Austria’s most famous confectionary and the gaming monopoly

By Thomas Talos, Partner at Brandl & Talos Attorneys at Law and Arthur Stadler, Associate at Brandl & Talos Attorneys at Law

The original proceeding in Austria concerns a criminal procedure against Mr. Engelmann (a German citizen) who operated casino games in the Austrian city Linz without disposing of a concession delivered by the Austrian Ministry of Finance (BMF). The Court had expressed its doubts as to the conformity of the Austrian gaming monopoly with Community law and, in consequence, submitted three preliminary questions to the European Court of Justice: 1. Is it compatible with the basic freedoms to request an Austrian stock corporation (Aktiengesellschaft) as precondition for obtaining a gaming license? 2. Is the monopoly-like Austrian licensing system for casinos compatible with the basic freedoms? and 3. Is it compatible with the basic freedoms to award the gaming licenses for 15 years behind closed doors?

Regarding the first question, the defendant as well as the European Commission perceived the precondition of a stock corporation domiciled in Austria as non compatible with Community law. There are less restrictive means allowing the efficient and effective control of operators. The Austrian government argued that during the operational phase this precondition of an Austrian based stock corporation is justified. However, the Austrian government could not corroborate this point by producing convincing arguments.

Regarding the second question, the main issue is whether Austria is pursuing a „coherent and systematic“ gaming policy. The legal representative of the defendant (Dr. Talos) started his pleadings by presenting a „Sachertorte“ and by asking the judges what this Sachertorte had to do with gaming. The presiding judge Mr. Bonichot commented this introduction humorously by saying „Indeed, I wonder about that myself„. The question was answered there and then: the Sachertorte profits from the revenues resulting from the casino monopoly as the Hotel Sacher is among the circle of privileged shareholders holding a participation of about 77% in Casino Austria AG and who thus rule the Austrian gaming market. Apart from Hotel Sacher, politically highly influential banks, insurance companies, media, private foundations and private persons count among Casino Austria AG‘s shareholders. Therefore, revenues resulting from the gaming monopoly in Austria primarily inure to the benefit of private institutions or persons – the state profits by a minority shareholding and considerable tax revenues. Hence, in Austria gaming is a truly economic activity centring, first and foremost, on tax revenues and the maximisation of private profits.

Regarding this second question, the defendant therefore again came to the conclusion that the Austrian system is not compatible with Community law. Austria justifies the restriction to 12 casinos by putting forward „regulative“ reasons and player protection but does not pursue these aims with the necessary coherence and consistency – mainly due to the primarily private investors. The regulatory goals, that are important for the regulation of any business whatsoever, could even be attained when awarding further licenses linked to strict conditions and control. The defendant illustrated his conclusions by the pointing to the sectors of slot machines and sports betting in Austria. In these areas, this aim can be realised without limiting the number of licenses. The Austrian government could not justify this unequal treatment. This shows that the Austrian gaming policy is therefore incoherent. Neither can the protection of players serve as justification for the restriction of the basic freedoms.

In Austria, gaming is an everywhere available and normal „good of daily life“. With about EUR 50 million per year, the monopolists‘ advertising expenditure is enormous for a small country such as Austria. There is no „inoffensive market behaviour“ in Austria, such as the representative of the European Commission required in order to fulfil the conditions for the aim of protecting consumers. Due to this massive advertising and the closely knit distribution network, gaming is more than omnipresent in Austria. While the Austrian post with its public service mandate considers 1,000 post offices as sufficient, Austria is ubiquitously covered by about 2,400 Lotto/Toto sales points. The day starts with gaming commercials on the radio, followed by flashy posters on each street corner, links and ads on the internet, provocative invitations to visit casinos and finally ends at night with Bingo and Poker shows on TV. The advertisement suggests happiness and wealth and depicts gaming as a completely normal recreational activity. Using various advertising themes, Casinos Austria are consciously attempting to associate visits to the casino with sex appeal, attractiveness and success. The sexual component has to be there. The Casinos Austria show the clear intention to encourage a visit to the casino, e.i. encourage gambling.

Given that the Austrian gaming market is open to select private parties – such as Hotel Sacher or Raiffeisen Group – Mr. Engelmann too should have the opportunity to obtain a license under conditions compliant with Community Law.

As it came to the third preliminary question, the reporting judge interrupted the pleadings of the legal representative of the Republic of Austria and asked the question as to how someone interested in obtaining a casino license was supposed to find out that the licenses were extended from 15 to 22 years. Austria’s representative replied that potential applicants for a license would „forehanded“ applied in front of the BMF and its application would have been taken into consideration (disturbance in the audience). Dr. Krämer, the Commission’s representative, was unimpressed by this reasoning and stated that Austria had infringed Community law during the process of awarding the licenses and their subsequent renewal. Austria simply did not respect the necessary transparency and publicity. In this context, judge Schiemann asked Dr. Krämer about the legal consequences in such a case. Dr. Krämer replied that if failing to comply with the principle of transparence and the operator could therefore not dispose of a license, he not be convicted to a penalty. The same applies to the case where the access to a market is refused to an operator due to inadmissible preconditions that are not compatible with Community law. Mr. Engelmann’s second representative (Dr. Ruth) therefore argued that no sentence should be imposed on Mr. Engelmann as he could not obtain a license due to the lack of publicity and the inadmissible requirement of a registered office in Austria.

The opinion of the Advocate General Mazák will be pronounced on 23 February. It remains to be seen what will the EUGH reply to the preliminary questions.

Source: TIME LAW NEWS 1/2010 ( Hambach & Hambach Law Firm