Not many people appreciate the economic contribution yielded by the iGaming industry in Malta. The island prides itself as a microcosm of Europe and as such is a good testing ground for products/concepts with an infrastructure that is generally good, cost-effective and constantly improving, particularly in the ICT sector. They say that the proof of the pudding is in the eating and the taste is first-class – Malta prides itself with over 300 active licensees. It is a proven fact that the iGaming industry is encouraged by government initiative and the state-of-the-art telecoms infrastructure that the island offers as one of the most progressive environments in the world for IT, remote gaming and e-Business activities.

Investment in ICT is increasing at a rapid pace. In terms of data links, in 2003 Vodafone Malta took a strategic decision that it must own the links from Malta right up to a central point in Europe and therefore decided to have its own submarine data cable between Malta and Sicily. Commissioned in 2004, this doubled the number of international data links connecting Malta to the rest of the world. With hindsight one recalls how, at the start of the iGaming community in 2001, data traffic was rather thin, in the order of a few tens of megabits, but it has grown exponentially since then. Three operators are competing to provide quality and reliable bandwidth via a submarine cable to the Italian mainland. In terms of technology, the fibre-optic submarine data cable remains an important – and extremely sensitive – link between Malta and the rest of the world.

Opposition spokesman on the economy Charles Mangion said that this sector has been a successful base operating out of Malta, generating some €50 million annually in revenue without the burden of new taxes (a low carbon footprint). Furthermore, he reaffirms that the sector also provides quality employment for a good number of people, mostly with excellent salaries .These include a mix of nationalities, but quite a few Maltese have also been recruited. In the iGaming sector, Malta has registered a gross added-value per hour of almost €36, the second highest in the EU. This element has made the sector competitive with other elements, with the potential for further development. All this is thanks to the hard working team at the Lotteries and Gaming Authority, which has excelled in monitoring a quality regulation.

All this has been confirmed in a recent study by Prof. Joseph Falzon of the Department of Banking and Finance at the University, who has produced an analysis of the productive sectors of the Maltese economy in comparison with EU member states. In his study, Malta ranks fifth in the group in terms of gross value added per hours worked in 2007. In all the other sectors (including financial intermediation) Malta ranks sixth. Where Malta excels is in the personal services sector, where we were ranked first, thanks to the high gross value added per hour of the e-gaming sector.

Obviously, one could ask if this is perhaps too good to be true: there must be a catch in such a story of unbridled success. The fact is that, really and truly, Malta needs to be vigilant in its continual effort to beat the competition. It can do this in a number of ways, but definitely by keeping up-to-date in a dynamic regulatory environment and being seen to meet the exigencies of a well-regulated and fair gaming industry.

Without doubt, competition from other EU countries will not go away. A number of EU states have, in the past, maintained stiff monopolistic rules to restrict internet access on the part of their citizens to games relayed from Maltese websites. A recent issue has arisen in Germany, where major changes are in the pipeline by the 16 länder (states) to partially liberalise the market and potentially only recognise foreign providers licensed by the states. According to reports, the proposed law will prohibit the placing of bets from Germany with foreign operators, and empower the 16 states to block foreign-registered websites that promote betting and may demand that banks cease processing money transfers for gambling purposes. This will not be good news for Malta, unless a formal objection is filed with the Commission that such a law may infringe the Treaty of Rome – specifically article 49, which relates to freedom of services.

It is, however, certain that major changes will be made to the present Inter State Treaty, which expires at the end of this year. It currently bans all types of games of chance (except for horseracing and state-run lotteries) in Germany. But change is coming, due to a landmark ruling in the EU’s highest court that restrictions on gambling by Germany’s state monopolies could not be justified under European law. The European Court of Justice said that the “preventive objective” of the German monopoly system, such as preventing gambling addiction, “ceases to be justifiable”, given that the monopolies were carrying out intensive advertising campaigns with a view to maximising profits, and by tolerating policies designed to encourage participation in games of chance that do not fall within the public monopoly such as casino games and automated games.

Thus, quoting the court ruling, one reads: “ the public monopoly of the organisation of sporting bets and lotteries in Germany does not pursue the objective of combating the dangers of gambling in a consistent and systematic manner.”

This issue was also triggered in a response to cases brought by iGaming operators, including Happybet Sportwetten, Digibet and the Carmen Media Group, in several of Germany’s administrative courts, the European Court of Justice ruled that, although monopolistic restrictions on the freedom of private internet operators to offer sports bets under EU law could be justified “by imperative reasons” in the public interest, “the German rules do not limit games of chance in a consistent and systematic manner.” As stated above, the German State Gambling Treaty, currently prohibiting all organisation or intermediation of public games of the chance on the internet, will be radically changed. A first draft was approved by the 16 states in mid March this year but the subsequent detailed discussions did not result in unanimous agreement on its implementation. The draft comes with a high and unworkable 16.67 per cent turnover tax for sports betting and the stiff restriction of casino licences, which would be issued on a closed shop basis. The gambling industry lobby group concluded that this set-up was unlikely to attract the majority of dot.com operators in a future de-regulated regime. In fact, the European Commission has raised serious doubts over the compatibility of Germany’s first draft gambling law and, as a consequence, has extended the consultation period to allow the country’s 16 states to modify its present format.

Many contend that if the new German treaty is implemented in its present form, the signatories fear they could find themselves in a confrontation with the European Commission, which has already warned that the Treaty is non-compliant with EU law. As already pointed out, the vote by the 16 states was by no mean unanimous and there were, in fact, marked differences in the views of various states. For example, the state of Sachsen-Anhalt favours a regime in which online casinos can only be operated by state-owned land-based casinos. This is objected to by many other states as being a highly restrictive approach. One of the more progressive states, Schleswig-Holstein, broke ranks and drafted its own set of rules, insisting on a more liberal opening of the market to private operators. Its considerably more open and equitable law has since been approved at its first parliamentary reading and submitted to the EU for approval, receiving the green light in May. Included in the draft rules is a proposal to issue unlimited licences across all products based on a workable 20 per cent gross profits tax.

To conclude, the iGaming industry is delighted that the Schleswig-Holstein draft law can be further fine tuned so that it genuinely caters for a competitive online gambling market in Germany, and will subsequently ensure the highest standards of value, integrity and security for German consumers. Malta may well have to increase its guard against potential competition next year.

The writer is a partner in PKF Malta, an audit and business advisory firm