Opinion of Mr Advocate General Gulmann delivered on 16 December 1993

1 Original language: Danish.

2 See point 41 of the order for reference.

3 Gambling in the Single Market — A study of the Current Legal and Market Situation, Volumes 1, 11, and 111, June 1991 (the Commission Report). The report was prepared for the Commission by the accountants Coopers & Lybrand and it is stated that tne report docs not necessarily represent the Commission's official position. Underlying the report is a distinction between betting and gaming. Betting is defined as a game where a financial stake is wagered against the outcome of an event. Betting involves an clement of knowledge of the event concerned. Gaming, on the other hand, is defined as the wagering of a stake against the outcome of an event in which no skill element is involved. That form of gaming is thus called games of chance. Lotteries arc games of chance.

4 Lotteries are characterized by a pooling of all the stakes and a high win/low stake ratio. The lottery market today is dominated by lotto. Class Lotteries, like lotteries in general, consist of the sale of numbered tickets from which one or more winning number is subsequently drawn. In Class Lotteries players take part in several draws (classes) with a single ticket. The various Class Lotteries have adopted specific rules on the number of draws in each class. There are also other forms of lotteries. One example is the instant lottery where the draw is carried out immediately in that the player for example can scratch part of the lottery ticket and immediately see whether he has won. According to the Commission Report the breakdown of the market for lotteries and the like was as follows: classic lotteries —25%, lotto —46%, the toto (betting on sport) —22%, and instant lotteries — 6%.

5 See Vol. I, p. 3 of the Report.

6 Vol. I, p. 3 and p. 18.

7 The United Kingdom stated at the hearing that there is no ban on private individuals buying lottery tickets and importing them into the United Kingdom for their own use.

8 A National Lottery — Raising Money for Good Cames, Cm 1861, London, March 1992.

9 According to the White Paper:8. Recently, concern about the potential impact of lotteries from other European Community countries following the completion of the Single European Market on 1 January 1993 has given a new stimulus to the debate about a national lottery. (...) 9. However, even if our prohibition on foreign lotteries is maintained in law, the Government recognizes that it would become increasingly difficult to enforce in practice. Without a national lottery of our own, the United Kingdom market would continue to be attractive to lotteries from other EC countries and elsewhere. 10. It is undoubtedly true that modern technology will make it increasingly difficult to prevent our citizens seeing advertising for, and participating in, foreign lotteries (...). Many foreign broadcasts are already available on satellite television. Cheaper telecommunications, and new means of fiayment, might in due course make participation in a foreign ottery as easy as a phone call. The British public might therefore be able to participate in lotteries benefiting the citizens of other countries but not their own.

10 The Suddeutsche Klassenlotterie is a public institution established by the four German Lander of Bavaria, Hessen, Baden-Württemberg and the Rheinland Palatinate and has an annual turnover of some DM 700 million. The management of the lottery is supervised by a State lottery committee which has to approve the budget and the annual accounts. Agents, who must meet specified requirements as to personal and professional qualifications, arc expected to promote the lottery but under the rules of the Süddeutsche Klassenlotecrie may not promote the lottery in States where that is prohibited. The agents receive a commission for every ticket sold. The Süddeutsche Klassenlotterie is a lottery in which players buy whole tickets or fractions of tickets winch arc entered in several draws in each class. There arc two lotteries a year. Each lottery runs for a period of 26 weeks. The draws are spread over six classes, with four draws in Classes 1 to 5 and six draws in Class 6. In practice there is one draw each week throughout the year. Tickets are issued for each class separately. Class 6 offers the highest prize (in the lottery in question in the main proceedings, the highest prize was DM 4 million). The attraction of the Class Lottery lies in the very high main prize and also the relatively high chance of recovering the stake. See also paragraphs 34 to 38 of the Report for the Hearing and the Commission Report, Vol. II, p. 93.

11 Case 36/74 Walmve [1974] ECR 1405 and Case 13/76 Dona [1976] ECR 1333.

12 See in this connection the judgments in Case 196/87 Srey- mann [1988] ECR 6159 concerning the application of the Treaty rules to the economic activities of religious organizations, Case 186/87 Cowan [1989] ECR 195 concerning the application of the Treaty to national rules on compensation for victims of acts of violence, and Case C-159/90 Grogtm [1991] ECR I-4685 concerning the application of the Treaty to rules regarding information on abortion. Reference may also be made in this connection to Case C-272/91 Commission v Italy in which the Court of Justice has been asked to rule on the compatibility with the Treaty and Council Directive 77/62/EEC on public supply contracts of an Italian public tendering procedure for computerization of the Italian lottery. The Italian Government contends that the tendering procedure relates to a concession of the right to hold the lottery and that it is therefore covered by Articles 55 and 66 of the Treaty. As far as the present case is concerned, it is worth observing that neither the Italian Government nor the Commission was prompted to consider whether the holding of a lottery is covered by the Treaty rules at all. In my Opinion of 14 July 1993 in Case C-272/91, I concluded that the tendering procedure did not concern the right to operate the lottery since I considered that the procedure related to an agreement to carry out services for and the supply of goods to the public administration with a view to the hitter's holding of lotteries. If the Court of Justice follows that view, the question whether lotteries as such arc covered by the Treaty rules will not directly be at issue in that case.

13 No weight can be attached to the view that the activity in question is not regarded as a private-law economic activity in one or more Member States. The scope of the Treaty must necessarily be determined on the basis of an independent interpretation of the Treaty which cannot be bound by the definition of terms in one or more Member States.

14 OJ 1975 L 167, p. 22.

15 According to the preamble lottery and similar activities which come under ISIC Group 859 often belong to the field of public services, either directly or through public bodies, or are prohibited, and some of these activities do not therefore come within the scope of this Directive; ... however, in certain Member States such activities can be conducted by private persons and should be included in this Directive.

16 See judgment in Casc C-362/88 GB-INNO [1990] ECR I-667.

17 See the conclusions of the Presidency of the European Council Meeting in Edinburgh on 11 and 12 December 1992, Annex 2 to Part A: Subsidiarity — Examples of the Review of Pending Proposals and Existing Legislation, published in the Bulletin of the European Communities No 12-1992, p. 16 et seq.

18 However, examples arc to be found under national legislation where revenue from certain lotteries can accrue to private individuals. Typical conditions arc that the sums involved arc small (both as regards the price of each lottery ticket, the total turnover and tne prizes offered, which commonly may not be cash prizes) and the activity is conducted as part of other entertainments, for example travelling funfairs and the like.

19 Case 110/78 Van Wesemael [1979] ECR 35 and Case 279/80 Webb [1981] ECR 3305.

20 See in particular Case 205/84 Commission v Germany [1986] ECR 3755.

21 Case C-154/89 Commission v France [1991] ECR I-659, Case C-180/89 Commission v Italy [1991] ECR I-709 and Case C-198/89 Commission v Greece [1991] ECR I-727.

22 Case C-76/90 Säger [1991] ECR I-4221.

23 See for example judgment in Case C-353/89 Commission v Netherlands [1991] ECR I-4069, paragraph 15.

24 Sec judgment in Sager (cited in footnote 21), paragraph 15.

25 Sec the judgment in Case 8/74 Dassonville [1974] ECR 837.

26 The principle that within the context of Article 30 too there may also exist limitations on the free movement of goods which do not constitute restrictions within the meaning of Article 30 has been laid down in the judgment of 24 November 1993 in Cases C-267/91 and C-268/91 Keck [1993] ECR I-6097.

27 Case 15/78 Société Générale Alsacienne de Banque v Koestier [1978] ECR 1971.

28 Case 52/79 Debauve [1980] ECR 833.

29 The Société Générale Alsacienne de Banque case concerned a provision of services, specifically stock exchange time-bargains carried out by a bank on instructions from a customer, which under German law were regarded as not being legally binding. The Court held: The fact that debts arising out of a wagering contract or other similar debts are not actionable cannot be regarded as discrimination against a person providing services established in another Member State if tire same limitation applies to any person providing services established within the territory of the same State whenever that person claims payment of a debt of the same kind, and this has not been disputed in the present case (paragraph 5). The Debauve case concerned a Belgian prohibition on the transmission on cable television of foreign advertisements. The Court held: Articles 59 and 60 of the Treaty do not preclude national rules prohibiting the transmission of advertisements by cable television —as they prohibit the broadcasting of advertisements by television — if those rules are apphed without distinction as regards the origin, whether national or foreign, of those advertisements, the nationality of the person providing the service or the place where he is established (paragraph 16).

30 Under the Lotteries and Amusements Act 1976 the exceptions are for small lotteries incidental to certain entertainments (section 3), private lotteries confined to a restricted group (section 4), lotteries promoted on behalf of certain societies (section 5), lotteries promoted by local authorities (section 6) and lotteries promoted and conducted in accordance with the Art Unions Act 1846. In practice it is the lotteries referred to in sections 5 and 6 of the 1976 Act that are the most significant. The following details of such lotteries are set out in Annex A to the 1992 White Paper on a national lottery: There are three types of lotteries which may be promoted by a society or local authority. A short-term lottery can be promoted within a month of a previous lottery. The maximum turnover (i. e. value of tickets sold) is £ 45000 and the maximum prize is £ 6000. A medium-term lottery can be promoted between one and three months of a previous lottery. The maximum turnover is £ 90000 and the maximum prize is £ 9000. The largest public lotteries are promoted quarterly with turnover of £ 180000 and a maximum single prize of £ 12000. In all cases, the maximum price of a ticket is £ 1. The United Kingdom has stated that those limits have been raised in connection with the establishment of the national lottery. There is nothing in this case to indicate that the direct or indirect object of that legal situation is to protect British lotteries against competition from other lotteries organized outside the United Kingdom. There is an apparently objectively-founded delimitation of the United Kingdom lottery market to admit only local lotteries with a limited turnover. The fact that that limitation signifies that large foreign lotteries cannot exercise their activities in competition with the authorized local lotteries does not make the rules in question discriminatory.

31 The Court has heard that there are currently three pools undertakings: Littlewoods, with more than 76% of the market, Vernons with some 20% of the market and Zetters with some 3%. According to a Mintel survey, Special Report, Gambling 1991, p. 32 et seq., those undertaltings pay more than 40% of their turnover to the State while their own net revenue amounts to some 4.4% of turnover. In its 1992 White Paper the United Kingdom described the effects that the establishment of the national lottery would have on other forms of gambling as follows:29. The football pools are the form of gambling most likely to be affected by the national lottery. They offer a small stake/large win form of gambling and have expressed concern that a national lottery would eventually drive them out of business. In some countries a national lottery has had an adverse effect on the pools but in others they co-exist. More work will be needed to establish the impact of the national lottery on the pools in this country. 30. Other forms of gambling are less likely to be affected than the pools. They offer a product which differs substantially from a national lottery either in the nature of the gamble or the circumstances in which it is made, or both. For example, those who bet on horse or greyhound racing are unlikely to be attracted by the long-odds/no skill gamble of a national lottery. Bingo is a social activity for which the purchase of a lottery ticket is no substitute. Similarly, casinos offer a type of gambling and other facilities quite different from participation in a lottery. Gaming machines most readily available to the public provide amusement rather than the chance to win a major prize. ... 33. One of the concerns most frequently voiced about the impact of a national lottery is that charities will lose income from existing small lotteries and from charitable donations generally. The level of income which charities at present obtain from small lotteries is unclear because figures for all lotteries are not collected centrally. ... Charities will be specifically singled out as one of the categories to benefit from the national lottery. ...

32 Case 205/84 Commission v Germany, cited in footnote 19, paragraph 52.

33 Judgment in Case 30/77 Bomberean [1997] ECR 1999, paragraph 35.

34 It is pointed out that lotteries arc a form of gambling which is especially vulnerable to fraud. That is because the participant has no ready and independent means of ascertaining either the total amount paid in or that the promised prizes have been paid out. Without adequate controls, it would be possible for the operator of a lottery to skim off part of the proceeds, or, in the case of instant lotteries, to withhold, perhaps for his own use, the winning tickets (see point 30 of the order for reference).

35 Examples of complaints of such alleged abuses are given in the observations of the Belgian Government.

36 See the judgments in the Co-insurance cases, in particular Case 205/84 Commission v Germany, cited in footnote 19, paragraph 34 et seq.

37 See footnote 9.

38 See the 1992 White Paper, in which it is stated:14. The Rothschild Royal Commission recognized two principles for gambling policy. First, that gambling should be properly regulated to ensure that it is conducted honestly and fairly. Second, that the demand for gambling should not be positively encouraged because, if taken to excess, it can cause misery for the individual and his family, and have damaging consequences for society as a whole. Although these general principles underlie all gambling controls, they have been applied in different degrees to different forms of gambling. 15. For example, casino gaming is more vulnerable to abuse by criminals and large amounts of money may be lost very quickly. It represents the hardest form (in the sense of vulnerability to abuse and of its dangers to the individual) of gambling and so it is the most tightly regulated. ... By contrast, lotteries have long been considered to be the softest form of gambling. The amounts staked are usually small and there is not the same incentive to chase losses. They are subject to a lighter regulatory regime because the sums of money involved are more modest. Because they offer modest prizes and support good causes, they can be advertised quite freely. In particular, they can be advertised on TV and radio whereas the broadcast advertising of all betting and gaming is prohibited by a mixture of statutory controls and the broadcasting authorities' advertising codes.

39 Sec judgment in Case 169/91 Council of the City of Stoke-on-Trent [1992] ECR I-6635. paragraph 11.

40 According to the Commission Report on Gambling in the Single Market, Vol. I, p. 44: The player's main interest is to participate in an attractive game. A game's attractiveness is reflected in the size of the prizes, the chances to win and in the fact that no or only little tax is levied on the winnings. Where a foreign lottery seems more attractive than a domestic game, some players will participate cither by ordering the tickets by mail or by crossing the border to buy them at an agent's abroad. Mail order is particularly viable in class lotteries as deadlines for accepting tickets can be many weeks in the future.

41 According to the Commission Report, Vol. I, p. 18:Cross-border betting is a market-driven phenomenon. The agents of certain Klassenlotterics are the most active promoters of illegal cross-border betting. Mail-shot marketing has been organized throughout the twelve Member States. The smaller lottery markets, with correspondingly smaller prizes, are clearly the most vulnerable. ... The big prizes of the German Klassenlotterie are very attractive to consumers who normally play on the smaller national lotteries which have smaller first prizes. In this regard, diagram 8 shows the vulnerability of Denmark, Belgium and the Netherlands. ... Cross-border betting which occurs out of convenience resulting from nearness to a neighbouring Member State or similar language and culture is of an osmotic nature. Osmotic cross-border betting is more likely to occur if there is a disproportionate size of population and therefore larger lotteries with bigger prizes next to smaller national lotteries or lottos.

42 See for example Case 352/85 Bond van Adverteerders [1988] ECR 2085 in which the Court held: It must be pointed out that economic aims, such as that of securing for a national public foundation all the revenue from advertising intended especially for the public of the Member State in question, cannot constitute grounds of public policy within the meaning of Article 56 of the Treaty (paragraph 34).

43 Judgment of 28 January 1992 in Case C-204/90 Bachmann [1992] ECR I-249.

44 See Article 102a of the EC Treaty as amended by the Treaty on European Union, the second sentence of which provides: the Member States and the Community shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 3a.

45 In the United Stares of America, Congress, acting pursuant to the commerce clause in the Federal Constitution, has laid down a fundamental prohibition on the free movement of services between the States in the field of lotteries. The constitutionality of that legislation was confirmed by a 1903 judgment of the Federal Supreme Court in the Lottery case (Champion v Ames (1903) 186 U. S. 321).

46 I have considered whether the second paragraph of Article 55 of the Treaty may be of any relevance to the interpretation of Article 59 of the Treaty in the context of this case. Article 55, in conjunction with Article 66, provides that the Council may, acting by a qualified majority on a proposal from the Commission, rule that the provisions of the chapter on services arc not to apply to certain activities. There has been nothing in these proceedings to suggest that the Council and Commission might have considered applying that provision to exempt lotteries from the Treaty rules on services. It is clearly of importance in any event that that provision cannot apply unless the Commission has submitted a proposal regarding its application. The result of my analysis is that that provision is not of any relevance in the context of this case.