Hungary has ended the state monopoly on the online sports betting market and this now makes way for the market entry of operators incorporated in the European Economic Area (EEA) ("EEA Operators").
The new regulation, adopted on 22 July 2022, is set forth in a major amendment to Act XXXIV of 1991 on Gambling Operations ("Gambling Act”) and provides for a competitive market from 1 January 2023 onwards. Nonetheless, the operation of online casino games will remain the privilege of the holders of national land-based casino concessions.
End of a long-running saga
Under the current regulation a de facto betting monopoly for the 100 % state-owned Szerencsejáték Zrt. has defined the market since 2014, which has been subject to subsequent legal disputes. Major market players, including Unibet (C-49/16) and Sporting Odds (C-3/17), brought the case before the Court of Justice of the European Union (CJEU) to decide whether Hungarian laws went against Article 56 of the Treaty and Functioning of the European Union (TFEU), which is intended to stop member states from disrupting the provision of cross-border trade and services. The CJEU ruled that Hungary's online gambling licensing regime unlawfully excluded EU/EEA-licensed operators from the country's licensing process and reiterated that Hungary must adopt a market regulation meeting objective, transparent, non-discriminatory and proportionate licensing criteria. The Hungarian Government submitted its proposal to the European Commission for new legislation in February 2022 and lawmakers adopted the approved scheme last week.
EEA Operators should prepare for hefty licensing applications
The amended Gambling Act introduces a multi-licensing model. EEA Operators will be able to provide online sports betting services to players in Hungary upon obtaining a licence ("Licence") from the Supervisory Authority of Regulatory Affairs ("SARA"). The legislator did not establish an upper limit on the number of Licences to be issued. Secondary legislation including containing the detailed requirements will be adopted later by the supervisory authority as described in the text published in the Hungarian Gazette. However, based on the proposal submitted to the European Commission earlier (TRIS Notifications 2022/66/HU and 2022/67/HU), EEA Operators are expected to face the below conditions to obtain a Licence:
- the applicant shall have at least five years of experience as a gambling operator in another EEA country;
- the applicant, another company represented by the managing director of the applicant, or another company owned by the direct or indirect owner of the applicant, could not have been involved in the organisation of illegal gambling activities within five years prior to the submission of the application;
- the applicant shall establish a branch office in Hungary and shall provide it with a capital of at least HUF 1bln (approx. EUR 2.5m);
- the applicant shall provide securities in the amount determined by the SARA but at a minimum of HUF 250m (approx. EUR 625,000);
- the applicant shall pay a licence fee of HUF 600m (approx. EUR 1.5m) upfront for the entire duration of the Licence; and
- the applicant shall prepare and implement a player protection action plan approved by the SARA.
The Licence to be issued shall have a validity period determined by the SARA but up to a maximum of seven years. EEA Operators ought not operate more than one website under the same Licence.
… and expect long procedures
Before applying for a Licence, EEA Operators will be required to appoint and register a local representative ("Representative") before the SARA. The Representative must be a Hungarian citizen domiciled in Hungary, must have a master's degree in law or economics and must be free of any criminal record. Afterwards, EEA Operators may make legally valid declarations vis-á-vis the SARA only through the Representative.
EEA Operators and their Representatives should prepare for lengthy administrative deadlines. The maximum duration of the procedure aiming at the registration of the Representative will be 75 days, while that of the subsequent licensing procedure will be 120 days.
On the contrary, a short 15-day deadline is set for the registration of the licensed operators at the competent tax authority, if not already registered. As of today, the rate of the corporate income tax is 9 % in Hungary, while the rate of gaming tax applicable to online sports betting is 15 % (of the monthly net gaming revenue).
Strong market scrutiny through payment service providers
The SARA, in cooperation with the tax authority and the telecommunications regulator, has been struggling for years to keep out unlicensed online sports betting operators from the Hungarian market. Various measures have been applied, including website blocking and the imposition of fines, however, with limited success.
The amended Gambling Act, in compliance with anti-money laundering (AML) regulations, will focus market scrutiny on monitoring payment accounts and relevant transfers. EEA Operators may only make a payment to the players from their payment accounts which must be held with a payment service provider authorised under the Hungarian acts on payment service providers and financial enterprises ("Authorised Account Provider") by transferring to the player's payment account held with an Authorised Account Provider. At the same time, the new legislation stipulates that an EEA Operator may only have such a payment account if it confirms that it has been granted a Licence. To enforce the above, the upcoming legislation provides for detailed rules applicable to payment service providers on mandatory restricting or blocking of unauthorised payment accounts and payment transactions related to illegal (unlicensed) operators.
Still many questions remain unanswered before market opening
EEA Operators aspiring to obtain a Licence may now start preparing for the respective procedure. However, several prospective applicants are already present on the Hungarian market and provide services to a high number of Hungarian players despite the effective prohibitions. It remains a pressing question as to how these "grey portfolios" will be handled in light of the market opening. Additionally, it is also uncertain as to whether the legislator will adjust the tax rules applicable to incomes from online sports betting, which currently exempt winnings paid by licensed operators (i.e. the incumbent Szerencsejáték Zrt.) from personal income tax payment obligation, but scrutinise incomes from unlicensed (illegal) sports betting.
As a next step, the SARA is soon expected to issue its decree on the detailed rules of the respective licensing as well as on operational and technical requirements. These should not differ materially from the respective proposal submitted to the European Commission in February 2022. However, EEA Operators may be left with uncertainties until the publication of the final set of conditions, or even beyond that date. For example, the SARA will likely retain certain discretionary rights in relation to the validity period of the Licences or the quantum of securities to be provided.
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.