In a recent decision handed down by the Northern Territory Racing Commission, sanctions were imposed on Betezy, one of the corporate bookmakers licensed in the Northern Territory to conduct sports bookmaking. This decision clarifies a number of operational issues of relevance when conducting gambling business under a licence granted in an Australian jurisdiction and the extent to which regulatory approval is required.
Among the issues considered by the Commission were:
- To what extent is approval from the Commission required concerning white label agreements?
- To what extent must affiliate agreements also be approved?
The Commission's decision related to a number of complaints that had been made to the Commission concerning arrangements entered into by Betezy with a number of sporting clubs and other bodies under which net profits arising from those arrangements would be distributed between Betezy, the club and other parties.
These allegations required the Commission to consider the following provisions of the Northern Territory Racing and Betting Act:
- (Section 81) A bookmaker who, except with the approval of the Commission:
- enters into a partnership in relation to the business of bookmaking carried on under his licence or permit with a person whose name is not endorsed on his licence or permit; or
- makes an arrangement or enters into an agreement with a person whereby that person becomes entitled to a share in the profits of that business.
- (Section 102(6)) A person whose name is not endorsed on a licence who, except with the approval of the Commission, acquires or holds an interest in or derives a benefit from, the business of bookmaking carried on by the registered bookmaker is guilty of an offence.
In coming to its decision, the Commission stated that, as a matter of principle, both affiliate agreements and management agreements fall within section 102(6). The Commission set out its understanding of affiliate agreements and management agreements as follows:
- Affiliate agreements comprise contracts between a licensee and an affiliate that entitle the affiliate to receive commission where that commission is calculated as a percentage of the losses attributable to clients introduced to the licensee by the affiliate.
- Management agreements, on the other hand, comprise a tripartite contract between the licensee, an affiliate and a third party who administers the relationship. Under this agreement, the manager receives a commission calculated by reference to a percentage of losses or turnover, or a combination of both.
As indicated above, a number of white label agreements had been entered into by Betezy with various parties, principally sporting clubs. Some of these involved a net profit being shared between the parties, while other agreements provided for a fee to be paid that was calculated by reference to a percentage of turnover and for bonuses to be paid by reference to a profit share calculation.
In the Commission's view, arrangements of this type need approval from the Commission. On the basis that no formal approval had been given, the Commission imposed fines on Betezy.
In addition, a number of breaches by Betezy of its licence conditions were considered. These related to:
- a failure to obtain approval of changes to its board and senior management;
- a failure to notify the Commission of litigation having been commenced against Betezy;
- the existence of errors in the terms and conditions which appeared on the Betezy
- website (which if proved, would give rise to a breach of an oblation to publish a set of clearly comprehensive betting rules);
- a failure to notify the Commission of changes in its share capital and ownership structure; and
- allowing a third party access to the electronic records or systems associated with the conduct of Betezy's business.
Save for the last element which was not established, Betezy was found to have breached various licence conditions. Fines totalling $45,000 were imposed by the Commission.
This decision indicates clearly the necessity to keep the Commission, and other Australian regulators, aware of changes to the ownership structure and other key management changes. Also, it highlights the necessity to keep regulators informed of affiliate agreements, white label arrangements and other profit sharing and commission bearing arrangements, (many of which are standard practice in the online gambling environment). In certain cases, the regulator may wish to make further enquiries concerning relevant arrangements and to investigate the suitability of the affiliate or agent (as the case may be). This is consistent with the approach taken by gambling regulators in reviewing junket arrangements entered into by terrestrial casinos.
However, a number of other revenue share agreements that are standard practice in e-commerce, including online gambling, were not considered. For example, to which extent do software licences, web marketing agreements and other standard revenue share arrangements require approval?
It is probable that further clarification will be given by the Commission in due course concerning the manner in which affiliate white label and other revenue share arrangements can be concluded and the extent to which regulatory approval is required. We will keep you informed of any announcements made by the Commission relating to these issues.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.