- Four New CJEU Rulings on Betting and Gaming: Back to Basics?
- October 28, 2010
- Law Firm: Crowell Moring LLP - Washington Office
On 8 and 9 September 2010, not less than four new rulings were issued by the Court of Justice of the European Union (CJEU) on the compatibility of national betting and gaming regulations with the Union law principles of freedom of establishment and freedom to provide services. In these rulings, the Court firmly reiterated the basic but essential conditions with which Member States should comply when drafting their regulations, especially emphasizing the need for consistency and transparency.
In our newsletter of July 2010, mention was made of two CJEU rulings confirming the Member States’ considerable margin of discretion as to which national policy (monopoly for a single operator, grant of a limited number of licenses, etc.) is best suited to attain their public interest objectives regarding betting and gambling. In its most recent decisions, the Court is now again emphasizing that this margin of discretion does not in any way exonerate them from the duty to ensure that the measures they impose satisfy all of the conditions laid down in the case-law of the Court, particularly as regards their proportionality and consistency, both in law and in fact. In addition, with regard to licensing systems, the Court specifically stresses the need for transparency and non discrimination of operators established in other Member States.
The Winner Wetten Case : absolute primacy of Union law over national law
The three cases decided on 8 September 2010 mainly concerned Germany’s regulatory system with regard to sports betting, which is organized at the level of the Länder (states). The latter are obliged to ensure a sufficient offer of lotteries and sports betting either themselves, or through a license awarded to either publicly owned legal entities or private bodies subject to public control.
One of these two cases opposed Winner Wetten GmbH, a German sports bets broker operating on behalf of the Maltese company Tipico Co. Ltd. to the Mayor of Bergheim, a city in the Land of Nordrhein-Westfalen (Case no. C-409/06). In this Land, the only license for sports betting was granted to Westdeutsche Lotterie & Co., thus creating a public monopoly for this type of games of chance. Since Winner Wetten nor Tipico (obviously) held the licenses required for sports betting, the Mayor of Bergheim prohibited Winner Wetten from further carrying on its business by order of 28 June 2005. That order was subsequently challenged by Winner Wetten before the head of administrative services and the Cologne Administrative Court, arguing that Nordrhein-Westfalen’s public monopoly on sports betting was contrary to the freedom of establishment and the freedom to provide services as guaranteed by Articles 43 and 49 of the EC-Treaty respectively (now Articles 49 and 56 of the Treaty on the Functioning of the European Union (TFUE)).
While the head of administrative services rejected Winner Wetten’s complaint, the Cologne Administrative Court found that, since Westdeutsche Lotterie clearly encouraged participation in sports betting, the public monopoly in Nordrhein-Westfalen could not be justified by reference to the alleged public interest objectives of preventing the encouragement of excessive spending on gambling and combating addiction. Indeed, the public monopoly did not contribute to limiting betting activities in a consistent and systematic manner as required by the Court of Justice’s case-law in Gambelli and Others. Earlier, the German Constitutional Court had also ruled that this public monopoly and the legislative framework in force in the Land was not fit to ensure either in law or in fact that the objective of reducing the passion for gambling and combating addiction was effectively pursued. It had, however, ruled that, awaiting new legislation, the public monopoly should be temporarily maintained with a view to legal certainty and to avoid creating a legal void.
The question that the Administrative Court referred to the CJEU was whether such a transitional period could be allowed knowing that it had been established that the current legislation was contrary to Article 49 EC (now Article 56 TFUE). This question, and the answer given by the CJEU, are interesting in two respects. First of all, it allowed the Court to reiterate that, according to its settled case-law in Simmenthal, provisions of the EC Treaty have the effect of automatically rendering inapplicable any conflicting provision of national law (even constitutional law), that national courts have the obligation to immediately disapply such provision of national law and that any legislative, administrative or judicial practice which might impair such full effectiveness of Union law, even temporarily, is incompatible with these requirements which go to the very essence of European Union law. In other words, European Union law should prevail over national law at any given time and in the most absolute of ways.
Secondly, this ruling serves to confirm that, although restrictions on gambling or betting activities may be justified by imperative requirements in the public interest such as consumer protection or the prevention of fraud, that is only the case insofar as such restrictions are actually suitable for achieving those objectives and serve to limit gambling and betting in a consistent and systematic manner. Indeed, one of the arguments for temporarily maintaining the incompatible legislation was that ‘imperatives concerning the protection of public order and of citizens against the risks connected with gambling precluded the situation of a legal vacuum which would result from the immediate ousting of the legislation’. With its ruling, the CJEU clearly indicated that such ‘public order imperatives’ could not suffice in themselves to justify the monopoly, even temporarily, if the restrictive legislative framework was not sufficiently coherent in law and in fact.
The Carmen Media and Stoss Cases : no consistency in expansion + restriction & the dangers of the internet
The other two CJEU rulings of 8 September 2010 respectively opposed Carmen Media Group Ltd., a Gibraltar-based and ¿licensed sports betting operator, to the German Land of Schleswig-Holstein and its minister (Case no. C-46/08) and Markus Stoss and others, all of which are sports betting operators, to the Länder of Hessen and Baden-Württemberg (joined cases C-316/07, C-358/07 to C-360/07, C-409/07 and C-410/07).
In the first case, after Carmen Media’s application for an authorization of its activities in Schleswig-Holstein had been rejected, it had brought action before the local Administrative Courts, arguing that the legal and practical configuration of the public monopoly for sports betting and lotteries in Schleswig-Holstein did not enable a consistent and systematic fight against gambling addiction and was hence not an acceptable restriction on the freedom to provide services. Carmen Media pointed out that, while lotteries and sports betting were restricted to one single public operator, other games of chance such as automated games and bets on horse races were authorized on the part of private operators and, in addition, a policy of expansion was applied to yet other games of chance like casino games or automated games installed in gaming arcades, cafes, restaurants and places of accommodation. Thereupon, the referring Court stayed the proceedings to ask several questions to the CJEU.
The first question, asked pursuant to an objection by the Land of Schleswig-Holstein, was one of standing on the part of Carmen Media. Indeed, the Land disputed that Carmen Media was at all allowed to rely on Article 49 EC (now Article 56 TFEU), given that, for tax reasons, its Gibraltar license only covered offshore bookmaking abroad. Here, the Court stated that, as far as betting and gaming services are concerned, such services fall within the scope of Article 49 EC (now Article 56 TFEU) where the provider is established in a Member State other than the one in which the service is offered even if, as in the present case, the authorization issued by the Member State of establishment only allows for bets to be offered, via the internet, to persons located outside and not within the territory of that Member State. In short, to benefit from the freedom to provide services in another Member State, Article 49 EC (now Article 56 TFEU) requires only that the provider be established in a Member State other than that of the recipient of the service.
The second, more substantive question was whether Schleswig-Holstein’s public monopoly on the organization of sports betting and lotteries was compatible with Articles 43 and 49 EC (now Articles 49 and 56 TFEU). This monopoly is essentially motivated by the prevention of the incitement to squander money on gambling and the fight against addiction. However, other types of games of chance such as automated games and bets on horse races were fully authorized on the part of private operators and a policy of expansion was even applied to yet other games of chance like casino games or automated games installed in gaming arcades, cafes, restaurants and places of accommodation. In other words, the referring court asked whether, in this context, the objectives invoked by the Land to restrict the freedom to provide betting and gaming services could be considered to be pursued in a consistent and systematic manner as required by the CJEU’s case-law or not.
Referring to its established case-law, the CJEU reminded that the choice of methods for organizing and controlling the operation and participation to games of chance falls within the margin of discretion of the national authorities, that it is for each Member State to assess whether it is necessary, in whole or in part, to prohibit or restrict certain games of chance and that the various types of these games of chance can exhibit significant differences so that some of them may be subject to a monopoly and others to a system of authorizations. However, the Court also reiterated that the restrictive legislation in question must genuinely meet the concern to reduce opportunities for gambling and limit activities in that area in a consistent and systematic manner. Hence, insofar as the authorities of a Member State incite and encourage consumers to participate in lotteries, games of chance or betting to the financial benefit of the public purse, those same authorities cannot invoke public order concerns relating to the need to reduce opportunities for gambling in order to justify restrictive measures, even if they only relate to betting activities, for example. It is of course always for the national court to determine whether the conditions for allowing a restriction to transnational games of chance contained are met. But, in this case, the CJEU clearly stated that, with regard to the games of chance not covered by the public monopoly, the German authorities actually encouraged participation in stead of reducing and limiting activity in that area in a consistent and systematic manner and hinted that, hence, the aim of preventing incitement to squander money on gambling and the fight against addiction could no longer be effectively pursued by means of that public monopoly, rendering it unjustifiable under the CJEU’s case-law concerning Articles 43 and 49 EC (now Articles 49 and 56 TFEU).
The third question asked whether national legislation leaving it up to the discretion of the competent authority whether to issue a license for games of chance or not, even though the statutory conditions for the grant thereof are satisfied, could be allowed. The Court answered that, in order to avoid discretionary conduct liable to negate the effectiveness of Union law provisions, any prior administrative authorization scheme should be based on objective and non-discriminatory criteria known in advance. In addition, it was held that any person affected by a restrictive measure in such a scheme should have an effective judicial remedy available to them.
The fourth question essentially asked whether a complete prohibition on the offer of games of chance via the internet could be compatible with the principle of the freedom to provide services. While the CJEU concluded that such total prohibition may, in principle and having regard to the different kind of risks associated with the internet, be regarded as suitable for pursuing the legitimate objectives of preventing incitement to squander money, the fight against addiction and the protection of young persons, it also clearly stated that the referring court had not been specific about the nature of its doubts in that regard and that it had not explained them. The Court’s ruling in this regard is hence very careful and seems to suggest that, in certain specific circumstances, a total prohibition of the use of the internet may not be suitable.
In the Stoss case, the Court’s ruling i.a. concerned the same question as the second question in the Carman Media case, although with a slightly different twist. Indeed, here the Court also found that the holder of the public monopoly on bets on sporting competitions in the Länder concerned was engaging, in relation to lottery games to which its monopoly also extended, in intensive advertising campaigns emphasizing the need to finance social, cultural or sporting activities to which the profits derived were allocated, thereby making it appear that maximization of the profits destined for such activities was becoming an end in itself of the restrictive measures concerned., This is however not a public interest justification under the Court’s case-law. The Court stressed that it is important, in that respect, that any advertising issued by the holder of a public monopoly remains measured and strictly limited to what is necessary in order to channel consumers towards authorized gaming networks and that such advertising cannot aim to encourage consumers’ natural propensity to gamble by stimulating their active participation in it, such as by trivializing gambling or giving it a positive image due to the fact that revenues derived from it are used for activities in the public interest, or by increasing the attractiveness of gambling by means of enticing advertising messages depicting major winnings in glowing colors.
With regard to another question in this case concerning the principle of mutual recognition, the Court answered that, in the current state of EU law, the fact that an operator holds an authorization to offer games of chance in its Member State of establishment does not prevent another Member State from requiring this provider to obtain an authorization issued by its own authorities, subject to further compliance with the requirements of EU law,. The Court however also firmly repeated that, according to consistent case-law, a Member State may not apply a criminal penalty for failure to complete an administrative formality where such completion has been refused or rendered impossible by the Member State concerned on grounds that infringe EU law (Placanica and Others, paragraph 69).
The Engelmann Case : proportionality and transparency required
On 9 September 2010, the CJEU issued a ruling with regard to Austria’s betting and gaming regulations and their compatibility with the freedom to provide services (Case no. C-64/08). In short, Austrian law provides for a State monopoly on the organization of games of chance and the Minister of Finance may grant a limited number of 12 concessions, each for a period of 15 years, but only to public limited companies having their seat in Austria. All 12 concessions are currently held by Casinos Austria AG and have been granted without any prior public call for tender nor transparent award process. Mr. Engelmann, a German national, had offered roulette and poker games in Austria without the necessary authorization and was consequently convicted by the Linz District Court and ordered to pay a fine of EUR 2,000. An appeal was lodged with the Linz Regional Court, which had doubts as to the compatibility of Austrian betting and gaming law with Articles 43 and 49 EC (now respectively Articles 49 and 56 TFEU).
The first question concerned the obligations on persons holding a concession to adopt the legal form of a public limited company and to have their seat on national territory. With regard to the first obligation, the CJEU held that the obligations binding public limited companies with regard to their internal organization, the keeping of their accounts, the scrutiny to which they may be subjected, etc. could justify requiring that operators adopt this particular legal form, especially having regard to the specific characteristics of the gaming sector and the dangers connected with it. With regard to the second obligation, however, the Court held that it was plainly discriminatory against companies having their seat in another Member State as well as disproportionate, as it went beyond what is necessary to combat crime. The Court indeed mentioned a few other ways in which to achieve the same level of control, e.g. by requiring separate accounts for each gaming establishment, audited by an external accountant, the possibility for the authorities to be systematically informed of the decisions adopted by the decision making bodies of the concessionaires, etc. and rightly held that any undertaking established in a Member State can be supervised and have sanctions imposed on it, regardless of the place of residence of its managers.
The other question of the referring court sought guidance with regard to the compatibility of the concession characteristics and the (lack of) tendering procedure prior to the grant of all 12 concessions to a single public operator. The CJEU found a strictly limited number of concessions granted for a period of 15 years acceptable and justifiable, because it limits opportunities for gambling for consumers and allows for a sufficient length of time for the concessionaires to recoup the investments required for setting up a gaming establishment. As to the tender procedure in Austria, without necessarily implying an obligation to call for tenders, the CJEU held that Articles 43 and 49 EC (now respectively Articles 49 and 56 TFEU) entail an obligation of transparency. This means that the concession-granting authority, when such concession may be of interest to an undertaking located in a Member State other than that in which the concession is granted, should ensure a sufficient degree of publicity in order to enable the service concession to be opened up to competition and the impartiality of the award procedures to be reviewed. A total absence of transparency, as was the case in Austria, constitutes an indirect discrimination on grounds of nationality in the view of the CJEU, as it constitutes a difference in treatment to the detriment of operators located abroad, who have no real possibility of manifesting their interest and applying for the concession at hand.
Analysis and Conclusion :
These recent CJEU judgments clearly remind Member States of their obligations with respect to the primacy of EU law and the need to ensure that derogations are properly justified by reasons of public interest which must be pursued in a consistent and systematic manner.
As regards the possibility of a complete prohibition of games of chance via the internet, the question remains whether such restriction does not go beyond what is necessary to achieve the traditional public policy objectives of gambling legislation (e.g. in case of criminal sanctions and knowing that electronic transactions are much more easy to monitor). One might even argue that such prohibition is unsuitable to achieve these objectives (e.g. since it might force the inevitable offer of online gaming further underground and lead problem gamblers away from officiel help channels).