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Lotto monopoly revisited in the Netherlands

On 2 May 2018, the Administrative Jurisdiction Division of the Netherlands Council of State (the ‘Council’) ruled that the Netherlands Gaming Authority (“NGA”) has not explained in a sufficient manner why lotto games should remain subject to a monopoly [1]. The NGA has been ordered to revisit its decision. Bas Jongmans, Gaming Attorney at Gaming Legal Group discusses the potential impact of this ruling for the gaming industry.

Published in Online Gambling Lawyer

Bas Jongmans

Gaming Legal Group

ATTORNEYS AT LAW

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Gaming monopolies: an ‘old Europe’ phenomenon

Article 56 of the Treaty on the Functioning of the European Union (‘TFEU’) prohibits any restrictions on the freedom of nationals of EU Member States to provide services. As such, Member States are not allowed to monopolize the offering of services, in principle that is.

 

As an exception, restrictive policies may be allowed if one of the legal justifications on grounds of public policy, security or health apply, as defined by the European Court of Justice (“ECJ”). These restrictions should at all times be proportionate to the objectives and should not involve discrimination on grounds of nationality. As a result, limitations on licensing or the establishment of a monopoly, a one license system may be justified under the TFEU. [2]

 

The ECJ also recognized that Member States (still) hold significant differences in morality, religion and culture.[3] If policies have not been harmonized at Union level, Member States are allowed to produce regional policy objectives. Since gaming policies have not been harmonized, Member States are allowed to adopt specific measures that they deem necessary, with respect to their specific background to achieve their objectives: to protect consumers against the risk of gambling addiction, fraud and other criminal activities. [4] These measures should at all times be proportionate and in the public interest. Furthermore, execution of the adopted policies should be coherent and continuous. [5]

 

Dutch restrictions contested

The Dutch legislator has opted to restrict specific types of games. By law, the Netherlands Act on Games of Chance (‘NAGC’) allows for only one license for the offering of betting on horse-racing. [6] This also applies to other types of Dutch sports betting [7], as well as to the Dutch regular and instant lottery [8]: one license per category, making these offerings de facto a monopoly. An exception applies for the offering of all (deemed acceptable) games of chance that have the objective of supporting charity. [9] Potential competitors and interest groups protested against the decision of the NGA to grant a monopoly for the offering of Dutch sports betting as well as a monopoly for the offering of lotteries to Lotto B.V. (“Lotto”).

 

Involved plaintiffs took the position that the adoption of a one license system, a monopoly, is not proportionate since the Dutch State did not establish that this monopoly is essential for the protection of consumers. In other words: the consumer could also be effectively protected by the implementation of more relaxed measures. The Council, however, does not follow the position of the plaintiffs. The Council feels that consumer protection benefits significantly from the exclusive offering of the mentioned betting services. The Council feels that the offering of betting services by multiple parties would lead to unnecessary risks to the consumer since it would introduce competition between operators, leading to an increase in players. Regarding the offering of instant lottery, the Council sees additional risks, since the outcome has already been predetermined, and therefore more fraud prevention measures are justified. Furthermore, the Council sees the future introduction of online gaming (if and when) as an additional argument to increase consumer protection, since it feels that cracking down on illegal online operators who are operating abroad may be complicated. The Council also does not agree with the position of the plaintiffs that Lotto’s media campaigns have been excessive to such an extent that these campaigns have been disproportionate and as such are a risk to consumers.

License applications: a lack of transparency is not necessarily unlawful

Plaintiffs have taken the position that, even if a monopoly was justified, Lotto’s license application procedure was not transparent. The Council however rules, contrary to the position of the plaintiffs, that the ECJ has already recognized that such application procedures do not necessarily have to be transparent, as long as it involves a monopolist who is under the strict regulatory control of the Member State. [10] The Council has researched and subsequently established that Lotto is under sufficient regulatory supervision. Consequentially, in this particular matter, the NGA did not have the obligation to convert Lotto’s application into a public offering.

 

Partial failure of horizontal consistency

 

In order for restrictions to be coherent, specific game categories are required to be sufficiently distinctive. In other words, games with matching characteristics should be treated equally. Treatment must be horizontally consistent. Comparisons between the specific games and categories do not bring the Council to the conclusion expressed by the plaintiffs that the Dutch gaming policies lack horizontal consistency. [11] However, the Council does note that the NGA has not sufficiently explained if, and if so, why it feels that Article 3 lotto betting based on charity is distinguished from ‘regular’ lotto betting. As a result, the Council has ordered the NGA to revisit its previous decision. In other words, the NGA needs to explain why for-profit lotto differs from non-profit lotto.

 

Potential ramifications: no significant changes expected

 

With reference to prior case law, it is not to be expected that the NGA will have trouble explaining (and subsequently convincing the courts) why games of chance with a charitable purpose differ from the ‘official’ monopoly lotto offering. First, the Article 3 category is general in nature, while the ‘lotto’ license has been distinctly specified. Second, the Council has already established that lack of profit stimuli has a significant impact on the way games are introduced to the market. Although it seems, after having reviewed Dutch case law, not all too complicated to predict how this particular case will unravel, it should be noted that monopolies are not of this time. For example, the argument put forward by the Council that with the gaming market going ‘online’ consumers should be protected by limiting the number of operators competing on the market, seems ambiguous and oversimplified. This point of view also seems to confirm the grim future of the development of online gaming in the Netherlands. It seems that the Dutch State instinctively seeks to hold on to a monopoly attitude, which will make it almost impossible to create a level playing field in which newcomers are given a fair opportunity to participate. Although it is not to be expected, a ruling in which the lotto monopoly is deemed unlawful would certainly be refreshing.

Endnotes

[1] Ruling of the Council of 2 May 2018, 201602865/1/A3, 201602866/1/A3, 201602873/1/ A3, 201609009/1/A3, 201609013/1/A3, 201609016/1/A3, 201609022/1/A3, 201609024/1/ A3 and 201609044/1/A3, ECLI:NL:RVS:2018:1466.

[2] Judgment of the ECJ of 6 November 2003, ECLI:EU:C:2003:597,C-243/03 (‘Gambelli’) and Judgment of the ECJ of 6 March 2007, ECLI:EU:C:2007:133, C-338/04 (‘Placanica’).

[3] Judgment of the ECJ of 11 June 2015, ECLI:EU:C:2015:386, C-98/14 (‘Berlington’).

[4] Judgment of the ECJ of 15 September 2011, ECLI:EU:C:2011:582, C-347/09 (‘Dickinger and Ömer’).

[5] Judgment of the ECJ of 8 September 2009, ECLI:EU:C:2009:519,C-42/07(‘Liga Portuguesa’).

[6] Article 24, NAGC.

[7] Article 15, NAGC.

[8] Articles 27b and 14b, NAGC.

[9] Article 3, NAGC.

[10] Judgment of the ECJ of 3 June 2010, ECLI:EU:C:2010:307, C-203/08 (‘Betfair’).

[11] Ruling of the Council of 2 May 2018, 201700232/1/A3, 201700240/1/A3, 201700241/1/ A3 and 201700324/1/A3, ECLI:NL:RVS:2018:1467.