Xavi Muñoz Bellvehí, Gambling and Betting Partner at ECIJA.
Note on the consequences of the state of alert for the land-based and online gambling sectors
The gambling & betting industry is among the sectors affected by the state of alert ordered to deal with the ongoing Covid-19 outbreak.
The effect on land-based gambling companies has been absolute and direct, with all gambling and betting shops being forced to close. Clearly, the activities of these companies are completely paralyzed.
The situation is much different for online gambling. Although sports betting is almost completely paralyzed as well due to the suspension of nearly every sports competition, part of the product offering (i.e. casino games, slots, and bingo) can be maintained.
We highlight below the legal issues that gambling operators will have to deal with during this public health crisis:
1. Employment
Among the labor measures approved by the government, the most significant is the procedural simplification of the Record of Temporary Employment Regulation (ERTE), which allows employers to temporarily suspend employment contracts or reduce working hours.
Employers can carry out two kinds of ERTE:
Force majeure ERTE: only in those cases in which the suspension of employment contracts or reduction of working hours is directly caused by the direct impact of Covid-19 on the profitability of the company.
Ordinary ERTE: for those cases in which the suspension of employment contracts or the reduction of working hours is not directly caused by Covid-19’s impact. It is worth mentioning that even in this case, the procedure has also been simplified.
Gambling and betting operators, who: (i) are land-based; or (ii) whose activities are exclusively or partly based on sports betting may carry out force majeure ERTEs, as their activities have been directly affected by Covid-19. In the first case, due to the closure of the betting shops and premises to the public, and in the second case, due to the cancellation of most sports events.
On the other hand, those online operators that do not offer sports bets should, in case they consider it appropriate and necessary to carry out an ERTE, comply with the requirements of the ordinary procedure, since the effect suffered in their activity is not directly linked to Covid-19.
2. Contracts
Considering the current situation, gambling operators, both land-based and online, should try to lower their fixed costs. This may include rental fees and licensing costs, as well as allocated budgets for marketing or other services that can no longer be (fully) carried out under the current circumstances.
Notwithstanding the provisions established in each contract and/or in the coverage of the applicable insurance policies, under Spanish law, this situation may be covered by the regulation of force majeure and the "rebus sic stantibus" clause, which consist of the following:
Regarding force majeure, provided by art. 1.105 of the Spanish Civil Code, "no one shall be liable for those events which could not have been foreseen, or which, if foreseen, were unavoidable", which can eliminate or limit all liability of one or both parties, without prejudice to the survival or termination of the contract in accordance with its object, duration and what has been agreed between the parties.
Regarding the "rebus sic stantibus" clause ("things being as they are" - which refers to the "circumstances" under which an agreement was signed, which have now changed), it is a doctrine shaped by Spanish Courts. On the basis of “rebus sic stantibus”, termination, review or suspension of contracts may be allowed in the event of disproportionate performance between the parties, resulting from a sudden and unforeseeable change in the circumstances existing at the time the contract was signed; this basically applies to contracts of a successive nature (ongoing).
Hence, depending on the actual context, operators or other firms in the sector may use these two options to rebalance their contractual position with their suppliers (mainly regarding the previously agreed price for temporarily unavailable or irrelevant products and services).
3. Gambling & betting specific regulation
At this time, the Directorate General for the Regulation of Gambling ("DGOJ") has not issued an opinion on the current Covid-19 crisis, nor has it stated whether there will be any changes with regard to the obligations of online gaming operators (for instance, a moratorium on compliance deadlines, some extra months for those operators who have recently obtained their licenses and must launch their operations within one year, speeding up the approval of new games that could be substitutes for sports bets, etc.). We are following up with the DGOJ to see if they are considering new measures.
4. Taxes
Land-based and online operators can benefit from the nationwide special measures adopted by the government, such as easing of deferrals of up to 30,000 euros for SMEs or the extension of certain deadlines within the framework of tax procedures.
5. Regional measures
In addition, some of Spain’s Autonomic Regions have taken measures to assist firms in the current emergency situation:
In Catalonia, the filing and payment of the first quarter's gaming fee for type B slot machines has been suspended until the state of alert is lifted (Decree Law 7/2020 of 17 March).
In Andalusia a reduction in slot machines tax has been approved, and establishes a 50% discount on the fees accrued in Q2 2020 (Decree-Law 3/2020, of 16 March).
In the Basque Country and Aragon, the deadlines for gambling tax payment have been extended.
However, these measures have not been extended to the Balearic Islands, where the regional tax office has decided not to extend deadlines or apply moratoriums on gambling tax payments. In this regard, it will be necessary to follow up closely how other regions react to the situation and whether they adopt measures in relation to this sector.
In conclusion, we consider that the main uncertainties that the gambling market in Spain is currently facing are the following:
When will sports competitions be resumed?
When will it be possible to reopen the land-based premises?
Will the schedule for the approval of the Royal Decree for Gambling Advertising Regulation be maintained?
Will the timings for the approval of the autonomic regulations for land-based and online gambling (i.e. regulation of the Valencian Community whose approval was foreseen for April) be maintained?
Will possible moratoriums be granted for gambling taxes both at regional level (in those regions that have not yet made a decision) and at national level?
In addition to this general overview, we have specific notes available on the employment and tax implications of the current Covid-19 crisis. Please contact Xavi Muñoz Bellvehí for more information.