New rules to clampdown on gambling industry or just move it online

Photo: Barbora Kmentová

There is no doubt that the gaming or gambling industry is worth tens of billions of crowns in the Czech Republic. New moves from the government seek to curb it and put it under better control. But many gambling companies say stricter regulations will just speed up the movement of most of the business online.

Photo: Barbora Kmentová
At Czech borders, in major towns and cities and even in the smallest towns and villages gaming machines can be found. In spite of moves by many councils to ban gambling joints, they still proliferate across much of the country. At one stage in recent years it was calculated that the Czech Republic had more than six times the number of gaming machines as the rest of the European Union combined.

At the end of 2014, it is estimated that there were around 5,400 such establishments plus nearly 570 casinos. The number of gaming machines had shrunk over the year by around 10 percent but still stood at around 67,000, down from a peak of around 102,000 in 2011. Czechs last year spent 138 billion crowns on gambling in all its forms, in spite of the attempted crackdown a rise of around 10 percent. Losses for the gamblers and winnings for the gambling companies stood at around 30 billion crowns, a more than respectable return according to most business and profit parameters.

But the government last week signaled it means to get a lot tougher with the gaming industry with a series of proposals adopted by the Cabinet. These include a ban on non-stop gaming bars, obligatory pauses for players, and the disappearance of gaming machines from pubs and restaurants. The final form of the proposals followed some sharp words within the government and accusations whether finance minister and ANO leader Andrej Babiš had not conceded too much to the gambling lobby and watered down the original proposals.

“We would love to see that the government logic is that we should not collect as much taxes as possible from gambling but that we should limit it to a reasonable scope.”

A meeting of some of the leading non-governmental organisations campaigning for the clampdown gave a cautious welcome to the final proposal which is nonetheless only likely to become law at the start of 2017. One of them was the director of the Czech branch of Transparency International, David Ondráčka: “Today it seems that the government reached a useful compromise over the depth of the legislation and we as NGOs which called for comprehensive legislation are happy about that decision. Needless to say three will still be a further legislative process and we will see how parliament will go through that. My impression is that this proposal might really set up a standard regulatory framework for lotteries and casinos in the country and the Czech Republic will no longer be exceptional in the numbers of addicted people and the social costs connected to that will go down.“

Sharing the platform at the press conference was a former gambler, one of those no longer in the ranks of the estimated 100,000 Czechs who are estimated to be addicted to gambling in all its forms. Martin Svoboda was a successful young man. He studied law, set up a thriving tennis school and made money out of real estate deals. But he began playing roulette in his mid-twenties and massive debts quickly began to mount up. He recounted some of the story: “I spent around two and a half years in this gambling environment and lost around eight million crowns. For a young man of between 26 and 29 years old this was a massive amount. I got into debt, and sold everything that I had.”

Photo: Barbora Kmentová
Svoboda says he was on the verge of suicide at one stage, standing at the top of Prague’s notorious Nusle bridge and contemplating the jump below. He did not take his own life but the climb out of the depths was not easy. Svoboda eventually had debts of around four million. He took on extra jobs, sleeping only a few hours a day, and now sees some light at the end of the tunnel with the debt burden reduced to around one million crowns. He wrote a book about his experience and helped found the association Občanů proti Hazardu, Citizens against gambling, which has taken a lead in pushing for the government to take a firmer stand against the gaming companies.

The NGOs say that the government could have gone further to limit the social costs of gambling, for example by enforcing longer gaps between players’ spells on gaming machines and stricter ceilings on their losses. They say state could give a much more convincing impression that it has turned around its attitude and that the priority is no longer squeezing the gaming sector for as much tax revenues as possible but for clamping down on what is a very serious disease. Transparency’s David Ondráčka again: “We would love to see that the government logic is that we should not collect as much taxes as possible from gambling but that we should limit it to a reasonable scope. If this is going to happen, then the slogan that the Czech Republic works as the casino of Europe will no longer be the case and I definitely think that it will help the country and its development.”

David Ondráčka,  photo: Šárka Ševčíková
As the Cabinet proposal is, casinos will still be able to open all night even though gambling joints will be forced to close between 3 and 10 in the morning. That is one aspect of the proposed package of new laws which has angered one of the associations representing gaming companies, SPELOS.

It complains the government has given way to anti-gaming fanatics and is treating various branches of the gaming industry in a discriminatory way. In particular, it highlights the different levels of taxation proposed for the industry. Gaming machines such as slot machines will be subject to a 35 percent tax, lottery and bingo games will pay 30 percent, and betting on sporting events and such like will be taxed at the rate of 25 percent. The Ministry of Finance says that these tax levels have been chosen with a view to the tax rates on gambling in similar countries. Overall, SPELOS warns that the government measures might encourage a further shift from bricks and motor gaming establishments to internet betting.

That is also the view of Andrej Čírtek of the Gaming Industry Union: “This package of laws is a confirmation of a long term trend that gambling is about to move faster and faster from let’s say the street environment to the online environment. It is due to weak regulation in cyber space, that is one reason. And the second reason, perhaps the most important, are the habits of gamers. The current generation is not used to go onto the streets to search for their games. They are used to play it on line at any time on their mobile devices. This package of laws, on the one hand raises the repression, I can say, in the form of regulation and taxation against street gambling. But on the other hand it takes a more liberal approach to online gambling. So as a consequence in the end this package of laws against gambling is not about to lower the level of gambling in the Czech Republic. It is about moving gambling from one environment to another.”

“This package of laws against gambling is not about to lower the level of gambling in the Czech Republic. It is about moving gambling from one environment to another.”

Under the current law, foreign based internet betting companies cannot operate in the Czech Republic. They have, however, set up sites in Czech allowing local to bet on their sites and they therefore have the advantage that they are not paying Czech taxes. The ministry reckons that it is losing out every year on tax revenues of around a billion crowns. So, in future foreign internet betting companies will be allowed and should be taxed as well. But Andrej Čírtek warns it is far from clear if the foreign based companies, currently enjoying low tax regimes, for example, in Malta, will want to submit to the Czech taxman.

And there still appears to be some disagreement over how far both the existing and future rules will allow local, town, and city councils, to ban gaming joints across the board. The finance ministry says a two tier licensing system will existing in the future where it decides in general whether gaming companies can be licensed to operate. But it says that local councils will still be free to rule on whether to allow any or none of the gambling joints on their territory.

The gaming companies though are highlighting a ruling from the European Court of Justice which dealt with Hungary’s moves to push through a clampdown on betting companies and increase taxes on them. This was seen as an infringement on their right to carry out their business and some companies are arguing that the ruling sets a precedent for the Czech Republic as well.