French Regulatory Proposal Unveiled, Tax Regime Draws Criticism

9 March 2009
After this article was published Friday, comments were added from Bwin.

As promised, France has released a draft proposal that would liberalize its hitherto monopolistic gambling market, but online gambling industry observers are already raising eyebrows at the government's proposed tax regime.

After some delay, the proposal was publicized Thursday, and at a press conference that day, the French budget minister, Eric Woerth, told reporters the country's gambling market will be expanded to "adapt to Internet reality."

In doing so, he said, the government hopes to reclaim some share of France's highly lucrative betting market lost to illegal online competition.

And those losses were not kindly looked upon.

Executives with Unibet and Bwin Interactive Entertainment A.G. have paid for alleged transgressions there, and were arrested under the shadow of political pressure from France's two monopolies, Les Française des Jeux and Pari Mutuel Urbain. Patrick Partouche, who runs the country's largest casino chain, was also taken to court after being accused of running an illegal Internet casino targeting French residents.

France generates about 5 billion euros each year from licensed gambling operations, which include horse betting, sports betting, casino gambling and lotteries, a person briefed on the proposal told IGamingNews Friday.

Under the new proposal, which is set to be presented to the country's cabinet at month's end, three sectors will be opened to commercial competition: parimutuel horse betting, fixed odds sports betting and online poker.

The person said these sectors will be opened, in part, because they're popular, but also because the government perceives them to be the least addictive forms of wagering. Not surprisingly, operating online slots, casino table games like roulette, and spread betting will not be allowed.

"I understand that slot machines are not within the scope of the law, I accept it, but I am disappointed about the table games," Mr. Partouche, a noted critic of French regulation, told Le Point in an interview Friday.

The proposed tax rate for both horse betting and sports betting is 7.5 percent of stakes, and for poker, 2 percent of stakes. (As a point of comparison, the Italian tax on betting stakes -- viewed as prohibitively high by some operators -- is 3.5 percent.)

"The tax on sports betting at 7.5 percent of turnover is very high," Warwick Bartlett, the owner of Global Betting & Gaming Consultants, told IGamingNews Friday. "The dilemma for all countries is the current economic climate and the parlous state of government finances, which means that no government is prepared to risk the current tax take from gambling."

Les Echos, a French paper, reported that additional levies will be applied against the horse betting (8 percent) and sports betting (1 percent) sectors, returns from which will be used to finance the development of amateur and professional sports and the horseracing industry, as well as the restoration of historic monuments.

The customer payout ratio, meanwhile, has tentatively been set at between 80 percent and 85 percent of an operator's gross gaming revenue.

Licenses will be issued for five-year terms, the person said, and renewal will be contingent on compliance with guidelines established by a newly created regulator called the Independent Regulatory Authority for Online Games, or Arjel (in French, l'Autorité indépendante de régulation des jeux en ligne).

In the coming months, Arjel is expected to release guidelines covering specific, separate accountancy procedures for an operator's commercial activity in France; transparency on payments mechanisms; and the existence of a permanent correspondent in France.

It is also expected that Arjel will have appointed a chairman by the end of the month.

An advisory committee on gaming -- called the CCJ, or Comité Consultatif des Jeux -- will also be created as a "moral" organ, the person said, and will oversee development of responsible gambling policy and research.

Online operators have been muted in responding to the proposal so far.

When asked Bwin's reaction to the proposed tax rate, Kevin O'Neal, a company spokesman, told IGamingNews Monday:

"We know from experience that blocking or bans do not work effectively. So countries which are already regulated -- like Italy -- they reduce their taxation levels that started out higher in the past. In Italy, it's around 3 to 4 percent of turnover -- and in Italy, it started out higher, but with the increase in overall industry volume, they reduced it."

Bwin is poised to become a player in the French market via its partnership deal with Éditions Philippe Amaury, a media group there, which Mr. O'Neal said is currently being developed "subject to the legislation."

Unibet and Betclick had not responded to invitations for comment by press time Friday, but the European Gaming & Betting Association, which lobbies on behalf of Unibet, has questioned the economic viability of the proposal.

Lobbying is likely to intensify as the proposal works its way through Parliament, and online operators are expected to push for a less draconian tax regime.

"The licensing terms will now be key, and we expect they will in some way favor local operators," Mr. Barlett said. "I suspect this deregulation will create a unique opportunity for Les Française Des Jeux, whose license previously meant that they could trade only in France but will now be able to expand outside from a strong base at home."

The new regulation is anticipated to take effect from Jan. 1, 2010.

IGamingNews is working now to develop a clearer picture of potential advertising regulation. More on this to come.

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