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Financing of benevolent and public interest activities as well as events on which online sports betting relies in EU

Green paper

Restrictions on gambling services at national level are at times justified by policy reasons such as the financing of benevolent or public interest activities. Notwithstanding that the systems put in place for this purpose should comply with applicable state aid rules, it is noteworthy that according to the Court of Justice the funding of such social activities may not constitute the substantive justification for the restrictive policy but only an ancillary beneficial consequence (E.g. case C-67/98 (Zenatti) §§ 36-37 and case C-316/07 (Markus Stoß) § 104. See also the Judgement of the EFTA Court in case 3/06 (Ladbrokes) §63.). Such restrictions seek to assist the funding of “public interest activities” that society at large can benefit from. More specifically, the public interest activities that currently benefit directly in this manner in the Member States are the arts, culture, sport (See also the Commission’s Communication “Developing the European Dimension in Sport” – COM(2011) 12, which notes the need to take account of the sustainable financing of sport when addressing the provision of gambling services in the Internal Market (page 9)), youth/educational programmes and charity related activities.

Systems of revenue channelling

The reliance on gambling revenues to fund public interest activities is organised in various ways. The organisation or company responsible for the public interest activities:

(1) Is granted a licence (Organisations or companies responsible for benevolent or public-interest activities may, to varying degrees, be allowed to enter into agreement with private operators that provide the gambling platform and promote the gambling services (who fully or partly runs the operations and receives economic compensation for this).) to offer on-line gambling service in order to support the “good cause” recognised by the relevant licensing authority (e.g. a national Olympic committee, a national horse racing body , an association for blind persons etc.);

(2) Receives funds directly from a State gambling operator (e.g. a national lottery) according to a rate fixed by the licence or legislation regulating that operator;

(3) Receives funds from a State gambling operator indirectly via the State budget into which that State operator has contributed;

(4) Receives funds from one or more private gambling operators and the contribution of funds is:

(a) Determined by the licence or legislation or

(b) Based on voluntary contributions from the operators;

(5) Receives economic compensation for the use of an event it organises and on which bets are placed even if the organisation or company is not involved in the organisation of the gambling activity itself;

(6) Receives funds from the State budget that has been contributed to by both State and commercial gambling operators.

The Commission wishes to focus further on two issues:

Possible existence of a principle of return to event organisers

National and non-domestic sport events are used by on-line operators to present an attractive selection of gambling services to their potential customers. These events may benefit from such gambling activities in that they create additional public interest and possibly also increase the event’s media exposure. There is a broad consensus that sport events, on which gambling relies, should receive a fair return from the associated gambling activity:

– Taking the specific case of horse-racing some Member States impose an exclusive licence for horse race betting to an organisation or company with the objective to ensure that the turnover from horse-race betting, except for winnings, totalisator fee and operating expenses, is given to equestrian sports, horse breeding and horse husbandry. While national structures vary, the support to the horseracing and equine sector can be significant rising to more than 8% of the total betting turnover in certain countries. A specificity of horse racing compared to other sports is that its primary attraction is for gamblers. Thus, to a greater degree than other sport events, its viability will depend on sufficient proportions of gambling revenues being reinvested into the activity. Furthermore, in certain Member States the tradition of equestrian sports, horse breeding and husbandry, all of which are supported through this channelling of gambling revenues, have and continue to play an important economic role in rural areas and may therefore be linked to regional development and territorial cohesion policy objectives.

– Other sports have a more mixed revenue stream either because they have wider public appeal and/or because they lend themselves less to gambling services. Nevertheless, when gambling services are offered on an organised sport competition, the issue of whether the organisers (sport organisations, teams etc.) should be able to generate an additional revenue stream through such exploitation of their images or events by gambling service providers has been addressed by Member States. Given that without the use of their events the gambling services would not be viable, a fair return for the use of their events is sought. Certain State operators offering sports betting services on professional sports are thus obliged to channel revenues back into grassroots sports and thus help assist the public interest activities of encouraging participation in sporting activities in general. The Commission has launched an EU study on the funding of grassroots sports which should show the real importance of the different funding sources, including revenue from the organisation of gambling services, for grassroots sports (COM(2011)12 p. 9).

Finally, sport events on which sports betting can be organised may, due to criminal activities, be subject to a higher risk of match fixing. One Member State (France) has established a nonexclusive sports betting right for gambling services to contribute to the investment by organisers of sport competitions that is motivated primarily on the grounds of the need to ensure integrity.

The risk of “free-riding” through the provision of on-line gambling services

Member States, given their differing national cultural and historical traditions, will rely on differing gambling revenue channelling systems and rates. For example, Member States that have no history of horse-racing or horse husbandry obviously have no need for a revenue channelling scheme for that purpose. Likewise, certain Member States will choose to finance certain public interest activities exclusively from fiscal revenue whereas others may wish to also rely on channelling gambling revenues for the same purpose.

It follows that when gambling services are offered on events taking place in other Member States or when gamblers from one Member State choose to place stakes on gambling services provided from another Member State there will be direct effects on the efficiency of national gambling revenue channelling systems. This will be particularly the case when gamblers are exclusively focussed on seeking highest returns. This “free-riding” problem is strictly speaking not limited to cross-border on-line gambling services since gamblers can in principle always physically cross borders to access gambling services but nevertheless on-line gambling services in practice differs as it heightens this possible effect significantly.

The effect may be tempered or even reversed by the fact that certain gamblers play on particular gambling services because those services are linked to the financing of public interest activities. This may be because the link to the public interest activities reduces the social stigma associated with gambling or may even be the primary motivation for gambling on such services. For example, given the very low odds of winning in certain types of gambling services (e.g. low value lotteries offered by charitable organisations) it can be considered that many players of such games place a stake on them rather than on other types of gambling services offering higher odds of winning primarily because they consider that that stake will go to a valid public interest activities. These types of gamblers may even be attracted to offers of such on-line gambling services emanating from other Member States that have stronger direct links to public interest activities that they wish to support compared to national on-line gambling service offers.

© European Union

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