What are the odds? National gambling regulation and the globalised betting industry
|Numéro 7 | Contrôler et punir|
Les paris sportifs s'internationalisent. Le développement de plateformes en ligne a grandement facilité cette ouverture en permettant de parier en s’affranchissant de la localisation du match, de l’opérateur et du parieur lui-même. La nature toujours plus globale du secteur des jeux de hasard est perçue comme un défi fondamental pour les cadres de régulation qui sont eux demeurés nationaux. Cette contribution recense les différents modèles de régulation des paris sportifs et analyse certaines des tensions émergeant de la rapide internationalisation du secteur.
Mots clés : Paris sportifs - Régulation - Administration publique - Internationalisation
Sport betting is growing more international. Specifically, the development of online betting platforms has facilitated the placing of wagers irrespectively of the location of the sporting event, the betting operator or the punter himself. This increasingly globalised nature of the gambling sector is perceived as a fundamental challenge for the still nationally based gambling regulation frameworks. This contribution aims at surveying various regulatory models used for sport betting and to analyse some of the tensions emerging from the rapid internationalisation of the sector.
Key Word: Sport betting - Regulation - Public administration - Internationalization
Las apuestas deportivas están en plena expansión a nivel internacional. Concretamente, el desarollo de plataformas de apuestas en la red ha facilitado la posibilidad de apostar dinero independientemente del lugar donde se ubique el evento deportivo, el organizador de las apuestas o el apostador.
La naturaleza cada vez más globalizada del sector de los juegos de azar es percibida como un desafio fundamental para la aplicación de los reglamentos de base de estas apuestas que, por ahora, son solamente válidos a nivel nacional. Esta contribución pretende examiner diversos modelos regulatorios utilizados para apuestas deportivas y analizar ciertas tensiones surgidas de la rápida internacionalización de este sector.
Palabras Claves : Apuestas deportivas - Regulación-Administración publica - Internacionalización
One of the most popular forms of gambling is sport betting. Throughout the existence of sport, bets have been placed on the outcome of a competition or a game. As old as sport betting is, the State's involvement was never far behind. The fundamentals of the State's role in the regulation of gambling activities are rooted in the paradoxical tension between high financial returns for the state budget one the one hand and the need to limit and prevent personal, social and economic deviances.
In analysing different national regulatory frameworks we find common denominators allowing us to directly compare approaches among States. This paper presents a model to analyse sport betting regulation and illustrates different approaches taken in regulating sport betting. In the first section, some parameters of regulatory regimes are explored and highlighted with some country examples. The second section looks at the arising tensions between national oriented regulatory systems and transnational, global developments.
II. Regulatory regimes of sport betting
A regulatory regime can be described as a two dimensional construct. The first dimension is the "regulatory scope". It refers to the breath of the regulation; the area covered by the regulatory framework. It defines what is covered by the regulation (Cook, Shortell et al., 1983; Reger, Duhaime et al., 1992). The scope of a regulation is based on following parameters: the regulatory object, the types of games, the access to the market, and the public use of profits. The second dimension is the "regulatory stringency". It characterises the degree to which the organisation's behaviour is constrained by the regulation (Cook, Shortell et al., op. cit.). Stringency of the regulation can be measured on the regulator's level by the powers of the regulator, and on the organisation's level by different restrictions imposed on organisations. The identification of the parameters defining both the scope and breath of regulation, were identified through a documentary analysis of some 20 regulatory frameworks in the gambling sectors of seven countries. The selection of the national models analysed having been made through the mediation of an international expert committee.
A. Regulatory scope in the sport betting market
1. Parameter 1: Regulatory object
Establishing a regulatory environment requires that one first defines the specific object to be regulated. Within the wider regulation of gambling, and by direct analogy in the regulation of sport betting, the central question is whether an activity is considered to be a game of chance or a game of skills. It the first instance it should be associated with the concept of gambling, in the second, it should not. The responsibility for defining what constitutes a game of chance is left to the legislator. In the United Kingdom or Canada the mere presence of an element of chance in the game is sufficient to classify the game as gambling. In contrast, some states of the U.S., France, Switzerland, or Italy, try to evaluate the specific levels of both chance and skill to determine if a particular activity should be regulated or not by gambling laws. With this approach, a game is classified as a game of chance when its outcome depends predominantly on chance.
As a consequence, some countries do not consider sport betting a game of chance at all. In Austria, the Gambling Act (Glücksspielgesetz/GSpG of 1989) does not apply to sport betting, as this activity is not considered to be a game of chance. According to Austrian law, the knowledge of the punter can influence the outcome of the bet placed. From an international perspective, the definition of what is a game of chance is in many ways arbitrary (Rose, 2009).
2. Parameter 2: Types of sport betting
Along with definitional limitations, states must decide which forms of sport betting are allowed. Placing a wager on the outcome or on specific events in and around a sporting match can take many forms (Diaconu, 2010). Traditional betting refers to betting with odds on the winner of a specific match, an exact score, or the eventual winner of a championship. Spread betting is betting on the differential of the result between two teams or players. In a pari-mutuel bet, the odds are initially set as equal across the various contenders and then modified according to the accumulation of bets from various actors. With live betting bets are made while the game is in play and the odds are therefore modified in real time according to match developments. In exchange betting, nobody is officially setting the odds, but it is the punters themselves who accept or reject the offers of odds proposed by other players. Which betting mode can be offered to customers varies from country to country. In Switzerland, live betting and exchange betting are forbidden, whereas in the United Kingdom, all forms of betting can be found.
3. Parameter 3: Access to the market
Another key parameter in a regulatory regime is the access to the market. In the area of sport betting, market access is either based on an exclusive right attributed to one organisation, establishing a monopoly, or a licence system that allows a limited or unlimited number of sport betting operators. In Switzerland, two publically owned organisations have the right to offer sport betting. In the UK, where regulation is based on an open licence system, numerous betting operators offer bets to the public. In Germany, Oddset is a state monopoly founded by the sixteen Länder to operate sport betting games throughout the country. In France, the retail sport betting market is split. The Pari Mutuel Urbain (PMU) offers betting on horse races and the national lottery organisation, Française des Jeux (FDJ), offers sport betting. In contrast, the French online sport betting market is based on an open number licence system. Even in jurisdictions where sport betting does not fall within the category of gambling, e.g. Austria, a licence from the local authorities is required to open a betting shop.
4. Parameter 4: Public use of profits
The public use of profit is another important aspect in devising a regulatory regime. Sport betting generates huge profits and states are often interested in using a share or all of the profits to a public end. In Switzerland, the profits generated by the Loterie Romande and Swisslos out of sport betting are allocated completely to the professional and amateur sport. In Germany, Oddset is allocating the revenue generated in each Land to the regional authority that uses it for different ends such as social projects, the state budget or the sport. In France, the FDJ allocates a share of the revenues to the state budget which can then be used for sport, whereas the revenues of the PMU are mostly attributed to the equine industry. In the UK and Austria profits are not used for a public end directly. But, as is the case in most countries, operators pay taxes, and therefore generate an important income for States.
B. Regulatory stringency in the sport betting market
The stringency of a regulation can also differ across regulatory frameworks. It characterises the degree to which the organisation's behaviour is constrained by the regulation (Cook, Shortell et al., op. cit.). It can have an impact on two levels. First, the stringency of the regulator is represented by the power at the disposal of the regulator to monitor and control the operators. Secondly, the stringency on the organisational level refers to possible restrictions imposed on the operators by the regulator.
1. Parameter on the regulator level: Power of the regulator
A parameter influencing the restrictiveness of the regulation is the power of the regulator. The tools and power at the disposal of the regulator vary widely across regulatory frameworks. In the UK, the Gambling Commission, an independent body controlling and monitoring the gambling sector (at the exception of the National Lottery) has far reaching competences in licencing gambling operators, conducting inspections and imposing penalties on organisations in case of non-compliance. In Italy, the "Amministrazione autonoma dei monopoli di Stato" (AAMS), the autonomous authority responsible for the control and monitoring of the gambling sector, is licencing operators and games and can impose penalties in case of non-compliance. In Switzerland, the Comlot, the independent commission established on the cantonal level, is responsible for licencing new games and monitoring the sport betting sector, but cannot licence operators. In Germany, the regulators are established on the level of the Länder and take various forms. In Bavaria, for example, the monitoring body is the Staatliche Lotterieverwaltung which is part of the State's administration.
2. Parameters on the organisational level: Regulatory restrictions imposed on organisations
Next to the stringency on the regulator's level, regulatory frameworks can influence the stringency on the organisation's level. A parameter often observed in gambling regulation is the imposition of the legal form of the organisation that has the right to operate sport betting. The main question is whether the regulatory frameworks allow private or public ownership of sport betting organisations. In the UK, no impositions are defined in the law and private operators are allowed to access the market. In Germany the juridical form is imposed, Oddset being a state enterprise. In France, the FDJ is a semi-state owned enterprise, whereas sport bets over the internet can be offered by accredited private companies. In Italy, the law stipulates that gambling is under the jurisdiction of the state, which can mandate a public or private entity to fulfil the task; the result being that private operators have been accredited to operate in the Italian market.
A regulatory regime can also impose restrictions on advertisement and marketing of sport betting. In most countries the publicity for illegal gambling is banned. In regard to authorised sport betting, three main regulatory approaches can be identified. First, laws can forbid the marketing and advertisement of sport betting completely. In Germany, Oddset is only allowed to inform citizens that the sector exists. Second, as practiced in Switzerland or France, the publicity must not be aggressive or disproportionate in the way they put forward the win. Finally, in the UK or Ireland no limitations on the advertisement of gambling are established.
In addition to restrictions on advertising, regulations establish restrictions in regard to sport betting distribution channels. Remote gambling refers to gambling by the use of telecommunication technology and the impact of the internet on sport betting has been particularly impressive, as it offers a new and international channel for the provision of betting services (Littler, 2011). Gambling regulatory regimes are often at odds on how to deal with this new situation. The modalities of internet gambling are complex to integrate with the regulatory frameworks that were developed historically in regard to the more traditional channels of distribution of gambling services. Several countries impose a ban on internet gambling (e.g. Germany, United States) while other regulatory environments, as it is the case in Switzerland or Sweden, allow the retail operators to offer their products also online. Another approach is that specific regulation is developed for remote or online gambling. In France a regulation for online games of chance has been adopted in 2010, whereas in Italy this has been done in 2006.
A regulatory regime may also impact the organisational level in terms of corporate social responsibility. The entertaining activity of sport betting can put gamblers at risk as some develop addictive behaviours. This deviance from sport betting is not only costly for the individual (e.g. debts but also co-addictions, alcohol, drugs, etc.) but also for society (e.g. the loss of productivity, the development of criminal activities). Some countries try to force sport betting operators to internalise a share of these negative externalities. In Switzerland, sport betting operators must use 0.5% of the gross gaming revenue (the total amount of wagers minus the winnings paid out) for the fight against gambling addiction by the support of research or treatment centres. In Quebec, a share of the profits are allocated to the health ministry and used for the treatment of gambling problems.
III. Nationally bounded regulation in face of global challenges: how to cross the bridge?
As illustrated in the previous section, sport betting regulation can take different shapes. These different models are after all, defined in systems that have a different institutional architectures, different political cultures and different relationships with the gambling sector. Based on the above presented dimensions of "regulatory scope" and "regulatory stringency", the "regulatory intensity" can be defined. Depending upon the extent to which the different parameters are fulfilled, the regulatory regimes can be differently positioned on a continuum going from a low level to a high level of "regulatory intensity".
In the sport betting sector, the level of regulation varies sharply between countries. Some regulatory frameworks are defined to be of a low intensity. In the UK the market access is based on an open licence system allowing for unlimited number of competitors. Private companies are operating in the market, generating profits for their owners. The level of restrictions imposed on the organisations is low as they are not obliged to take any measures in regard to advertisement or gambling problems. Moreover, licences for remote gambling can be obtained and an online offer can be established by various organisations. Therefore, the sport betting market, even if it is still regulated, is marked by a low level of regulation and sport betting is often considered as one economic activity like many others.
In contrast, other regulatory frameworks are of a high regulatory intensity. In Germany, Oddset benefits from a monopoly position based on the collaboration of all sixteen Länder. The sport betting games are offered via the regional lottery distribution networks. Therefore, the market access is limited to one public monopoly. The organisation is offering the sport betting games only on the retail market as remote gambling is forbidden. The profits generated with sport betting games are allocated to the government of the Länder. Advertisement restrictions only allow informing potential customers about the existence of the sport betting offer. Therefore, the sport betting sector in Germany is a highly regulated activity.
In between these two cases, a number of different configurations are possible. In Switzerland, sport betting is also structured in a monopoly market as the Loterie Romande and Swisslos operate each in a well-defined territory. These public organisations allocate all benefits to charitable, benevolent projects and sport. The advertisement is less restrictive than in the German case but still has to be reasonable and not to unduly put forward the prospect of a win. The organisations have to finance treatment and prevention measures against gambling addiction and offer their products via remote gambling.
This continuum of the level of regulation illustrates the varieties of possible regulatory regimes. Despite the shared motivation among states to prevent criminal activities (e.g. money laundering, illegal gambling), to protect consumers (e.g. against fraud), players (e.g. gambling problems and gambling addiction) and citizens (e.g. social costs of addiction and criminality), and boost the economic benefits (e.g. revenue for the state budget or for sport or social projects), sport betting regulation remains mostly a national matter.
The next question is how inward-oriented national regulations can face the emerging transnational tensions arising from a globalised sport betting sector? The case of online gambling is by far the most emblematic of this trend. The Internet has deeply altered the functioning of the sport betting market. Not only has it led to an increasing legal and illegal offer but also to the development of an unauthorised cross-border market (European Commission, 2011). Gamblers can bet online on websites from operators based all over the world, making state borders almost obsolete. Given the current regulatory regimes, internet-based sport betting offers can be classified in three different categories. First, online sport betting is provided by fully licensed and authorised providers in the targeted territory. It implies the adaptation of the legal framework to a new delivery channel. Most countries give their traditional retail operators the option of offering the games on the internet. In Switzerland, the Loterie Romande and Swisslos can operate online games. The same is true in France where the retail operators PMU and FDJ offer also online games. Second, sport betting is provided by organisations licensed in a specific country but offering also the games in third territories. This category is often referred to as constituting a "grey market" in the European Union (European Commission, op. cit.); although for many this wording is by far too lenient. For example, Bwin or 888 are licenced in Gibraltar but accept bets from punters in countries where they might not be licensed. The third category refers to sport betting games offered by unauthorised providers – illegal operators offering sport betting games internationally. In 2011, the EU outlined that fewer than 15% of the 15 000 online gambling sites in Europe were fully licensed (Tait, 2011).
From the regulatory perspective, the first category is not critical but the second and third categories represent more complex challenges because these providers have no national legal standing. This illegal provision of gambling services has several consequences. The legal operating organisations are faced with an increased competition that is often more lucrative for both organisers and players as they can escape regulatory rules and sanctions (Anderson, Blackshaw et al., 2012). Illegal providers do not need to comply with regulatory obligations in regard to social protection measures (minor protection, gambling addiction, opening hours) nor do they make financial contributions to the state in form of taxes for example. In some countries, measures are taken that either ban or limit the possibilities of gambling on the Internet sites of unauthorised providers: ISP blocking (e.g. Germany, Sweden), which entails blocking access to gambling web sites; financial transaction blocking (e.g. USA), which forbids financial operators from expediting bets and eventual winnings; advertising restrictions (e.g. most EU countries), which reduces the visibility of gambling operators; and taxation (e.g. Netherlands), which makes operating an online gambling site prohibitively expensive for the organisation (GamblingCompliance, 2009, 2). The nationally bounded regulatory frameworks are challenged by the development of modern technologies and their direct impact on the sport betting market. It is difficult for the individual state to react to a transnational phenomenon on the basis of a national regulatory regime. But the Internet is not the only issue illustrating the tensions between the national formulated regulatory systems and transnational developments. The issue of money laundering is a reason for sport betting regulation in close to all jurisdictions.
Especially with the development of the Internet, the problem takes new amplitude. "... [T]he anonymity and jurisdictional issues characteristic of Internet gambling make online gaming a potentially powerful tool for money launderers. They noted that few money laundering cases involving Internet gambling had been prosecuted but attributed the small number of cases primarily to a lack of regulation and oversight" (United States General Accounting Office, 2002, i).
Similarly, the problem of match fixing and other illegal activities that develop in and around the sport activity such as cheating, fraud, or blackmail are challenging national regulations (Hill, 2008). The huge benefits that can be generated by sport betting are for some a reason to manipulate the sport events to win a bet. Match fixing is not a new phenomenon and scandals of manipulation of sport outcomes reach far back. But the manipulation to lose a competition or event threatens the integrity of sport and of sport betting as both activities need to have a pure image and reputation in order to be attractive for consumers.
All of these points to one fundamental question, namely of how nationally developed sport betting regulations can be altered/adapted in order to counter international deviances on the basis of widely diverging national regulatory models?
This article has presented some of the ways sport betting is regulated and illustrates different shapes a regulatory framework can take. Based on several parameters constituting the "regulatory scope" and "regulatory stringency", different forms of sport betting regulation were identified. The "regulatory intensity" in the sport betting sectors varies between countries, reaching from a low to a high level of regulation; illustrating the multitude of regulatory approaches that exists.
Each State is faced with a range of deviances, often old ones which take new amplitude due to technological progress. The sport betting sector is increasingly globalised, but the regulatory regimes are still national and vary enormously in their intensities. This fragmentation of regulation renders the successful fight against illegal activities and behaviours complex, calling for new solutions in regard to better integrating the different actors.
These tensions have been detected by various actors and interest groups and different initiatives and declarations were made by sport, lotteries and betting association. The IOC for example established in early 2011 a Working Group on Irregular and Illegal Betting in Sport composed of representatives from the sports world, governments, international organisations and betting operators in order to fight illegal and irregular betting.
In defining solutions, what should not be neglected is the wide range of parameters a regulation can be built upon defining the regulatory intensity in the sport betting sector. The national approaches in the sport betting regulation are very different in their intensities, what raises the question whether an international solution, such as increased collaboration in regard to cross-border gambling, could even be possible. Whatever solution will be brought up, building or adapting a regulatory framework needs to reflect on these parameters and a possible new regulatory framework should be flexible enough to face new developments, especially those that new technology brings to the sport betting sector.
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