The future of gaming in Denmark - the brief version

Publisher: Ministry of Taxation
Copenhagen, April 2001
Translation: David I Barry

MINISTRY OF TAXATION
Service Centre
Slotsholmsgade 12
1216 Copenhagen K
Phone: +45 3392 3392 (8.30-15.30)
Telefax: +45 3314 9105
E-mail: skm@skm.dk

The European consensus

The other European countries, both inside and outside the EU, largely share the principles on which Danish gaming legislation is founded. As a consequence, they also acknowledge Denmark's sovereignty to administer its gaming market as it thinks best.

Gaming is excluded from the Inner Market

In accordance with this view, the EU Commission has hitherto refrained from proposing harmonization of the European legislation in the gaming area. Through a number of rulings, moreover, the European Court has also made it clear that restrictions in the free exchange of services can be justified on the grounds of urgent public considerations. Inner market regulations thus do not apply to gaming.

Gaming legislation under pressure

The balance is threatened

In recent years, it has become increasingly apparent that the Danish gaming legislation has come under both internal and external pressure that threatens to destroy the historical balance between tradition and market forces in the Danish model for regulation of the gaming market.

Internal pressure - fluid definitions

The development on the gaming market over the past 20 years has generally challenged the definition of "gaming". The divisions have become more fluid and a number of fundamental questions have to be re-answered: How do we presently draw the line between gaming and contests? Where is the division between public and private gaming? When is a promotional game no longer a free game, but gaming involving a stake?

Contest or gaming?

The development on the market has tended to circumvent the restrictive gaming legislation by camouflaging actual gaming as contests. In contrast to gaming, contests are solely decided on the basis of special knowledge or special skills.

For example, several newspapers and magazines use a special telephone service that enables a stake to be debited over the phone bill if people want to participate in a contest. It is rather uncertain, however, if the so-called contests really are what they profess to be. This is because the contests are usually based on very easy questions that are often followed by a draw.

Public or private?

The legislative distinction between private and public gaming is in itself one reason why certain areas of the gaming market have developed without any form of regulation.

The gaming legislation permits private associations to organize bingo games, etc. under certain circumstances. Restrictions apply, however, such as that only members may participate. In many cases, though, association Bingo games have developed to truly commercial games open to the public, largely due to the difficulties the police face in controlling the private associations.

Free games

With the spread of the Internet, games have developed over the past two years that are difficult to classify under the existing legislation. For example, are the so-called free or advertising games really promotional games or are they in reality an alternative form of gaming entailing a stake, and which thus requires a permit? The current gaming legislation does not take account of free games - it arose in a society that knew nothing of the Internet's possibilities to finance prizes through the sale of advertising space and consumer information.

Free games
Participation in free games typically requires the player to click on an advertising banner or similar link and provide his/her name and address. The player can also be required to provide further personal information. The free game provider finances his business by selling advertising space on the homepage and consumer information about the players to other enterprises.

Figure 4: The principle of free games.

The need for modernization and unification

The three above-mentioned trends on the Danish gaming market have questioned the continued validity of some of the gaming legislation's traditional distinctions. At the same time, subdivision of the gaming legislation between three ministries has hindered consistent and coherent interpretation. As a consequence, certain areas of the market have run wild.

The multifarious Danish gaming legislation
The Danish gaming legislation needs to be unified: Much of it is based on legislation from the mid 19th Century and is administered by three different ministries.

Figure 5: The Danish gaming legislation.

External pressure - the Internet

With the spread of the Internet, the Danish model has also come under external pressure from the increasing provision of illegal games to Danes via the Internet. One of the key gaming policy issues of the future is thus whether it will remain possible to control the Danish market if Danes increasingly choose to gamble over the Internet.

A gateway to a global market

For Danish gamblers the Internet represents a gateway to the global market. Night and day, the Internet provides the gambler with immediate unlimited home access to roam a 24-hr global gaming market that never sleeps.

E-trade sets the pace

Few Danes are believed to gamble over the Internet at present. As the number of Danes who "e-trade" increases, however, the number of Danes who gamble over the Internet is also expected to increase.

The risk of losing control

Globalization of the Danish gaming market via the Internet poses a considerable risk that Danish society will lose control over the Danish market. This is because the Internet also provides foreign gambling companies with a gateway to the Danish market.

Foreign gaming companies

Foreign gaming companies have hitherto been impeded by the trouble of having to receive stakes from Danes by telephone or telefax. With the Internet, however, the Australian or the Caribbean gaming company on the other side of the world has suddenly been provided with the technical possibility to operate on the Danish market to an extent that was previously unthinkable. The new possibilities have to be viewed in the context that gambling is the perfect digital service: The whole product -like music on a CD - can easily be transferred to Danish homes via the Internet and at very low costs.

A collision between different regulatory models

Globalization of the market via the Internet not only means elimination of the distance between markets, however. Thus it also means a collision between states like Denmark who oppose opening of the markets and states like Australia who view the arrival of the Internet as a possibility for their gaming industries to export to the rest of the world.

Is control possible?

The key issue is whether it is even possible to control the Internet gaming market given that regulations cannot be enforced on unlawful gaming companies located in such places as Australia or the Caribbean Islands. The first signs of globalization of the Danish gaming market thus face the Danish state with a control task of hitherto unknown proportions.

Reform of the gaming legislation

Reform is necessary

The uncontrolled growth of the gaming market and the threat of gaming market globalization due to the Internet necessitate a reform of the Danish gaming legislation.

Legislative uncertainty

The present complicated and disunified legislation makes it difficult for both gamblers and companies to know which authority is responsible for informing, advising and ruling on specific gaming issues.

Better control

The threat of globalization of the gaming market over the Internet and the general acceleration of development on the gaming market have also enhanced the need for unified and coherent control efforts.

Unification, modernization and simplification

The key item on the gaming policy agenda of the future is therefore unification of the legislation into a single Regulation of Gaming Act and a single Gaming Duties Act under the Ministry of Taxation.

A unified regulatory act

The report proposes a unified Regulation of Gaming Act under the Ministry of Taxation that will integrate the existing legislation as well as introduce new ideas aimed at modernizing and simplifying the regulations as best possible and facilitating strengthened control of the market:

• In order to ensure overall control of the whole of the gaming market a unified regulatory act should encompass not only games involving a stake, but also promotional games
• The act should not encompass contests such as stock market games or sports activities such as bowling, where the outcome depends solely on the participants' knowledge or abilities. It is emphasized, though, that a contest should be treated as gambling if the winner is determined by a draw or the suchlike.
• In view of the development of alternative forms of stake, the definition of a stake should be extended to encompass not only money but also goods and services.
• Due to the problems with controlling that part of the gaming area operating in the private sector, the act should encompass all games irrespective of whether they take place publicly or in private clubs and associations. However, it is not intended to control gaming that solely takes place in private homes only involving family members and possibly also close friends.
• There do not seem to be grounds for regulating small games such as typically run locally by associations to the same extent as games run on a larger scale at the national level. The report therefore recommends the introduction of a triviality limit in respect of certain small games run by public benefit organizations.
• In order to hinder growth of the very large promotional games and free games a limit is proposed on the size of the total prize sum in free and promotional games.

A unified Gaming Duties Act

The proposal for a unified Gaming Duties Act under the Ministry of Taxation aims to fulfil the traditional objective that gaming should not generate private financial profits of any great magnitude. The profit thus has to be distributed to charitable and public benefit activities and/or go to the Treasury in the form of duties:

• The current duties and distribution schemes applicable to the state gaming agency Dansk Tipstjeneste Group should be maintained such that the Group pays a duty of 30% of the gross gaming revenue on all its games.
• The public benefit lotteries "Varelotteriet" and "Landbrugslotteriet", the lotteries run by charitable organizations and the Danish state lottery "Klasselotteriet" should all be exempt from the duty provided that public control ensures that the whole profit is used for charitable and public benefit purposes.
• In the case of games for which an actual stake revenue cannot be calculated, i.e. promotional and free games, duty should be introduced on the prize sum.

A national Internet strategy

The Internet does not just represent an opportunity for a better and more varied selection of games on the Danish market - it also entails the risk that society may lose control of the market. The report therefore proposes that the Government and Parliament adopt a special Internet strategy in the gaming area.

Figure 6: The 4 elements of the Internet strategy

The provider cannot be punished

At present it is not possible to punish foreign providers who illegally direct gaming opportunities at Denmark via the Internet. The prohibition on unauthorized provision of gambling in Denmark simply cannot be enforced in these cases.

The providers' Achilles heel

The illegal providers of Internet games in Denmark have an Achilles heel, however - they are dependent on Danish banks for processing credit card payments on behalf of the international credit card companies such as VISA, credit cards being the preferred means of payment on the Internet.

Payment blocking

As the report documents, Danish banks are presently technically able to block certain credit card payments. The report therefore proposes giving the authorities in the gaming area the powers to impose an enforceable ban on the processing of credit card payments to certain Internet homepages. Systematic blocking of payment transactions to illegal foreign gaming providers would considerably curb sales to Danes by illegal foreign providers.

Illegal links

It is also stressed that the existing ban on the provision of illegal games applies not only to payment, but also to the renting out of server space and the display of links to illegal gaming homepages.

Danish games on the Internet

Dansk Tipstjeneste Group, the Danish state lottery, the two public benefit lotteries and the charitable organizations should all be permitted to run their national games on the Internet. If contrary to expectation it proves impossible to retain national control of the gaming area in the long term, Danish game providers need to be well prepared for the competition from foreign Internet gaming.

International negotiations

With the appearance of a global and largely illegal gaming market, gaming will also become an issue for the international trade organizations. In cooperation with other European countries in particular, Denmark should use fora such as the OECD and WTO to apply pressure on countries such as Australia who fail to prevent authorized gaming providers from targeting their sales at countries like Denmark. In this connection, considerable importance is accorded to the fact that the USA also opposes liberalization of the national markets.

Monitoring, information and certification

The central gaming authority (see below) will have to monitor the Internet gaming market in order to ensure a qualified foundation for advising the Government and Parliament. It will have to carry out information campaigns about the risk of Internet gaming and will have to certify the homepages of Danish gaming providers with links to the authority's homepage, which will also function as the gateway for the Danish Internet games.

Establishment of a central and specialized administrative unit

With unification of the existing gaming legislation, the resources and responsibilities of the current gaming authority will have to be extended correspondingly. The Gaming Authority presently only controls the market for gaming machines. In future, the Gaming Authority will become the central authority for the whole of the gaming market, as well as the most important advisor and information organ for the Government, Parliament and the public.

The four main responsibilities

The future responsibilities encompass both traditional administrative responsibilities and completely new control responsibilities arising from the threat of globalization of the Danish Market via the Internet.

Figure 7: Future Gaming Authority responsibilities

A high level of security

The Gaming Authority's most important responsibility will be to ensure a high degree of security for all forms of games through the authorization and control of providers. The Gaming Authority will also have the power to rule in all cases of doubt as to whether an activity is either gaming, a contest or a promotional game. As is presently the case, it will be possible to appeal the Gaming Authority's rulings to a Gaming Commission.

The Gaming Authority and the banks

The Gaming Authority must establish close cooperation with the Danish bank clearing houses. Based on monitoring of gaming homepages on the Internet, the Gaming Authority will decide to what extent foreign providers infringe Danish legislation by targeting sales at Denmark. In cases where foreign providers are found to infringe Danish legislation, the Gaming Authority will inform the Danish clearing houses of the provider name and address. The banks will thereafter be able to block payment transactions to the illegal gaming providers. The cooperation with the banks is vital for future control of the Danish gaming market.

International regulatory cooperation

The Internet is not only synonymous with the threat of globalization of the market. It also represents the chance for global and rapid exchange of information and assistance between gaming authorities. In line with the wish for a visible Danish profile in the international community, the Gaming Authority should actively participate in the international regulatory cooperation that is currently under development.

An independent unit

In order to provide the Gaming Authority with an independent profile, the Gaming Authority should be established as an independent administrative unit under the Ministry of Taxation. This will ensure clear differentiation between the supervisory authority and the taxation authority, which would enhance acceptance of the authority. The operational costs should be financed through user charges.

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