17 March 2008

Court of Appeal of Düsseldorf: state lottery- and sports betting monopoly is not justified

Court calls for a fair tender procedure for a privately owned gambling operator

by Attorney-at-Law Martin Arendts, M.B.L.-HSG


By decision of 3 March 2008 (file-no. VII-Kart 19/07 (V)) the First Cartel Division of the Court of Appeal of Düsseldorf (Oberlandesgericht Düsseldorf) dismissed the motions of the State of Rhineland-Palatinate (Land Rheinland-Pfalz) and of Lotto Rheinland-Pfalz GmbH against a decision of the German Federal Cartel Office (Bundeskartellamt) to prohibit their merger. In its ratio decidendi the Court of Appeal of Düsseldorf raises fundamental doubts as to the legality of a state monopoly and, referring to the European Commission’s legal opinion on this matter, calls for a tender of the license so far granted to Lotto Rheinland-Pfalz GmbH.

By filing motions with the Court of Appeal, the state and the lottery company intended to obtain a decision, allowing for the state to take over the controlling majority of the lottery company, contrary to the Federal Cartel Office’s decision. The Federal Cartel Office had prohibited the State of Rhineland-Palatinate to acquire a majority interest of 51% in November 2007. Doing so, in its press release of 29 November 2007, the Federal Cartel Office emphasised that even highly regulated sectors such as the gambling industry were not “competition free zones”. Anti-trust law was applicable to them without any restriction.

Lotto Rheinland-Pfalz GmbH is the only lottery company in Germany not owned or controlled by the state. The shareholders of this GmbH (equivalent of a Ltd.) keep being the three sports federations of Rhineland-Palatinate (Sportbund Pfalz e.V., Sportbund Rheinhessen e.V. and Sportbund Rheinland e.V.). However, they were willing to cede a majority interest in return for an adequate guarantee by the state.

The Federal Cartel Office voiced considerable anti-trust related doubts regarding this nationalisation. With its lottery products “Zahlenlotto”, “Spiel 77”, “Super 6”, “Keno” and “Glücksspirale”, which are sold over more than 1200 lottery counters, Lotto Rheinland-Pfalz GmbH disposes of a dominant market position. The State of Rhineland-Palatinate’s planned majority interest would even increase this dominant position. The merger would lead to a “structural alliance” between Lotto Rheinland-Pfalz GmbH and Süddeutsche Klassenlotterie (a lottery operated by several German states), which would have largely eliminated the competition existing so far.

In its decision, the Court of Appeal of Düsseldorf considers the motions to be inadmissible already. Subsequently the court issues fundamental explanations as to the legitimacy of a state monopoly. According to the jurisprudence of the German Federal Constitutional Court and the ECJ a state lottery- and betting monopoly was only legitimate “in order and only as far as necessary to attain legitimate goals of common welfare”. The Court of Appeal doubts this with regards to the argument of fighting gambling addiction, which keeps being pleaded as justification:

“Fighting gaming- and betting addiction as well as effective consumer protection can (especially) be achieved by setting respective legal requirements and standards for the gambling business, and by adapted requirements for license holders as well as by a consequent supervision of the gambling operations. It is not necessary, that, additionally, the State of Rhineland-Palatinate has a majority interest in the operations entrusted with the lottery business and to exert dominant influence on the operation by means of its position as a shareholder.”

In the court’s opinion, a monopoly does therefore not stand up to the examination of its commensurability, since there are milder (and equally effective) means to combat gambling addiction and to ensure consumer protection.

The rule of non-discrimination does not necessitate this merger either. The state can have its gambling business operated by a private third party company. However, a tender was required to do so:

However, it is necessary that the rule of non-discrimination is complied with and that a discrimination free tender procedure takes place accordingly. Should – as the European Commission seems to assume – the Lotto GmbH have been entrusted with the lottery business without invitation to tender, the private lottery undertaking will have to be determined in a transparent and fair competitive bidding in the future.

The Court of Appeal granted leave to file a special appeal (Rechtsbeschwerde) with the Federal Court of Justice (Bundesgerichtshof). It can be assumed that the Federal Court of Justice will soon have to decide on the ban of this merger as well.

German Federal Court of Justice dismisses motion against enforcement order from bwin International Ltd. – Final ruling on the merits expected in 2009

Since 2002, bwin International Ltd. has been providing games of chance to its customers under the www.bwin.com domain (formerly www.betandwin.com) – among others to German residents. In September 2004, Westdeutsche Lotterie GmbH & Co OHG ("Westlotto") sought a judgement against bwin International Ltd. to prevent the Company from organizing, brokering or advertising sports betting, casino and lottery games in Germany.

In February 2006 the Regional Court of Cologne ruled in favour of Westlotto at the first instance. In September 2007, the Higher Regional Court of Cologne confirmed the judgement of the court of first instance, declaring it to be enforceable. bwin lodged an appeal with the Federal Court of Justice against the judgement by the Higher Regional Court of Cologne. Although the Federal Court of Justice is not expected to pass a final ruling on the merits for the next 12 to 18 months, Westlotto instituted enforcement proceedings against bwin in November 2007.

bwin filed a motion to the Federal Court of Justice requesting the court to suspend enforcement proceedings until the court has passed a final ruling on the merits. In a decision served on 14 March 2008, the Federal Court of Justice rejected the motion filed by bwin International Ltd. on procedural grounds. Until a final ruling by the Federal Court of Justice on the merits, Westlotto may now apply for further enforcement orders. If the Company eventually fails to win the appeal proceedings before the Federal Court of Justice, or if a political solution is not found in the interim, any penalties that may be imposed as a result of enforcement orders could have a material adverse effect on the Company’s results and financial position. Should the Federal Court of Justice decide in favour of bwin, the Company reserves the right to claim for damages.

In view of the latest legal developments, bwin and its legal advisors are confident that they will win the case against Westlotto. The European Commission is also of the opinion that the current legal situation in Germany is incompatible with primary EU legislation, and has therefore instituted further infringement proceedings against Germany. Furthermore, there are several preliminary rulings originating from German courts still pending judgement by the European Court of Justice. bwin therefore assumes that it will be able to maintain unchanged the products offered for German clients on the www.bwin.com domain, notwithstanding this judgement by the Federal Court of Justice.

bwin e.K., which offers the Company's products on www.bwin.de under a licence issued by the former German Democratic Republic, is not a party to these proceedings before the Federal Court of Justice.

ad hoc release of 17 March 2007

14 March 2008

bwin - publication of preliminary figures for financial year 2007

On Thursday, 20 March 2008, bwin will publish selected key figures giving a preview of the preliminary results of the financial year 2007.

The bwin Group has over 13 million registered customers (including 8 million "play money" customers) in over 20 core target markets and operates platforms for sports betting, poker, casino games, soft- and skill games. Under various licences (e.g. in Germany, Italy and Gibraltar), it also offers audio and video streaming of major sporting events (such as matches of the German Soccer League) through subsidiaries and associated companies. The parent Company, bwin Interactive Entertainment AG, has been listed on the Vienna Stock Exchange since March 2000 (ID code "BWIN", Reuters ID code "BWIN.VI"). All details about the company can be found on its investor relations website at www.bwin.ag.

07 March 2008

EGBA: European Commission opposes payment blocking in France

The European Gaming and Betting Association (EGBA) welcomes the European Commission’s detailed opinion against the French draft decree on gaming payments. The draft intends to oblige French financial institutions to block payment orders from online gaming operators listed by the French authorities, even those that are fully licensed, regulated and based in the EU.

Sigrid Ligné, EGBA Secretary General said: “Today’s action consolidates the Commission’s position that unjustified payment blocking in our sector clearly contravenes EU law. We welcome the Commission’s action and hope that this will send a clear signal to other EU and EFTA Member States that such proposals will not be tolerated”.

The French draft decree is the second of two decrees, drafted under the 2007 Delinquency Act, which attempt to erect technical barriers to further protect the French gambling monopolies that are already the subject of separate EU infringement proceedings. The first draft decree, notified in April 2007, sought to oblige Internet Service Providers to discourage consumers from accessing websites others than those operated by the French gaming monopolies: Francaise des Jeux and PMU.

That draft decree was never adopted following a detailed opinion issued by the European Commission last July. Today’s decision is a timely reminder that restrictions on the free movement of capital and payments, as set out in Article 56 of the EC Treaty, are not acceptable. Similar restrictions are currently being considered in Germany, Norway and the Netherlands; they are already in place in the United States. As demonstrated in the U.S experience “such restrictions are difficult to implement, easy to circumvent, inefficient and foster the growth of an underground market” added Sigrid Ligné.

Today’s Commission detailed opinion extends the standstill period of non-adoption until 31 March 2008, during which time France cannot adopt its draft decree. If France then decides to adopt the text despite the Commission warnings, the Commission can immediately launch infringement proceedings.

03 March 2008

European Commission opposes payment blocking in France

The European Gaming and Betting Association (EGBA) welcomes the European Commission’s detailed opinion against the French draft decree on gaming payments. The draft intends to oblige French financial institutions to block payment orders from online gaming operators listed by the French authorities, even those that are fully licensed, regulated and based in the EU.

Sigrid Ligné, EGBA Secretary General said: “Today’s action consolidates the Commission’s position that unjustified payment blocking in our sector clearly contravenes EU law. We welcome the Commission’s action and hope that this will send a clear signal to other EU and EFTA Member States that such proposals will not be tolerated”.

The French draft decree is the second of two decrees, drafted under the 2007 Delinquency Act, which attempt to erect technical barriers to further protect the French gambling monopolies that are already the subject of separate EU infringement proceedings. The first draft decree, notified in April 2007, sought to oblige Internet Service Providers to discourage consumers from accessing websites others than those operated by the French gaming monopolies: Francaise des Jeux and PMU.

That draft decree was never adopted following a detailed opinion issued by the European Commission last July. Today’s decision is a timely reminder that restrictions on the free movement of capital and payments, as set out in Article 56 of the EC Treaty, are not acceptable. Similar restrictions are currently being considered in Germany, Norway and the Netherlands; they are already in place in the United States. As demonstrated in the U.S experience “such restrictions are difficult to implement, easy to circumvent, inefficient and foster the growth of an underground market” added Sigrid Ligné.

Today’s Commission detailed opinion extends the standstill period of non-adoption until 31 March 2008, during which time France cannot adopt its draft decree. If France then decides to adopt the text despite the Commission warnings, the Commission can immediately launch infringement proceedings.

EGBA, press release of 3 March 2008

European Commission requests the Netherlands and Greece to remove national gaming restrictions

The European Gaming & Betting Association (EGBA) welcomes today’s decision by the European Commission to pursue infringement proceedings against the Netherlands and Greece and to formally request them to remove gaming restrictions which were found inconsistent with EU law. The Commission took the first step in the infringement procedure against the Netherlands and Greece in March 2006 and June 2007 respectively by issuing a letter of formal notice.

Today’s decisions confirm both countries’ failure to justify the compatibility of their legislation with EC law. Sigrid Ligné, Secretary General of the EGBA commented: “Today’s reasoned opinions send a clear signal that national gaming legislation, which does not serve any genuine consumer protection or public order interest, has no future. Leading European online operators are now calling on Greece and the Netherlands to implement sustainable reforms that will guarantee a fair, open and regulated market access”.

The Netherland’s reasoned opinion coincides with the Dutch government’s plans to issue a three-year exclusive online gaming license to state operator Holland Casino and to force financial institutions to refuse payment transactions to/from EU licensed online gaming and betting operators. “These latest developments make the Commission’s reasoned opinion even more relevant and highlight the need for market protectionist measures to end”, added Sigrid Ligné.

The reasoned opinion against Greece relates to the gaming monopoly granted to OPAP, a publicly listed company which has over the years continued to maximise its profits, expanding its activities beyond the Greek borders while preventing EU operators from gaining fair access to its market. “These particular features of the Greek gaming monopoly and the clear discriminations against EU regulated competitors, left the Commission with no choice but to ensure the respect of basic EU market principles” says Sigrid Ligné.

EGBA, press release of 28 February 2008