Legal regulation of gambling: the European experience

Legislation on gaming industry in the EU countries

To date, the European Union does not have the competence to regulate the sphere of gambling and gambling. Accordingly, there is no general EU legislation on gambling. Therefore, Member States independently regulate this market, which in practice leads to the existence of 28 national markets for the corresponding varieties of gambling.

All EU countries have legislation on gambling. For the vast majority of countries, the adoption of national legislation that establishes a unified legal regime for gambling in the whole country is characteristic. However, in some states (primarily federal ones), regional authorities have the power to adopt local legislation regulating gambling in the respective territory.

In the practice of the EU countries there is no unity in the question of how many laws – one or several – regulate various types of gambling. Some countries have a single legislative act covering all gambling – for example, the United Kingdom, the Netherlands, Poland, Romania, Sweden. Other countries followed the path of adoption of branch laws. For example, in Ireland there is a law on gambling and lotteries and the law on bookmaking, in Italy every sector of gaming services is regulated by separate legislation, in Lithuania there are laws on gambling and the law on lotteries.

The peculiarity of the legislation of the EU countries is that in most of the countries it has been substantially updated during the last ten years maximum, and this process continues. Countries that have not yet implemented a major legislative update (for example, Ireland) are planning to do so in the near future.

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The main reasons for this pan-European phenomenon can be considered a number of factors:

the old legislation was difficult to use for effective regulation of new types of legal relations in the sphere of gambling, which arose as a result of the development of modern technologies, primarily in the aspect of gaming services on the Internet;

the old legislation did not allow to properly regulate the market, which underwent significant structural changes due to the rapid development of online gambling. In particular, it did not solve the problem of outflow of funds from the national market to foreign online operators;

because of the European Commission’s claims that were supported by the EU court, the national legislation of a number of EU member states was found to violate their obligations under the constituent treaties of the European Union. Namely – the obligation to guarantee such fundamental freedoms of the EU internal market as the freedom of founding companies and the freedom to provide services. Today, thanks to the decision of the EU Court, there is a clear understanding that gambling should be regulated primarily as a service. As a result, EU member states began to open national gaming services markets for operator companies registered in other EU member states;

the attitude of EU citizens to gambling has become more favorable than in previous decades. This happened as a result of changes in the general culture of European societies, and thanks to the massive transition of the gambling industry to the principles of socially responsible game.

Despite the efforts made, in general, legislative regulation of the sphere of gambling can not be considered sufficiently effective. Independent research shows that in most EU countries more than 50% of online gambling services are provided in the shadow market.

However, in this aspect it is important to note that, to a large extent, this situation is caused by tax legislation, which plays a crucial role in regulating the market of gaming services. That is why in the gambling industry it is common to assess the market potential on the basis of a comprehensive analysis of both industry and tax legislation. In the 2000s, many EU countries, under pressure from the above factors, were forced to introduce liberal regulation of the gaming services market. However, at the same time, most of them introduced a significant tax burden on gaming industry. As practice has shown, this led to a reduction in the national regulated market, an outflow of players’ funds to the economies of countries with a favorable environment for operators of online gaming services, and hence the need to mitigate tax pressure.

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Definition of the concept of gaming industry

The scope of the legislation on gaming industry is primarily determined by the concept of gambling. And also what types of gambling are allowed in the country and in what mode gambling services can be provided: offline gambling establishments or online via the Internet.

The concept of gambling in EU legislation

The legislation on gambling of the EU countries gives a very good definition of the concept of “gambling”. Generalized gambling is defined as a game in which the opportunity is offered to receive a win. At the same time, the gain entirely or mainly depends on a combination of circumstances or from an unknown upcoming event that does not depend on the player; at least one of the players loses his bet.

However, whatever the formulations, they necessarily have three signs of gambling:

Entering a bet that has monetary value;

The win must be determined entirely or predominantly by chance, but not by the abilities or skills of the player;

In the case of a win, the player receives a material prize.

However, some types of economic activity can formally have signs of gambling, but not be so in fact. Therefore, in order to avoid the application of gambling laws to such activities, it is customary to determine the norms that take out personal life insurance, certain types of state loans, prizes for advertising purposes, as well as games of a non-commercial nature, from the law on gambling, participation in which can be made by a predetermined limited number of persons (for example, gambling for the purpose of financing a certain charitable event).

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Taxation of gambling business

The system of taxation of gambling business has a decisive influence on its development: an adequate taxation system facilitates the emergence of gambling from the shadow, which is an indispensable condition for the healthy development of the gaming services market. Thus, a favorable tax climate leads to a significant increase in budget revenues, with the exception of the “snake eats its tail” paradox, when state budgets lose billions of gambling revenues as a result of the establishment of harsh tax conditions.

We tried to analyze the key issues arising in the process of legalizing gambling business and identify key principles that should be adhered to in order to take into account the positive and negative experience of the legal regulation of gambling both in the countries of the European Union and in the countries of the post-Soviet space. Analysis of experience in the legal regulation of the sphere of gambling testifies to the following:

  1. In many countries of the European continent, gaming industry is a legal and budget-forming sector of the economy. The relevant activities are regulated at the legislative level.
  2. Any moratorium on gaming activity is not an effective tool for regulating such a sphere of human life as a “game”, especially in the context of the availability of such entertainment on the Internet and in neighboring countries.
  3. Protect the vulnerable part of society from the risks associated with the emergence of dependence on gambling, it is possible only through the settlement of this sphere of society. And only in conditions when the gambling business works in the legal field, it feels the presence of the regulator and competitive pressure. Such conditions create real incentives for gambling to comply with the requirements of the law and the principles of socially responsible games.
  4. The total ban on gambling is a way to strengthen the corruption component in the activities of law enforcement agencies and the shadowing of gambling with the subsequent use of underground gambling by organized crime.
  5. The ban on gambling negatively affects the development of other sectors of the economy – tourism, horse breeding, professional sports, sports analytics and sports media.
  6. Banning gambling in a certain country will inevitably lead to an outflow of finances from this state to countries in which gambling is legal, as the players satisfy their need in these countries directly or via the Internet.