France To Begin Online Poker Desegregation Process In Short Order
Online Poker Report

European Regulators Discuss Online Poker Desegregation, But Path Forward Riddled With Obstacles

eu regulators meet paris online poker desegregation
From September 12 to September 14, the national regulators from Europe’s largest online gambling markets met informally in Paris to discuss common concerns, including shared liquidity for online poker.

Regulators from the Austrian, British, German, Italian, Portuguese, Spanish and French markets planned to discuss “standardization, anti-money laundering and anti-financing terrorism, sport betting risk analysis, poker shared liquidities and responsible gambling.”

Regulators have largely accepted that segregated player pools were a mistake

Of the group, the UK is the only country which allows fully shared international player pools for online poker. However, the Spanish, Italian and French regulators, who have the longest experience of operating poker regulation that segregates the player pool, are united in believing that segregation was a mistake.

Regulators have largely accepted the evidence that shows that countries collect less tax when online poker is segregated. They have also begun to promote changes that channel a higher percentage of the population toward the regulated market and away from black market operators.

Segregated online poker markets charge higher rake and tournament fees than non-segregated markets, and aren’t able to offer big tournament guarantees. In short, consumers are offered a worse product at a higher price with the result that many exit the regulated sector to play at dot-com sites.

The French want shared liquidity soon

In May this year, a multi-year lobbying campaign (paywall) by the head of the French regulator, ARJEL, finally produced a parliamentary vote that gives the legal go-ahead for shared liquidity.

The authorization is limited in several respects. The actual text of the law, translated into English, states:

“The online gaming regulatory authority may allow an operator holding a license under Article 21 to offer players with a verified account on a site subject to accreditation to participate in circle games as defined in the first paragraph with the players holding an account on a site subject to approval by a member State of the European Union or State party to the agreement on the European Economic Area.”

So, ARJEL can negotiate sharing liquidity with licensed operators in other countries, but only for those “circle” games which it allows.

At the time of the amendment this meant only Hold’em and Omaha poker, but since then ARJEL has added Omaha 5, 2-7 Triple Draw and 7-Card Stud.

With the newly written law in its pocket, ARJEL will be looking to get its first shared liquidity agreement in place as soon as possible.

It is in a similar position to Nevada  it knows the online poker market is dysfunctional, and sees the equivalent of interstate compacts as a big part of the solution.

Despite optimism there are major obstacles to sharing player pools

At last week’s WRB conference “Responsible Gambling Innovation” in London, Playtech’s new chief policy officer, Francesco Rodano, told Italian gambling newspaper Agimeg:

“My feeling is that there will soon be international liquidity, especially for online poker which can count on a global audience. It is a subject on which regulators have been discussing for several years now, since 2009.”

Rodano should have as good an idea as anyone, since until he was hired by Playtech, he was the head of online gaming at Italy’s regulator, AAMS.

However his enthusiasm may face practical problems. In an interview with Agimeg, the Italian minister with responsibility for online gaming, Pier Paolo Baretta, said that the basic issue is not just about gambling, but about European tax.

One major issue arises from the VAT Directive issued by the European Commission which came into effect in January 2015.

The directive demands that anyone who buys a digital product in the EU must pay a sales tax (VAT) in the same way as if they had bought a physical good in a shop.

Since VAT is collected by businesses rather than paid by the customer directly, online poker operators have had to calculate the taxes due on their revenues based on their players’ geographical location.

With VAT rates at anything from 15 percent, which is the legal minimum, to the 27 percent charged in Hungary, the geographical distribution of the player base has a direct impact on the rake operators set and the VIP benefits they can offer.

Change the player pool by adding in players from another country, and maybe rake will have to go up to pay for the extra taxes the operator must pay on behalf of the new players.

And there’s no single solution; some countries charge VAT on gambling, some don’t. Some, like Germany, levy VAT on online casino and poker, but not on online sports betting.

French online poker taxes are also a stumbling block

For reasons no sane person could understand, French politicians decided that online poker cash games would not be taxed by gross gaming revenue, but instead on a pot by pot basis.

Every pot played at regulated site is subject to a 2 percent tax which is removed from the pot on every street, whether there is a flop or not.

The cumulative effect of the tax even allowing for relatively lower taxes on tournaments, is that French regulated poker operators are charged over 37 percent (paywall) of their gross gaming revenue in gambling taxes—the highest rate in the EU.

Only three operators have ever made a profit from online poker in France, according to data collected by ARJEL.

The modus operandi of the pot based tax will create a major headache for any operators looking to share liquidity with the French segregated market.

Perhaps the easiest solution is to levy the tax on all players whether they are French or not, and then increase VIP benefits or reduce rake to balance the extra costs to players.

Attempting to manage the tax so that it is proportional to the nationality of the players at the table may be possible, but in practise it’s a technical challenge.

Nevertheless, if the will is there, then the technical problems can be overcome. ARJEL certainly has the will, and the operators on super thin margins will be keen to get any relief that increased liquidity can provide.

Expect the first steps in ending the French segregated player pool to come by the end of this year, with an experimental implementation early in 2017.

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Joss Wood
- A former editor of Poker Industry Pro, 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.