A Goose and a Golden Egg

As Card Player was going to press this month news broke of a landmark ruling by the European Court of Justice (ECJ) on Germany’s gambling monopoly. The court ruled that Germany’s protectionist regime, which outlaws private companies competing with regional state monopolies, was “unjustifiable” and must be dismantled.

Sigrid Ligné, Secretary General of the European Gaming and Betting Association, said, “This is a landmark ruling which will have a decisive impact on the much needed reform in Germany. Other Member States have opened or are opening their markets and moving away from a monopoly regime to a multi-operator licensing system. “They show that consumers can be better protected in a market that is both regulated and open to competition. German politicians should face up to these market realities and take their responsibility towards German consumers. It signals the end of the German online gaming ban and will bring legal security to EU online gaming operators and German consumers alike.”

Just a day later the ECJ ruled that Austria’s gaming monopoly was disproportionate and discriminatory. Ligné was again forthright in her opinion that state protectionism was no longer an option, saying, “The European Commission has been given new legal arguments to pursue infringement procedures against several Member States that have similar provisions. Commissioner Barnier has now a clear mandate to go ahead with the Green paper and to start discussions on EU regulation for the sector.”

Both developments came hot on the heels of a Dutch ministerial commission proposal, which urged the government to, “Give up its barely-enforced monopoly and licence a small number of online poker companies”. The message to EU governments was resoundingly clear — the era of the state-run monopoly is over.

This was a message that Italy understood two years ago and France earlier this year and both have licenced foreign — that is, other EU — operators allowing them to host legal and regulated tournaments in their respective domains. However both have not seen a smooth transition to a legally competitive environment with the introduction of cash games having been significantly delayed in Italy and uproar in France over the cost of entry and the level of tax imposed on operators and, subsequently, players.

Teething problems are to be expected but a bigger problem looms on the horizon. The French and Italian models seem to suggest countries will ring-fence their player pool, making it possible only to play against players from the same country. This is attractive from a tax collection and player protection perspective but ignores the wider-issue of liquidity and player acquisition, which are vital to attracting both players and operators.

What of smaller countries such as Holland, Belgium, Ireland, Austria, and Portugal which most likely do not have the population to support critical-mass liquidity in the new, ring-fenced playing environment? Sweden’s Svenska Spel has first-hand experience here, having begun to see its state-run online poker monopoly suffer with revenue down 18 percent in 2009. Anecdotal evidence suggests players find the liquidity pool too small and game selection too restrictive.

While the news that monopolies are beginning to crumble in favour of a licenced, regulated, and competitive market is to be welcomed, it could prove very short-sighted for countries to over-tax and over-protect their internal markets. In their rush to bank licence fees and tax revenue from online poker operators, let’s hope they don’t kill the goose that lays the golden egg. ♠