Can the UK Horserace Betting Right stand the test of EU law?

Published 30 June 2015 | Authored by: Ben Van Rompuy, Thomas Margoni

After years of advocating for “an intellectual property right backed up by a licensing regime that catches the payments from offshore operators”,1 the British horseracing industry has finally found support for their position from the UK government. In March 2015, Chancellor George Osborne announced that the 50-year-old Horserace Betting Levy would be replaced with a Horserace Betting Right. The introduction of such a right is, however, fraught with legal questions from an EU law perspective. This article identifies and explores three main challenges: State aid rules, free movement rules and database rights.

 

The long-running Levy replacement saga

The Betting, Gaming and Lotteries Act of 19632 introduced the Horserace Betting Levy in its current form. It is a statutory levy on the gross profit of betting on British horseracing (i.e. horseracing in England, Scotland and Wales) for the benefit of the horseracing industry, collected by the Horserace Betting Levy Board (HBLB).3 Each year, a Bookmaker’s Committee recommends the categories, rates and conditions of the Levy scheme to the HBLB. The Committee consists of members representing the major operators and trade associations in the betting industry. Once the scheme is approved,4 the HBLB sends annual assessment notices to all bookmakers liable to pay the Levy.

Previous attempts to replace the Horserace Betting Levy have been unsuccessful. In 1991, the UK government already considered that it would be preferable if financial returns from bookmakers to racing could be made “without the need for a statutory framework”.5 In March 2000, the government announced its intention to abolish the Levy mechanism and recommended moving to a fully commercial funding solution that would involve the sale of pre-race data and broadcasting rights.6 The British Horseracing Board (BHB) formulated a plan7 under which those rights would be collectively marketed by itself (data rights) and the Racecourse Association (media rights) to bookmakers and media operators. The income would be distributed to a prize fund, the BHB and the racecourses. The enactment of the Horserace Betting and Lottery Act 2004 paved the way for the commercial replacement of the Levy system.8

The European Court of Justice (CJ), however, threw a spanner in the works. In its 2004 British Horseracing Board v William Hill Organization (BHB) judgment,9 it stated that data that are created, such as fixtures lists and schedules, do not qualify for the newly created EU sui generis database right. Copyright was already excluded in cases of non-original (in the sense of the EU harmonized standard of the “author's own intellectual creation”) databases by the Database Directive of 1996.10 The resulting situation allegedly left BHB and similar businesses without a right, proprietary in nature, to protect their data. This prompted fears11 that the British horseracing industry would be unable to secure substantial payments for its data rights. Following lengthy discussions with the racing and betting industry and a report by an independent Future Funding of Racing Review Group, the UK government ultimately decided to retain the Levy until a secure and adequate alternative commercial funding arrangement could be found.12

The Gambling (Licensing and Advertising) Act 201413 gave new impetus to the debate on the replacement of the Horserace Betting Levy. The Act significantly altered the regulation of online gambling in the UK. It introduced a shift from a “point of production” to a “point of consumption” model: all gambling operators engaging with British consumers must now obtain a licence from the UK Gambling Commission, regardless of whether they are British-based or offshore-based. The government launched a series of consultations on how it could bring the collection of the Levy in line with this new “point of consumption” regime. Under the current system, introduced long before the arrival of remote betting services, only onshore bookmakers taking bets on British horseracing are liable to pay the Levy. With large bookmakers moving their operations offshore since 2008, the Levy yields (with a typical annual value of around £100 million) dropped significantly (to £67 million in 2013).14

The Department for Culture, Media and Sport (DCMS) proposed two options: (1) reforming and extending the Horserace Betting Levy (to offshore operators) or (2) replacing the Levy with a Horserace Betting Right. Only one week after the consultation on the betting right option closed in March 2015, it was announced15 that legislative proposals would be introduced to establish the Horserace Betting Right. Apparently a careful analysis of the responses to the consultation was no longer necessary to persuade the government of the merits of this form of intervention.

 

The Horserace Betting Right

No timetable has been set for introducing new legislation and various details still need to be considered. Yet it is clear that the Horserace Betting Right will impact on all licensed operators offering bets on British horseracing to British consumers. They will be required to obtain an authorization in exchange for a financial contribution. According to the consultation document ,16 the right would be vested in a racing authority named in statute and created before Royal Assent. The racing authority would set the terms and conditions of authorization, including fees that are “fair, reasonable and non-discriminatory”. The legislation, however, would define the activities on which funds raised through the Betting Right could be spent. According to the DCMS, these activities could include:

  • compiling the fixture list;
  • regulation and integrity;
  • prize money and related incentives;
  • veterinary research and education;
  • equine and participant welfare; and
  • industry recruitment, training and education.17

This indicative list is more precise than the open-ended statutory purposes of the current Levy. According to the 1963 Betting, Gaming and Lotteries Act, the Levy may subsidize (a) the improvement of breeds of horses, (b) the advancement or encouragement of veterinary science or veterinary education and (c) the improvement of horse racing. The broad discretion in the expenditure of the funds, which as we will see below never faced a test under EU law, enables the HBLB to allocate most of the funds to race prize money. For the financial year 2014-2015 the majority of the Levy yields was used for prize money (64%) and race day services (20%).18

EU State aid rules

Since the British Horseracing Levy in its current form was introduced prior to the UK’s accession to the EU, the UK government was never obliged to notify the Levy to the European Commission for clearance under the State aid rules. The option to extend the existing Levy to offshore remote betting operators, however, would have substantially altered the measure and converted it into new aid. The DCMS was well aware19 that this implied that the Levy had to be notified and could not be implemented until it was approved by the Commission.

Although the Horserace Betting Right would thus appear as a more attractive policy option, it is uncertain that the attempt to circumvent State aid control will be successful. Economic advantages granted to specific undertakings are to be considered State aid only if they are imputable to the State and financed through State resources. A subsidy scheme imposed in a binding fashion by national legislation and allocated to certain pre-defined beneficiaries is clearly imputable to the State. The key question is thus whether the Horserace Betting Right can be regarded as State resources within the meaning of Article 107(1) Treaty on the Functioning of the European Union (TFEU)?20 The distinction between aid granted directly by the State or by public or private bodies designated or created by the State is irrelevant.21 The deciding factor is whether the funds in question remain under public control and therefore, in principle, available to public authorities.22 If the State has a decisive influence on how the resources are allocated, they will generally be considered State resources. The Commission has consistently found that the yield of a levy (e.g. collected from horseracing betting operators) constitutes State resources.23 Whether or not an analogous reasoning applies to the Horserace Betting Right will ultimately depend on the extent to which the UK government intervenes in the determination of the modalities of the measure.

Beyond adopting the legislation introducing the right, the UK government “wants to be as far as possible removed from any direct involvement in activities that take place under the legislation”.24 The racing authority would administer the right with any remaining disputes a matter for the courts or a tribunal. Yet it is difficult to envisage that the government would not monitor, at the very least, whether the fees received are being used exclusively for the pre-defined purposes (e.g. on the TFEU basis of the racing authority’s annual accounts, as proposed in the consultation document). Any opportunity to intervene will make the government cross the blurry line between public and private control.25

A finding of State aid would not necessarily be fatal to the enterprise. Article 107(3)(c) TFEU provides for a possible derogation from the prohibition of State aid for support measures facilitating the development of certain economic areas. In assessing whether the Horserace Betting Right is compatible with the internal market, the Commission will balance the positive impact of the measure against its negative side effects (distortion of trade and competition). The UK authorities would need to demonstrate that the revenues generated by the right do not exceed costs directly connected to the organization of British horseracing that also benefit all horserace betting operators. Most of the suggested activities on which funds raised through the Betting Right could be spent, could be considered in the common interest: integrity measures; veterinary research; equine and participant welfare; and training and education. The rational development of equidae production and breeding has also been recognized26 as a common interest objective. Hence, there is little reason to doubt that the UK government would be able to bring the Horserace Betting Right in line with the EU State aid rules. What is clear though is that a financial return for the use of fixtures or the subsidization of prize money cannot be construed as furthering a common interest.

 

Free movement rules

Even if the attempt of the UK government to avoid State aid control were successful, EU law would still require it to demonstrate that the Horserace Betting Right is appropriate for and genuinely directed to an objective of public interest. From an EU internal market perspective, the requirement for betting operators to obtain consent for the organization of bets on British horseracing could impede or render less attractive the free provision of gambling services within the meaning of Article 56 TFEU.27 The CJ has consistently held that restrictions on gambling activities are acceptable only if justified either by reasons set out in the Treaty itself or by overriding reasons in the public interest.28 Even if they are justifiable under these criteria, restrictions imposed by Member States must also satisfy the conditions laid down in the case law as regards their proportionality and must be applied without discrimination.

Derogations from the principle of free movement are generally interpreted more restrictively since the justifications must be non-economic. It is settled case law that the financing of public interest activities through proceeds from gambling services cannot in itself be regarded as an objective justification for restrictions to the freedom to provide services. The financing of such activities can only be accepted as a beneficial consequence that is incidental to the restrictive policy adopted.29 The European Commission raised this issue in the context of the French right to consent to bets. Initially, the rationale of the right was solely expressed in terms of generating a fair financial return to sport (i.e. for the use of fixtures and results). Following the Commission’s reasoned opinion that the exercise of the right to consent to bets would likely infringe Article 56 TFEU, the French legislature substantially amended the relevant provisions30 in its draft gambling law and redefined the right as a means to first and foremost preserve sports integrity.

It follows once again that the UK government will have to design the Horserace Betting Right as a proportional measure to pursue well-defined public policy aims. The promise that the measure will secure and even boost revenues for the British horseracing industry that can be used for things like prize money clearly offers a false hope.

 

Database rights

Another important question that the yet-to-be-defined Horserace Betting Right raises is how it will relate to the already mentioned CJ's consistent interpretation of the sui generis database right (SGDR) in relation to match fixtures and schedules.31

Art. 7 of Directive 96/9/EC on the legal protection of databases protects substantial investments in the obtaining, verification or presentation of the contents of a database, but not in their creation. This interpretation has been confirmed by the CJ on several occasions such as in 2004 when it handed down four landmark decisions clarifying the inapplicability of the SGDR to match fixtures and schedules on the basis of the fact that the latter were created and not obtained data.32

Crucially, the CJ stated that investments in obtaining the contents of a database refers to “the resources used to seek out existing independent materials and collect them in the database, and not to the resources used for the creation as such of independent materials”. The Court also clarified that the purpose of the SGDR is “to promote the establishment of storage and processing systems for existing information and not the creation of materials capable of being collected subsequently in a database”.

Whereas the 2004 CJ judgments could be read in the sense that any reporting of facts constitutes data “creation”, the English and Wales Court of Appeal (EWCA) expressed a different point of view in an opinion it recently handed down in Football Dataco v Stan James and Sportradar. In this case, which concerned the collecting and reporting of football matches live statistics, the Court of Appeal sustained the view that facts observed, such as scoring of goals, are not “created”, but “obtained”. According to the Court, this is sufficient to recognise a sui generis database right in databases of collected sports statistics, provided that the overall investment in obtaining the data is substantial.33 Consequently, while lists of match fixtures and schedules are certainly excluded from the protection offered by SGDR, databases of collected sports results have been held to qualify for SGDR protection by the EWCA. Whether this interpretation of the dichotomy between creating and obtaining data would survive the scrutiny of the CJ cannot be established with certainty and a proper analysis of the matter is outside the scope of this article.34

Suffice here to point out that some guidance towards the CJ's possible orientation on this matter can be sought in the words of the same Directive as well as in those of the European Commission. The Directive is wary of the potential harm that so called single-source databases – a form of database likely triggered in the case of sports data – could cause, and in particular of their anti-competitive effects. This scepticism is confirmed by a number of Recitals (e.g. 45 and 46) as well as by the legislative history of the Directive, which contained a specific rule on single-source databases providing for a system of compulsory licenses.35 The European Commission’s evaluation of the Database Directive of 200536 seems to confirm this orientation. In this official document the EC notes that “the ECJ's narrow interpretation of the ‘sui generis’ protection for ‘non-original’ databases where the data were ‘created’ by the same entity as the entity that establishes the database would put to rest any fear of abuse of a dominant position that this entity would have on data and information it ‘created’ itself (so-called ‘single-source’ databases)”, in particular with regard to sports fixtures and schedules.

In conclusion, protection of “created” data by way of SGDR is clearly excluded. This ban certainly applies to match fixtures and schedules, while collected live sports results have been held protectable by the English Court of Appeal, but to date this view has not been confirmed by the CJ and it is far from clear that this will happen.37

At this point the question becomes whether a right such as that proposed by the UK Government is bound by the limitations outlined above relating to the protection of non-original databases, or whether national legislatures are allowed to intervene in the field in order to create rules offering wider protection to non-original databases. In other words, the question is whether the field of database protection is pre-empted by EU law.

It is settled case law that the Database Directive created rules of maximum harmonisation with respect to copyright and arguably also SGDR protection.38 This means that this area is pre-empted by EU law and any Member State's intervention in the field should fully comply with the EU identified standards, at least with regard to copyright and the SGDR. The Directive explicitly leaves untouched other potentially connected areas of law such as unfair competition and contract law.

The correct legal qualification of the proposed Betting Right will therefore become decisive. If the right's legal qualification will correspond to copyright or related rights, then the area is pre-empted by EU law. On the contrary, if the proposed right will be construed as a general right to property or as a rule of unfair competition its chances to escape EU law pre-emption would be higher.39

To close on this issue, the space for a Horserace Betting Right in the light of the harmonised protection of databases is narrow, but not completely absent. Much will depend on the specific traits that the right will assume. The further away from copyright and related rights (and a general right of property may not be far enough), the easier to avoid issues connected with EU law compliance. If the right will look like a form of protection of non-original databases then it must comply with the prohibition of protection of fixtures and schedules, while protection of results remains, at least from an EU law perspective, an open issue. National rules relying on notions contained in Art. 13 of the Directive, such as unfair competition, would not be pre-empted by EU law so long as they do not materially reproduce the exclusive rights that the CJ deemed incompatible with the Directive.

 

Conclusion

It follows from the above that the horseracing industry’s victory declaration40 seems premature. There seems to be a common trait between the proposed British Horserace Betting Right and the similarly devised French right to consent to bets, which was welcomed with some skepticism by EU institutions and commentators.41 This trait is the idea that an erga omnes right, i.e. a right enforceable against any third party (and what better than an – intellectual? – property right to this effect) can be created to protect what EU rules and settled case law already defined as not protectable in closely related areas. Whereas the possibility to channel revenue from associated betting activity to the horseracing industry is not in itself incompatible with EU law, to try to proceed along the narrowest of the possible trails can be seen as a risky endeavour at best. The alternative option of reforming the tried and tested Levy would have been a much safer bet.

 

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About the Author

Ben Van Rompuy

Ben Van Rompuy

Prof. Dr. Ben Van Rompuy is a senior researcher and consultant at the T.M.C. Asser Instituut (The Hague), where he heads the ASSER International Sports Law Center. His research focuses primarily on the application of EU (competition) law in the sports and media sectors. He has, however, published widely on a broad range of topics relating to competition/antitrust law, media law, and sports law, and regularly acts as a legal expert for media companies, sports associations, athletes, and public authorities. 

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Thomas Margoni

Dr. Thomas Margoni is a Lecturer/Assistant Professor of Law, University of Stirling, UK. His research and teaching interests concentrate on the relationship between IP law and new technologies from a EU, comparative and international point of view.

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