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EU looks to online gambling to fight crisis

Posted on August 3rd, 2010

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Turning away from their old conservative stance, countries around Europe hurry to liberalize online gambling to raise much-needed funds to combat their ballooning budget deficit. This policy shift made Europe the largest gambling market in the world, amassing $12.5 billion of the industry’s $29.3 billion total revenue this year, based on the report of H2 Gambling Capital. Leading the race is France which has recently allowed private companies to operate, thus creating competition for publicly owned gambling sites. Four years ago, France arrested high-ranking executives of Bwin, an Austrian internet gambling company, for violation of gaming laws. But today Bwin is a dominant player in the online gambling industry in France and across Europe.

Meanwhile, Greece is rushing its own bill to legalize internet gambling as more and more European countries are joins the bandwagon. Policy makers in Switzerland, Spain and Germany are also gearing to open up to online gambling as a viable revenue source. In the past, policy makers and regulators did not want to legalize online gaming, such as internet sports betting and online poker, fearful that this will cripple state-sanctioned lottery and gambling businesses. But recently gambling enthusiasts no longer come to traditional gambling houses as they have found a new favorite pastime waging on sporting events or playing poker online. Experts view the liberalization of online gaming business as a clever response to an inevitable trend. David Trunkfield, a consultant at PricewaterhouseCoopers, said “what happened is a realization that you can’t uninvent the Internet”. “People are gaming online. You either try to regulate and tax it, or people are going to the offshore operators, where you don’t get any revenue”, he added.

And this is what the European lawmakers are exactly doing. Without stating their obvious interest on the huge revenue-generating potential of the gambling industry, they justified the liberalization as trying to protect gamblers by regulating the sites. Analysts, however, suspect that the shift is a measure to step up defence against financial instability. France, which took advantage of the 2010 FIFA World Cup to open up online sports betting to private companies, reported that about 1.2 million accounts, waging $108 million, were opened in the newly licensed sites. This is a huge turnaround from the amount bet over the same period last year at state-run betting sites. Analysts predicted that this number will rocket in the coming months with the legalization of online poker.

Despite France’s initial success in legalizing online gambling within the country, the government still needs to address a number of glitches in the legal system itself as well as in the enforcement of the new regulations. New companies that operate in France were required to obtain a license and instructed to strictly obey French regulations and pay taxes. Yet, unlicensed sites continue to proliferate around the country. Lately, though, the regulators have issued stern warning against the illegal operators. One of the companies that criticized the French legislation is Beffair, a British sports exchange betting company, which decided to fold up its operations in France when the law came into force.

Tim Phillips, director of European public affairs at Betfair, said that the law was unfair to betting exchanges as it levies taxes on every single transaction conducted by the gambler instead of the overall winnings. Players in exchange betting make multiple bets, essentially offsetting several bets on a single game, where they win on some bets and lose on the other bets. Under French regulations, all the bets are subject to tax therefore making exchange betting business unprofitable.

Betfair is one of the leading gambling companies that are lobbying in the European Commission to harmonize the gaming standards across the Union to level the playing field in each member state and to allow companies operating in one state to cater to gambles in the other member states. Mr. Phillips viewed that the European Union could lead the world in the online gaming industry. He said that the harmonization efforts will prop up the European economy as gambling companies will be able to achieve a competitive edge over competitors in other regions, where online gaming is prohibited.

In a statement issued by his spokeswoman, Michael Barier, EU’s internal market commissioner, reported that the publication of proposals on the harmonization of the Union’s online gaming standards are expected to come out within the year. Online betting is extensively practiced in huge markets like China and USA despite being strictly banned in these countries.