Brief review of the gaming industry in Bulgaria in 2011

Brief review of the gaming industry in Bulgaria in 2011

The new Bulgarian gaming law – opening avenues or taking to dead-end?

The technological evolution in the internet space has provoked a variety of changes in the regulatory and legislative processes for the gaming industry worldwide. Liberalization of gaming, both in the land based and internet space have become a trend in the recent years, especially in the search of the governments for new sources of revenues for their budgets. Those trends challenged the gaming industry in Bulgaria as well and provoked activities of the government toward modernization of the existing regulation, reflecting the new technological trends for remote communication, and becoming a focal point of the discussions for the necessity of updating the regulation in the country. This environment of increased global competition both in land based and internet gaming space, coupled with the continuing economic stagnation, the higher gaming tax burden imposed in 2010 and the introduction of the smoking ban in the casinos in 2011, was the norm for the challenging existence of the gaming business during this year.

The past two years were not only challenging for the operators because of the increased competition and complicated economic environment. They were challenging and turbulent also due to the lack of clear understanding of the vision for the development of the business. Was this the ‘sin’ industry that needs to be banned and punished or is this industry a way to provide diversified tourist edge, open employment opportunities and bring more revenues for the country? This polemics along with discussions for changes in the current gaming law in Bulgaria took place during the last two years. The new Gaming Law was supposed to address those questions and the need to implement the new technology developments in the area of internet and remote gambling.

So far the internet gaming is not regulated by the existing Bulgarian gaming law and the legal land based business in the country is facing unfair competition and is not able to offer online solutions to its customers. At the same time, some online gaming operators do not have the opportunity to develop their business in the country legally and approach Bulgarian players operating with no license on the grey market under no governmental control and without any tax levy.

In 2009 and 2010 two draft proposals for changes of the existing Gaming Law have been announced, but none of them reached further progress to the European Commission and the Bulgarian Parliament.

During mid 2010 the Gaming Board in Bulgaria announced the drafting of a new Gaming Law. A broad industry discussion took place following that with variety of proposals being submitted by the industry for consideration of the new law. On 4th of February 2011, the Ministry of Finance published the draft of the new Gaming Law on their website, pending resolution of the Council of Ministers. It was submitted to the European Commission for notification in the middle of March.

Just on the day when the standstill period was about to elapse, the European Commission sent to the Bulgarian Government an objection and detailed opinion on the draft. This postponed the pending process for submission of the draft in the Parliament and required further reaction and changes due to the objections. No official release of information about the detailed opinion of the Commission was announced. The answer of the Bulgarian State Commission on gambling on the European Commission’s opposition has not been communicated with the industry as well.

Based on the oppositions and opinions raised from Brussels on other pending gaming laws a presumption was made that the criticism involved mainly issues related to the remote and online gaming texts in the draft that reflected requirements for onsite location of the servers in Bulgaria, requirements for performing financial transactions through authorized Bulgarian banks, minimum five years of experience of the operator or one of its major shareholders in organizing similar games, ban on any information release for the gaming industry and advertising opportunities. Those were the requirements that were brought to a broad discussion by the main European online operators and the Remote Gaming Association, who organized a public discussion in Bulgaria at the beginning of the year.

What changes in the proposed draft have been proposed by the Gaming Board as a response to the Commission’s criticism is still not clear for the industry, but hopefully these two years of anticipation for changes will soon bring good news to the operators and open new avenues for business developments. The industry continues in a hope that the government will provide a clear vision for the future of the business and with the adoption of the new regulation in Bulgaria, whenever happens, there will be assured fair and equal opportunities for all stakeholders and will be provided better environment for the business.

As mentioned, the changes to the officially published draft at the beginning of the year have not been disclosed and the industry could only guess. The industry has been excited that this new law could be a positive step towards the modernization of the legislation, but also raised some concerns about the authorities working in the dark and keeping silence about the changes. The uncertainty caused by that as well as the current economic environment, have kept the business in a stand still position at the moment, awaiting that the new law should not strand the business further, but the opposite - give the opportunity for recovery from the market stagnation and opt for stabilization.

Although the new gaming law is seen as a positive step, some of the provisions in the draft may further negatively affect the business and the smooth transition to the new regulation. One example of this is the new provision, which does not allow the licensed operators to utilize the full term of their licenses and requires re-licensing in 10 months following the adoption of the Gaming law, irrespective of the term of the validity of the current licenses, some of which have been just issued and have a validity of 5 to 10 years. The further implications for those licensees requiring restructuring, increased investment levies are even not under consideration.

Among the serious issues for the business that have been stressed, is the new requirement for initial investment in assets connected to the specific casino. This provision is seen as pretty restrictive, imposing high thresholds for initial investment for the operators. The description of the allowed assets for the investment is very limited, defining to a big degree only material assets in tangible assets and do not following the business and investment practices in the industry. This further extends to the gaming manufacturers for whom the investment requirement is also imposed and who make huge investments in the development of IP products and solutions, which are not included in the current definition. A redefinition of the term for ’investment‘ with taking into account the specifics of the business and allowing flexibility and further developments in the industry was one of the requests, which the industry raised during the initial public debate. The industry agrees that the new Gaming law should allow better and stricter control of the industry; license operators with long-term investment plans, but at the same time not impose artificial entry barriers.

The system of the sanctions imposed in the new draft law caused also a lot of discussions among the industry due to the uncertain definitions and powers for license revocation. Many of the provisions provide that any breach of the draft gaming regulations, irrespective of its severity or degree, is a ground not only for imposing fines but also a sufficient ground for temporary or final revocation of the license, which opens doors for subjectivity. On the other hand once a final revocation occurs, the operator is not allowed to apply for a license ever again in his lifetime. This seems an overly dangerous provision that goes beyond the aim and nature of the governmental administrative compulsion. The disciplinary actions provided in any new law should be flexible and based upon the nature and seriousness of the violation.

The total ban on advertising and information about the business, as imposed by the draft law would lead to complete information block about the industry and goes beyond the normal concerns about the public protection. The industry would have no opportunity for public dialogue, disclose its activities and position itself as a socially responsible business, which cannot be explained as a practice in a democratic society where the free flow of information is a must. It is also hard to find any logic in deprivation of the society from the opportunity to receive information about the industry. This could only open doors for misinterpretation and misinformation about the industry, and define a negative public opinion for the business.

Those are just some of the concerns and opinions raised by the industry about the draft of the new Gaming Law. The industry is unanimous that the law should be flexible enough to create opportunities for a strong, financially stable, competitive gaming environment. The dialogue with the industry should be constant and open at any level in a fair and democratic society in order to guarantee the balance of the interests of the government, the society and the business.

The further development of the modernization process of the Bulgarian gaming regulation and the building of a vision and strategy for the gaming business in the country are still to come. Hopefully all this will open new avenues and not create dead ends. Hopefully the new regulation will be seen and used not only as a tool for stricter control over the industry and better public protection, but also as a fair ground creating opportunities for a strong, financially stable and competitive gaming environment that has its unique place and fair share in the economic map of the country.