European Roundup 2013

Despite the present economic crisis, the European gaming market remains vibrant. Governments faced with budget shortfalls are now looking at the gaming industry as an increasingly viable way of generating additional tax revenue. Consequently, there have been a number of significant developments of late and other important developments look likely in the coming months. Casino Enterprise Management takes a close look at six markets where significant changes are believed to be on the way.

United Kingdom
There have been a number of significant developments in the United Kingdom regarding online gaming, with the government’s new gaming policy becoming an increasingly controversial issue. In 2011 the Conservative government called for a 15 percent point-of-consumption tax on offshore online gaming companies offering their services in the U.K.

Around 90 percent of online gambling operators offering their services in the U.K. are located in places where they are exempt from taxes or where taxes are low, such as the islands of Gibraltar, Malta and the Isle of Man. As the game play would introduce a tax on where the bet was made, this would—according to the government—create a more level playing field and make it fairer for online gaming companies that were established in the U.K. According to government officials, the gaming law’s primary goal, however, was to ensure a greater level of player protection as the companies would be licensed in the U.K.

In December 2012, the government published the draft law regarding online gaming. According to the new draft, not only would offshore operators be required to pay the point-of-consumption tax, but they would also be required to hold a gambling commission license to transact with British consumers. This means that the “white list,” a list of online gaming companies that are licensed in jurisdictions approved by the U.K. Gambling Commission, would be gradually phased out.

Offshore operators have reacted angrily to the move and argued that the new law is aimed primarily at generating additional tax income rather than protecting the consumer. This aim, they said, would be in contravention of European Union (EU) law. All the same, the government has gone ahead with the move, and in May of this year, the draft law passed through its committee stage. This means it can now be submitted to Parliament for approval. Meanwhile, online gaming companies based in Gibraltar have been able to raise about £500,000 in a joint legal defense fund against the government’s new proposals. The new act is scheduled to go into effect at the end of 2014.

The Netherlands
Major changes could also be on the way in the Netherlands. At present, Holland Casino (official name: National Foundation for the Exploitation of Casino Games in the Netherlands) has the legal monopoly on casino gambling with 14 casinos located in city centers and tourist zones throughout the country, and with profits going directly to the Dutch treasury. The government is currently looking at proposals to privatize Holland Casino and open the market to other operators. However, for now it is still unclear under what conditions new land-based or offshore licenses will be offered or what companies might be interested in buying the company. Despite a number of cost-cutting measures, Holland Casino recently announced that it had posted a loss of €652,000 million in 2012, with visitor numbers falling by 2 percent to 5.6 million in 2012.
The coalition government is also looking at legalizing online gaming, and in March 2012 the government announced plans to issue licenses for interactive gambling. Mark Rutte, head of the newly elected government, has long been a supporter of liberalizing the market in order to raise additional tax revenue in the face of the growing economic crisis. The crisis continues to deepen in the Netherlands, with unemployment now standing at its highest in 15 years and the economy now in its third recession since 2009.

The government is consulting the industry on how gaming should be regulated and is considering what tax rate to introduce. It is believed that the government is looking at the Belgian model—in which only those operators with established land-based businesses may apply for online gaming licenses—and the far more liberal Danish model, which welcomes offshore operators. Although online gambling is illegal, it is estimated that the Dutch spend an estimated €450 million to €500 million a year on offshore Internet gambling sites, and the government aims to raise an additional €15 million by 2016 in online gaming tax revenue.

Spain
With 27.2 percent of Spain’s workforce now unemployed, the current world economic crisis has taken a particularly heavy toll in the country. The casino industry has also been hit hard by the present crisis, with revenue falling by 40 percent since 2006. Despite this, major changes are on the way with a new EuroVegas resort project—the brainchild of Las Vegas Sands Corp. Chairman and Chief Executive Sheldon Adelson—now scheduled on Spanish soil.

With an estimated cost of €22 billion ($29.5 billion), the new EuroVegas may take up to 18 years to build, create an estimated 260,000 jobs and, once completed, will consist of 12 hotels, six casinos, three golf courses, theaters, a convention center and other amenities. Over the next 10 to 15 years, the new complex could attract an additional 11 million tourists, who would spend an estimated €15 billion. The new complex could also bring with it wider changes to casino legislation that could benefit the 39 casinos currently operating in the country.

Once the new complex is built, casinos in Madrid will pay a 10 percent gross gaming revenue (GGR) tax, compared to about 55 percent of GGR in other Spanish regions. It is estimated that this could lead to a significant reduction in the tax rate nationwide, as operators will be able to push more effectively against the extremely high tax rate now in place in most regions. Indeed, as a direct result of EuroVegas, Spain could turn out to be one of the most vibrant gaming markets in the region, with the government of Barcelona also announcing Barcelona World. Catalan President Artur Mas, savings bank La Caixa and Sao Paulo, Brazil-based real estate developer Veremonte Participacoes S.A., entered a deal last fall to create another mega-complex that will house six theme parks, six hotels, casinos, theaters and more. Themed with six world areas (Brazil, China, Europe, India, Russia and the United States), Barcelona World is expected to cost €4.5 billion, or approximately $6 billion, create 20,000 jobs and is scheduled to open in 2016.

In addition, since green-lighting online gaming in May 2011, the i-gaming sector has reported record returns. In the first six months since it was legalized, one million Spaniards gambled a total of €2.3 billion online and, according to Spanish trade association Jdigital, the online market will be worth €225 million at the end of 2013.

The Czech Republic
While it may not be one of the largest markets in the region, one country that could see major changes in its gaming laws in the near future is the Czech Republic. Now in the longest recession in its history, the nation is looking at the gaming sector to raise additional tax revenue. The Ministry of Finance is responsible for the regulation and oversight of gambling, and the government recently gave local municipalities increasing powers when it comes to more closely regulating the industry in their jurisdictions. Around 6,000 illegal video lottery terminals have been closed down in recent months while the land-based industry continues to grow, albeit slowly. Today, there are just more than 62,000 slot machines nationwide.

In March 2013 the Czech government abandoned its online gaming law, which would have restricted the market after it was rejected by the European Commission (EC) on the grounds that offshore operators would have to have a legal presence in the territory. Under previous legislation, only five companies already established in the Czech Republic were permitted to offer online sports betting. According to local press reports, the government has ordered the Ministry of Finance to draft a new law that would be far more liberal and meet EU requirements. Lawmakers are looking at other gaming acts as models, such as the 2011 online gaming act passed in Spain. It is believed that a new draft law could be put before the Czech parliament in June, and that once the law is approved by the European Commission, the market could be open to offshore operators soon afterward.

Germany
In 2011, 15 of the 16 German states signed the German Interstate Treaty on Gambling. In a very limited way, the law opened up the market to offshore operators, allowing for 20 locally run online sports betting sites and forbidding all types of other online gambling with the exception of live table games. Furthermore, live table games may only be offered by local casino operators. Germany has for years defended its gaming policy as it argues that strict laws are needed in order to combat gambling addictions while defending its sports betting monopoly ODDSET, which offers sports betting on a limited number of sporting events.

Germany’s gaming laws in the past have run afoul of the European Commission due to the fact that they block the free flow of services across member nations, and operators have been keeping a close eye on developments in the European courts. A key issue has been gaming in the state of Schleswig-Holstein. Schleswig-Holstein had adopted its own gaming policy. In September 2011, the state passed a gaming law that opened the online gambling sector to offshore operators. In 2012, the state began to award licenses to some of the world’s leading i-gaming companies.

However, in January of this year, the newly elected coalition government announced plans to reverse its gaming laws and quickly join the other 15 states in the Interstate Treaty on Gambling. Germany then asked the EC to rule on their conflicting gaming laws and whether Schleswig-Holstein could repeal its current gaming laws to join the other states in the German Interstate Treaty on Gambling—a request deemed lawful by the European Court of Justice this year.

Although this was seen as a setback, operators are likely to continue to put pressure on the European Court of Justice for changes to Germany’s restrictive gaming laws. At the same time, there are a number of moves within the EC to persuade member nations to adopt a more unified and liberal approach when it comes to online gaming. However, pressure in the past has done little to make Germany change its gaming laws, and just how responsive the German government will be remains to be seen.

Cyprus
In 2009 then-President Demetris Christofias declared, “There will be no casinos in Cyprus as long as I am president.” But now Cyprus is bracing itself for what could turn out to be the deepest and longest running recession in its history. It is estimated that the government cut on fiscal spending will amount to 4.5 percent of GDP, and as these cuts go into effect, the economy could shrink by as much as 12.5 percent over the next two years. In order to raise revenues, the government is looking at a number of ways to help pull the island out of recession and is now considering something that under previous administrations would have been unthinkable: green-lighting large-scale resort casinos on the island.

Casinos have been permitted in Turkish Cyprus since 1975 but never before on the Greek part of the island. The measure was announced as part of a 12-point growth plan by President Nicos Anastasiades in April. Other measures include tax exemptions on business profits reinvested in Cyprus and the easing of payment terms and interest rates on loans. Exactly how casinos will be regulated is unclear, but it is believed that because of the extreme seriousness of the present situation, the government will adopt a new gaming law and quickly.

According to studies carried out locally, casinos in Cyprus could bring in €50 million in annual tax revenue. Although the island’s tourist industry has been hit by the present crisis, it is estimated that around 2 million tourists will visit the island in 2013. Cyprus is becoming increasingly popular with Russian tourists as gambling is illegal apart there, with the exception of specially designated zones.

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