Winning Post: Hungary to break away from Monopoly status
To the surprise of industry observers, Hungary’s parliament will review draft legislations aiming to liberalise the nation’s sports betting market.
Regulus Partners reviews the market clauses proposed by drafts legislations to envision how Hungary’s sports betting regime may take shape post its full monopoly status…
Hungary is one of the few countries remaining in the EEA which has an online sports betting monopoly (along with Norway, Finland, and Switzerland). Unsurprisingly, the monopoly, held by the lottery Szrt has been subject to a number of CJEU cases which have challenged its basis under European law.
The Hungarian government now seems to have relented and is preparing a domestic licensing regime for online sports betting. In some respects, we see this development as progressive and logical. However, while some of the legislative ingredients look appetising, others may prove far less digestible.
Szrt has been offering a highly competitive online sports betting product, Tippmixpro, to complement its land-based-led Tippmix offer since 2012. As well as competitive pricing and an extensive product range, the offer has also benefitted from strong brand recognition due to the ubiquity of Tippmix in retail and domestic sports sponsorships.
While Tippmixpro has done a good job of winning market share in a competitive environment from a commercial perspective, a number of EU-licensed betting operators have continued to service the market given the challengeable nature of Hungary’s monopoly laws. Tippmixpro is also now due launch as a commercial licensee in the newly regulated Slovakian market, which is clearly expansionary and therefore puts more pressure on a protected monopoly position.
A Hungarian decision to offer commercial licences therefore perhaps bows to the inevitable. Probably the single most important aspect of the proposed domestic liberalisation is the mere fact that it recognizes that an online sports betting monopoly is no longer fit for purpose if it is to offer a compelling product (it could after all still be justified if the operating activities of Szrt. were substantially constrained and the safer gambling measures required to run the monopoly were materially increased).
There are four elements of the proposed licensing regime that make sense to us. The first is that there is no prescribed limit to the number of licences; a limit would be difficult to square with EU law (eg, see Germany’s early botched attempts at protective licensing) and would not make sense for a market which is already integrated into an EEA-led offer from a customer perspective (eg, Unibet, bwin, bet365), higher value customers especially already expect choice.
Second, the draft Hungarian legislation expects licensees to have a capitalized value of at least €2.8m (HUF1bn), which ensures a level of scale to be reasonably credible and probably puts off a potentially exploitative and difficult to police long-tail (although this can better be achieved by other means, in our view, having cash is not a proxy for probity).
Third, licensed operators can be based anywhere in EEA, which is not only the easiest position to justify from an EU law perspective, it also makes the most sense from an efficiency standpoint given that Hungary is a relatively small market. Fourth, while the draft Hungarian legislation does not specify the details, it does make it clear that social responsibility will be critical, to be delivered through a blend of localised requirements and international best practice: at a high-level, this is clearly the best consumer protection approach a regulatory body can take, in our view.
However, there are a number of areas of concern for us. Perhaps the least important on its own is that the tax rate has not yet been set, but this could be weaponised as a distortive measure if put on turnover. More seriously, the licences are for sports betting only, with land-based casinos still being the only operators which can offer gaming online. These land-based casinos do not seem to have made much of a dent into the Hungarian .com gaming market, meaning that channeling will remain weak in riskier products and domestic licensees will not be able to offer as compelling a range as .com offers.
The most dangerous clause, depending upon how it gets interpreted, is that licences will only be available to operators which have not accepted customers from EEA countries ‘without a licence’. If this is a straight-up desire to keep out clearly illegal operators, then it is a logical clause but an odd one to headline. If, instead, it is an attempt to block Maltese licensed operators that accept Hungarian players on point of supply basis then it could be much more distortive.
The new Netherlands licensing regime has effectively closed the door on .com operators which have been prosecuted for targeting Dutch players. However, the Netherlands approach is clear and proportionate, in our view, because NL laws on targeting NL customers were clear and enforceable, while the domestic licensing block ensures a compliance window, but it is not permanent. By contrast, current Hungarian law is clearly challengeable rather than enforceable, while the block to licensing appears permanent. Since this would not appear either fair or proportionate, then it too is likely to be challenged if the intention is indeed to ‘punish’ .com operators and protect domestic licensees.
The danger for the potential domestically licensed Hungarian sports betting market therefore is that some operators might be able to gain licenses in a framework that is still open to challenge, which will mean the stated aims of channeling Hungarian customers into safer domestic products would be almost impossible to achieve.
Achieving effective gambling legislation is always about balance. The best way to achieve this balance, in our view, is to objectively weigh up customer protections vs. enjoyment, tax rates vs. distortions, and customer choice vs. the ability to police licensees, all factoring in specific local conditions.
One of the problems facing many, indeed most, European domestic licensing regimes is that changes made to satisfy EU law have not sufficiently factored in the consequences of getting these variables out of balance, leaving a number of self-defeating legislative and regulatory gaps. It remains to be seen whether the new Hungarian approach is the objective result of getting this difficult balancing act right for Hungarian customers, or is an attempt to balance other interests, in our view.
Featured article edited by SBC from ‘Winning Post’ Sunday 13 February 2022 (click on the below logo to access a full unedited version).