Come place your bets - online

It was a record year in revenues for Czech-based online betting companies in 2009, but the numbers would have been much higher if it had not been for inefficient and outdated gaming and gambling laws, according to Web site operators.

The state is losing out on tax revenue, as well, firms say, because Czech laws do not apply taxation or fee structure to Internet gambling sites based in other countries.

The biggest problem, industry representatives agree, is loopholes foreign online bookmakers exploit to operate on the Czech market without a license.

"It is an incredible situation," said Lubomír Ježek, a spokesman for Tipsport, the Czech Republic's highest-grossing betting agency. "We have to pay all the fees and taxes on one hand, and, on the other, we have to compete with bookmakers who do not have any such obligations to pay taxes here."

As a result of additional profits that would otherwise have been taxed, off-shore sites can more readily bankroll massive advertising schemes and widen the divide.

"It is difficult for us, and we blame the government for being unable to do anything about it," Ježek said.

On Jan. 5, 2009, the Czech Republic allocated licenses to five of the country's largest gambling companies, allowing them to offer legal online betting services. Within three months of going online, Tipsport saw the new service account for 30 percent of its total revenue, totaling a 350 million Kč gross profit in 2009, up 30 percent from 2008, before the license was issued.

"Given that these revenue numbers are the highest in the history of our company, we are of course quite satisfied," Ježek said. "We are pleased even more that we are able to maintain the top position among Czech bookmakers."

However, the Czech Republic, which is widely considered to have the most lenient gambling and gaming policies in the European Union, faces arguments from all sides that there is a need for tightened legislation, including arguments from the Finance Ministry, which agrees that current laws are outdated.

"A new gaming bill has been on the table for a number of years, but with no success," said Finance Ministry spokesman Jakub Haas. "The new bill attempts to create common principles for all the types of gambling, so online gambling would not be otherwise disadvantaged."

The proposed gambling amendment has been with the Finance Ministry for four years, according to the Czech News Agency.

"The vast majority of the inefficiencies in gambling regulation comes from the state, which fails to fulfill its obligation to supervise the laws," Ježek said. "Another problem is that poor regard for the issues means many of the legislative ideas proposed to amend the existing law are based on misconceptions and wrong information."

According to statistics from the Finance Ministry in 2009, gambling and gaming agencies are estimated to pay more than 30 percent more in annual taxes than other businesses. Agency operators are subjected to a complicated system of taxation that works in several tiers. The most important difference is they are charged on a revenue basis and not by annual profit, meaning that, unlike other businesses, they are taxed on incurred costs.

Additionally, gambling and gaming agencies are charged by the state and municipalities by what is called administrative, local and state fees. According to Czech law, they have to cough up contributions for public purposes, which is not considered a tax but rather a method for the state to redistribute revenue or property. In the case of Tipsport and Sazka, sites predominantly used for sports betting, contributions are raised to support sporting associations.

Online gambling in the European Union turns over an estimated annual revenue of 2.5 billion euros ($3.5 billion/65.3 billion Kč), according to H2 Gambling Capital, despite the fact it has been contested due to ethical concerns. Most recently, in September 2009, the European Court of Justice ruled on a suit based in Portugal that allows for member states to ban domestic online gambling sites under the pretense that such actions would slow relevant crimes, such as underage gambling.

"The Court of Justice gave several important judgments on the matter during the past few years and still has many relevant cases to be judged," Balázs Lehóczki, head of the Czech unit of the Court of Justice, told The Prague Post. "In most cases, the legality of state monopolies in EU member states and their efforts to remove from their territories foreign gambling companies was questioned. In this case, the court ruled that the prohibition that legislation imposes on operators offering online gambling may be regarded as compatible with the freedom to provide services."

- Klára Jiřičná contributed to this report.

Philip Heijmans can be reached at
pheijmans@praguepost.com