GAMING LAW REVIEW AND ECONOMICS
Volume 17, Number 2, 2013
 Mary Ann Liebert, Inc.
DOI: 10.1089/glre.2012.1725
The Prohibition of Betting Exchanges is in Breach of EU Law
Justin Hubble and Martin Lycka
I. INTRODUCTION
O nline exchange betting is a market-driven
gambling system which enables customers to
request bets on either side of the market. Every ex-
change customer may place either a request for a
‘‘back’’ bet (i.e., a bet that something will
happen—for example, that Manchester United will
beat Barcelona in the Champions League final) or
a request for a ‘‘lay’’ bet (i.e., betting that something
will not happen). Using the same example, a win-
ning lay bet against Manchester United would mean
that at the end of the regular time, the ‘‘Barca’’ players
have won the game or the game goes to overtime.
Exchange customers request the odds at which
their bets may be placed, but (depending on the
model and legal terms governing the betting con-
tract) that request may or may not be accepted by ei-
ther the exchange operator itself (acting as
counterparty to all bets) or by another customer.
At the end of every match, the exchange betting pro-
vider matches the two sides of the market and pays
out the winnings to the winning customers, having
first deducted a commission in the form of a per-
centage of the winning bet. In this sense, an ex-
change operator is indistinguishable from a
traditional bookmaker (except that it perfectly man-
ages its risk) or a pari-mutuel or tote operator (ex-
cept that fixed odd bets can be secured on the
exchange). The unmatched bets, i.e., those requests
for bets that have not been accepted by the exchange
operator or by other customers, are voided, and the
money is returned to the customer, once again be-
coming available for that customer to bet.
Lately, a number of EU member states have taken
steps to regulate their online gambling markets.
J. Hubble is director of legal & compliance with Betfair. Martin
Lycka is a legal advisor with Betfair.
121
New laws have been passed in France, Germany,
Denmark, Greece, Spain, Cyprus, and Bulgaria.
Greece and Cyprus have decided to prohibit ex-
change betting whilst, however, permitting other
forms of online sports betting.1 Despite providing
for exchange betting in its primary legislation,
Spain has omitted betting exchanges from the first
round of its recent licensing process.
The first part of this article will show that ex-
change betting is in no way different from other
forms of online sports and horse race betting. As a
result, there is no plausible reason to prohibit its
provision in an EU member state, or any other coun-
try, or treat it any differently from other online bet-
ting products in the event other forms of online
betting are permitted. It may be argued that under
such circumstances, a blanket prohibition of betting
exchanges amounts to a breach of European Union
law.
In the second part of the article, we will comment
on several other illegal barriers to entry into a gam-
bling market that online gambling operators have
recently faced in some EU jurisdictions. These bar-
riers include discriminatory licensing requirements
and non-transparent licensing procedure.
II. BAN ON BETTING EXCHANGES
A. Concerns of the regulators
The concerns some regulators have raised in rela-
tion to betting exchanges relate to: 1) its alleged in-
creased risk of fraudulent activity and money
laundering, as well as integrity concerns; 2) alleged
increased susceptibility to gambling addiction; and
1
Greek Draft Law on Regulation of the gaming market, art.
29(4); Cypriot Law Providing for the Regulation of Gambling,
sec. 79.
122
3) the assumption that an exchange is more difficult
to regulate than other gambling products. The arti-
cle will seek to show that none of these concerns
is substantiated.
1. Fraud in sports and money laundering
a. Sports integrity. Certain national authorities
have suggested that exchange betting increases the
risk of fraud in sports. In reality, due to advanced
technology, transparency, and audit trails, betting
exchanges provide a very effective means of identi-
fying people who try to corrupt sporting events.
After all, by their nature, exchanges maintain a
complete digital audit trail of every bet down to
the last millisecond—unlike cash-over-the-counter
forms of betting. This is proven by actual examples
of individuals being identified and reported to sports
governing bodies by exchange betting providers,
such as Betfair, and ultimately being found guilty
of sporting corruption offences using the evidence
provided.2 There are several British Horseracing
Authority case examples in the public domain.3
Nevertheless, opponents of exchanges (themselves
without anywhere near the same audit trails) are at
pains to discredit exchanges by association when in-
stances of skulduggery arise—even though it is the
exchanges that are helping to lift the cover on other-
wise undetected displays of questionable integrity.
Like other online gambling products, exchanges
track every transaction, including logins, all of
which can be used for monitoring and investigative
purposes. The exchange operators, like Betfair, use
(amongst other things) computer forensics, detailed
betting pattern analysis, and linked account
searches to investigate suspicious activities. Conse-
quently, betting anomalies can be reported to sport-
ing governing bodies in real time. Indeed, regulators
and sporting bodies can, by arrangement, access
betting data in real time themselves, if they so
wish.4
Furthermore, it cannot be plausibly argued that
‘‘laying,’’ i.e., betting against an outcome, is a rea-
son why exchanges encourage corruption in sports.
In a two-runner market, such as a tennis market or a
football match, laying one player is the same as
backing the other player. In a betting market with
multiple runners, it is possible to effectively bet
on an outcome to lose by backing all other outcomes
to a certain percentage. There are online tools which
help to calculate the necessary bets with non-
exchange betting operators. As a result, we are
LYCKA
increasingly seeing traditional bookmakers offering
odds to bet against an outcome, albeit at generally
less attractive, less efficient prices that expose
them to risk.
b. Money laundering. Exchange betting does
not present an additional risk of money laundering
above and beyond other online gambling products.
Whilst customers on the exchange do not know
the identities of those they are betting ‘‘against,’’ a
betting exchange operator will have a full audit
trail of all bets placed. All customer accounts are
subject to know your customer (KYC) identity ver-
ification checks. The matching of bets takes place in
a secure automated framework in which customers
are unable to stipulate with whom, how (in mone-
tary value), or when a particular bet is matched.
Should there be any form of collusion in an attempt
to match back and lay bets between individuals, this
would have to take place outside the normal trading
patterns, thus rendering such attempts easily detect-
able by the exchange operator.
Providers of betting exchanges have introduced
very effective tools which have reduced the occur-
rence of fraudulent conduct on their sites to a min-
imum. Other online sports betting products (such as
online sportsbooks) have the same low level of risk
of money laundering. Unlike the offline gambling
2
See, e.g., the results of the 2007 disciplinary inquiry against
Robert Winston, Luke Fletcher, Fran Ferris, and Robbie Fitzpa-
trick, Robert Winston/Fran Ferris/Luke Fletcher/Robbie
Fitzpatrick/Ian Nicholl—Results and Reasons, British
Horseracing Authority (Feb. 16, 2007), < http://www
.britishhorseracing.com/resources/about/whatwedo/disciplinary/
disciplinaryDetail.asp?item = 083920 > (last visited Oct. 14,
2011), or the 2008 disciplinary enquiry against Dean Mckeown
and Paul Blockley, Dean Mckeown, Paul Blockley, Clive Whit-
ing, Derek Lovatt, David Wright, Marcus Reeder, Martyn
Wakefield, Vincent Whiting And Nicholas Rook, British
Horseracing Authority < http://www.britishhorseracing.
com/resources/about/whatwedo/disciplinary/disciplinaryDetail
.asp?item = 087788 > (last visited Oct. 11, 2011).
3
Id.
4
Betfair provides the sports governing bodies (SGB) with
whom it has entered into Memoranda of Understanding
(MOU) and regulators with access to the so-called Bet Monitor
tool, which allows them to monitor bets on events under their
jurisdiction placed on Betfair in real time. The betting informa-
tion displayed on the Bet Monitor is in an anonymous format,
but is at an account level, allowing MOU partners to monitor
betting comprehensively. The MOU allows a SGB to request
from Betfair information on betting activity, and also allows
Betfair to make the regulator aware of information that Betfair
believes may represent a threat to the integrity of the sport in
question. To date, Betfair has entered into 48 MOUs with
SGBs around the world.
PROHIBITION OF BETTING EXCHANGES UNDER EU LAW
sector, all online gambling transactions are carried
out by electronic methods, which decrease the risk
of money laundering and simplify monitoring of
the related-money transfers. A number of indepen-
dent research reports5 have concluded that the risk
of money laundering in the gambling sector is com-
paratively modest ‘‘due to the high traceability of
e-gaming transactions and the customer identifica-
tion controls in the regulated sector.’’6
It is also worth noting in this regard that, apart
from the highly sophisticated tools developed by
the online gambling industry to prevent money
laundering, exchange operators also have the abil-
ity, due to the nature of the product, to effectively
monitor both sides of every betting market offered
on the exchange. Although similar betting patterns,
i.e., backing and laying, can be replicated on the
sites of other sports-betting providers, their ability
to monitor the lay side of the market is considerably
more limited, which gives the exchange operators
much better chances to detect any attempt to laun-
der money on their sites.
2. Gambling addiction
There are no specific studies that have been con-
ducted on online exchange gambling to determine if
it increases the risk of problem gambling and gam-
bling addiction. The only empirical studies have
been conducted on Internet gambling in general.
These have consistently shown that gambling ad-
dicts gamble on a range of products, including
online channels. No causal link has been established
between specific types of gambling and gambling
addiction.
The 2010 British Gambling Prevalence Survey7
did not identify any links between specific types
of gambling and causes of gambling addiction.
The findings of this survey are consistent with
other studies that have shown that it is the intensity
of gambling participation, not the mode of gam-
bling, that presents the greatest risk of addiction.8
Furthermore, online betting tends to attract more
sophisticated sports bettors who do not fit the typi-
cal demographic profile of gambling addicts, who
are consistently revealed to be from lower socioeco-
nomic groups, with low educational attainment, and
who typically suffer from other problems. Recently,
a survey of over 4,000 Internet gamblers reported
that people who mainly used online services to bet
on sports events were more likely to have under-
taken higher education and be employed, and are
123
less likely to have gambling problems, than people
who used online services to gamble on a wider
range of products or activities.9
A series of studies conducted using large Internet
gambling data sets by Harvard University have con-
firmed that gambling on the Internet results in very
small levels of addictive gambling.10 These findings
are consistent with international prevalence surveys
which, based on 30 years of international population
research, have revealed addiction rates at around
one percent of populations.11 They are also consis-
tent with evidence that people who specialize in
sports betting spend the least number of hours
daily using online gambling services, when com-
pared with people who gamble online with casino
and other products. Therefore, the available evi-
dence does not support the view that Internet ex-
change betting carries a disproportionate risk of
harm relative to other gambling products.
3. Are exchanges more difficult to regulate?
No. However opponents of exchanges may try
and argue otherwise for commercial reasons—i.e.,
to protect their own businesses from competition.
There are a number of countries in the EU and
beyond that have regulated betting exchanges. The
UK Gambling Act 2005 specifically provides for
5
MHA Consulting, The Threat of Money-Laundering
and Terrorist Financing through the Online Gambling
Industry (report prepared for the UK Remote Gaming Asso-
ciation, June 2009); M. Levi, Money-Laundering Risks
and E-Gaming: A European Overview and Assessment
(final report, University of Cardiff, Sept. 2009); M. K. Spar-
row, Can Internet Gambling Be Effectively Regu-
lated? Managing the Risks ( John F. Kennedy School of
Government, Harvard University, Dec. 2009).
6
M. Levi, supra note 5, at 4.
7
Wardle et al., British Gambling Prevalence Survey 2010,
Gambling Commission available at < http://www.gambling
commission.gov.uk/PDF/British%20Gambling%20Prevalence
%20Survey%202010.pdf > , (last visited Oct. 15, 2011).
8
See, e.g., La Plante et al., Disordered Gambling, type of gam-
bling and gambling involvement in the British gambling preva-
lence survey 2007, 21 Eur. J. Pub. Health 532–537 (2011);
or R. A. LaBrie, H. J. Shaffer, Identifying behavioral markers of
disordered Internet sports gambling, 19 Addiction Res. &
Theory, 56–65 (2011).
9
Id.
10
See, e.g., R. LaBrie, D. LaPlante, S. Nelson, A. Schumann, H.
Shaffer, Assessing the Playing Field: A Prospective Longitudi-
nal Study of Internet Sports Gambling Behaviour, J. Gambling
Stud. 347–362 (2009).
11
Wiebe and Volberg, Problem Gambling Prevalence
Research: A Critical Overview (report to the Canadian
Gaming Association, 2007).
124
betting intermediary licenses which cover exchange
betting.12 Although a separate category of license,
in practice, the way exchanges are regulated in
the UK is almost identical to other sports betting
products.
The 2010 Danish Gaming Act, the 2010 Spanish
Act on Regulation of Games, and the 2011 Schles-
wig Holstein Gaming Act have permitted exchange
betting.13 Denmark and Schleswig Holstein have al-
ready issued online sports betting licenses covering
betting exchanges. In 2006, when Italy liberalized
the online gambling sector, it included a provision
for the regulation of betting exchanges. This was
re-stated in the Abruzzo Law of 2008. Work is on-
going in Italy with regard to the regulation of ex-
changes.
Furthermore, the legislation of other European
jurisdictions, like Malta and Gibraltar, allow for ex-
change betting. Outside Europe, exchange betting is
permitted in Tasmania under the Gaming Control
Act 1993, and recently, California and New Jersey
both adopted regulations for exchange style (pari-
mutuel) betting on horseracing.14
Regulation of exchange betting is not materi-
ally different than regulating traditional online
sports books, as the technical issues, as well as
the operating processes, are the same. For exam-
ple, in the Licence Conditions and Codes of Prac-
tice issued by the UK Gambling Commission, the
only difference between the two types of regula-
tion concerns voiding of certain bets by the regu-
lator, which may have implications for exchanges
that do not apply to traditional bookmakers. It is
also worth mentioning that the secondary gam-
bling legislation issued by Denmark and Schles-
wig Holstein foresees no regulatory differences
between betting exchanges and other sports bet-
ting products.
In conclusion, the experience of countries which
have regulated and licensed betting exchanges
shows that this type of betting is not more difficult
to regulate, and that it requires no specific legal ar-
rangements, unless specifically required by the na-
ture of the national legal system. Even if it could
be plausibly argued that the regulation of exchanges
gives rise to additional administrative difficulties—
which apparently is the concern of some European
regulators—the ECJ has recently held in the Zeturf
case15 that administrative inconvenience may not
justify a restriction on free movement of services,
such as a prohibition of exchanges, or a decision
LYCKA
not to license betting exchanges at the same time
as permitting other sports betting products.16
B. EU law
In accordance with the gambling case law of the
Court of Justice of the European Union (ECJ),
member states have considerable discretion to regu-
late their online gambling markets. However, this
discretion is limited by compliance with the princi-
ples established in previous ECJ decisions. A total
prohibition of an individual gambling product may
constitute a restriction on the free movement of ser-
vices within the meaning of Article 56 TFEU.17
Such restriction is acceptable only if justified, either
by reasons set out in the Treaty itself or by impera-
tive requirements in the general interest, such as the
prevention of gambling addiction, suppression of
crime and fraud, or protection of public order.18
Even if justifiable by one of the above reasons (or
a combination thereof), the restrictions on the free
movement of services are compatible with EU law
only if they respect the following principles:
1) non-discrimination;19
2) suitability, including the principle of consis-
tency;20 and
3) necessity.21
The burden of proof to show the proportionality
of the restrictions lies with the member states,
12
(UK) Gambling Act 2005, 2005 c. 19, secs. 13 and 65.
13
(Danish) Gaming Act, Bill No. 202, Folketinget 2009–10, art.
11, General Remarks on the Bill, sec.4.3.4; (Spanish) Act on
Regulation 13/2011, secs. 1–3; (Schleswig Holstein) Act reor-
ganising gaming (Gaming Act), 2011, secs. 2 and 21.
14
(Tasmania) Gaming Control Act (1993), No. 94 of 1993, as
amended in 2005, consolidated Oct. 17, 2006, sec. 76 VA;
(New Jersey) Exchange Wagering Act 2010, A.B. 2926,
214th Leg.; (California) S.B. 1072, ch. 283, An act to amend
Section 19605.73 of, to add Sections 19601.02, 19605.74, and
19642.1 to, and to add Article 9.1 (commencing with Section
19604.5) to Chapter 4 of Division 8 of, the Business and Profes-
sions Code, relating to horse racing.
15
Case C-212/08, Zeturf, 2011 E.C.R., not yet published.
16
Id. at para. 48.
17
Case C-243/01, Gambelli and Others, 2003 E.C.R. I-13031,
para. 54.
18
Joined cases C-338/04, C-359/04, and C-360/04, Placanica,
2007 E.C.R. I-01891, para. 49.
19
Case C-275/92, Schindler, 1994 E.C.R. I-01039, paras. 47 and 48.
20
Joined cases C-316/07, C-358/07, C-359/07, C-360/07, C-409/
07, and C-410/07, Markus Stoss, 2010 E.C.R., paras. 88–107.
21
Placanica, supra note 18, at para. 48.
PROHIBITION OF BETTING EXCHANGES UNDER EU LAW
which must show to the satisfaction of the court that
the measures they have adopted in this sector are
genuinely required in order to reduce gambling-
related risks to their populations.22
A blanket prohibition of exchange betting by an
EU member state may constitute a discriminatory,
inconsistent, and disproportionate restriction on
the free movement of services within the EU. This
is the case if other betting products, which—as
has been explained in the first part of this
article—do not differ from a betting exchange in
terms of the risks they pose and basic product fea-
tures, are permitted in an individual member state.
1. Discrimination
A ban on exchange betting is discriminatory in
the event a member state has permitted the provi-
sion of other online betting products. Although bet-
ting exchanges, operating under a business model
that exposes the operator to no risk, are more effi-
cient than traditional bookmakers, they are in no
way different in terms of the basic product offered
to consumers, which allows a consumer to request
a bet at fixed odds on the outcome of a sporting
event. As explained above, there is no evidence
that users of exchange betting are more prone to
the risks of financial crime or gambling addiction.
As also shown, exchange operators, like other
online gambling operators, have introduced sophis-
ticated tools and effective policies which have en-
abled them to reduce any such concerns to a
negligible minimum.
Additionally, it may be argued (applying EU
competition law by analogy), that given the similar
product characteristics of all betting products—the
only difference from the customer’s perspective is
that the exchanges can usually offer them better
odds, because of their risk-free business model,
than other betting products—exchange betting
falls within the same product market as all other
online betting products. Online betting customers
often open and use accounts with numerous online
betting operators, including sportsbook, tote bet-
ting, and exchange providers, at the same time. It
is likely that they would switch to the non-exchange
betting providers in the event of a small-but-
significant increase in price on the exchanges (e.g.,
in the case of an increase in the amount of the com-
mission charged by the exchange providers).
Consequently, there is no reason to treat ex-
changes differently from the other online betting
125
products if a member state decides to permit and
regulate online betting.
2. Proportionality
a. Suitability. A blanket ban on any online gam-
bling product is in breach of the principle of suit-
ability enshrined in the ECJ case law. The
principle requires that any restriction on the free
movement of transborder gambling services within
the European Union must genuinely be capable of
‘‘channelling gambling opportunities in a member
state into controllable circuits,’’23 with a view to
preventing gambling addiction and/or money laun-
dering and gambling related financial crime. A
total prohibition of any online gambling product
cannot achieve this objective. Indeed, a total prohi-
bition will arguably have the opposite effect, as cus-
tomers, who have been using the newly prohibited
product, will likely move to the black marketing of-
ferings of unlicensed operators. This means that the
gambling activities of these customers will escape
the strict controls of the licensed operators, includ-
ing tracking of their bets, anti-money laundering
measures, and addiction-prevention checks. In addi-
tion, the move outside of the regulated markets will
arguably result in lesser visibility of gambling trans-
actions to the regulator, which in turn will nega-
tively influence the levels of control the regulator
may exercise over its gambling market.
b. Consistency. Besides not being suitable to en-
sure that the risks of gambling addiction and gam-
bling related crime are reduced, a blanket ban on
exchanges cannot be a part of an objective and sys-
tematic scheme aimed at reducing the number of bet-
ting opportunities in the sports betting sector, if other
betting products are permitted in the jurisdiction.
It has been shown in the first part of this article
that exchange betting does not give rise to any addi-
tional risks, in terms of gambling addiction or
gambling-related crime, as compared to other
online betting products. The relevant gambling ad-
diction studies have not identified any links between
specific types of gambling and causes of gambling
addiction. This illustrates that it is the intensity of
gambling participation, not the mode of gambling,
that presents the greatest risk of addiction. Hence,
22
Markus Stoss, supra note 20, at para. 71.
23
Case C-67/98, Zenatti, 1999 E.C.R. I-07289, para. 35.
126
it can be argued that betting exchanges represent the
same addiction risks as any other online gambling
products.
It is also impossible to sustain the argument that
the laying function of betting exchanges is prone to
increase the risk of fraud or money laundering. As
already explained, the laying function may be repli-
cated on the sites of sportsbook operators with rela-
tive ease and does not constitute a relevant
differentiation between exchange and other types
of online betting for these purposes. In addition, bet-
ting exchanges have the same low-level of risk of
money laundering and fraud as all other online bet-
ting products.
The prohibition of exchange betting in the event
other online betting products are permitted can thus
be seen as a breach of the principle of horizontal
consistency enshrined in the ECJ case law. The
case law requires that national gambling regulations
are consistent across all relevant gambling sectors.24
This principle limits the discretion of the member
states in this field. Although they may still decide
that an online gambling product that is essentially
different from other permitted products may be
prohibited—provided that the prohibition is duly
justified and complies with the principle of
proportionality—their regulatory discretion does
not allow them to arbitrarily prohibit only certain
examples of the same product.
It is also worth mentioning that it may be argued
that member states are not allowed to prohibit an
online gambling product if the same product is
available offline. In accordance with the decision
of the Commission in the State Aid case against
Denmark (concerning the new Danish online gam-
bling regulation), the online and offline gambling
markets must be considered to be in the same
legal and factual position.25 The ECJ took a similar
stance in its Zeturf decision.26 Hence, member
states are not allowed to permit an individual offline
gambling product whilst at the same time prohibit-
ing its online form.
3. Necessity. An exchange ban may also be con-
sidered disproportionate. There are less onerous
means to better achieve the goals of online gam-
bling regulation than complete prohibition.
EU-licensed operators have developed a large
number of highly sophisticated tools which effec-
tively contribute to the prevention of fraud and
money laundering attempts on their websites, as
LYCKA
well as reduce the risks of gambling addiction.
The providers of exchange betting—in particular,
Betfair—have, on many instances, led the way in
devising such tools and putting them into practice,
having introduced, for example, the so-called Mem-
oranda of Understanding with sports governing bod-
ies which enable the exchange of information with a
view to protecting both sports and customers. The
introduction of these tools can be seen as a much-
less onerous, and much-more-effective, way to
combat fraud and money laundering, as well as to
prevent gambling addiction in the online gambling
sector, than a blanket ban of one of the online gam-
bling products.
III. OTHER ILLEGAL BARRIERS TO
ENTRY TO A GAMBLING MARKET
Besides the express prohibition of an individual
betting product, such as the betting exchange,
there are other barriers to entry to a gambling mar-
ket that some EU member states have recently
sought to introduce, which barriers can be consid-
ered breaches of EU law and hence illegal.
A. Discriminatory licensing requirements
As explained above, the online gambling regula-
tions of all EU member states must be compliant
with three basic principles deriving from the ECJ
case law. They must be:
1) non-discriminatory;
2) consistent across all gambling sectors; and
3) the license award procedures must be trans-
parent, and based on objective criteria
known in advance.27
Discriminatory requirements are those which dif-
ferentiate between operators on grounds of national-
ity, or those which can be more-easily complied
with by local operators, such as the obligation to
24
Markus Stoss, supra note 20, at para. 107.
25
Case C 35/2010 (ex N 302/2010)—Denmark, Duties for
Online Gambling in the Danish Gaming Duties Act, European
Commission, C(2011) 6499.
26
Zeturf, supra note 15, at paras. 81–82.
27
Case C-203/08, Sporting Exchange, 2010 E.C.R., paras. 39
and 41.
PROHIBITION OF BETTING EXCHANGES UNDER EU LAW
process gambling-related payments exclusively
through an account opened in a local bank.
A primary example of a discriminatory licensing
requirement is the obligation to incorporate a local
entity in the jurisdiction where licenses are sought.
As things stand at present, incorporation of a local
business is a prerequisite to obtain online gambling
licenses in several EU member states—for example,
in Poland28 or the Czech Republic.29 It is also fore-
seen in the Greek and Cypriot (draft) gambling laws.30
However the ECJ held that this requirement is in
breach of EU law.31 In its decision in Engelmann,
the ECJ ruled that the discriminatory effect it entails
cannot be justified, as there exist less-onerous
means to exercise control over the activities of oper-
ators established in other member states, such as
distant, near-real-time monitoring of the betting
and gambling markets, and/or auditing of the oper-
ators’ accounts.32 It follows from this decision that
if a member state requires operators established and
licensed in another EU member state to incorporate
a local business within its territory, then it acts in
violation of EU law and puts its online gam-
bling regulation at risk of being unenforceable due
to illegality.
From the practical perspective, it is also very dif-
ficult to see how the obligation to incorporate a
local entity could contribute to the more-effective
monitoring of the market, or to enhancing consumer
protection. To be able to effectively monitor the
gambling markets, a member state needs access to
the operator’s data, which may be provided
regardless of the physical location of the operator’s
infrastructure.
It may be argued that the conclusions the ECJ
reached in Engelmann are also applicable to other
(indirectly) discriminatory requirements, which
can from time to time be found in the online gam-
bling laws of EU member states, such as the obliga-
tion to locate gambling servers in the territory of the
host jurisdiction, or the requirement to exclusively
use accounts opened in local banks to process online
gambling transactions. In these modern days of
online-banking and e-commerce, there is no sound
justification for the latter requirement. In fact,
both these obligations have been criticized as in-
compatible with EU law by the European Commis-
sion in the framework of the 98/34 Technical
Standards Directive.
Like the obligation to incorporate a local busi-
ness in the host jurisdiction, location of servers
127
within its territory can by no means render the mon-
itoring of the gambling market more effective, as
the data concerning transactions collected by the
operator can be accessed irrespective of the place
of the physical location of the servers.
It should also be born in mind that to locate a data
center in additional countries, which may not be
countries the operator would have chosen other-
wise, gives rise to significant additional costs. The
funds consumed by these costs could have been
more effectively spent on preventive measures in
the fields of gambling addiction and gambling-
related crime. In the hypothetical event that all 27
EU member states introduced this requirement, Eu-
ropean-wide operators would be forced to service a
lower number of EU jurisdictions, which would, in
the absence of a competitive offer from local oper-
ators, very likely result in further reinforcement of
the unregulated market—particularly in smaller
EU countries.
B. Licensing procedures
The member states must ensure that the award
procedures for (online) gambling licenses are non-
discriminatory, impartial, and based on criteria
known to all interested parties in advance. Although
this does not mean that the member states would be
necessarily obligated to call tenders to issue online
gambling licenses, a lack of transparency in the se-
lection process amounts to a breach of EU law and
renders licenses issued in such a process invalid.33
The ECJ held in the Sporting Exchange case that
the same principles apply to the extension, as well
as to the automatic renewal, of licenses to incum-
bent national operators.34 Automatic extension or
renewal of the licenses of incumbents is considered
28
Ustawa z dnia 19 listopada 2009 roku o grach hazardowych
(Polish Gambling Act) (Dz. U. nr 201, poz. 1540), s. 145,
Art. 6(4).
29
Zakon c. 202/1990 Sb., ve zneni pozdejsich predpisu, (Czech
Gambling Act), Art. 4(5).
30
(Cypriot) bill that includes a law regulating gambling, Oct.
2011, Art. 2; (Greek) Draft Law on Regulation of the Gaming
Market, notified to the EU Commission on Apr. 5, 2011
under notification number 2011/0166/GR, article 47(1).
31
Case C-64/08, Engelmann, 2010 E.C.R. not yet published,
paras. 32–38; Case C-347/09, Dickinger and Oemer, 2011
E.C.R. not yet published.
32
Engelmann, supra note 31, at para. 37.
33
Sporting Exchange, supra note 27, at para. 41.
34
Id. at para. 54.
128
non-transparent and discriminatory against inter-
ested parties, who under such circumstances have
no chance to compete for customers in the jurisdic-
tion in question.
The ECJ case law allows one exception to the
above rules—the so-called state control excep-
tion.35 A member state may derogate from these
rules in the event the existing licenses are renewed
in favor of ‘‘a public operator whose management
is subject to direct state supervision or a private op-
erator whose activities are subject to strict control
by the public authorities.’’36 However the scope of
the exception is severely limited.
First, the ECJ held in Engelmann that the princi-
ple of equal treatment between the incumbent
license holder and other potentially interested par-
ties is violated if there is a total absence of transpar-
ency in the award procedure.37 In this decision, the
state control exception is not even mentioned. It
thus appears that the exception does not apply in
the event of the total lack of transparency. This
seems to have been the case in Greece, where the
government merely announced that the offline gam-
bling licenses of the incumbent monopoly operator,
OPAP, were extended until 2030 without making
known its intentions to other potentially interested
parties.38
Even if the application of the state control ex-
ception is not excluded by the total lack of trans-
LYCKA
parency in the award procedure, the threshold to
qualify as a public operator or a private entity
under the strict control of the government is very
high. In the gambling field, this status has been
recognized by the ECJ only for the Portuguese mo-
nopoly operator Santa Casa di Misericordia39 and
the French Pari Mutuel Urbain.40 These operators
are non-profit entities which are under the total
control of the government authorities by way of
majority shareholding and/or the right to appoint
a majority of members of the governing bodies.
The state control exception cannot, it may be ar-
gued, apply to profit driven and/or marketing-
focused national monopoly operators, such as the
Greek OPAP, German Oddset, or Swedish Svenska
Spel, which are consequently subject to the trans-
parency rules.
IV. CONCLUSION
It can be concluded that for all the above reasons,
a blanket ban on exchange betting cannot withstand
the scrutiny of EU law. The ban unjustifiably dis-
criminates against an important part of the online
gambling sector and may give rise to negative con-
sequences for the exchange betting customers, who
would be forced to search alternatives in the unreg-
ulated black market.
35
Id. at para. 59.
36
Engelmann, supra note 31, at para. 51.
37
Id. at para. 51.
38
Daniel Macadam, OPAP Bolsters Monopoly Until 2030 With
e935m Deal, Gambling Compliance, (Oct. 3, 2011), < http://
www.gamblingcompliance.com/node/47675/hl/Greece > .
39
Case C-42/07 Liga Portuguesa [2009], I-07633.
40
Zeturf (n 15).