Sports Betting and European Law

University of Peloponnese From the SelectedWorks of Marios Papaloukas 2010 Sports Betting and European Law Marios Papaloukas, University of Peloponnese Available at: https://works.bepress.com/sports_law/26/

Published at: International Sports Law Journal. 2010, Νο 1-2, p. 86-88. Sports Betting and European Law Marios Papaloukas Attorney at Law Assistant Professor of Sports Law Abstract As early as 1992 the European Court of Justice ruled that the principle of proportionality will apply in order to examine whether a restrictive measure, imposed by a member state in order to regulate gambling, is valid. As a result member states monopolies and oligopolies concerning gambling and sports betting will have to comply with these new developments. I. The establishment of the principle of proportionality in gambling cases 1 A study of the handling of sports betting cases by the European Court of Justice would not be complete without examining the handling of gambling in general by the ECJ. There are two ECJ decisions that ought to be mentioned at this point, although neither of them is of sports content, they played a major role in sports betting case law as all subsequent ECJ decisions relating to sports betting are based on them. The first relevant case concerning the issue of betting that came before the ECJ was the eminent Schindler case. 2 In this case the Schindlers, acting as independent agents for a German lottery, dispatched to the UK, certain advertisements and application forms for a lottery organised in Germany urging the recipients to participate. The envelopes also contained a pre-printed reply envelope. Many Member States argued that because the scheme was, objectively, a gambling one and involved unsecured winnings and because participation in the game is in the realm of entertainment, the activity should not be considered an economic activity within the meaning of the Treaty. 3 The ECJ 4 rejected these views and made it clear that such activity is, in fact, economic and indeed, that lottery activities are not related to goods but to services 1 N. Emiliou, "The Principle of Proportionality in European Law: A Comparative Study", (Kluwer Law International, 1996). 2 Case Her Majesty's Customs and Excise vs.gerhart Schindler and Jörg Schindler, C-275/92, Judgment of 24 th March 1994, [1994] ECR I-01039. 3 See Case Her Majesty's Customs and Excise vs.gerhart Schindler and Jörg Schindler, C-275/92, Judgment of 24 th March 1994, [1994] ECR I-01039, para. 16. 4 See The Case for State Lotteries, A Report for the European Lotteries and Toto Association by London Economics, September 2006. 1

and fall therefore within the scope of the freedom of the provision of services. The fact that the participants winnings are not secure isn t enough for the whole activity to be deemed non economic. The agent works on profit and the amount of money raised by the organiser of the game is not all awarded to the winner. With regard to the subject of entertainment, the ECJ has made very interesting parallels with the amateur sport, 5 where the nature of entertainment does not negate the fact that it falls within the rule of the freedom of the provision of services. Finally, with regard to allegations that gambling is dangerous and should be prohibited, the Court responded that, in contrast with other illegal activities such as illegal drugs, the policy of the Member States is generally not to prohibit gambling but rather to monitor its availability to the public. 6 The European Union has not yet decided whether or not to adopt legislative measures to orchestrate the legislation of the Member States 7 regarding gambling; it is evident that there is uncertainty about the extent of discretion enjoyed by Member States 8 with regard to limiting the availability of gambling services. 9 10 However, the ECJ has accepted that there are three reasons that may justify, not an absolute prohibition but the restriction of gambling and its control by the State and one argument that justifies a special treatment of gambling. Firstly, the ECJ has accepted that there are moral, religious and cultural aspects that prohibit making gambling a source of private profit. Secondly, gambling involves a high risk of crime or fraud, given the size of the amounts at stake, particularly when operated on a large scale. Thirdly, it is the incitement to spend which may have damaging effects on the individual and social consequences. On the other hand gambling may make a significant contribution to the financing of benevolent or public interest activities such as social work, charity work, and sport or culture. 11 The ECJ, therefore, concludes that those particular factors justify national authorities having a sufficient degree of latitude in determining what is required in 5 See Case Her Majesty's Customs and Excise vs.gerhart Schindler and Jörg Schindler, C-275/92, Judgment of 24 th March 1994, [1994] ECR I-01039, para.34. 6 See Case Her Majesty's Customs and Excise vs.gerhart Schindler and Jörg Schindler, C-275/92, Judgment of 24 th March 1994, [1994] ECR I-01039, para. 32. 7 See Institut Suisse de Droit Compare, "Study of Gambling Services in the Internal Market of the EU, Final Report", European Commission 14-6-2006. (http://ec.europa.eu/internal_market/services/docs/gambling/study1_en.pdf) 8 See The Case for a Single European Gambling Market, A Report by Europe Economics, 4. March 2004. (http://www.eer.co.uk/download/eesingmark.pdf) 9 See A. Littler, "Regulatory Perspectives on the Future of Interactive Gambling in the Internet Market", European Law Review, issue 2, 2008, 211-229. (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1123863) 10 See European Parliament resolution of 10 March on the integrity of online gambling (http://www.europarl.europa.eu/sides/getdoc.do?pubref=-//ep//text+ta+p6-ta-2009-0097+0+doc+xml+v0//en) 11 See Case Her Majesty's Customs and Excise vs.gerhart Schindler and Jörg Schindler, C-275/92, Judgment of 24 th March 1994, [1994] ECR I-01039, para. 60. 2

order to protect the players and, more generally, in the light of the specific social and cultural features of each Member State, to maintain order in society, as regards the manner in which lotteries are operated, the size of the stakes, and the allocation of the profits they yield. In those circumstances, it is for them to assess, not only whether it is necessary to restrict the activities of lotteries but also whether they should be prohibited, provided that those restrictions are not discriminatory. 12 The next case that came before the Court was Läärä 13. In its ruling the ECJ seems to come to answer the question of whether or not a Member State has the right to prohibit the service of gambling to individuals while maintaining the right itself to monopolistically provide such services through a public body. The Member State party argued that the relevant legislation was passed in order to limit the exploitation of human passion for gambling, prevent infringement risks and crimes involving fraud and ensure that activities are authorized only if they are designed to collect money for charitable projects or to strengthen benevolent purposes. 14 The ECJ, based on the reasoning in paragraph 61 of Schindler held, however, that the power to determine the extent of the protection to be afforded by a Member State on its territory with regard to lotteries and other forms of gambling, forms part of the national authorities' power of assessment. It is for those authorities to assess whether it is necessary, in the context of the aim pursued, totally or partially, to prohibit activities of that kind or merely to restrict them and, to that end, to establish control mechanisms, which may be more or less strict. The mere fact that a Member State has opted for a system of protection which differs from that adopted by another Member State cannot affect the assessment of the need for, and proportionality of, the provisions enacted to that end. Those provisions must be assessed solely with reference to the objectives pursued by the national authorities of the Member State concerned and the level of protection which they are intended to provide. 15 Therefore, in its rationale the ECJ referred also to the principle of proportionality; the ECJ indicated that the question whether, in order to achieve those objectives, it would be preferable, rather than granting an exclusive operating right to the licensed public body, to adopt regulations imposing the necessary code of conduct on the 12 See Case Her Majesty's Customs and Excise vs.gerhart Schindler and Jörg Schindler, C-275/92, Judgment of 24 th March 1994, [1994] ECR I-01039, para. 61. 13 See Case Markku Juhani Läärä Cotswold Microsystems Ltd and Oy Transatlantic Software Ltd vs. Kihlakunnansyyttäjä (Jyväskylä) and Suomen valtio (Finnish State), C-124/97, Judgment of 21 st September 1999, [1999] ECR I-06067. 14 See Case Markku Juhani Läärä Cotswold Microsystems Ltd and Oy Transatlantic Software Ltd vs. Kihlakunnansyyttäjä (Jyväskylä) and Suomen valtio (Finnish State), C-124/97, Judgment of 21 st September 1999, [1999] ECR I-06067, para 32. 15 See Case Markku Juhani Läärä Cotswold Microsystems Ltd and Oy Transatlantic Software Ltd vs. Kihlakunnansyyttäjä (Jyväskylä) and Suomen valtio (Finnish State), C-124/97, Judgment of 21 st September 1999, [1999] ECR I-06067, paras 35-36. 3

operators concerned is a matter to be assessed by the Member States subject, however, to the proviso that the choice made in that regard must not be disproportionate to the aim pursued. 16 II. The Zenatti and Gambelli cases The ECJ followed the same policy of providing greater freedom of action in the next decision concerning Zenatti. 17 18 This decision was the first involving sport. In this case, however, the principle is implied not only in one paragraph in the decision but is stated clearly throughout the decision. The ECJ, in this case, explained that the Treaty provisions on freedom to provide services do not preclude national legislation reserving for certain bodies the right to take bets on sporting events, if the legislation can actually be justified by the social policy objectives in order to reduce the harmful consequences of such activities and, also if the restrictions imposed are not disproportionate in light of these objectives. Consequently, apart from proving that public interest does exist, it should also be considered whether the same amount of public interest could be achieved if fewer restrictions were imposed on the freedom to provide gambling services. In the Gambelli case 19 20 the ECJ, after conducting a general overview of the relative case law to date 21, refers to previous case law in order to confirm the rule of the principle of proportionality, which must be taken into account when setting the restrictions on freedom to provide services and freedom of establishment. It states that the restrictions on gambling imposed by a Member State should: 22 be justified by imperative requirements in the general interest, be suitable for achieving those objectives, not go beyond what is necessary in order to achieve this. III. The clarification of the term «not go beyond what is necessary» 16 See Case Markku Juhani Läärä Cotswold Microsystems Ltd and Oy Transatlantic Software Ltd vs. Kihlakunnansyyttäjä (Jyväskylä) and Suomen valtio (Finnish State), C-124/97, Judgment of 21 st September 1999, [1999] ECR I-06067, para 39. 17 See Case Questore di Verona v Diego Zenatti, C-67/98, Judgment of 21 st October 1999, [1999] ECR I-07289. 18 See Μ. Papaloukas, "Sport: Case Law of the Court of Justice of the E.C. ", (Papaloukas Editions, 2008), pp. 42. 19 See Case Criminal proceedings against Piergiorgio Gambelli and Others, C-243/01, Judgment of 6 th November 2003, [2003] ECR I-13031. 20 See Μ. Papaloukas, "Sport: Case Law of the Court of Justice of the E.C. ", (Papaloukas Editions, 2008), pp. 125. 21 See Case Criminal proceedings against Piergiorgio Gambelli and Others, C-243/01, Judgment of 6 th November 2003, [2003] ECR I-13031. 22 See Case Criminal proceedings against Piergiorgio Gambelli and Others, C-243/01, Judgment of 6 th November 2003, [2003] ECR I-13031, para. 65. 4

After having clarified the implementation of the first two of the above mentioned elements of the principle of proportionality, the ECJ states some additional requirements. The ECJ establishes a general condition, which should be considered after the determination of the terms of the principle of proportionality, and two special conditions that should be considered simultaneously with the first and second terms of the principle of proportionality. The general requirement is based on the fact that the restrictions provided by the Member state should be imposed indiscriminately, in the sense that they should apply in the same manner and with the same criteria to operators established in that country and to those who come from other Member States 23. The importance of this criterion is, however, questioned if we consider those Member States where gaming services are provided monopolistically by the state. 24 Insofar as concerns the first of the terms of the principle of proportionality, although the measures should be justified by imperative requirements in the general interest, however, in cases where the authorities of a Member State incite and encourage consumers to participate in lotteries, games of chance and betting to the financial benefit of the public purse, the authorities of that State cannot invoke public order concerns relating to the need to reduce the availability of betting facilities in order to justify measures in restricting gambling. 25 Finally, in Gambelli, the ECJ ruled on the second of the terms of the principle of proportionality that while restrictions on the activity of gambling should be practical enough to ensure that the public needs are met, restrictions should also serve to limit betting activities in a consistent and systematic manner. 26 IV. The Lindman and Placanica cases After having clarified the terms of the principle of proportionality, there were still notions in the Gambelli rule, which needed further clarification. First, the reasons of general interest the Member States pleaded on could not be vague, and the Court had to make Member States specify the reasons they vaguely referred to in order to 27 28 impose restrictions on freedom to provide lottery services. In the Lindman case the opportunity was seized to address this issue. Thus, the Court ruled that the 23 See Case Criminal proceedings against Piergiorgio Gambelli and Others, C-243/01, Judgment of 6 th November 2003, [2003] ECR I-13031, para. 70. 24 See A. Littler, "Regulatory Perspectives on the Future of Interactive Gambling in the Internet Market", European Law Review, issue 2, 2008, 211-229. 25 See Case Criminal proceedings against Piergiorgio Gambelli and Others, C-243/01, Judgment of 6 th November 2003, [2003] ECR I-13031, para. 69. 26 See Case Criminal proceedings against Piergiorgio Gambelli and Others, C-243/01, Judgment of 6 th November 2003, [2003] ECR I-13031, para. 67. 27 See Case Diana Elisabeth Lindman, C-42/02, Judgment of 13 th November 2003, [2003] ECR I-13519. 28 See Μ. Papaloukas, "Sport: Case Law of the Court of Justice of the E.C. ", (Papaloukas Editions, 2008), pp. 181. 5

reasons which may be invoked by a Member State by way of justification for an imposed restriction on betting must be accompanied by an analysis of the appropriateness and proportionality of the restrictive measure adopted by that State. 29 It was then ruled that a Member State s vague allegations about public interest were not sufficient and that the Member State should bring forward statistics or other data enabling conclusions as to the gravity of the risks of gambling and the causal relationship between these risks and the participation of its nationals in gambling services organized in other Member States. 30 However, as demonstrated in the Gambelli case, the general requirement that the Court accepted as necessary, i.e. that the legislation of the Member State restrictions should apply in the same manner and with the same criteria to operators, who are established in this country and those from other Member States, cannot be applied in those Member States where gaming services are provided by the state monopoly. 31 In 2004, the Placanica case 32 33 prima facie appears to signal the end of state monopolies in gambling; this is not correct however. The ECJ ruled out a state regulation according to which entrepreneurs wishing to provide gambling services were required to apply for a license. This decision, however, was based on the fact that the state regulation using the argument of general interest imposed far more restrictions than was necessary to achieve the purposes sought, whereas the same general interest could be protected with less stringent restrictions. Thus, the Member State, by excluding, for transparency reasons, all the profit-making companies from the right to receiving a licence, violated the principle of proportionality. Therefore, since the ECJ decision in Placanica did not exclude expressis verbis the monopoly in providing betting services, does this mean that each Member State reserves the right, invoking reasons of general/public interest, to retain the exclusive provision of these services for itself? Can the principle of proportionality accommodate this? V. Beyond Placanica case (The Bwin Liga case) The rationale of the decision in the Placanica case leaves little room for doubt. Short of a complete ban on any gambling services, a State when regulating on sports betting has four hypothetical choices, which in order of rigour are: 29 See Case Diana Elisabeth Lindman, C-42/02, Judgment of 13 th November 2003, [2003] ECR I-13519, para 25. 30 See Case Diana Elisabeth Lindman, C-42/02, Judgment of 13 th November 2003, [2003] ECR I-13519, para 26. 31 See A. Littler, "Regulatory Perspectives on the Future of Interactive Gambling in the Internet Market", European Law Review, issue 2, 2008, 211-229. 32 See Joined cases Criminal proceedings against Massimiliano Placanica, C-338/04, C-359/04 and C-360/04, Judgment of 6 th March 2007, [2007] ECR I-01891. 33 See Μ. Papaloukas, "Sport: Case Law of the Court of Justice of the E.C. ", (Papaloukas Editions, 2008), pp. 309. 6

1. State monopoly. 2. State controlled licensing under certain conditions. 3. Licensing based on formal procedures. 4. Absolute freedom to provide betting services. According to the third requirement of the principle of proportionality the state provision should not exceed what is necessary to achieve the objectives intended in the general interest. In order not to exceed what is necessary there should not be another, more flexible way to regulate the matter that can achieve the same public interest objectives. It has now become even more difficult for Member States, imposing state monopoly, to present convincing arguments that the best way to protect public interest is by imposing the most radical measure from the point of view of competition rules, i.e. a state monopoly and not by using any other more flexible measure. However the ECJ found a way around this argument, that can be found in the Placanica case. The Court ruled that it is possible that a policy of controlled expansion in the betting sector may be entirely consistent with the objective of drawing players away from clandestine betting and gaming and, as such, activities which are prohibited to activities which are authorised and regulated. In order to achieve that objective, authorised operators must represent a reliable, but at the same time attractive, alternative to a prohibited activity. This may as such necessitate the offer of an extensive range of games, advertising on a certain scale and the use of new distribution techniques. 34 This argument however was referring to the imposition of a licensing system as an efficient mechanism enabling operators active in the betting and gaming sector to be controlled and not a system of monopoly. The same argument was used by Advocate General Bot in his opinion in the Bwin Liga case. 35 But contrary to the Placanica case, this case was not about the imposition of a licensing system but about the imposition of a state monopoly on betting. VI. Conclusions - The future in sports betting 34 See Joined cases Criminal proceedings against Massimiliano Placanica, C-338/04, C-359/04 and C-360/04, Judgment of 6 th March 2007, [2007] ECR I-01891, para 55. 35 Case Liga Portuguesa de Futebol Profissional, Baw International Ltd vs. Departamento de Jogos da Santa Casa da Misericórdia de Lisboa, C-42/07, opinion of Advocate General Bot delivered on 14 October 2008, paras 85-88. 7

Since the Attorney General s opinion in the Bwin Liga case was adopted by the Court, 36 could this mean that state monopolies can be justified as a means of restricting gambling? Is this the end of the principle of proportionality? One should not forget that in the Bwin Liga case the State monopoly in Portugal was imposed through a public company and not through a private company as for example is the case in Greece. In that sense the Bwin Liga decision does not mean that all sports betting State monopolies in Europe will be preserved. Even in cases where the purpose for the imposition of a monopoly was to impose a restriction in the expansion of betting, a monopoly granting a license to a single private company aiming to profit, seems to go beyond what is necessary to achieve its purpose. There are a few pending references before the ECJ. The Winner Wetten 37 38 and SOBO Sport cases 39 40 are concerning Germany and it is likely that the ECJ will soon have to deal with the case of Greek monopoly in sports betting. 41 It will be very interesting to see which State monopolies in sports betting can pass the test of the principle of proportionality. However, there are also initiatives from other European Institutions. On the 10 th of March 2009, the European Parliament voted on the integrity of online betting. 42 This resolution included, firstly, the observation «that the protection of the integrity of sports events and competitions requires cooperation between sports rights owners, online betting operators and public authorities at national, as well as EU and international level». It also refers to the risk of an uncontrolled non-state provision of betting services. 43 This resolution may be useful at this stage in order to observe the direction, which the ECJ will move in. If we take into account that online betting does not relate, exclusively, to sport, the interest in sport in this text can be interpreted as a harbinger of developments in ECJ case law in the area of sports betting. Member States have been called on to ensure that organizers of sporting competitions, betting operators and regulating authorities collaborate to take 36 See C-42/07 Decision 8 th of September 2009. 37 See Reference for a preliminary ruling from the Verwaltungsgericht Köln (Germany) lodged on 9 October 2006 - Winner Wetten GmbH vs. Mayor of Bergheim, C-409/06. 38 See Μ. Papaloukas, "Sport: Case Law of the Court of Justice of the E.C. ", (Papaloukas Editions, 2008), pp. 322. 39 See Reference for a preliminary ruling from the Verwaltungsgericht Stuttgart (Germany), lodged on 2 August 2007 - SOBO Sport & Entertainment GmbH v Land Baden-Württemberg, C-359/07. 40 See Μ. Papaloukas, "Sport: Case Law of the Court of Justice of the E.C. ", (Papaloukas Editions, 2008), pp. 324. 41 See http://www.winneronline.com/articles/090216_article_stanleybetshutagain.html 42 See European Parliament resolution of 10 March on the integrity of online gambling, The Schaldemose Report. (http://www.europarl.europa.eu/sides/getdoc.do?pubref=-//ep//text+ta+p6-ta-2009-0097+0+doc+xml+v0//en) 43 See Betfair s Corporate Statement on the Schaldemose Report. (http://corporate.betfair.com/betfair%20corporate%20statement%20on%20the%20schaldemose %20REPORT.pdf) 8

measures in order to address the risks associated with illegal betting and matchfixing in sport and, to explore the establishment of a workable, equitable and sustainable regulatory framework to protect the integrity of sports. Finally, this resolution stresses that sports bets are a form of commercial exploitation of sport. Member States are thus urged to protect their sports games from any commercial use where permission has not been granted, especially by granting the sports organisers rights, and to implement regulations ensuring equitable economic revenue for all levels of professional and amateur sports. 44 It seems therefore that the ECJ will most probably continue on the path that it has so far taken by applying the proportionality principle in future cases. It seems unlikely that it will distinguish sports betting cases from other betting cases and, based on the specificity of sport, 45 justify a greater flexibility when it comes to the rules of free market and competition. 46 44 See paras. 8-10 of the European Parliaments Resolution 2008/2215. (http://www.mrgc.org.mt/docs/alternativemotionresolutiondraft.pdf) 45 See the White Paper on Sport (http://ec.europa.eu/sport/white-paper/whitepaper8_en.htm) 46 See M. Papaloukas, Betting on Sports Events, Paper presented at the 15 th World IASL Congress on Sports Law taking place in Warsaw, Poland, 19-21 November 2009. http://works.bepress.com/cgi/viewcontent.cgi?article=1017&context=sports_law 9