Bwin Interactive Entertainment AG, PartyGaming Plc and William Hill Plc, the companies with the biggest shares of Europe’s online gambling revenue, and their competitors may face higher costs as the expansion of that 8.3 billion-euro market comes with new regulations.
French senators have approved regulations that will grant online gambling licenses to foreign companies, ending a ban. Denmark may do the same, and Italy is opening its market in stages. Germany’s prohibition faces a challenge at Europe’s highest court.
Companies moving into the expanded markets face tight restrictions. Building operations that can comply with new regulations in multiple countries requires a minimum investment of about 1 billion euros ($1.4 billion), said Norbert Teufelberger, co-chief executive officer of Vienna-based Bwin.
“This opening up of the market may not be as attractive as PartyGaming and Bwin say,” Martin Oelbermann, director of MECN, a Munich-based consulting firm, said by phone. “Are we really getting more betters, or are we going to get the same clients as before, but now we have to pay taxes on them?”
Europe’s online gambling industry is the world’s largest. Among publicly listed companies, Bwin has the largest European market share by revenue with 8 percent, followed by Gibraltar- based PartyGaming with 6.3 percent and London-based William Hill with 4.5 percent, according to 2008 data from Barclays Capital.
Online gambling in “offshore” markets, in which some companies may have customers in countries with official bans, expanded more than 10-fold between 2003 and 2010 to about 6.5 billion euros, according to figures from H2 Gambling Capital, a Manchester, England-based consulting firm. That growth will slow to 13 percent through 2012 as more countries permit gambling, H2 said. Regulated onshore revenue will climb 37 percent, to 5.11 billion euros.
PartyGaming’s 2009 revenue was $446.2 million, the company said March 4, while William Hill reported 203.5 million pounds ($305 million) in sales from its online division last year. Bwin’s 2008 sales were $488.5 million.
Gambling-industry associations and companies have called for more open markets since online betting became popular in the early 2000s. Efforts to open markets have suffered court setbacks, and more cases are pending.
Changing Minds
“What has happened lately is that some of the toughest opponents have changed their minds,” Petter Nylander, the chief executive officer of Unibet Group Plc, said in an interview in London.
French rules endorsed by the Senate require companies to establish separate sites for French clients and provide permanent records on players to the government, while prohibiting some kinds of betting.
Full prohibition “has never functioned, because gambling has always been part of our history,” then French budget minister Eric Woerth told the Senate on Feb. 23. “The absence of state regulation would lead to untenable situations for players and their families.”
The Remote Gambling Association, which represents operators, in January said it was considering suing France to push for more expansive rules, citing “restrictions which are disproportionate” and disadvantageous to foreign companies.
‘Tough and Expensive’
“Companies have got top lawyers in each country, figuring out how to comply,” Simon Holliday, the director of H2, said by phone. “It becomes tough and expensive.”
Some companies, including Paddy Power Plc and PartyGaming, are teaming up with national gambling monopolies. Paddy Power, Ireland’s biggest bookmaker, in November said it would help manage online betting for France’s Pari Mutuel Urbain. PartyGaming in January signed a similar agreement with Denmark’s Danske Spil A/S.
“While costs will vary, regulation in the market is a good thing,” John Shepherd, a spokesman for PartyGaming, said by phone. “The conditions have to be workable, but they also have to conform with the treaties” of the European Union, he said.
Bwin has already incurred “significant” costs to prepare for the opening, Teufelberger said.
David Hood, a William Hill spokesman, declined to comment.
The European Commission, which has pushed national governments to legalize online gambling under market-access rules, will help determine the shape of regulations, said Sigrid Ligne, the secretary-general of the Brussels-based European Gaming and Betting Association.
Much will depend on the direction taken by new internal market commissioner Michel Barnier, she said.
Legal Setbacks
Bwin in September lost a challenge to Portugal’s state gambling monopoly at the European Court of Justice, the EU’s highest court, which ruled that restrictions may be justified to combat crime as long as they aren’t discriminatory.
Barnier left the door open to commission action against member states to force open gambling markets, telling the European Parliament on Feb. 11 that the Portuguese decision “does not fundamentally change the evolution and evaluation of infraction procedures.”
In addition to a case against German laws at the ECJ, Ladbrokes Plc and Betfair Ltd. have challenged Dutch rules. In December an advocate-general said in a non-binding opinion that the Netherlands doesn’t have to recognize their claims.
Governments are “trying so hard to find a way to define this as a special industry in order to keep the revenues coming,” William Hill general counsel Thomas Murphy said at a conference in January. “This issue is not going to go away.”
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