French to come up with a better proposal

French legal drafters will be back at the drawing board this week following the rejection of their first proposals for the liberalisation and regulation of the French gambling market by the European Commission.

Towards the end of March 2009 the proposals, which include the regulation of limited online gambling, were submitted to the French Council of Ministers by Minister of Budget Eric Woerth. The proposals were referred to the European Commission in terms of EU Directive 98/34 (see previous InfoPowa reports), starting a 3 month approval process and aiming for the proposal to go into effect early in 2010.

Several major French and international companies have already commenced positioning manouevres in anticipation of the opening up of the market.

The proposal includes the formation of a regulatory body to be titled Autorité de Régulation des jeux en ligne (Online Games Regulatory Authority) or ARJEL. The liberalisation of the formally state-monopolised market will be limited to “online horse race betting, sport betting and games consisting of shared games which depend on skill, whereby the player, after the intervention of chance, demonstrates his/her will and decides, in relation to the strategy adopted by the other players, to use a strategy which is likely to increase his / her chance of winning (for example online poker)”.

This excludes lotteries, virtual slot machines, “spread betting”, “betting exchange”, betting on virtual competition and casino games in which consumers play against the bank such as roulette, blackjack etc, on the grounds that these genres are considered to be too dangerous and likely to lead to increased addiction.

However, this week the European Commission responded negatively to the proposal, saying that it is not compliant with European law, and the EU compliance body has given the French a month to come up with a revised version.

It is understood that the objections are mainly based on the low maximum payout ratios that operators are permitted to return to players as winnings, persistent restrictions on competition from international companies and difficulties regarding the use of sporting event brand names. Of these, French claims that setting the maximum payout ratio low rather than at industry norms because too high a return encourages addiction are to be tested.

The Commission has asked the French to produce evidence substantiating their claims regarding the influence of high maximum payout ratios on addiction, pointing out that such a regulation would discourage operators established in EU member states from normal business policies or from using efficiency edges in order to offer higher, and therefore more competitive, ratios, thus making their offering to punters more appealing.

The French can perhaps take some comfort from a more conciliatory reference to the (for them) troublesome requirement in terms of the European Treaty requiring that member states allow the free movement of goods and services with other member nations; the Commission assured the French that it was not demanding "....an automatic granting of an authorisation in France to providers legally operating in another member state”.

That said, however, it was noted that any curtailment of the freedom of an outside provider of gambling services in France had to be justified by imperatives in the general interest, such as consumer protection and the prevention of fraud.

The Commission also found fault with the French requirement that operators must get permission from rights holders to use event names when offering betting products, commenting that this would not “constitute a valid justification for the restrictive policy adopted”.

France now has the choice of making the required amendments to its proposed law, or facing legal action by the Commission if it decides to go ahead with the proposal in its present form. The Commission has set a deadline of July 8 2009 for re-submission.

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