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New Czech Lottery Act (2012)

9 February 2012. Since 1 January 2012 a new Czech Lottery Act came into force. How does it change a life of an ordinary player, but also online business of foreign betting companies? The act is highly controversial from many angles. To support this statement let us have a look at the act through pro-arguments and counter-arguments.

Changes in Legislation

First of all let us summarize the biggest changes. The amendment to the Czech Lottery Act (2012) particularly outlaws the foreign betting companies (even if they are based in EU countries) that conduct online business in the Czech market. More precisely said the Act bans to operate gambling and lottery games by companies without a license issued by the Czech Ministry of Finance.

However the legislation does not allow the foreign companies to get the license. Their business is based on online environment and the act forces them indirectly to establish a stone shop in the Czech Republic. That is certainly against their business model, but especially against the European Law that guarantees free movement of goods, services, capital and money.

The new legislation also forbids promoting the foreign betting companies. It is a great complication for local sport clubs that are sponsored by the foreign companies and generally it makes already tough sport financing even tougher. It also raises a number of uncertainties and concerns. Will the TVs have to blur the logos of the betting companies on Real Madrid shirts during a live event? If we wear a shirt or a baseball cap are we going to be fined for illegal promotion? According to the strict diction of the act it is possible.

The third serious change, brought about by the new Lottery Act 2012, is a listing of Poker among gambling (or lottery) games and thus under the regulation. What does that mean? Since the beginning of the New Year it is allowed to play poker legally only at a provider licensed by the Ministry of Finance.

To get the license you need the capital of 100 million Czech korunas (about $5 million). Thus smaller poker organizers are out of play as well as playing over the Internet on the foreign companies' servers. According to the strict diction a player who connects online from his home and plays poker online may be fined up to 10 million Czech korunas ($2 million).

New Lottery Act Pro- and Counter-arguments

The question is why the legislation in this shape came into being. You can guess that the lobby of the local betting companies must have played its part, but let us have a look at some arguments of the policy makers that led to the ban of the foreign companies as well as poker. Most of them, we assume, will not stand.

Argument: It Is Gambling and Thus Can Be Regulated

Yes, that is true. Even the European Union admits this right to the member countries. However it has many "buts".

Counter-argument: Regulate, But Not In a Discriminatory Way

The European Union also orders that a country cannot conduct regulation in a discriminatory way. It is not possible to "protect" the Czech citizen selectively from the gambling from the foreign betting companies and at the same time promote gambling with the local companies. The promotion should be banned or allowed for all without exceptions.

Argument: No Tax Revenues from the Foreign Companies

That is true too. The state tries to limit their advantageous business (even though it is in conflict with EU law) as it gains nothing thereof. However, is this necessary, isn't there a way beneficial for both parties?

Counter-argument: We Want to Pay Taxes, Make It Possible For Us

The foreign betting companies claim that they want to pay taxes in the Czech Republic, but they do not want to give up their online business model. The new Lottery Act makes it virtually impossible for them to get the license. To force the foreign companies to set up stone shops in the Czech Republic and to move their servers therein too is the same like asking the Belgian brewery Stella to plant hops and move their breweries in the Czech Republic. Even though this last example might be a bit illogical as Czech beer belongs to the top of the world.

A very strong counter-argument was provided by a recent study of PricewaterhouseCoopers. According to it the liberalization of the Czech gambling market would raise the tax revenues by about 1.5 billion Czech korunas ($75 million) in the following five years. Thus twice as much should the market stayed closed.

Argument: Gambling Market Liberalization Is Politically Impassable

This argument echoed by the Ministry of Finance.

Counter-argument: Let People Decide

Let the voters to decide what is politically passable or not, whether they want higher incomes of the state budget, or whether they want to be protected from Poker or make they own free decision whether to play it or not. The second argument is: we are a part of the European Union that stands (or should stand) on the principles of free movement of people, capital, services, rulings etc. Then is there any other way, but to liberalize the market?

Argument: The Foreign Companies Have Competitive Edge

That is meant in comparison with the domestic companies, as the foreign betting companies pay no taxes in the Czech Republic. And also that they pay very low taxes in tax paradises such as Malta.

Counter-argument: This Is Global Business and Free Market

The Czech companies are not content with unwelcome foreign competition. However it is always a customer or a consumer who benefits from the competition and thus the Czech citizen. And this holds true not only in gambling, but in the whole economy. Limitations of the free market will always prove to be ineffective, sooner or later. Protectionist policies applied during the Great Depression in 1930' only prolonged and deepened the suffering.

Gambling Industry Is a Business Like Any Other

Gambling industry is an entrepreneurship like any other and playing of gambling games is, may it be a bit curious for some people, just a way of entertainment. Critics point out pathological gambling, disintegration of families etc. That is a big issue, there is no doubt about that. However every addiction is more or less problematic: drugs, alcohol, tobacco, (unhealthy) food, caffeine, computer games, facebook etc. The vast majority of people can resist. The issue of the new lottery act lies in limitation of personal freedom and its discriminatory nature, otherwise the state should take the same action against alcohol, tobacco etc.

Benjamin Franklin: "He who sacrifices freedom for security deserves neither."

Should a citizen be prevented from playing Poker online, for instance a $1 buy-in tournament, at home, threating no-one including himself? Popularity of Poker booms around the world. We have a Czech player, Martin Staszko, who made us famous by his 2nd place at the WSOP 2011. What about the players who want to play Poker and practically out of the blue they cannot? Is it safer to play at home illegally or go to a casino and play there legally? Moreover, there is no existing alternative for a Czech Poker player and the question is whether there will be as the Czech market is to small to secure online playing 24/7.

We can easy it a bit by a quotation from the silver screen: don Corleone of the Godfather Part I considered gambling and women to be something people want anyway.

If we applied the same discriminatory rules for other, let us say, more risky activities in terms of life style, we would have to ban promotion of foreign spirits and tobacco producers, force them to set up a factory or a plantation in the Czech Republic, ban import from the countries with lower taxes etc. Would it be useful to set clear rules for all entrepreneurs, amend Poker income taxation etc.? That would do well for both players and state budget.

Winners & Losers

In the end a recapitulation of who benefits and loses with the new Czech Lottery Act.

Winners

  • Czech betting companies
  • Politicians and allied interest groups

Losers

  • Foreign betting companies (at least for now)
  • State budget revenues
  • Sport clubs, support of youth
  • Small poker rooms
  • Poker players
  • Personal freedom

Czech Republic to Open the Lottery Market (2013-03-14)

Source: the original Czech article Loterijní zákon 2012.

 
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