unlicensed gambling services in the U.K. The media will be aware that they may only accept advertisements from U.K.-licensed operators; otherwise they may be committing a criminal offense. It is probably true to say that the govern- ment is focusing on the low hanging fruit; the majority of U.K. bets are placed with large, reputable operators (many of them plcs) which will have no alternative but to comply with the law. John Penrose MP, the U.K.’s gambling minister, has recently reiterated the gov- ernment’s intention to introduce these amendments to the 2005 Act. This indi- cates that momentum is building for these changes; however, primary legislation is required and (fortunately for the indus- try) the reality is that due to a lack of legis- lative time to debate the changes and hold further consultation, it is unlikely that the license requirement will come into force for at least another couple of years. What does this mean for operators? Taxation and license fees The obvious and perhaps most significant implication of the change will be that all Changes coming to the U.K. online gaming market COVER STORY