French casinos vs. Française des Jeux : the war for online gambling is declared

A fierce competition

The Syndicat des Casinos Modernes, one of the main bodies representing the interest of the casino sector in France has recently lodged a complaint to the European Commission’s Directorate General for Competition against the French State and the Française des Jeux, on grounds of abuse of a dominant position (article 86 of the EC Treaty read in conjunction with article 82).

The French casino sector has been facing fierce competition for the recent past years from the local monopoly, the Française des Jeux, which, since 2001, has been solely authorized to offer online gambling services in France by virtue of its own internal rules and under authorization of the French State.

The French monopoly has been expanding its offer ever more, providing online casino-like games - with names such as “black jack” and “roulette”- in violation of the European Court of Justice requirement of “consistent gaming policy “ set out in the famous Gambelli ruling.

The French casino sector has been unsuccessfully lobbying the French authorities for years in order to obtain the right to offer its services on the internet, as its European and national counterparts are allowed to do.

The French casino legislation is indeed outdated and unfit for today’s virtual industry as it partly dates back to the beginning of the twentieth century.

Many serious studies have shown that the French casino industry’s growth has been slowing down compared to the growth registered by the Française des Jeux and by the online casino industry.

Recently, the French Prime Minister has been asked by the Syndicat des Casinos Modernes to annul national provisions granting the exclusive right to offer gambling services to the Française des Jeux.

A refusal by the French government could trigger a parallel national judicial action in front of the highest administrative court, the Conseil d’Etat, which is not unlikely to give right to the casino sector: in May 2000 the High Court had already expressed its concerns over the ever expanding offer of the Française des Jeux , by referring to the European Court of Justice case-law.

Six years after, with the Française des Jeux now holding an online exclusivity, the High Court should be showing even more concern than back then…

The legal basis

Article 86 of the EC Treaty prohibits Member States, in the case of public undertakings and undertakings to which Member States grant special or exclusive rights, to enact or maintain in force any measures contrary to the rules contained in the Treaty, in particular to those rules provided for in article 12 and articles 81 to 89.

The Française des Jeux, as a public undertaking in a monopoly situation (the French State holds a 72 % share in the company), undisputedly enjoys a dominant position on the offline lottery and sports betting market.

This allows it to abuse its dominant position on another market: the emerging and booming online gambling market, which encompasses all that the gambling industry can offer: lotteries, betting, casino games and much more.

The abuse consists of:

1. the extension of the monopoly’s dominant position to the online market, under permission of the French authorities;
2. the subsequent discrimination operated between casino operators established in the European Union and the Française des Jeux, despite the fact that they are both situated on the same market: the online gambling market
3. eliminating or weakening competition on a neighboring market: the online gambling market;

Commission decisions and European Court of Justice case-law prohibit a firm enjoying a dominant position to discriminate in favor of its own activities on a neighboring market.

Moreover, other secondary law instruments, such as the Directive on competition in the markets for electronic communications networks and services provide that,

“Member States shall take all measures necessary to ensure that any undertaking is entitled to provide electronic communications services or to establish, extend or provide electronic communications networks.”

As the European Court of Justice has decided, Member States have a duty, under article 10 of the EC Treaty, to ensure the fulfillment of the obligations arising out of the Treaty and no to take any measures which could jeopardize the attainment of the objectives contained therein.

One of these objectives, stated in article 3 (g), is to ensure that competition in the internal market is not distorted.

The Commission has thus been asked by the Syndicat des Casinos Modernes to address all appropriate measures:

1. On the one hand, to the French State, which grants the monopoly to the FDJ through legislation (article 17 of a 1978 Act);
2. On the other hand to the FDJ, so that it puts an end to its abusive conduct by amending its internal rules.

The impact of the internet on market (re)definition: the gambling example
Traditionally, casino games and other games such as lotteries and betting - which are offered exclusively in France by the Française des Jeux - belong to different markets.

The French competition authority considers, on the basis of supply side substitution, that casino games, lotteries and sports betting are not interchangeable: for example, traditional lottery games are available throughout the French territory, whereas casino games are restricted to certain (thermal) regions.

The distinction between casinos and games offered by the Française des Jeux therefore rests on a geographical criteria which no longer makes sense when applied to the internet: its de facto cross-border character prevents it in its very nature to be restricted geographically since all games are now available through the same channel of distribution.

This explains why Community law and jurisprudence do not distinguish between different types of gambling services, but refer to “gambling activities which involve wagering a stake with pecuniary value” (eg, Commission proposal for a directive on services in the internal market, e-commerce directive, Schindler, Zenatti, Gambelli rulings of the European Court of Justice).

A French Senate report from 2001(the Trucy report) has pointed out that the evolution of the gambling sector is characterized by a certain number of convergences linked to an increasing competition and the use of modern technologies.

Indeed, online gambling operators converge ever more towards a “one-stop-shop”, to quote the expression used in a comprehensive study conducted by the Deutsch Bank on the online gambling industry: to put it simply, today, online bookmakers offer classical sports betting services as well as casino games (and more).

This fact is even confirmed by the European Lotteries Association, which represents all the national lotteries in Europe.

When considering the demand- side substitution – which is the traditional criteria used by the European Commission for the sake of market definition - , it is striking to see that players now have access on the Française des Jeux website, to games ranging from lotteries to casino games, switching easily from one to another.

Other factors such as online payment and registering, games rules and names, visual presentation, wagers, profit, element of chance all point out to the fact that the games offered online are interchangeable in the eyes of the consumer. If players are wagering smaller amounts of money than offline, the addiction risks are the same whether playing a Française des Jeux lottery or a Casino-on-net game.

What next?

It is high time for the French authorities to acknowledge that the situation faced today by casino operators confronted to the French market is one that distorts competition and harms the achievement of the internal market.

This acknowledgment would be best shown by abrogating the relevant provisions of the 1978 Act which grants a monopoly to the Française des Jeux and/or by amending its internal rules whereby it is exclusively allowed to offer online gambling services to French citizens.

Alternatively, the French government should allow an online casino licensing regime available to all “fit and proper” operators.

If both the French State and the Française des Jeux fail to act, the European Commission would fully play its role of guardian of the Treaty by investigating the complaint lodged by the Syndicat des Casinos Modernes.

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