Are Segregated Online Poker Player Pools Illegal In The EU?

European Court Of Justice Ruling On Excessive Regulation May Sound The Death Knell For Segregated Player Pools

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The European Court of Justice (CJEU) has handed down another ruling which makes it more difficult for EU member states to justify restrictive gambling regulation.

The ruling in case C-464/15, Admiral Casinos concerns slot machines in Austria, but some of the points the CJEU made could be used to mount a legal challenge to countries like France and Italy which maintain segregated player pools for online poker.

While EU member states have been busy over the last five years introducing new restrictive gambling legislation, the CJEU has made a series of rulings which make the vast majority of the new laws vulnerable to legal challenge.

In European law specific words become highly significant

Sometimes the meanings of words take on a disproportionate amount of power in the legal arena, and the Admiral Casinos ruling is a prime example.

The text of the ruling is simple:

“Article 56 TFEU must be interpreted as meaning that a review of the proportionality of restrictive national legislation in the area of games of chance must be based not only on the objective of that legislation at the time of its adoption, but also on the effects of the legislation, assessed after its adoption.”

Simple ruling with potentially large consequences

The consequences will be far reaching. General Secretary of the European Gaming and Betting Association (EGBA), Maarten Haijer commented:

“This is why we acknowledge the importance of this judgement, as it reminds Member States that restrictions to the activities of gambling providers must be in place only and as far as a public policy objective is at serious risk. We hope that this judgement will make some Member States reconsider their gambling policies, and to assess whether they are still relevant by means of periodic ex-post assessments.”

The CJEU ruling means that even if member states were able to justify their gambling laws at the time they were passed, the justification can be challenged in court if it is no longer valid.

EU member states are limited in legislating for online gambling

The key problem is that the EU is legally established as a free trade area. Laws that stop players from playing at online poker sites regulated in other member states are a restriction on trade.

Similarly, except under specific circumstances, any poker operator licensed in any EU member state has the right to offer online poker to all citizens of the EU.

One of the main articles dealing with the issue is Article 56 of the Treaty for European Union (TFEU). In effect the article tells member states that they can’t legislate to restrict services unless there is a really good reason.

The CJEU judgements of the last few years have been explicit in defining how good a reason that should be. In the Pfleger case C-390/12 in May 2014, the CJEU ruling said:

“Article 56 TFEU must be interpreted as precluding national legislation, such as that at issue in the main proceedings, where that legislation does not actually pursue the objective of protecting gamblers or fighting crime and does not genuinely meet the concern to reduce opportunities for gambling or to fight gambling-related crime in a consistent and systematic manner.”

In other words, in the EU, member states can’t introduce gambling laws just to raise taxes, and they must be prepared to prove in court that the legislation “genuinely” meets the public concern. The Admiral Casinos judgment used almost 400 words to consider the meaning of the word “genuine,” in English, French and German.

There is a clear contrast with the current situation in Pennsylvania, for example, where the legislature is proposing to legalize online gambling only because there is a desperate need for new tax revenues. No new taxes, and online poker would be off the agenda.

The Admiral Casinos case extends the reach of “proportionality”

The CJEU further clarified its position in the Pfleger case:

“In addition, it should be recalled that the restrictions imposed by the Member States must satisfy the relevant conditions of proportionality and non-discrimination, as laid down in the Court’s case-law. Thus, national legislation is appropriate for guaranteeing attainment of the objective pursued only if it genuinely reflects a concern to attain it in a consistent and systematic manner.”

The Admiral Casinos ruling then interpreted the Pfleger ruling more widely:

“The Court thus held that the assessment of proportionality cannot be confined to an analysis of the situation as it was at the time when the legislation concerned was adopted but must also take into account the — necessarily later — stage of implementation of that legislation.”

And then the CJEU then stretched that interpretation even further:

“It follows from the use of the words ‘in a consistent and systematic manner’ that the legislation concerned must meet the concern to reduce opportunities for gambling or to fight gambling-related crime not only at the time of its adoption, but also thereafter.”

The upshot of all the legalese is that any EU member state that is challenged in court must present evidence that the trade restrictions imposed by their national legislation are:

  • Genuine— The legislation is truly intended to provide consumer protection or combat crime.
  • Consistent— The legislation must actually achieve the consumer protection objectives it set out to address.
  • Proportional— The legislation must be the minimum, or at least reasonably framed to meet the problem. It must not introduce any unnecessary restrictions on trade.
  • Systematic—The legislation must be evaluated over time to ensure that it remains necessary.

Proving that lot is a big ask even for government lawyers. Silver tongues and Jesuitical arguments have cut no ice with the CJEU so far.

Restricting player pool liquidity doesn’t appear to be proportional

In France, Italy, Spain, Sweden and Portugal, there are restrictions on which sites players can use.

The limits can be partial, as in France where French players are only allowed to play at poker rooms licensed by ARJEL, but players from other countries can play at French rooms, or they can be absolute.

In Italy, players can only play at poker rooms licensed by the ADM, and the poker rooms can only accept players resident in Italy.

Neither form of restriction appears to offer a critical increase in consumer protection or offer any help in reducing crime. The regulators in France, Spain and Italy, have all expressed their belief that restricting liquidity has been a mistake.

The low liquidity levels in these countries are believed to have reduced the proportion of the market which plays at the nationally regulated poker rooms.

Higher tournament guarantees, wider game availability, the absence of gaming taxes and bigger player pools make playing at non-nationally regulated sites more attractive.

The impact of some elements of national legislation has been to channel players to the black market and can be argued to have reduced consumer protection rather than increase it.

Seen from this perspective, segregated player pools do not fit the demands of proportionality insisted upon by the CJEU. The fact that the overwhelming majority of EU jurisdictions allow online poker players to play in the international pool does not make arguments for restricted liquidity any easier to make.

Unsurprisingly, in the Admiral Casinos case the CJEU received representations from seven member states, all of whom have gambling legislation that the ruling will affect.

The CJEU does allow for national differences

However, the CJEU does recognize national differences. In the Pfleger ruling, the court said that proportionality could only be considered with reference to the individual objectives each member state sought to achieve.

“The mere fact that a Member State has opted for a system of protection which differs from that adopted by another Member State cannot affect the assessment of proportionality of the provisions enacted to that end. Those provisions must be assessed solely by reference to the objectives pursued by the competent authorities of the Member State concerned and the level of protection which they seek to ensure.”

Any legal challenge to national gambling laws would not therefore apply to other countries. Each case would have to be determined on its own merits.

A legal challenge could take a decade or more

Should any online poker operator, or player choose to launch a legal challenge, the case must first go all the way through the national court system before the CJEU would be asked to look at it. The entire process could easily take a decade.

On the other hand, the EU Commission could take on a case, and if it determined that segregated liquidity breached EU treaties, then it could bring its own prosecution before the CJEU.

Even though the EU Commission has the power, and sees itself as the “guardian of the treaties,” expecting it to act in the interest of online poker players and poker operators is probably optimistic.

On June 14 this year, MEP Christofer Fjellner asked a written question of the EU Commission demanding to know why the case against Sweden regarding its online poker laws had shown no signs of progression.

“On 14 October 2014 the Commission announced that it was intending to bring two cases against Sweden to the Court of Justice relating to the country’s gambling services legislation. The first case relates to online betting services and Internet poker services. The second case relates to the provision and promotion of online poker games.

When is the Commission intending to bring an action on these cases before the Court of Justice?”

The 20 month delay follows a decade long delay after the EU Commission first notified Sweden that its gambling laws were not up to scratch in October 2004. Fast action is not expected.

Operators could just ignore the laws — “prosecute and be damned!”

An alternative would be for the jurisdictions with segregated player pools to try a prosecution against a poker operator who is ignoring their laws.

Many operators, including names such as PokerStars and bet365, have argued that the laws in some EU jurisdictions breach the treaties and are therefore against the law. Bet365 has recently won a case on this basis in Bulgaria.

If they are correct, then the EU provides them with absolute legal support. In the Ince case from October 2015, the CJEU ruled that:

“Further to a judgment of the Court from which it can be inferred that a national law is not compatible with EU law, all organs of a Member State concerned are under an obligation to remedy that situation…. In this respect the Court consistently holds that Member States are required to nullify the unlawful consequences of a breach of EU law. The Court has underlined that ‘such an obligation is owed, within the sphere of its competence, by every organ of the Member State concerned’. For the legislature this implies the abolition of the legal provisions contrary to EU law. The national judge must, as is well known since Simmenthal, set aside conflicting provisions of national law. The same obligation applies to all the public authorities.”

Furthermore, “a Member State may not apply a criminal penalty for failure to complete an administrative formality where such completion has been refused or rendered impossible by the Member State concerned, in breach of EU law.”

This makes it unlikely that any jurisdictions will attempt a prosecution of an operator for breaching their gambling laws in areas such as shared liquidity.

It is a lot easier to promote a law that hasn’t been tested in the courts. If a law is found wanting, “all organs of a Member State” have to respect the fact and ensure that no operator is penalized for ignoring the law.

If PokerStars wanted to play hardball, it could end the segregation of players at its French, Italian and Spanish sites, and allow them to play in the global player pool–then dare the authorities to try a prosecution.

After all, PokerStars, bet365 and PartyPoker have all ignored the national gambling laws in Germany, Sweden and other EU member states and been supported in doing so by the EU Commission which has brought infringement proceedings against those countries.

- A former founder of Poker Industry Pro and Head of Content at PokerNews publisher iBus Media, Joss Wood is a graduate in English from the University of Birmingham. Joss also holds a master’s degree in Organisational Development from the University of Manchester. His career path has taken him from the British Army, through business and finance to seven years as a successful professional poker player.
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