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The recent developments in the Italian gambling market opened up new opportunities both for online and land-based operators that are matched with more attractive fiscal and licensing rules. New gambling laws in Italy are making the country one of the most attractive destinations for gambling operators in Europe.
The Italian gambling market has been the subject of a long and troubled liberalization during the past few years. Indeed, Italian criminal laws prohibit any kind of gambling activity and, up to the beginning of this century, there only existed 329 horse-betting agencies in addition to the current four Italian casinos set up as a consequence of a law in derogation of criminal provisions.
In 2000, the number of horse-betting agencies was increased up to 1,000 and, for the first time, an additional 1,000 licenses for sports betting shops have been awarded. Subsequently, license holders have been authorized to upgrade their initial horse-betting or sports-betting shop licenses to online licenses, with the consequential launch of the first online betting websites in the country.
However, the takeoff of the Italian gambling market occurred in 2006 with the award of the so-called “Bersani” online and offline gambling licenses. Indeed, most of the main foreign operators decided to enter the Italian gambling market from 2006 onward, while some other operators challenged the compliance of the Italian gambling regime before local courts and the European Court of Justice.
Italian criminal laws only allow operators holding an Italian gambling license to offer and advertise games to the benefit of people located in Italy, thus compelling operators licensed in other EU member states to apply for a local license. The ECJ was questioned on the compliance of such a regime with the EU principle of the freedom to provide services in several instances. Notwithstanding the different approaches adopted in the Zenatti, Gambelli and Placanica decisions, the ECJ always reached the conclusion that it was up to the member states’ national courts to decide whether there were overriding reasons relating to the public interest justifying an exception to the EU principle.
Despite the fact that the Italian gambling regime has been repetitively challenged, the Italian Gaming Authority (the AAMS) has not changed its approach, but on the contrary it increased inspections on amusement machines located in gaming halls, identifying and seizing thousands of illegal machines, and implemented filters blocking the access to non-licensed websites by Italian residents—forcing online operators to obtain an Italian gambling license if they intend to target the Italian market.
This conservative approach, however, ended up being successful because, following the launch of online skill games and tournament-based poker in 2008, Italy became the first European gambling market in terms of turnover, according to recent research. Furthermore, the 2009 earthquake in the center of Italy encouraged the Italian government to plan the launch of new types of games to raise the funds necessary for the reconstruction of the affected area. This plan is now offering new business opportunities in both the offline and online markets.
The biggest change in the Italian offline market is represented by video lotteries. In a country where there are only four “real” casinos, and criminal laws prohibit the establishment of new casinos, we will see from mid-June 2010 the opening up of a considerable number of “VLT casinos” (i.e. gaming halls where VLTs will be located), where the current 10 licensees will be entitled to install up to 56,697 VLTs able to award prizes up to €500,000.
To understand the potential size of this market, it is sufficient to mention that investments of over €2 billion are expected to be made in the VLT sector during the start-up period, generating yearly revenues for operators and entries for the government higher than €1 billion and more, and more investments are expected in 2011 from additional licensees.
These figures and a relatively friendly tax regime show the potential of VLTs in Italy, which will be installed only in bingo halls, betting shops and gaming halls according to the decree regulating the sector that—on the contrary—did not prescribe any limitation as to the areas where VLT casinos can be located.
This circumstance has led to considerable complaints from “real” casino operators, who are worried about losing a substantial number of players to VLT casinos closer to their home towns who currently have to drive thousands of kilometers to reach the four properties, all in northern Italy, or the casinos located close to the Italian borders.
The Italian VLT market can become a very attractive target for:
- machines and game manufacturers and suppliers;
- casino operators; and
- providers of services connected to VLT casinos (i.e., hotels, restaurants concerts, etc.).
Indeed—as confirmed by the recent deals between gaming machine manufacturers and licensees—it appears that the current VLT licensees are mainly looking at foreign VLT suppliers coming from markets like the U.S., where VLTs are very common, to furnish Italian VLT casinos. Likewise, since there are so far only four “real” casinos in Italy, VLT licensees do not have the expertise necessary to run VLT casinos—which in their minds will have to recall the look and feel of traditional casinos—and therefore are hiring foreign casino managers and entering into agreements with foreign casino operators.
Moreover, VLT licensees are developing franchising formats to be reproduced all over the country, coupling them with additional services (hotels, restaurants, concerts, etc.) able to better host tourists that will have a further reason to visit Italy.
Also, the launch of VLTs might boost the Italian offline bingo market, which has faced a crisis recently. The more friendly tax approach adopted by the Italian Gaming Authority in relation to bingo, and the possibility to install VLTs in gaming halls, could indeed represent a good opportunity for the rebirth of bingo in Italy. And this opportunity might be further increased by the upcoming adoption of the regulations on live poker. Live poker is currently prohibited in Italy, but new regulations are expected shortly, and bingo, VLT and poker operators are looking forward to it.
After a wait of more than nine months, the Italian Gaming Authority finally issued the decree regulating online poker cash games and casino games at the beginning of March, after the launch of online bingo in December 2009. These new games are expected to represent one of the greatest developments in the European gambling market in 2010. According to market analysis, the launch of only poker cash games and casino games will generate a turnover of €5 billion and €3 billion, respectively, in 2010.
The new decree provides that:
- licensed operators will need to go through a technical authorization process in connection with their gambling platform and with each game they intend to offer;
- the gambling tax applicable to poker cash games and casino games will be 20 percent of the revenues (i.e. turnover net of amount returned to players);
- at least 90 percent of the amount collected from players shall be awarded in prizes; and
- the maximum initial stake in connection to each gambling session shall not be higher than €1,000.
Also, the decree increased the maximum buy-in for skill games (including tournament-based poker games) up to €250, and allowed the organization of multi-level tournaments where the winner of a gambling session (for example, a qualification tournament) is obliged to invest the win as a buy-in for the subsequent gambling session (for example, the final tournament).
Perhaps the most relevant change introduced by the decree concerns the tax regime applicable to poker cash games and casino games, which is now based on the revenues generated by gambling operators, while the previous regime was based on turnover. This change shows a more tax-friendly approach by the Italian Gaming Authority that—after having been considerably criticized by foreign operators in the past—has now been recognized as a forward-looking authority.
This is also confirmed by the fact that the technical requirements with which licensed operators need to comply greatly take into account social responsibility and fraud prevention matters, making the Italian gambling market a better environment for operators and players.
This development is likely to encourage more and more operators to enter into the Italian gambling market. Such a decision will also be made easier by the fact that the decree regulating the issuance of new Italian online gambling licenses—expected to be issued shortly—will allow operators to locate their legal seat and equipment in any country of the European Economic Area and in any other country (for example, the Isle of Man, Alderney, etc.) that agrees to enter into bilateral agreements with the Italian Gaming Authority.
Under the old regime, on the contrary, the operating seat and the servers of the operator had to be located in Italy. This means that licensed operators will only be obliged to pay Italian gambling taxes, while they will pay the corporate taxes of the country where they are established (for example, Malta or Gibraltar).
Also, the recent decision by the European Commission to close all the disputes against the Italian licensing regime, as a consequence of the forthcoming decree regulating the issuance of new Italian online gambling licenses, and the adoption by other European countries (e.g., France) of a licensing model based on the Italian style are further confirmation that the approach adopted by the Italian Gaming Authority was well grounded.
The increase the Italian gambling market’s turnover generated by licensed operators is likely to be accompanied by the implementation of more stringent measures to block the offer of games by operators who do not hold an Italian gambling license.
In fact, the current filters adopted by Italian internet service providers block only the domain name of non-licensed operators, obliging the Italian Gaming Authority to repetitively update the blacklist of non-licensed websites. However, blocking the IP addresses of such websites will be a more effective measure, and this measure has been urged for a long time.
Therefore, if operators want to enjoy the benefits of the Italian gambling market, they will have to abide by the laws.