OPINION by George M. Mangion| Wednesday, 19 September 2007

Online gaming: Quo Vadis

Online gaming has seen much turbulance this year. Not surprisingly online gaming companies have faced nothing but opprobrium particularly from cross-border challenges originated by state gambling monopolies eager to stem competition.
Apart from the deleterious effect of the US ban we also saw major countries such as Germany take a prohibitive stance. Germany’s Federal Constitutional Court ruled that a state monopoly on sport betting is acceptable provided that its objective is to limit addiction.
Recently, the state of Saxony moved against Bwin, an Austrian betting firm with a grandfathered East German licence. Saxony warned Bwin that the licence allows it to operate a single betting shop in Neugersdorf but not a nationwide online network. Bwin’s shares on Vienna’s stock exchange plunged as a result of government’s action. It came as no surprise that the state of Hesse is attempting to close 80 betting shops in Frankfurt whereas Bavaria closed 41 betting shops in Munich this year.
The German court went as far as giving an ultimatum to the state to reconsider and amend the present law governing sports betting activities by the end of next year. The importance of this judgment is paramount, given that any ruling by the federal constitutional court has direct effect in all German states.
This judgment was preceded by another homogeneous judgment delivered by the Breda court in the Netherlands. Following the state’s refusal to grant a casino licence to the Compagnie Financiere Regionale, BV, proceedings were instituted against the Netherlands’ Ministry of Justice and the Ministry of Economic Affairs.
In its landmark judgment the Breda court ruled that Dutch gaming legislation and policies were inconsistent with the guidelines established by the earlier Gambelli ruling (reaffirmed by the Placanica case) by the European Court of Justice. Put in context, this judgment seems to have also reflected the EU Commission’s criticism to proposed amendments to the Dutch Gaming Act of 1964, whereby the Ministry of Justice envisioned granting Holland Casino a three-year licence to operate games of chance exclusively over the Internet.
An Italian court has ordered that a Maltese-licensed remote gaming company be taken off the list of Internet gaming companies, access to which had been blocked by order of the Italian government. Astrabet Limited was on the list of almost 800 Internet gaming companies that were hit by the new Italian Finance law. Under this law, widely regarded as a thinly disguised attempt to protect the Italian gaming monopoly, the Italian Ministry of Finance can order Internet service providers (ISPs) in Italy to block Internet gaming sites that do not have a concession to provide their services by the Italian gambling monopoly, the Autonomous Administration of State Monopolies (AAMS). In handing down judgment, the Civil Tribunal of Rome ordered both the Ministry of Economy and Finance and the AAMS to ensure that the Website and domain of Astrabet Ltd are no longer blocked.
Astrabet’s victory vindicates the stance taken by Malta’s Lotteries and Gaming Authority (LGA), which has been advertising in prominent Italian newspapers and offering access through the LGA’s Website to the sites of Maltese-licensed operators which were being blocked by Italy. This judgment comes in the wake of important developments on a broader scale, which have spelt serious setbacks for the practices adopted by European gambling monopolies.
For those following news on this fledging industry the same exodus happened five years ago when UK zeroised its gaming taxes and lured back home many Malta based licensees such as heavyweights Stanley Leisure and Tote. Now the reverse has happened such that the higher tax levied by the British Gaming Commission coupled with the blocking of advertising from operators outside the EU has re-enforced Malta’s advantages as a European hub. But in the obstacle race there are more hurdles to jump.
There is clearly room for concern just when during 2006 Malta has faced its gravest test. The friendly and neighbourly Italian government then led by Signor Berlusconi has decreed that all Malta licensed entities were illegal and cannot offer their bets to Italian citizens. The bulk of licensees are Swedish and Italian. The embargo remains to this very day although there may be cracks in the paperwork under the Prodi government who appears to take a stand against the law cocooning the Italian monopoly AMMS and already has partially liberated the industry by offering multiple choice of licenses which were snapped up last year by international operators. .
Similarly Sweden has stopped a major Swedish owned operator in Malta from offering Poker products to its citizens on the pretext that the latter is operating on a non European license.
France had effectively stymied ZeTurf (a Malta licensed firm) last year from offering horseracing bets to French citizens. It has successfully won a court order restraining BellMed in Malta to severe its bandwidth provision to ZeTurf. LGA has filed a protest against the French monopoly PMU.
The stakes in this game are high for our tiny island, which has been painfully transforming its manufacturing base into a service high value-added industry and adding sports betting and remote gaming licences to non-residents. At this stage one notes that a large majority of the local gaming companies are based on the popular game of poker. Perhaps this resulted from the participation last year by LGA at a conference organised by Michael Casselli in Las Vegas. The Lotteries and Gaming Authority had braved the waters and set up a pavilion. It must have attracted a number of poker companies. Unfortunately news from America is not so heart-warming. There have been two sudden arrests of online gambling officials while visiting the US. One prominent case was that of Peter Dicks chairman of the British firm Sportingbet Plc. with a stock market value of GBP 1 billion. Company shares have been temporarily suspended.
Bloombergs reported that Peter Dicks has been detained for two nights on a Louisiana arrest warrant for ‘computer gambling.’ Peter was arrested at JFK airport on his way to board meetings in New York unrelated to online gambling and was granted $50,000 bail in a New York court while he is fighting extradition to Louisiana on criminal allegations of illegal Internet gambling. Pundits count the days when the next incarceration will hit Poker operators.
PartyGaming, a major listed Poker operator boasting over 19 million registered players has been compelled to market its services aggressively outside the US in the knowledge that lawmakers have made it illegal to offer online gaming and gambling services to US residents. Last October the US House of Representatives approved the Online Gambling Prohibition Act.
The whole concept of the world wide web is about open access and freedom to roam as conferred by the Gambelli and Placanica rulings.
The issue for operators targeting the US market is complex and no effort should be spared by LGA via its legal department to guide investors who are bewildered in their choice of jurisdiction should they have US clientele. Certainly it appears that they must draw a distinction between sports betting firms, which clearly are in deep trouble and may not survive the regulatory assault from the US and the gambling/poker outfits who so far seem to have gone below Uncle Sam’s sonar radar.
The news that 25 major operators including William Hill and Playboy Casino have applied for a Malta license seems to have reaffirmed Malta’s pole position. Now that we have scaled the summit let us do our utmost to consolidate our gains especially in the light of emerging competitors offering similar gaming opportunities such as Spain, Italy, Latvia and later on Belgium.

George M. Mangion
[email protected]
The writer is a partner in PKF an audit and business advisory firm