The slow death of grey markets in Europe and the increasingly clear line between regulated spaces and the black market is set to divide the entire industry in two, including suppliers.

With almost all major European markets having adopted or being well on their way to enacting a full licensing regime for online gambling, the battle lines between what is on- and off-shore are clearer than ever.

For those nations that persist with restrictions on some sectors, like the continued monopoly in Norway or France’s ban on online casinos, it’s becoming nearly impossible to justify doing business in spite of these prohibitions – even for suppliers.

Regulators in the rest of Europe increasingly expect their licensees to follow not just their rules, but those of their fellow authorities across the continent.

Where once expectations of good behaviour were reserved exclusively for operators, B2B companies are now subject to the same scrutiny.

For the past few years, there has been a general building of pressure on suppliers, but this year B2B compliance has moved from a growing trend to become the status quo for the sector.

Where do you stand?

The industry is being asked to pick a side and even to play the role of regulator itself, in some cases.

“We understand that at least one piece of recent B2B regulatory enforcement [in the UK] may have come as a result of a B2C operator effectively reporting one of its suppliers,” said Andy Danson, the head of Bird & Bird’s international gambling practice.

It’s becoming clear that a meaningful percentage of operators have fully bought into the idea that those who continue to exist in European black or grey are threats to their bottom line.

Speaking on a recent webinar organised by his firm, Danson added: “There is an increasing use of commercial pressure and accountability alongside regulatory enforcement, and there is this growing expectation that licensed businesses consider who they support.”

Danson notes that, in his view, the burden on operators to self-police their industry is probably becoming too large.

“How much can a regulator really expect B2C licensees to regulate their suppliers? It is ultimately the regulator’s job to do that, and B2C really should be able to rely on their suppliers having a local license.”

This backwards pressure is also being exerted on suppliers in jurisdictions where they are required to obtain their own licenses.

Regulators expect suppliers not to sell their content to operators who service their local black market and look dimly on supplying companies active in illegal markets in any part of the world.

Gone are the days when these authorities would accept the excuse that aggregators are ultimately responsible for providing game content to these offshore operators. Instead, suppliers risk enforcement if they do not have oversight of the entire supply chain their products exist in.

Dealmakers

This pressure coming in from every angle leads to only one inevitable conclusion: M&A activity.

As suppliers are forced to choose either to abandon their high profit margin offshore clients or their reliable onshore customers, the possibility of dividing into two parts becomes more and more compelling.

“I think businesses will very likely look to separate and restructure, particularly where they currently have a real mix of regulated and unregulated market activities,” said Danson.

“We certainly saw similar trends five to ten years ago when the regulatory focus on this sort of issue was more on the B2B side,” he added.

This move would be driven partly by modern regulatory complexities, but also the impact of US investors entering the gambling market more prominently over the past five years.

US-based capital tends to be more skittish about any activity with uncertain regulatory backing and its law enforcement authorities are not shy about exerting their authority extraterritorially.

“International market exposure is becoming more and more relevant in an investment and M&A context,” Danson confirmed.

A dilemma

Those gambling businesses choosing the regulated environment are at least finding their authorities more willing than in previous years to take proactive action against the black market.

In the UK, the Gambling Commission has received a grant of £26m from the government to step up its work against illegal online gambling, for example.

Regulators are also understood to be sharing more information than ever before about the main bad actors afflicting their markets, through organizations like the Gambling Regulators Europe Forum (GREF).

Although it’s worth noting that officials also say they are swapping notes on the activities of their licence-holders as well, in yet a further example of international compliance becoming a local issue.

This, along with an atmosphere of zero compromise when it comes to tightening regulations, has created a situation where the choice between on- and off-shore is not a simple one.

Andy Danson summed up the problem: “By creating an environment which has become so burdensome and challenging for regulated markets to operate, and then challenging operators and suppliers to pick a side, regulators perhaps shouldn’t be all that surprised when some operators out there might not necessarily choose the side that they want them to.”

The post European Online Gambling Industry Faces Tough Offshore Choice appeared first on Eastern European Gaming | Global iGaming & Tech Intelligence Hub.

With Bill 55 on increasingly shaky ground amid a transitional era for online gambling, what does the future hold for Malta’s point-of-supply industry?

This week has seen the EU heap yet more pressure on Bill 55, a defensive measure introduced by the Maltese government to hold back a tidal wave of player refund lawsuits that could cost the industry hundreds of millions of euros.

Players in Austria and Germany have been able to successfully argue in court that they should be repaid all money lost to operators that offered gambling in their countries without a local licence. The cases stand to erase years of grey market earnings at many operators.

Bill 55, which in June 2023 became an official amendment to the Malta Gaming Act under the title Article 56A, allows judges to reject court rulings from other EU nations if they threaten the economic security of the island’s gambling industry.

It has served Maltese operators well since it was enacted, effectively blocking lawyers from passporting claims from Austria, Germany and elsewhere to the location where operators are legally headquartered, in order to force them to pay out.

This has triggered an international legal wrestling match, now being fought via a series of cases at the Court of Justice of the European Union (CJEU), the EU’s highest judicial authority.

So far, the judgements and opinions issued have not made comfortable reading for the Maltese industry or its regulatory officials.

Earlier this month, the court appeared to settle a longtime debate on which the entire premise of Malta as an offshore hub is founded. Judges said that the freedom to provide services within the EU does not allow for operators to ignore local prohibitions on certain types of gambling.

That was followed this week by an Advocate General (AG) advising judges that if they were to consider the legality of Bill 55, it should be struck down.

It also reaffirmed the court’s dim view of gambling as a cross-border service.

As the opinion put it: “Under the current state of EU law, Member States are under no obligation to recognise gambling licences issued by other Member States. Accordingly, a Maltese gaming licence is, in principle, valid only in Malta.”

This opinion is only advisory, and is unlikely to amount to anything in this particular case (C-683/24) because the AG also recommended that the case as a whole should be ruled inadmissible.

But this is just one in a handful of similar issues being considered by the CJEU and the more time that passes, the greater the pressure appears to be on Malta and Bill 55.

The EU is also taking a tandem approach: The European Commission, the EU’s executive arm, has itself opened an investigation into Malta and the legality of Article 56A and has indicated through its own statements and submissions to the CJEU that it considers the provision to be against EU law.

New tactics needed?

All of which leads to several difficult questions for Malta and the many gambling companies based there.

The first is a defensive issue: With Bill 55 on the ropes, how will the nation prevent the many operators who call its islands home from being stuck with a huge refund charge?

Work is already underway to mount a new defense. The tactic uses the same inspiration as Article 56A, which argues that allowing the foreign court judgments that demand large payments from operators would seriously damage the Maltese economy and thereby upset its “public policy”.

The EU principle, also known as “ordre public”, allows for member states to make legal exceptions in order to protect their society.

In a pair of new cases addressing transferred player refund claims from Austria, Maltese lawyers have argued, without reference to Bill 55, that granting the payment orders would upset the nation’s public order.

These two cases are a clear attempt to establish that, even without any specific Gaming Act amendments, the principle of ordre public protects Maltese gambling firms from having to pay up.

The problem is, the CJEU may have seen this coming.

“The fact that the enforcement of certain judgments may entail serious economic consequences for a national operator, an industry or even the Member State addressed does not justify recourse to the ‘public policy’ clause,” reads the recent AG opinion.

Although lawyers in Malta insist that the AG’s comments should be taken only to refer to Bill 55.

Meanwhile, lawyers fighting to recover refunds believe that cases like these, which have already been appealed, will themselves wind up in the CJEU and at least buy more time for Malta before payouts need to be made.

A new kind of industry hub?

Perhaps the more fundamental question is what Malta offers as a gambling hub over the next decade.

It’s been apparent for some time that the value of a Maltese licence is degrading, through no fault of local authorities.

As European nations gradually switched on their own licensing models, operators have needed to collect local approvals.

Even where nations have clung firmly to monopolies, like in Norway, authorities have also become more effective in enforcing against offshore operators who offer into their territories.

The clear trend of the CJEU also indicates that arguments based on the freedom to provide services are practically finished.

In face of this reality, regulators and business leaders in Malta are looking further afield. Maltese law firms have appeared in locations as far afield as the UAE and Taiwan in recent years, as they look to advertise the nation’s status as a centre of iGaming excellence to emerging online gambling markets.

Leaning into the density of online gambling expertise is also an increasingly important strategy for those looking to attract investment to Malta.

The reason that the industry flocked to Malta in the first place may no longer be relevant, but it’s still the case that two decades later the nation boasts a greater concentration of industry talent than in any other European nation.

There’s also been an increased focus on suppliers, which typically have lower local compliance overheads and more ability to run their businesses remotely from the territories where their content is used.

Although this sector is increasingly subject to local licensing, as well as new compliance burdens designed by regulators looking to drive a wedge between on- and offshore online gambling markets.

Change is inevitable

Malta has demonstrated its ability to adapt and survive, but there’s little denying that the nation’s gambling industry has never been more under siege than it is now.

After decades of growth and success, new ideas are needed to steer the sector into a new phase.

The success with which it emerges from the Bill 55 era will have a dramatic impact on Europe’s online gambling sector and beyond.

The post Malta faces new dawn as EU courts gather strength appeared first on Eastern European Gaming | Global iGaming & Tech Intelligence Hub.

Prediction markets have established a stable, if highly controversial, regulatory niche in the USA and are reaping the rewards from sidestepping traditional gambling markets. So what about Europe? Early signs suggest that any path to success will be significantly more complex.

Over the past 18 months, prediction markets have completely upended the gambling ecosystem in the United States. The likes of Kalshi and Polymarket have gone over the heads of the state regulators to offer a nationwide betting-like service without the need to acquire numerous state-managed licences.

Billing themselves as an alternative financial product, rather than a betting platform, prediction markets are regulated in the US by the Commodities Future Trading Commission (CFTC).

Using these platforms to make a forecast on the Superbowl, operators argue, is no different than risking money on the fluctuating price of corn or whether Disney stock will fall in a week’s time.

That viewpoint has the backing of none other than US President Donald Trump, whose administration has given clear approval to the sector, much to the outrage of the many online sports betting operators still toiling under the various regulations imposed by individual states.

Not such a warm welcome

Europe, however, looks to be a less friendly playing field.

This week, the Netherlands Gambling Authority (KSA) issued Polymarket with a cease and desist order, and a threat of weekly fines of €420,000 if it did not withdraw from the Dutch market.

The authority said that the predictions giant had been offering markets on last year’s Dutch election and ensuing coalition negotiations, which have now ended the appointment of Rob Jetten as Prime Minister.

“Although Polymarket itself states that prediction markets do not fall under the category of gambling, the KSA has taken a different stance,” the regulator said.

“After contacting the company about its illegal activities on the Dutch market, there has been no visible change, and the offering remains available.”

As of the time of publication Polymarket now lists the Netherlands among the group of territories where it says trading is prohibited.

The other European markets where Polymarket declares it will not accept wagers are Belgium, France, Germany, Italy, Poland, Russia and the UK.

Kalshi provides a similar list, which includes Ukraine, Switzerland and Hungary.

That leaves large swathes of Europe available for these companies to operate in, but the status of those operations is unclear at best.

Unlike the US, there is no backing from the EU-level financial regulators for prediction markets. To date, Brussels has not seen fit to comment on the sector at all.

While some legal experts have argued that predictions operators will be able to work in the same sort of legal grey area they enjoy in the US, others are less confident.

“Any other gambling jurisdiction [apart from the US] would regard prediction markets as gambling,” said David Zeffman, head of gambling at London law firm CMS.

Polymarket did not responded to a request for comment on its KSA enforcement by time of publication.

UK sends a message

Although the UK now marches to the beat of its own regulatory drum post-Brexit, there may still be some clues for the rest of Europe in the way that the Gambling Commission (UKGC) has chosen to approach the sector.

In a statement released earlier this month on whether predictions markets are allowed in the UK, the conclusion is very clear: These are just betting exchanges.

“If a prediction market operator was to launch here in Great Britain, we do not believe they would be able to classify themselves as non-gambling products,” said Brad Enright, the commission’s director of strategy.

If Polymarket, Kalshi or another similar company wanted to operate in the UK, it would need to acquire what the regulator calls a “betting intermediary licence”.

“Their core aspects are akin to what in the UK would be described as a ‘Betting Exchange’,” concluded Enright.

Even if prediction markets could successfully argue that they are more akin to financial products, David Zeffman of CMS told EEGaming that this would not create any room to manoeuvre.

“As far as the UK is concerned, it’s either gambling (and then falls under the GC’s jurisdiction) or it’s a financial instrument (and then falls under the FCA’s jurisdiction) – I don’t think there’s any gap between these,” he said.

Didn’t we already do this?

This characterisation of prediction markets as betting exchanges matches what several industry veterans have been saying for some time. Particularly those with long memories, who recall the arrival of Betfair over 20 years ago and the revolutionary effect it had on the market.

The ability to lay bets against another gambler proved to be extremely compelling and Betfair eventually became part of what is now industry giant Flutter.

However despite its originality and impact, time has shown that traditional bookmaking is significantly more popular.

Figures from the Gambling Commission for the 24/25 financial year show that exchanges accounted for just 3.9 percent of the online betting market, compared to 95.3 percent for standard bets.

In the current early days of prediction markets in the US, they do seem to be taking a bigger slice of the pie.

Analysis by the Financial Times suggests that Kalshi is generating annual sports wagering revenues of around $1.3bn, compared to the total US sports betting market of $14bn.

In a strange circular twist of fate Flutter and its chief rival DraftKings have abandoned their allies from the US casino industry and signalled plans to open stateside prediction markets of their own.

But despite their growing status in the USA, precisely how much grey market grace prediction markets can enjoy in Europe is uncertain, but so far the European regulatory response seems significantly colder than the warm embrace of Trump’s America.

The post Soaring US Prediction Markets Face Tougher Road In Europe appeared first on Eastern European Gaming | Global iGaming & Tech Intelligence Hub.