Danish Monopoly Broken | A Lawyer's Analysis

22 April 2009
Henrik Norsk Hoffman, an attorney with the law firm Lett in Denmark, answered questions by telephone Wednesday about the Danish Ministry of Taxation's announcement this week that sectors of the country's monopolistic gambling market will be liberalized.

What do we know so far about the tax ministry's proposal to liberalize the sports betting, casino and poker sectors?

The Danes are the wrong peoples' shoulders to cry on if you think you pay too much tax, because, these days, I think we can beat any record.

    They haven't really disclosed that many details because there aren't really that many details to disclose yet.

    The most important part of that statement is that the tax ministry would never have made an announcement like that without having secured a majority in the Parliament. The details need to be worked out, still, but it seems that within a year from now we'll have a liberalized gambling market in Denmark.

    I would guess that it's more likely to happen in the fall than the spring next year, but it will be within the next parliamentary year, which runs from the first Tuesday of October to the end of May.

Any indication of specific casino, sports betting or poker games that might be regulated?

    I think it's easier to define what will be excluded: lotteries and scratch-card-like games.

    There might be some gray zones over what is an online-gambling game, and what is a casino-kind of game; but generally, I think the liberalization will cover anything we know from online gambling.

    What they don't want -- they don't want offline lotteries and offline scratch cards offered by anyone else than what is today the Danish state monopoly, Danske Spil.

Will this liberalization prove positive or negative, overall, for Danske Spil?

    They would be able to apply for a license like anybody else.

    But they will have to change their way of doing business, because I know from people -- they wouldn't give me their names, but I talked to several employees at Danske Spil and at the Gambling Control Board -- there will be some things Danske Spil will not be able to do any longer.

    I think everyone -- including the Gambling Control Board and Danske Spil -- will be extremely happy to have a new, modern set of legislative guidelines, where they know what they can and cannot do.

    Everybody is going to be happy with this, I think; but looking at the issue of taxation and licensing fees, though, I could see some trouble there. The taxes are very high in Denmark.

Preliminarily, has there been any information leaked regarding a potential tax scheme?

    No, but I hope it will depend on the kind of game, because the games are so different by their earnings structures that, in my view, you can't tax poker, casino games and sports betting the same way.

    For poker, hopefully it will be taxation on the rake. Right now, for Danske Spil, I think the tax rate is close to 30 percent of actual turnover minus prizes. Again, you couldn't do that with poker.

    Danske Spil is allowed to offer poker, but because of that way of taxing it, they could never make any turnover because they would have to set the rake at between 20 and 25 percent -- just to be able to afford the taxes. And we both know that no poker player would come into a poker site where the operator would take a rake of 25 percent of the pool.

How could the proposed liberalization affect the country's "gray" online gambling market?

    I hope operators will operate by the new rules, and I hope they will get going yesterday -- get going lobbying the tax and licensing-fee scheme. I'm pretty sure that nothing has been negotiated yet, and that will be the only point that really needs discussion in the Parliament. That's why they need to get going now.

    For the last five to seven years, we have had gambling legislation that has not been enforced at all. If they make new legislation, they would have to enforce it fiercely once it's been enacted. That means probably blocking Web sites -- they might also consider blocking through penalizing the payment service providers -- so I think it will be really hard for the gray market.

    What is now known as the gray market -- which we could say are the good guys in the industry -- would want to run a profitable and decent business. So, if they can get a compromise with the Danish Legislature on taxation and licensing, they would of course have an interest in not having a gray market anymore.

    But I think that, also, the Danish government, once they liberalized these sectors, they would have more than 100 percent support -- if that's possible -- from the EU Commission in enforcing that piece of legislation.

    I think that the risk in Denmark is always the taxation issue. Right now, the gray market has the sympathy of most Danes, but the moment when they (gray operators) can operate legally but choose not to because the taxes are too high, it'll be very damaging for the good will in the eyes of the broader population.

    When you pay as much taxes as you do in Denmark -- maybe it was somewhat cool 20 years ago to commit tax evasion, but now it's really not. We've seen a radical change in attitude toward that activity over the last five years. So, for the brand names, I think it will be detrimental to continue operating without a license just because they think taxes are too expensive.

    The Danes are the wrong peoples' shoulders to cry on if you think you pay too much tax, because, these days, I think we can beat any record.

    I think, in time, you can change the tax scheme, because the Danish Legislature is also aware that high taxes are not the future for Denmark if we want to maintain a high standard of living. So, it's a matter of playing along -- doing lobbying now before the first act is enacted is easier than changing an existing piece of legislation.

Chris Krafcik is the editor of IGamingNews. He lives in St. Louis, Mo.