I.M. Round Table | French Regulatory Proposal

Welcome to IGamingNews' round table discussion on the new French regulatory proposal. Joining us today is Anouk Hattab-Abrahams, a lawyer with the Brussels branch of Ulys, and Lorien Pilling, a research analyst with Global Betting and Gaming Consultants.

Greetings all. Let’s jump right in. Thus far, the biggest point of contention on the regulatory proposal seems to be the tax rate. Some are saying it is too high. What’s your opinion on this?

Mr. Pilling:

From the conferences I've been to over the last 18 months or so -- EiG and BetMarkets -- I think there was a fear it could have been higher, but it is still high compared to other jurisdictions.

Ms. Hattab-Abrahams:

So indeed we consider it to be not only too high but also poorly adjusted to operators’ business models.

Ms. Kozlowski:

What do you think the effects of a high tax rate will be?

Ms. Hattab-Abrahams:

It will most likely drive operators away from the French market. It has already driven away one client of ours.

For example, the taxation rate imposed in the U.K. is 15 percent on gross gaming revenue. It is equivalent to about a 1 percent tax on total wagers. France wants to impose a 2 percent tax on total wagers for poker.

Economic experts have foreseen that with such a high taxation rate, players will keep looking for unauthorized or illegal offers with a higher return.

Mr. Pilling:

The combined effect of the high tax on stakes and the limits on payout will be unattractive to customers and operators alike. One of the appealing aspects of gambling on the Internet is the value for money and high payouts it can offer.

Ms. Kozlowski:

Do you think some operators will continue business in France without a license? What will they risk?

Ms. Hattab-Abrahams:

The draft law uses several weapons to fight these operators: fines and prison, blocking of funds and shutting down Web sites. However the draft law has not yet been reviewed by the European Commission, who may have a say on some of these tools. It is also not clear whether this policy will be efficient.

That is what we keep advocating with the other EU argument -- that such a high taxation rate may be considered as an unjustified barrier to free provision of services within the EU.

Mr. Pilling:

I think operators without a French license will continue to target French customers precisely because there will be demand from French gamblers wanting better value than can be offered by French-licensed companies.

As Anouk says, the law will attempt to block them and fine them. But it will revert back to arguments about trading across borders in the EU by companies holding valid licenses in other jurisdictions.

Ms. Kozlowski:

Do you think the taxation rate will need to be reevaluated or changed at a later date?

Ms. Hattab-Abrahams:

We hope so, but it is not clear that the French government will take the hint that easily.

Mr. Pilling:

I don't think the French authorities will want to change it. This whole process is about the French government keeping hold of its tax revenues rather than seeing them disappear offshore.

Ms. Hattab-Abrahams:

All in all, it will probably remain a de facto FDJ (La Française des Jeux) monopoly.

Ms. Kozlowski:

Do you expect the legislation to pass European compliance testing unscathed?

Ms. Hattab-Abrahams:

We don't believe so, since for the blocking of funds, the European Commission had already expressed its concern when France notified a decree containing the same measures. Plus, there are some very imprecise parts in the law on whether non-banking operators/micro-payment operators will be authorized to offer their services.

It seems at first glance that the French government has wanted to create another monopoly on this market for banks.

Mr. Pilling:

I imagine there will be challenges to it from trade associations and maybe other jurisdictions, and looking at what happened in Italy, the EC could ask for changes. It’s likely to be a time-consuming process.

Ms. Kozlowski:

Looking at Italy as a module for this, what could some of those changes be?

Ms. Hattab-Abrahams:

The Italians created an interesting regime for skill games. That would be a good idea.

Mr. Pilling:

It's trying to ensure that opening up the market really takes place -- rather than seeming to open up -- when in reality it's still about protecting the monopoly position.

Ms. Kozlowski:

Where will advertising regulations fall in all of this? Are those included, or will they be?

Ms. Hattab-Abrahams:

So far advertising is not a topic of complaint for licensed operators since it will be possible to do it through sponsorship, TV commercials and so on.

Mr. Pilling:

Maybe Anouk can confirm this, but I believe licensed operators will be subject to existing general advertising regulation. Non-licensed operators will not be permitted to advertise in France.

Ms. Hattab-Abrahams:

That's correct for non-licensed operators. But for licensed operators, they will be entitled to do the same advertising rights as the FDJ has.

Ms. Kozlowski:

How actively have French sports rights-holders lobbied Budget Minister Woerth's legislative proposal? From what you've seen of the proposal, have the rights-holders done well out of it?

Ms. Hattab-Abrahams:

Believe me they have! They lobbied really hard through the Comité National pour les Sports Olympiques and obtained that, for every betting organized on an event they organize, they will have rights paid by operators. Plus, there will be sponsorship and a global fund for sports that will be fed by operators.

Ms. Kozlowski:

Lorien, anything to add?

Mr. Pilling:

Not really, only that one of the concerns of the sports bodies prior to the licensing regime being announced was that of match fixing on French sports and matches held in France. I'm not sure how these financial deals help combat any supposed match fixing.

Ms. Hattab-Abrahams:

There is a bit in the draft that says that betting will only be possible on the outcome of the event or some decisive part of it, and that this part will be defined sports federations.

Ms. Kozlowski:

What can we expect of Jean-François Vilotte, the new head of Arjel, especially given his history of aggressive legal action against operators like Betfair and Ladbrokes?

Ms. Hattab-Abrahams:

France for sure deems that it has already made a big gesture towards non-state operators. So together with FDJ, they will fight really hard anyone who does not comply with the new scheme.

Mr. Pilling:

I'm sure he'll be keen to ensure that the regulations are enforced and that “illegal” operators are kept out!

Ms. Kozlowski:

This question is specifically for Anouk: What do you make of charges against Patrick Partouche being effectively discharged? Does this send the wrong message to the country's future licensees?

Ms. Hattab-Abrahams:

Do you mean in the recent decision from the Cour d'Appel?

Ms. Kozlowski:

Yes.

Ms. Hattab-Abrahams:

Well, his discharge was a matter that he was not himself involved in the illegal poker Web site. It was all operated by a former business partner to whom Partouche has "sold," through a license, his name.

But when things started to turn sour, Partouche tried to cancel the deal. However, the business partner who was in Belize or Switzerland did some clever trick. He directed the for-fun Web site onto a paying one. In brief, the court left Partouche alone because he was not really involved.

Ms. Kozlowski:

Here's a very forward-looking question for both of you: Is there any hint at all that France will regulate exchange betting, spread betting or in-running betting in the years to come?

Ms. Hattab-Abrahams:

The French government seems to think that spread betting is a highly risky activity since players never know the extent of their losses, but I am not sure that this is what spread betting is about.

Mr. Pilling:

Spread betting is almost certainly not going to be permitted. France is against any product deemed high-risk -- see its decision to exclude casinos.

Ms. Hattab-Abrahams:

Exchange betting may be regulated if we manage to prove it's no more a high-risk activity than sports betting. It's all about proving that some gambling activities are no more risky or addictive than the ones which are legalized. But it will take time and money to go through raising the European Commission’s awareness.

Mr. Pilling:

Betting exchanges might be unlikely because existing betting exchanges derive much of their revenues from horseracing, and France is keen to keep control of its domestic PMU (Pari Mutual Urbain) racing.

Ms. Kozlowski:

So, it will definitely be something that happens later rather than sooner, if at all.

Ms. Hattab-Abrahams:

Yes I would rather put it like that.

Mr. Pilling:

Given the recent “difficulties” in the financial markets, introducing financial spread betting might not appeal to the French authorities!

Ms. Kozlowski:

Were any of you surprised by the prohibition of casino games like roulette and online slots?

Ms. Hattab-Abrahams:

Not if we refer to the French position, which was to say that they wanted to avoid highly addictive games with no skill involved.

Mr. Pilling:

I was a little surprised as French casinos had been developing their own Web sites in anticipation. But as Anouk says, the underlying principle in all this has been “control” and avoiding those games of risk. Lecroupier.com looks like a good casino site!

Ms. Hattab-Abrahams:

Yes, but I think it does not target the French public for cash games.

Mr. Pilling:

It was targeting the U.K. market. I’m not sure what it will do now. U.K. is competitive, and France is not available (for real-money play).

Ms. Kozlowski:

Moving back to operators, of those companies seeking a license, who do you feel will be the most successful?

Ms. Hattab-Abrahams:

Big media companies who will have bought middle-sized gaming operators.

Mr. Pilling:

I think Eurosport is well placed, if it chooses to go for a license.

Ms. Kozlowski:

How could a foray into to France be a bad move for operators under the new regulations? How could it be a good move?

Ms. Hattab-Abrahams:

It will probably be a good move for bigger companies that have exposure in different leisure areas such as Orange, the telephone mogul, and entertainment areas. It is not such a good investment for very specialized Web sites who only offer one type of gaming.

Mr. Pilling:

The pro is that you can operate in a regulated jurisdiction and can advertise. The cons are that the tax is high, the existing monopoly is strong, and you are likely to be competing with operators outside of France still targeting the market who can offer better value to customers than you can.

Ms. Hattab-Abrahams:

I agree with Lorien.

Ms. Kozlowski:

Will operators stand a chance next two France’s two monopolies?

Mr. Pilling:

I think operators will think hard about getting a license in France. They could find it difficult to make money. The monopolies are well-known and trusted by consumers, particularly on horseracing. Poker might offer a better chance.

Ms. Hattab-Abrahams:

As I said the bigger organizations such as TF1 or Orange will definitely be helped by their market exposure in other fields like telephone or TV. Advertising will be made easier, in the first place. It's not like their entire business model will revolve around gaming.

For other pure gambling companies they will need to have a very competitive offer, but I think FDJ will remain No. 1.

Mr. Pilling:

Yes, I agree with Anouk.

Ms. Hattab-Abrahams:

I believe that this market opening is only a beginning, and other battles will be fought through the European Commission.

Mr. Pilling:

It will always be a question as to how effective any blocking measures will be. Other countries have found difficulties. I don't know the answer. We will just have to wait.