Other Countries
Customers in other
European countries generated, in aggregate, approximately eight
per cent of PartyGaming’s revenue in 2005. There have been
some attempts by regulators in such countries to limit the supply
and advertising of gaming products and services by attempting
to limit such supply to domestic, generally state-owned locally
licensed operators. This approach is capable of generating significant
taxation and gaming revenues for the relevant government. Within
the EU, Article 49 of the Treaty of Rome provides that no Member
State may impose restrictions on the freedom to provide services
from one Member State to another. However, restrictions may
be imposed by individual Member States in order to safeguard
the public interest under certain conditions and in order to
meet such an objective.
The European Court of Justice has ruled, in the Gambelli case,
that national laws that restrict the supply of gaming services
in this way constitute restrictions on the free movement of
services and freedom of establishment. Such restrictions can
only be justified on public policy grounds where they form part
of a coherent and systematic approach by a member state to limit
the opportunities for citizens to engage in gaming. Where the
state allows domestic operators to freely conduct gaming or
encourages the expansion of gaming activities, it cannot close
off the national market to companies based within the EU. As
a result of this conclusion, the European Commission has presented
a statement of objections to a number of countries and there
are currently seven infringement actions pending against European
member states. The outcome of these may affect the direction
and speed with which the existing status [OF REGULATION?] is
affected in Europe. According to the relevant principles that
apply, this ought to result in either (i) the maintenance of
the state-monopoly situation accompanied by a reduction of or
restriction on offerings THE GAMES OFFERED and advertising by
the license-holder which would not improve the current situation
for PartyGaming and may make enforcement against it more likely
than at present in some countries, or (ii) a move towards a
liberalisation of the market for the benefit of PartyGaming
and other European-based operators to market their services
without discrimination.
The Company anticipates that the consequences of the Gambelli
decision and the events that may unfold over the course of 2006
and 2007 should enable PartyGaming to offer its services in
many of these countries without the threat of legal claim. However,
no assurance can be given that the application of laws and regulations
in some or all of these European countries will not have an
adverse effect on PartyGaming’s operations and the extent
to which national courts will be willing to implement the Gambelli
decision is still subject to doubt.
As a result, the Group and the Directors may face criminal or
civil claims in these countries that could result in remedies
such as injunctions and damages. If such an action were brought
against the Group or the Directors, whether successful or not,
the Group may incur considerable legal and other costs, management’s
time and resources may be diverted, and the resulting dispute
may damage the Group’s reputation and brand image and thereby
reduce the Group’s revenue and operating profit.
Customers in the UK generated approximately two per cent of
PartyGaming’s revenue in 2005. A wholly owned subsidiary
in the UK provides certain marketing services to the Group.
The Directors have been advised that these operations are in
compliance with applicable law and regulations in the UK.
The Government of the United Kingdom is currently updating gambling
legislation in the UK and introduced the Gambling Act 2005 which
received Royal Assent in 2005 and is due to be fully implemented
by September 2007. A Gibraltar-based operator has been expressly
included as having the same rights to advertise in the UK as
any EEA state-based operator and so PartyGaming will be able
to enjoy equal marketing rights to the UK as a UK-based operator.
There can be no assurance, however, that the Gambling Act will
not be amended or that secondary legislation or guidance or
further legislation will not be introduced and implemented that,
in any case, may have an adverse effect on the Group’s
operations in the UK.
The Company has taken legal advice concerning the regulatory
position in certain other countries where the Group has less
significant customer numbers. Subject to the courts in the relevant
countries being able to establish jurisdiction, the Group’s
activities may constitute criminal or other offences in such
jurisdictions exposing the Company, other Group companies and/or
their directors to the possibility of sanctions which could
have an adverse effect on the Group’s operations and financial
position.
Furthermore, the Directors cannot predict when or if the regulatory
regime in any jurisdiction will change, what changes, if any,
will be made and what effect, if any, such changes will have
on the Group’s activities. Any such changes could have
an adverse effect on the Group’s operations and financial
position.
Reprinted
with Permission From: ©
2006 PartyGaming. All Rights Reserved
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