The Legal Status of Esports Betting in the EU – a Level Playing Field?

Legal status of online gambling in the EU

Ever since the conception of the internet, online gambling has been a hot topic for EU legislators. The issue was first discussed at the European Council meeting of 1992 in Edinburgh, Scotland. Though many states feared the transnational character of the emerging online gambling industry, it was decided not to pursue any harmonization at a European level, as harmonizing gambling regulations turned out to be a rather sensitive topic. However, whilst EU-wide gambling regulations are lacking, online gambling, in principle, qualifies as a digital service and therefore falls within the scope of the free market provisions, including article 56 TFEU. Lacking any harmonized regulations, the debate on online gambling has mainly shifted into the domain of the European courts.

The first major case to reach the European Courts was the Schindler case in 1994 (C-275/92). A number of member states challenged the authority of the European Union with regards to online gambling as they deemed it to fall outside of the notion of ‘economic activity’ and could therefore not be subject to the principle of freedom to provide services (as currently codified in articles 49 and 56 TFEU). However, the Court decided that online gambling constitutes an economic activity and is therefore subject to European law, including the free movement provisions. Nevertheless, (online) gambling, due to its moral and ethical implications, has remained a regulatory area where member states enjoy a wide margin of discretion. Hence, member states are free to regulate (online) gambling on a domestic level in accordance with their internal policies and national morals.

Moreover, the European Courts have confirmed in multiple cases that member states may limit the freedom to provide services of gambling operators and that gambling operators may be subject to limitations in accordance with national laws, as was confirmed by the CJEU Liga Portuguesa (C-42/07). These limitations must however be justifiable and imposed for reasons of public policy, security, health or imposed for overriding reasons in the public interests, such as consumer protection or the combating of crime (such as fraud and money laundering). Moreover,  limitations may not be discriminatory and must be proportionate to the objective the limitations are aiming to achieve, as was confirmed in CJEU Läärä and Others (C-124/97). Subsequently, the European courts have ruled out the mutual recognition of domestic online gambling licenses. Therefore, an operator which has acquired a license to offer online games of chance in one member state can be prohibited from offering these services in another member state on the basis of said license.

Many gambling operators have challenged national limitations to offer online gambling services on the basis of the aforementioned test with varying success. The general line that may be distilled from European case law is that the margin of discretion to impose limitations on (online) gambling is rather wide. Operators did however manage to successfully challenge a number of national regulations through which either a monopoly or a concession system was created. In a monopoly only one operator (which is often state-owned) can be licensed to offer gambling activities, whilst in a concession system the number of licenses which may be granted are capped. The implementation of a monopoly or concession system with regards to gambling services should, in principle, be in accordance with the European Courts’ case law on non-discrimination and the subsequent obligation of transparency.

Esports betting in the EU

The abovementioned framework also applies to the offering of esports-related gambling activities, such as wagering bets on the outcome of a specific game or tournament. However, as mentioned, many member states have opted to prohibit esports gambling through different legal mechanisms. Especially concerns relating to the integrity of matches (i.e. risks of match fixing) and the fact that esports mainly attracts young viewers, tend to form an obstacle on the road to legalizing esports betting.

When zooming in on the current domestic legal frameworks it can be seen that the Dutch legislator, for example, has opted not to explicitly ban esports betting. Yet, through general restrictions on sports betting esports betting is currently precluded. This is mainly due to the fact that the current way in which esports is organized does not comply with the minimum standards for sports betting. These requirements include, for example, that the esports match/tournament must be organized under the auspices of a recognized sports governing body (i.e. a national sports federation). This requirement is especially troublesome for esports, due to its decentralized nature. Esports tournaments are currently not organized under the supervision of traditional sports federations, thereby precluding any possibility with regards to esports betting. Germany has adopted a similar approach, by implicitly ruling out esports betting (for a more detailed overview of German gambling regulations see this recent article by Leonid Shmatenko). Other European regulators have opted for a less restrictive approach to esports gambling. Players from Malta, Italy, Spain and Denmark can engage in esports betting trough licensed operators, provided that these tournaments/matches concerned comply with the safeguards provided by the domestic legislation, Therefore, there is currently no level playing field for esports enthusiasts in the European Union. Most regulators are not convinced that the esports industry provides sufficient safeguards to allow for responsible forms of esports betting. This is partly due to the fact that regulators, to a large extent, tend to compare esports to traditional sports. However, as both forms of sports are organized in fundamentally different ways, esports cannot offer the same safeguards as traditional sports. As stories of match fixing in esports keep unfolding, regulators will remain reluctant to change the current regulatory frameworks. However, as the esports industry is professionalizing rather quickly, additional safeguards may be implemented sooner rather than later. Data driven analyses may for example be able to sniff out any forms of match fixing immediately, as was discussed in a recent article on Esports Legal News. The debate on esports gambling is expected to remain a hot topic for coming years, with evermore esports fans calling for the legalization of esports betting. Which regulator will bulge first remains to be seen.

Image source: Business of Esports