A year and a half ago, new legislation on the regulation of gambling became effective in the Czech Republic. According to the Ministry of Finance, the body responsible for regulating gambling, the new regulations are a major breakthrough, a modern treatment of the gambling industry with all of its social and economic impacts. The impact of the new regulations and market development may not have had the desired effects, however, and currently there are voices and indications that these changes are in fact having a detrimental effect on the Czech gambling business.
In a recent interview with Pravo, Ivo Valenta, owner of SYNOT, one of the major operators in the Czech lottery and sports betting businesses, said that the new regulations are too strict and the new tax increases are too high, and speculated that they will force some operators to close. Based on the experience of Becker & Poliakoff to this point, such a statement stands on solid ground, since most of the operators experience cumbersome, impractical and lengthy administrative procedures. For example, customers must register both online and in person (offline) prior to being allowed to gamble online. These obstacles are both counterproductive and difficult to overcome. Moreover, many of these rules are not made by legislators; they are instead regulations made by ministerial officials.
In contrast to Mr. Valenta, Czech Minister of Finance Alena Schillerova is of the opinion that the tax income from the gaming industry will be approximately 10 billion Czech crowns (around 386 million euros), an amount similar to the previous year. In future years, she expects tax income from the industry to be on the same level, a statement made without any reference to the information that led to such a conclusion. With regards to tax revenue from the gambling industry, we believe that higher taxation rates will mitigate the impact of operators that are expected to go out of business, and overall income will be more or less on the same level as in the previous years.
Minister Schillerova also cited a decrease in the amount of illegal gambling on the internet, which is perhaps one of the most interesting elements of the new legislation. Prior to the new legislation became effective in 2017, the previous legislation had been criticized by the European Court of Justice, which said the old was against the rules of the internal market, specifically freedom of movement of services. As a result, operators based outside of the Czech Republic were discriminated against. Accordingly, all online gambling services established in the EU but outside the Czech Republic were declared illegal. The new law no longer discriminates. In these terms, it is not a surprise that the minister says that they are being successful in decreasing illegal online gaming operators!
The new rules say that internet gambling shall be deemed to have been carried out in the territory of the Czech Republic if it is even partially focusing on or inter alia targeting individuals residing in the Czech Republic. In other words, operators that are aiming their marketing or other activities in Czechia are considered to be carrying out their gambling operations pursuant to section 5 of the act no. 186/2016 on gambling.
In the end, who is right and who is wrong regarding the trends and the actual market of the Czech gaming industry will likely be known later in the summer, when the annual report for 2017 on gaming in the Czech Republic will be published by the Ministry of Finance.
Stepan Stehlicek is a lawyer at the Prague office of Becker & Poliakoff, a law firm that provides private legal assistance regarding gaming regulation, EU law and technology law among many other services.
