What to expect from Polish gambling regulations?

The recent discussions on the future of Polish gambling regulations left a bit disoriented operators on what can be done and what is the current scenario.

This is a very interesting article on Polish gambling regulations by my colleague, Anna Wietrzynska, I hope you will enjoy it.

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In connection with on-going work on the amendment of the Polish Gambling Games Act (the “Act”), numerous press articles have been published, presenting the planned amendments and assessing their impact. Meanwhile, it is worth analysing which provisions of the present Polish Act, not necessarily those covered by the draft amendment, should be changed in order to achieve postulated market opening or extension of the catalogue of gambling games that are licensed in Poland. There is no doubt that only such opening and the consequent extension of the scope of licensed gambling, especially – the group of entities entitled under relevant concessions or licenses to provide online gambling services, can guarantee meeting the primary objectives of user protection, ring-fencing the market and reducing the grey market.

1. A gambling game and an on-line gambling game

The Polish Gambling Games Act in its present version does not define a gambling game. The planned amendment introduces a legal definition of a gambling game specifying that gambling games are games of chance, betting, card games and games on gaming machines. The Act further defines the individual types of gambling games.

The planned amendment will include specific reference to gambling games organised in the Internet. Namely, it will provide that the Act applies to the organisation of gambling games in the Internet, including organising games whose rules correspond to the rules of:

1. games of chance; and
2. games on gaming machines.

A literal interpretation of this provision should lead to the conclusion that once the Act is amended, it will not apply to organising games in the Internet, where the rules of such games correspond to the rules of betting or card games. If such exemption from the catalogue of online gambling games was not the legislator’s deliberate intention, the planned amendments of Article 1 clause 2 of the Act should be clarified.

2. Paid and unpaid games

The traditional understanding of the word “gambling” involves games and bets with a certain stake where a player can win something. The majority of gambling games are games where a player needs to pay a stake in order to participate, and he can win money or a prize.

In many cases, though, the Polish Act modifies such linguistic, intuitive understanding of gambling. Namely, the Polish Act stipulates that a promotional lottery in which a user can participate free of charge, through acquisition of goods, services or other proof of participation in the game, is a game of chance (and consequently, a gambling game), if the entity organising it offers cash wins or material wins.

There will be a surprising change in the modified definition of an audiotext lottery which the Act classifies as a game of chance (and therefore, a gambling game). If the amendment enters into force in its present form, an audiotext lottery will be defined as a lottery, in which users can participate through a paid phone call or by sending a text message, regardless of whether the entity organising it offers cash wins or material wins. Why such a conclusion? The amendment will delete the requirement of offering a win from the definition of an audiotext lottery, while retaining this requirement for all other types of games of chance. If such amendment was not the legislator’s intention, Article 2 clause 1 point 11) of the Act should be rectified accordingly.

The definition of games on gaming machines is the most surprising in the light of the intuitive understanding of a gambling game. Namely, the Act provides that games on gaming machines are games on mechanical, electromechanical or electronic devices, including computer devices, for a cash win or a material win, in which the game contains an element of randomness. What is important, the element of randomness does not need to be predominant – any, even the smallest one, will be sufficient. Further, the Act provides that a material win includes the possibility of continuing the game without the need to place a bet for participating in the game, or starting a new game by using the material win obtained in the previous game. If a game has a random character and is organised “for commercial purposes”, the Act considers it a game on a gaming machine, even when a player does not have a chance to obtain a cash win or a material win.

The current definition of a game on a gaming machine is definitely too broad, because in practice it classifies every form of entertainment on mechanical, electromechanical or electronic devices, including computers devices and mobile phones, as a gambling game, if only any element of randomness is perceivable in it, and if a player can through it win something. The current definition does not account for the fact that many of these computer games or smartphone games require that a player develop or use their skills. To the extent that the result of the game depends on the player’s skills, such game should not automatically be classified as a gambling game.

Let us consider a game of draughts or chess played on a computer or a smartphone, where the prize is the opportunity to continue playing by starting another game. There is an electronic device, there is an element of randomness in the form of the first move proposed by the game programme, and there is the prize – the opportunity to continue the game. However, it seems absurd to consider this a reason for classifying chess or draughts as a gambling game, and consequently, to consider a computer or a smartphone a gaming machine that must not be owned without obtaining a licence and without fulfilling the registration obligations.

Further, if a computer game or a smartphone game is organised for commercial purposes (and there is no definition of such purposes) and has a random character, it is a gambling game using a gaming machine even if a player cannot win anything, not even an opportunity to continue the game or start a new game. Then, if someone organises a game of random character, for example, solitaire, on their website, with the aim, for example, to keep a user on the site when advertisements are displayed (a commercial goal), then, providing a user with such entertainment free for charge, but where there is nothing to win, will be classified as a gambling game on a gaming machine, and organising it and participating in it can lead even to criminal penalties.

That is why that the definition of games on gaming machines in Article 2 clauses 3-5 should be limited solely to paid games on mechanical, electromechanical or electronic devices, including computer devices, for a cash win or a material win, in which the game has random character. Where a player does not risk the stake he paid, there is no cash win or material win, and skills prevail over the random element in the game itself, such game should not be considered a gambling game.

3. Gambling card games

The planned change of the definition of card games, in turn, is a welcome one. Namely, gambling games will include only those black jack, poker and baccarat games that are played for cash prizes or material prizes. To ensure consistency of terminology, draft Article 2 clause 5a, however, should refer to cash wins or material wins, and not to prizes.

4. Gaming machines and gaming devices

The Act and its amended version prohibit organising games on gaming machines by entities that do not hold an appropriate licence. After the amendment, mere possession of gaming machines will be prohibited. Meanwhile, the Act does not contain a definition of a gaming machine, and hence, the definition of the subject of such prohibition. The draft amendment of the Act includes a new definition of a gaming device, though.

The amended Act suggests defining gaming devices as any device used to hold a gambling game, and any device whose operation affects the operation of games. Linguistically, a device is a mechanism used to perform specific functions. As already discussed in the press, such a broad approach may lead to absurd situations, where not only a roulette table, but any piece of equipment of a games casino, can be considered a gaming device, because, for example, there is no doubt that lamps affect the ability to organise games, and a game of poker requires the use of a table and chairs. Hence, such a broad definition of a gaming device seems unnecessary. Instead, it would be better to define gaming machines as those that unlicensed entities are prohibited to possess and that require registration. This can be achieved, for example, by replacing draft Article 4 clause 1 point 3 with the definition of a gaming machine as a mechanical, electromechanical or eclectic device, including a computer device, on which games on gaming machines are organised.

Such change of the definition would allow us to avoid doubts as to whether a private computer or a smartphone used by a player to take part in a game automatically becomes a gaming device or a machine whose possession is forbidden.

5. The scope of the state monopoly on Polish gambling

The draft amendment of the Act significantly broadens the scope of the State Treasury monopoly on gambling. In addition to numbers games, cash lotteries and telebingo games, traditionally subject to the monopoly, the amendment strives to monopolise organising games on gaming machines outside games casinos and the entire online gambling games sector, except for betting and promotional lotteries.

The introduction of such a broad scope of the monopoly will be to the detriment of private operators, whose freedom of activity in this area will be therefore prevented. Due to the lack of harmonisation of gambling legislation at the EU level, the situation of foreign operators providing services on the basis of the Treaty freedoms will become an issue. The very restriction of the freedom to operate in Poland may also fail the proportionality test that allows for restricting freedoms, but only where such restrictions are necessary and proportionate, and therefore, if the use of less onerous measures would not allow to achieve the appropriate level of protection of the public interest, understood here as the protection of users against threats of pathological gambling.

In view of the succinct contents of the justification in this regard, it is difficult to agree with the assertion that only an entity controlled by the State Treasury and operating in accordance with the Act and on the basis of the approved gaming regulations is able to provide the appropriate level of protection for players. The justification of the draft amendment does not duly explain why private operators acting in accordance with the Act and on the basis of similar regulations approved by the minister responsible for public finance regulations, are not able to ensure the same level of protection.

One of the objectives of the amendment is to redirect players currently using offers of unlicensed operators to the websites of Polish operators. Therefore, the list of gambling games available in Poland is to be extended, and at the same time almost the entire range of these games on the Internet, except for betting and promotional lotteries, is to be restricted for the state monopoly. This means that on the one hand, the legislator notes that gambling games properly licensed in Poland, including online games, are entertainment that can and should be enjoyed by citizens (and such an assessment deserves approval), but on the other hand, the legislator believes that Polish citizens or, more broadly, Polish residents, can enjoy such licensed entertainment only when they buy the service from our monopolist. If they do not wish to use the services of the monopoly, then they should be protected against the effects of gambling by generally prohibiting (except for online betting or promotional lotteries) or criminalizing participation in online gambling games. Such a planned approach to the monopoly, that, after all, is expected to protect players, may raise justified doubts in terms of its compatibility with constitutional law and the EU law.

Hence, the relevant provisions of draft Article 5 should, rather, be as follows:

1. no amendment of current clause 1 of Article 5 of the Act indicating the scope of the State Treasury monopoly;
2. adopting the planned provision of clause 1a on multi-jurisdiction games as drafted;
3. limiting the scope of the proposed monopoly of the State Treasury in clause 1b exclusively to gambling games in the Internet with the rules corresponding to the rules of the games of chance;
4. an explicit exemption in draft clause 1c from the monopoly of the State Treasury of the following online gambling games: betting, card games, games on gaming machines and promotional lotteries;
5. providing in clause 1d that the activity in the field of games on gaming machines outside a games casino can be performed in licensed gaming machine venues, and introducing provisions permitting private operators to re-obtain licences or permits to organise games on gaming machines.

6. Poker

As regards poker, the first positive amendment is that draft Article 2 clause 5a of the Act recognises poker (and other card games listed therein) as a gambling game solely when such a game is played for cash or material prizes. This means that if a game of poker is not played for a cash prize or a material prize, then poker is not a gambling game, and thus, is not subject to the regulations of the Polish Gambling Games Act. If there is any prize, poker will change its character from a card game to a gambling card game.

Another positive change is restoring the possibility of organising poker games outside games casinos by entities holding a relevant licence, both in the form of a game played by a player against the operator, and in the form of a tournament between players. What is more, it will be possible to organise tournaments outside casinos, without a proper licence, on condition that the regulations have been approved, the tournament is held in a separate place, and the event has been notified to the relevant Customs and Excise department, and under the additional condition that the prize has the form of material gains with a value not exceeding 50% of the base amount, which currently amounts to PLN 4,063.75 (approx. EUR 1,000).

The planned amendment does not contain a provision that would allow Polish players to participate in international poker tournaments played online, where the world’s best players compete and where Polish players are often successful. Unfortunately, the planned amendment reserves the entire sector of online gambling games, except for betting and promotional lotteries, for the monopoly of the State Treasury, while prohibiting persons in the territory of Poland from participating in any games organised by an operator not being the State Treasury monopolist or by an operator not holding the required permit.

Therefore, as already described above, it would be recommendable to exclude online poker from the scope of the monopoly of the State Treasury, to allow private operators to obtain a licence for online poker, and to allow Polish players to participate in international poker tournaments played online.
Blocking content and payment

In order to ensure an effective reduction of the market share of operators not holding a licence for Poland, there are plans to block content and payment. Blocking content on the Internet may raise reasonable doubts as to its compatibility with the principle of freedom of speech. It should be considered whether these measures are absolutely necessary, and, given their onerousness, whether they are able to pass the proportionality test.

7. Fees for the use of sport results

As soon as any contest between people or animals finishes, the results are made public. Such results can be found in news services, and they are not a secret. Hence, it is a little surprising that the Act continues to include Article 31 clause 2, setting forth the condition that an operator of betting on the results of sports contests between people or animals is required to obtain the consent of national organisers of such competitions for the use of their results.

Such organisations often require a charge in the form of a specified fraction of a percent of revenues generated by the operator in the previous year. Thus, such a system is another “private” tax imposed on the turnover of operators holding national licences, which further reduces their income, compared to that of operators outside Poland, who are not required to pay such charges to Polish organisers of sports competitions between people or animals.
As mentioned above, once sports contests between people or animals are over, their results become publicly available information, and that is why such a charge “taxing” the revenue of licensed betting operators should be abandoned.

8. The gaming tax base

The current gaming tax collection system provides for various rates and tax bases for each type of gambling game. Tax rates range from 2.5% (betting on sporting competitions involving animals on the basis of permits granted solely for their organisation), through 12% (fixed-odds betting) to 50% (games on gaming machines, roulette games, dice games, card games, excluding poker played in the form of a tournament). The most common tax base is not the operator’s income (namely, the difference between proceeds from players of gambling games and the value of prizes paid out), but the operator’s revenue from a given game (i.e., the sum of proceeds from the sale of lottery tickets, proofs of participation in the game, game cards, or the total of bets placed). Gross gaming revenue (GGR) applies only to audiotext lotteries, roulette games, dice games and card games (but with the exception of poker played in the form of a tournament), and to games on gaming machines. To make it even more complicated, in a poker game organised in the form of a poker tournament, the taxation base is the amount of the win less the amount of the fee for taking part in the tournament.

In addition, tax bases for different types of games must not be aggregated. This means that if an operator suffers a loss in any gambling game, such loss cannot be “settled” against the profit on another gambling game.

This complicated tax system, often based on turnover, is the main reason why the Polish market for licensed online gambling operators is not attractive to operators from outside Poland. Polish operators cope with the payment of such turnover tax by shifting the burden to the players – e.g., in the case of betting, they automatically deduct the game tax from the amount of a bet placed by a player. Thus, even with the same rates, a bet placed with a bookmaker licensed in Poland is less favourable to the player – for each PLN 10 bet placed with a Polish licensed operator, only PLN 8.80 is counted as the actual bet (from the player’s point of view, PLN 1.20 is lost in the form of the 12% turnover tax that a national operator has to pay to the State Treasury). Regardless of the tax already collected, where a player’s win is more than PLN 2,280 (approx. EUR 500), a player will still have to pay the prize tax of 10%]. The economic effect is that a player pays twice – once when placing a bet, and the second time – when winning a prize in excess of PLN 2,280 (approx. EUR 500).

Hence, numerous suggestions are voiced in the press that the existing various tax bases set forth in Article 73 of the Act should be replaced with one universal base in the form of gross gaming revenue (GGR). It should be also considered whether or not the various tax rates in Article 74 of the Act should be uniform and replaced with a single rate. Then, it would be possible to aggregate taxation bases. This could significantly simplify the current gaming tax system, and a moderate rate of such tax could further encourage foreign operators to enter the Polish market (as is the case in other European countries).