IMGL Magazine July 2022

IMGL magazine

VOLUME 2 • NO.3 JULY 2022

PLUS: CALIFORNIA’S UPCOMING BALLOT, ONLINE CHOICE ARCHITECTURE , EUROPEAN TAXONOMY & AML REGULATION, NOVEL DIGITAL PRODUCTS, ONTARIO’S NEW REGULATED GAMING MARKET, MACAU MARKET UPDATE ...& MUCH MORE SPOTLIGHT ON MALTA

IMGL Magazine • April 2022 • 1

IMGL Officers

Cosmina Simion Secretary Simion & Baciu Romania +40 31 419 0488 cosmina.simion@simionbaciu.ro Diane Mullenex Assistant Treasurer Pinsent Masons London +44 20 7490 9250 diane.mullenex@pinsentmasons.com

IMGL Officers 2022

Marc H. Ellinger President

Ellinger and Associates Jefferson City, Missouri +1 573 750 4100 mellinger@ellingerlaw.com Quirino Mancini Executive Vice President Tonucci & Partners Rome, Italy +39 06 322 1485 qmancini@tonucci.com Marie Jones First Vice President Fox Rothschild LLP Philadelphia, Pennsylvania +1 609 572 2259 mjones@foxrothschild.com Marc Dunbar Second Vice President Dean Mead & Dunbar Tallahassee, Florida +1 850 933 8500 mdunbar@deanmead.com Peter Kulick Treasurer Dickinson Wright PLLC Lansing, Michigan +1 517 487 4729 pkulick@dickinsonwright.com

Susan Breen Assistant Secretary Mishcon de Reya London +44 20 3321 7434 susan.breen@mishcon.com

Birgitte Sand Vice President, Affiliate Members Birgitte Sand and Associates Copenhagen, Denmark +45 24 44 05 03 bs@birgittesand.com

Ernest C. Matthews IV Vice Presiden, Affiliat Members Internet Sports International, Ltd

Las Vegas, Nevada +1-702-866-9128 ernest@isisports.com

Kathryn R. L. Rand Vice President, Educator Members University of North Dakota Law School Grand Forks, North Dakota

+1 701 777 2104 rand@law.und.edu

IM G L

President’s message

iGaming, New Frontiers and More Regulation…Oh my! Marc Ellinger , President INTERNATIONAL MASTERS OF GAMING LAW W elcome to the newest edition of the IMGL Magazine. In the following pages, you will find outstanding

or for gaming in general as its growth explodes across the globe. Regulators are flexing their muscle across the world. In Europe, the regulatory march is at full speed. If you thought GDPR was a headache, wait until you read about the Digital Services Act and its ramifications for the gambling industry. First raised in these pages last year and discussed in a lively session at our conference in Seattle, this development is going to require us all, wherever we practice, to take on board a raft of online restrictions. Only the nimble will thrive and it pays to get up to speed early. Europe’s determination to take a lead in digital regulation will be a major talking point at our upcoming London conference, September 14-16, at the Landmark Hotel. You can read a preview of what to expect in these pages. Another event in London will be the unveiling of our new website. The new IMGL website will be launching this fall and the IMGL Magazine is going to play a major role. As always, we are looking for articles on innovative practices or critical events. Articles get global exposure, advance the mission of the IMGL, and help our industry understand what may be on the way, so they can get ahead of any looming problems. Please contact our Head of Publications, Phil Savage at Phil@imgl.org or our Editor-in-Chief, Dr. Simon Planzer. I cannot conclude without thanking our sponsors for their support. That support is critical to providing the resources for the IMGL to move our education mission forward. Thank you so very much! Until London in September…Cheers!! Marc

articles about the global state of gaming as only the IMGL can bring to the table. We now find ourselves at the 20th anniversary of regulated iGaming in Europe with Malta’s regulation being the first. Malta has been at the cutting edge of gaming and it continues to be in the news on a daily basis. While the Maltese experience is critical, this edition is full of new frontiers in regulation from around the world in line with IMGL’s international reach and membership. We have a review of the first 90 days of Ontario’s new licensing regime and an in-depth review of the choices facing the people of California as one of the world’s largest economies prepares to vote on the legalization of sports betting. Away from North America we look at the state of the market in Macau and ask whether the new concession regime can help gaming recover and the Special Administrative Region achieve its goals in what was once the world’s gaming capital. We are witnessing regulatory mission creep into novel products which have never attracted scrutiny before. From the “gamblification” of entertainment to trading platforms for unregulated “investment” products, if it looks like gaming regulatory interest is coming down the track. Whether gaming lawyers help clients design products which stay the right side of the law or remain outside the regulatory net, this is an area where our advice will be increasingly valuable. The articles in this edition are must- reads for anyone working in the iGaming area

L

IMGL Magazine • July 2022 • 3

Editorial

Closing & opening doors Simon Planzer PhD , Editor in Chief O ur readers will be familiar with the saying: “When one door closes another one opens”. It is positive thinking at work! Staying positive is a must of occasionally moving at a slower pace. Considered regulation, regularly reviewed and updated, as well as draft amendments put out for public comment has provided stability for the industry and a big economic benefit to the Mediterranean island. This issue puts a spotlight on Malta with several contributions from expert authors.

and embodied by the gaming industry worldwide. It has been optimistic and nimble. Ready to take advantage of new opportunities. Willing to grab them wherever they arise. Amid closing doors during a Covid pandemic, the past two years have witnessed some huge doors opening across North America as states and provinces race to legalize sports betting. The most recent of these is Ontario which has been applauded as a rather positive model of effective regulation and is covered in this issue of the IMGL Magazine. North America’s decade-long prohibition of online gaming combined with the rush to legalize it now stands in contrast to Malta’s rather steady and long-term approach. Over two decades, it has shown the benefits

Amid opening doors, we cannot fail to ignore those doors which appear to be narrowing at least - if not closing all together. Europe has proven its determination to show regulatory leadership in online gaming for many years. Recent regulatory trends may be motivated by the best of intentions, but there is a real and substantial danger that these trends stifle innovation and consumer choice. Sometimes they may hinder the achievement of the goals they claim to achieve. As another saying goes: “The road to hell is paved with good intentions”. It is not just trends at a jurisdictional level that should invite us to thoroughly

Contents

7

Malta 20 years of fully regulated remote igaming Of big fish and little ones: Gaming M&A in Malta

10 14 17 21 26 34 38 42 47 53

Innovation in Malta: the use of player trusts to protect funds The growing tension between EU law and the gambling sector

Regulation of novel digital products

Digital game design and the changing regulatory landscape

Ontario’s first 90 days of regulation

The final countdown? Market update from Macau Sports betting in California: two initiatives on the ballot

Seattle conference report

IMGL London conference preview

4 • IMGL Magazine • April 2022

Editorial

IMGL magazine IMGL Magazine • Summer 2021 • 1 • WITH FEATURES & ANALYSIS OF • • THE EVOLUTION OF REGULATION IN SPAIN • • EXPLOITATION OF SPORTS DATA FOR BETTING • • BIG MILESTONES IN COLOMBIA, MACAU & FRANCE • • ARTIFICIAL INTELLIGENCE: APPLICATIONS IN GAMING • • PLUS & AN ESPORTS GUIDE FOR LAWYERS • Payments special From KYC & AML to PISP & Crypto IMGL magazine VOLUME 1 • NO.2 SUMMER 2021 INCLUDES ANALYSIS ON: LOOT BOXES, GDPR, MOBILE SPORTS BETTING, NORTH AMERICA, UK GAMBLING ACT REVIEW, FANTASY GAMING, AUSTRALIA’S CROWN CASINO, INDIAN & AFRICAN REGULATION IMGL Magazine • Spring 2021 • 1 VOLUME 1 • NO. 1 SPRING 2021 IMGL launches revamped magazine Disseminating gaming law knowledge globally IMGL magazine

contemplate regulation. We have to consider regulators’ possible responses to technological advances. Recent months have seen regulators speak publicly about the need to look more closely at digital platforms which would not have come within the remit of gaming laws some years ago. Accompanying, providing valuable input, and shaping regulatory developments is increasingly important for sound regulation in general. The scientific foundations of so-called Choice Architecture were laid by renowned scientists including Drs. Ariely, Kahneman and Thaler. In a book chapter, Martin Lycka and I invited the gaming industry to integrate Online Choice Architecture (‘OCA’) into their responsible gaming tools (see the Oxford University Press monograph ‘Responsible Gambling: Primary Stakeholder Perspectives’ edited by Shaffer, Blaszczynski, Ladouceur, et al.). Beyond that, OCA practices can of course be used for various reasons, including to push us towards the preferred choices of website operators. Think of a restaurant menu where the color or typeface of one dish may significantly boost take up of a high margin item at the expense of another. In online gaming, things can have great impact – like sound or unsound decisions between food options. Economist Rivers and his colleague cover some of these aspects in their piece that you will also find in this issue. Wishing you all an enriching and thoughtful reading under the palm tree or in your office. Yours sincerely, Simon planzer@planzer-law.com

IMGL Magazine • October 2021 • 1 VOLUME 2 • NO.1 JANUARY 2022 IMGL magazine INCLUDES ANALYSIS ON: TRIBAL SPORTS BETTING, MALTA’S FATF GREY LISTING, DISTRIBUTED GAMING, EUROPEAN DIGITAL SERVICES, ESPORTS INTEGRITY, EUROPEAN MARKETING REGULATION ...AND MUCH MORE Beautiful Boston: IMGL in-person events return VOLUME 1 • NO.3 OCTOBER 2021 IMGL magazine

SPOTLIGHT ON REGULATORY ISSUES: WORLD REGULATORY BRIEFING REPORT

Click the covers to catch up on past IMGL Magazines. PLUS: UKRAINE AND BRAZIL MARKET REPORTS, DIGITAL ID IN EUROPE, CHANNELIZATION AROUND THE WORLD, APPLE’S CASINO APPS ...AND MUCH MORE TAX TALK: SPECIAL FEATURE

PLUS: ADVERTISING BANS, NFTs & VIRTUAL DIGITAL ASSETS IN GAMING, FORMER DK REGULATOR’S PERSPECTIVE,

UKRAINE, SINGAPORE, IRELAND, PHILIPPINES, UK GAMBLING WHITE PAPER, ...& MUCH MORE

IMGL Magazine • January 2022 • 1

IMGL Magazine • April 2022 • 1

IMGL Magazine is owned, published and distributed by: The International Masters of Gaming Law PO Box 27106, Las Vegas, NV 89126 USA The IMGL is a domestic non-profit corporation registered in Nevada, U.S. with registration number NV20121147120 Editor in Chief: Simon Planzer PhD, planzer@planzer-law.com Publication & Marketing Committee: Co-chairs , Stephanie Bell and Simon Planzer Members : Henrik Hoffmann, Kok-Keng Lau, Christine Masse, Peter Kulick, Anna Soilleux-Mills, Veronique dos Reis Head of Publications: Phil Savage phil@IMGL.org Design and production: SportBusiness Communications. Copyright: All rights reserved to IMGL. No part of this publication may be reproduced or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior permission from the publisher. The articles expressed in this publication do not necessarily reflect the views of IMGL but those of the authors. The publisher and editor do not accept any liability for the contents of the authors’ contributions.

IMGL Magazine • April 2022 • 5

WE ARE YOUR GAMING LAW ADVISORS

For over 40 years, Saiber has built a reputation for delivering innovative, creative, and cost- effective solutions to a range of domestic and international gaming businesses.

Saiber LLC New Jersey • New York • Pennsylvania saiber.com

Malta market focus

Malta – 20 years of fully regulated remote iGaming As Malta celebrates removal from the FATF grey list, James Scicluna and Ramona Azzopadi chart the keys to development of the island’s gaming sector and outlines the challenges to be faced in future. F

rom a standing start 20 years ago, Malta has grown to be a world leader in remote gaming. At the same time, the industry has become a significant contributor to the Maltese economy accounting for over 10,000 jobs. It has also been responsible for an influx of thousands of young, well paid and well-educated workers who have made the island their home. In the decade from 2010, the industry grew by over 80 percent. This trend continued during Covid, boosted by the move to remote working so that today it accounts for 12 percent of Maltese GDP and is one of the local economy’s most value adding industries. The cause of this success? Regulation. Malta was the first European Union member state (by several years) to create a comprehensive legal framework for igaming. That first- mover advantage persists despite many other jurisdictions regulating gaming themselves. Being the first fully regulated environment in Europe drew gaming companies seeking the credibility and respectability of a gaming license to the

island. The law, which was revamped in 2018, and the Malta Gaming Authority have proven effective at keeping up with the pace of change and Malta is still one of the only EU markets to boast a fully-functioning regulated market. Over 20 years the island has built a critical mass of investment, infrastructure and local talent which have combined with market access to produce a thriving industry. It is testament to the value of a Malta’s gaming ecosystem that some recent investors have located onto the island for this alone, rather than the benefits of a Maltese license. The growth of the gaming industry has not been entirely plain sailing and there have been some headwinds along the way. Some of these are familiar to all hi-tech industries – talent and digital infrastructure are as in demand in Seattle as they are in St Julian’s, as are affordable property and a balance between growth and quality of life. Other factors are more homegrown. Financial services, one of Malta’s other growth stories, has largely developed in a parallel rather

IMGL Magazine • July 2022 • 7

Malta market focus

than a complementary way to the gaming sector. Provision of banking services, which is key to the success of any commercial venture particularly gaming, is still a struggle and one of the industry’s biggest gripes. The situation has not been helped by the island’s grey listing by the Financial Action Task Force (FATF) which made banks even less

period able to say it is even cleaner and more vigilant when it comes to its AML responsibilities. There is a feeling in the industry that the end of grey listing will be a springboard to greater access to European markets and financial services. Malta has proven adept at using its status to punch above its weight in Europe and elsewhere. Where some European

willing to service customers in an industry perceived as risky. Maturity has also come at a price. The standard of gaming regulation has been raised in jurisdictions across the world and Malta is no exception. In the early 2000s a compliance department of one person was the norm. Now, a team of 15+ is not uncommon leading to calls for the MGA to avoid over-regulating the sector. The authority itself accepts that the regulatory ceiling is now quite high and says it is focusing on raising the floor so that all operators are held to the same high standard. “The future will be a period of refinement,” says Carl Brincat, Chief Executive Officer of the Malta Gaming Authority. “We need to be flexible and fair to those licensees who are always compliant whilst remaining attractive to start-ups which are our lifeblood and source of innovation. There has been some consolidation in the

countries have, for various reasons, pushed for greater control over the gambling sector, the MGA has argued for regulation which is proportionate, not duplicating other sectors and focused on its main objectives. Outside the EU, the country has helped numerous jurisdictions regulate their gaming sectors with a set of regulations which are ready to be implemented. Tax opportunities Whilst there are numerous factors in Malta’s competitive advantage, tax has been one of the keys to its success. Gaming companies have gained from a beneficial corporate tax regime, VAT and other tax incentives for staff which have encouraged

iGaming in Malta The industry at a glance

12% 10,000 36.2m €924m

Value of industry to Maltese GDP*

Number of people directly employed* Active player accounts registered on Malta-licenced websites† Total Gross Value Added generated†

* MGA 2022 † National Statistics Office 2020

them to recruit qualified people from overseas. The Pillar 1 proposal, dealing mainly with transfer pricing and the taxation of the digitized economy, and the rollout of a minimum tax under Pillar 2 of the OECD’s base erosion and profit shifting (BEPS) project may bring about some changes to the current tax system. Pillar 2 will see the introduction of a minimum 15 percent corporate tax rate on companies with a turnover above €750m. Malta has negotiated an exemption until 2029, however widespread adoption in several jurisdictions can have an effect on businesses on the island before 2029. There is no question that Malta will fulfil its international

sector but we need those new smaller, nimble companies for the future. The focus of regulation will be to bear down on criminality and raise standards of consumer protection and we need to ensure that our refinements actually have an effect and are not just a burden on operators.” The MGA recognizes that some of the responses to the FATF grey listing have increased costs for operators. These have come despite the gaming sector being exonerated by the task force. But they hope the sector will come through this

8 • IMGL Magazine • July 2022

Malta market focus

obligations, but with careful planning, the tax changes can be turned into an opportunity too. It was announced by the Maltese Government that there will be a change of the tax system moving away from the tax refund regime which has been in place for around 30 years. This will be replaced by a more classical system where profits are charged separately from dividends. A system is in the pipeline and the government is determined to strike a balance between meeting its revenue needs and supporting all industries, including the gambling industry, whilst continuing to be a tax competitive jurisdiction. Malta is heavily dependent on service industries and, while tax will always be a major factor, the headline rate of corporation tax is not the complete picture. The island will continue to look for ways to make itself an attractive place to do business from a personal as well as an enterprise perspective. The change to the international tax rules will also be an opportunity for companies to rationalize their corporate structures. Many forward-thinking companies are already gathering data as to what business they do in each of the markets in which they operate in anticipation that this will help make smart decisions. The key is to co- locate value creation with the most profitable operation in an attractive tax jurisdiction and that should continue to provide Malta with an advantage. What most organisations are calling for above all is clarity. Once the rules and their method of implementation are clear, tax is likely to be manageable as an operational cost. The next twenty years Looking to the future and the next 20 years, it is clear that Malta starts from a position of strength. The unanticipated

effect of the FATF grey listing will be a business environment that is cleaner and more transparent. Its gaming and gambling companies are well regulated and see value in a Maltese license as an operating framework as well as a useful endorsement when trying to attract investment. The industry is strong and thriving but it cannot be taken for granted. Its continued success is the shared responsibility of all parts of the gaming ecosystem. The regulatory framework and the regulator are both of high quality and that in turn attracts high quality people. Malta will strive to remain an attractive place to do business and there are reasons for confidence that reforms to tax and regulation will help the country to achieve its aim. These objectives would be supported by steps to incentivise local and foreign technology investors and, in particular, start- up companies and venture capitalists. The government’s recent announcement that it will create a technology investment fund is potentially helpful but private capital should be encouraged too and investment made in technology regardless of the vehicle chosen to achieve it. Education will also play a big part in the future. Creating an attractive operating environment for companies means investing in skills, in marketing support services and the provision of payment services. Investments in those areas will make the biggest contribution to the gaming industry and in turn to the country. Investors, whether local or from overseas seek the same things: well-functioning infrastructure, affordable housing, education and adequate connectivity. The Government has the main responsibility for delivering this but they are not the only ones. Each individual and organisation connected with gaming needs to play their part in ensuring that the next 20 years are just as successful.

Ramona Azzopadi is a Tax Partner at WH Partners.

James Scicluna is co-managing partner at WH Partners. For more information contact +356 2092 5124 james.scicluna@whpartners.eu

IMGL Magazine • July 2022 • 9

Maltese gaming M&A

Of Big Fish and Little Ones Andrew J. Zammit gives a Maltese perspective on M&A activity within the gambling industry and provides five key considerations for buyers.

I t is a truth universally acknowledged that the big fish eat the little ones - in business at it is in the natural world. The last six years have witnessed an explosive trend of mergers and acquisitions in the online gambling and video game industries, often worth billions of dollars, creating a significant buzz within the wider industry. The main drivers of this M&A activity include the overall growth of the gambling industry, the slow but steady opening up of the US sports betting industry and other geographical markets across all continents, and undoubtedly the Special Purpose Acquisition Company (SPAC) trend that has boosted acquisitions across all sectors. Market-trend-based strategies for the online gambling market include investing in Artificial Intelligence (AI) technology to enhance the user experience, integrating cryptocurrency as a method of payment, building mobile apps, investing in Augmented Reality (AR) and Virtual Reality (VR) technology, sponsoring sports events with large

audiences, collaborating with celebrities and influencers, providing free access to games with certain main features and offering cross platform support for games. Incumbent operators and investors seek to get quicker access to tried-and-tested technology, robust customer databases, and a wider spectrum of markets and licences, achieving speed-to-market through acquisitions rather than organic growth, given the sheer pace of market development and also the significant opportunity cost of time and resources. According to the EuropeanGaming 1 portal, the online gambling market reached a value of nearly €73,597.4 million in 2020, having increased at a compound annual growth rate (CAGR) of 13.7 percent since 2015. The market is expected to grow at a rate of 10.7 percent to €122,148.15 million in 2025 then expected to push on at a CAGR of 8.6 percent from 2025, reaching €184,264.3 million in 2030. Opportunities in the online gambling market are expected

1 https://europeangaming.eu/portal/latest-news/2022/03/24/111563/global-192-billion-online-gambling-markets-opportunities-and-strategies-2015-2020- 2025f-2030f/

10 • IMGL Magazine • July 2022

Maltese gaming M&A

to increase by game type in the betting segment, which will gain €20,524.8 million of global annual sales by 2025. Opportunities in the mobile segment will also rise, gaining €33,986.5 million of global annual sales by 2025. The online gambling market size will gain the most in the USA at €8,102 million. These numbers are quite astounding, and it certainly promises to be a very interesting ride ahead! It has increasingly become a matter of “hunt or be hunted”. Malta as European Gambling Hub Malta established itself as a hub for online gambling regulation as early as 2001, recognising the need for a robust regulatory framework to support gaming operators having global strategies and ambitions. The legal and regulatory framework was recently modernised, through the implementation of several changes driven by consumer trends and political developments. Evolving technologies and game-play preferences set the scene for a robust, technologically neutral framework which also introduced principles of “mutual recognition”, attributing regulatory equivalence to operators holding licences in jurisdictions offering suitable regulatory protection to consumers. This last initiative was undertaken in the context of the rise of national regulatory frameworks for online gambling across the EU Members States. The 2018 amendments also introduced additional controls, based on the regulatory learnings garnered during the previous eighteen years. Malta’s regulatory framework, supported by a reliable telecommunications infrastructure (high speed internet across the island) and specialised professional and technical support, is still highly attractive for operators having a global strategy. Large gambling groups all run certain components or brands out of Malta. This “pull-factor” has seen several fledgling online casino, poker, sportsbook, betting exchange and fantasy sports operators call Malta their home, providing them with the right environment to grow into sizeable market contenders, drawing the attention of the large gambling groups looking to increase market share, or introduce new technologies and content. A Buyer’s Perspective Within this context, buyers in the online gaming space frequently encounter Maltese components within merger and acquisition deals. There will typically be one or more Malta-based companies included within the transaction, necessitating the engagement of legal, tax and financial advisors in Malta to assist with the pre-acquisition due

diligence process, structuring and the completion of all conditions precedent for the finalisation of the transaction. During our daily legal practice, we have handled several acquisitions in the gambling space. Whilst we have acted for sellers, investors, investment banks, commercial banks, private equity funds, venture capital funds, institutional lenders, and management groups, the bulk of the deals we work on are on the buy-side. Whilst no two deals are ever the same, our role typically involves leading on all the Maltese legal and regulatory aspects, handling the legal, employment and regulatory due diligence, drafting or reviewing the heads of terms and share purchase agreement, structuring the financing documentation relating to the deal and co- ordinating the accomplishment of all conditions precedent, necessary for completion. Whilst deals vary in their approach, size and nature, the bulk of what we see is structured as an outright acquisition of shares in the Malta target (usually a holding company which, in turn, owns a Malta-licensed gaming operator subsidiary), as opposed to asset deals. When they do happen, asset deals tend to be somewhat more complex, requiring the careful legal definition and treatment of IP assets and of the associated rights and corresponding liabilities being undertaken by each of the parties to the deal. Regulatory Approvals Maltese law provides that any direct or indirect shareholding of 10 percent or more in the equity of a company licensed by the Malta Gaming Authority (MGA) or any financial investment or financial contribution to the share capital or working capital of a regulated gaming company, or the control of voting rights in such company is considered to constitute a “qualifying interest”. Once the “qualifying interest” threshold is established, any transaction involving a change in that qualifying interest must be notified by the licensed entity to MGA no later than three working days after the change takes place, with all supporting documentation relating to the transaction being submitted to the Authority within 30 days of such a change. The documentation to be submitted to the Authority within the 30 day statutory period, includes updated regulatory forms and enclosures for each new entity in the structure, updated policies (if any), updated personal declaration forms and enclosures for the proposed ultimate beneficial owners (UBOs) and directorship changes (if any), the relevant corporate resolutions approving the transaction, certified copies of the corporate registers relating to the deal, as well as assessing the source of funds for the consideration. This process involves a significant administrative exercise,

IMGL Magazine • July 2022 • 11

Maltese gaming M&A

and the effort required for the collation of a comprehensive submission package should not be underestimated. What is clear from our experience is that the quality of the submission package will have a direct bearing on the efficiency of the approval process from the MGA’s perspective, making it easier for the Authority to process the request based on a complete submission of technical and legal information. It is also relevant to note that the approval must be accompanied by a notification fee of €1,500 payable to the Malta Gaming Authority for each approval request. In the event of a late notification, the MGA may, at its discretion, impose an administrative penalty on the relevant licensed entity of up to €25,000 and/or an administrative penalty of up to €500 per day for as long as the breach persists. It is important to emphasise that although Maltese regulations lay down an ex-post notification obligation (i.e. notification after the transaction is completed), the Authority has the power to reject the transaction if it concludes that the fitness and propriety of the licensee may be adversely impacted as a result of the transaction. In such circumstances, the MGA could effectively order the licensee to unravel the legal effect of the transaction, reverting to the status quo ante within a specific timeframe. To manage this legal risk, the preferred approach to transaction structuring in Malta is to make the share purchase agreement conditional upon the MGA’s approval of the proposed transaction, thereby suspending the completion of the deal and ensuring that the transfer of title in the target only gains legal effect once the MGA approves the fitness and propriety of the prospective purchaser. The MGA’s approval process may vary, depending principally on the complexity of the ownership structure of the prospective purchaser, since it involves a detailed due diligence approval process, focusing on the purchasing entity up to the level of the UBOs. By way of general guidance, a relatively simple structure should be approved within eight to 12 weeks from submission of the relevant request. Insofar as asset purchase deals are concerned, there may be significantly more complexity involved, depending on the nature of the assets forming the object of the acquisition, and how those assets will impact the continued operation of the licensed entity. Regardless of which assets are to be sold by the licensee, it is safe to assume that MGA notification and/ or approval would be required in such circumstances. Caveat Emptor! Here are some key considerations for buyers of a Malta- regulated iGaming Operator to look out for when

considering a target, with particular focus on Business-to- Consumer (B2C) operations. 1. Be clear about how the target or the strategic assets identified for acquisition will fit into, complement and possibly accelerate your current business strategy. As basic as this may seem, it is critical that the acquisition team handling the negotiation of the deal is clear about the specific benefits of acquiring the target or specific assets, the true value of the target or its assets, and how these will be managed post-acquisition to complement the buyer’s business strategy objectives. The temptation to buy a licensed gaming company with the sole objective of “acquiring the licence” makes little economic sense in circumstances where the buyer will need to overhaul the target’s entire business strategy to bring it in line with the purchaser’s strategy. Experience has demonstrated repeatedly that if obtaining a Maltese remote gaming licence is the sole or principal objective driving the acquisition, it is likely to be more cost-effective and quicker to set up a Malta-licensed operation from scratch. This brings the added benefit that the purchaser would also avoid any historical “skeletons” in the form of claims or liabilities that may affect the target or its assets. 2. Be clear about the real value of the Intellectual Property Assets forming part of the deal Besides the entrepreneurship and human capital components which are so vital to any operation, a significant component of the commercial value of a successful online gaming operator lies in the intellectual property (IP) assets. These IP assets would, to a greater or lesser extent, typically consist of a combination of intangible assets, including the brand, software, customer database, gaming content, regulatory and compliance know-how, IT infrastructure, and the integration of payment methods. As part of the deal-structuring it is important to assess the true value of each of these assets, identifying whether they are proprietary (belong directly to the target or another entity forming part of the acquisition) or, alternatively, subject to licensing or similar arrangements by a third party. Thus, for instance, the game content is most likely to be provided by one of the large B2B gaming operators that dominate the industry. When considering any such outsourced arrangements that depend on third-party service providers, it is imperative that the quality and reliability of that third party service provider, and its prospects for future development, are carefully assessed in the context of the proposed acquisition. A review of the player database to assess player conversion, player retention and player revenue statistics is essential,

12 • IMGL Magazine • July 2022

Maltese gaming M&A

as is the consideration of the geographical location of those players. This will avoid the unwanted regulatory risk of accepting players from risky jurisdictions or geographical markets which could seek the enforcement of legal impediments or other remedies seeking to prohibit or restrict the offering of gambling services in that market. 3. Consider the risks involved in the geographical markets handled by the target company The transaction due diligence exercise conducted by the prospective purchaser would invariably involve a detailed profiling of the target company’s existing license portfolio and its current regulatory standing with each of the regulators concerned. A key consideration for the prospective purchaser of a B2C Operator is to engage professionals not only in the jurisdiction/s where the target is licensed, but also in each of the markets in which the target company is active at the time of the proposed acquisition or which are being considered as potential growth markets post-acquisition. The main objective of the legal advisors in these jurisdictions would essentially be to provide an accurate and up-to-date assessment of any opportunities, risks and pitfalls that may exist in each of those jurisdictions, provided that the purchaser intends to build on the target’s existing market strategy. As the regulatory landscape for online gaming operators is rapidly evolving across the EU, Australia and the Americas and across the entire globe, accurate and timely information for proper decision-making is imperative, empowering the acquisition team to carefully assess the commercial opportunities and threats in the context of the proposed transaction and the purchaser’s wider strategy. 4. Make a careful assessment of the target’s regulatory standing Given the reality that acquisitions predominantly take the form of an outright acquisition of some or all of the share capital of that target company, the purchaser should

be cautious about “stepping into the target’s regulatory shoes”. For this reason, getting a full understanding of the target company’s regulatory standing and of any legal issues that may have arisen is of fundamental importance for the stability of the target’s business post-acquisition. It is highly recommended that the prospective purchaser seeks the appropriate comfort through (i) the review of all past correspondence between the target company and its regulator/s, and (ii) by obtaining written authority from the target to discuss the target’s outstanding regulatory obligations (if any) with the relevant regulator, intended at understanding the expected remedial action, possible threats to the continuity of the licence and any financial penalties involved, if any. Based on this information, the purchaser would have an up-to-date understanding of the target’s regulatory health status, a clear assessment of the materiality of any outstanding issues, and specific recommendations as to how those issues can be resolved post-acquisition. 5. Take a full 360-degree view of the transaction Get the required guidance and advice from seasoned professionals to ensure that the management of the deal is managed within realistic and achievable timeframes. The regulatory approvals set out in this article are only one angle for a buyer to consider. Additional angles to be considered and covered could include competition (anti-trust) clearances, legal mechanisms driven by the Transfer of Undertakings (Protection of Employment) Regulations (TUPE), operational and tax optimisation post-acquisition and the proper management of key roles and responsibilities within the operation to ensure a smooth transition. Working with professionals that are regularly involved in the industry provides the insight and guidance necessary to separate critical from less material issues, coupled with experience-based recommendations to solve any issues in the course of the transaction.

Andrew J. Zammit is Managing Partner at GVZH Advocates For additional information, please contact: +356 2122 8888 andrew.zammit@gvzh.mt

IMGL Magazine • July 2022 • 13

Innovation in Malta

Using trusts to protect gaming players’ funds In a difficult banking environment, Roger Strickland and Franklin Cachia find gaming operators are using Trusts and licensed Trustees to protect and safeguard players’ funds.

G aming operators have an obligation at law to has also achieved international standing around the globe. When looking at the Maltese landscape with particular focus on the protection of player funds, such obligations mostly stem from the Maltese Gaming Act 1 (the “Act”) and subsequent directives issued by the Malta Gaming Authority, predominantly the Player Protection Directive 2 (the “Directive”). Part IX of the abovementioned Directive clearly states that “the Act and the regulations made thereunder establish funds as being the separate and distinct patrimony of the players, segregate and protect their players’/customers’ funds. This obligation is not only locally imposed but it

and are not funds belonging to the licensee.” The Act goes on further to state that “Player funds may be held within credit, financial and, or payment institutions licensed in Malta, or licensed outside Malta but within the EU/EEA or other approved jurisdictions”. Further to the above, it has become a current reality that Gaming operators are experiencing difficulty in opening a bank account, not only locally. Such difficulty is a result of various factors such as the de-risking practices that banks and payment institutions are undergoing, to minimise their exposure to money laundering and/or financing of terrorism as well as minimisation of regulatory risks of hefty penalties imposed by the applicable authorities.

1 Chapter 583 of the Laws of Malta. 2 Directive 2 of 2018, Player Protection Directive, in exercise of the powers conferred by article 7(2) of the Gaming Act, 2018 (Cap. 583 of the Laws of Malta.

14 • IMGL Magazine • July 2022

Innovation in Malta

In this respect, as an alternative to the above, Gaming operators are resorting to the use of Trusts and the appointment of a licensed Trustee to protect and safeguard players’ funds. What is a Trust? In accordance with the Maltese Trusts and Trustees Act 3 , a trust exists where a person (called a trustee) holds as owner, or has vested in him property under an obligation to deal with that property for the benefit of persons (called the beneficiaries), in this context the players, whether or not yet ascertained or in existence, which is not for the benefit only of the trustee, or for a charitable purpose, or for both such benefit and purpose aforesaid. Most importantly, trust property shall constitute a separate fund owned by the trustee, distinct and separate from the personal property of the trustee and from other property held by the trustee under any other trust. Trusts for Players’ Funds Whereas trusts may have built a reputation for disguising the ultimate beneficial owners or used for tax avoidance purposes, in the gaming industry, trusts provide a paramount protection for players’ funds for the following main reasons, amongst many: 1. Under Maltese Law, Trustees (subject to a few exemptions) must be in possession of a licence issued by the Malta Financial Services Authority (MFSA) to provide trustee services. In this respect Trustees are subject to regulatory and conduct supervision by the MFSA, against penalties and/or even revocation of said licence, in the event of failure to meet regulatory obligations; 2. Trustees, not only have obligations

delineated under the Trusts and Trustees act but also have wide-encompassing fiduciary obligations under the Maltese Civil Code 4 which dictate, inter alia , to exercise the diligence of a bonus pater familias in the performance of his fiduciary obligations and keep any property as may be acquired or held as a fiduciary segregated from his personal property and that of other persons towards whom he may have similar obligations and to affect a change in the registration of any relevant property, as may be required for such purpose. 3. The said provisions provide power to the beneficiaries to seek court redress in the event that the Trustee is in breach of the provisions of the law and/or if the Trustee is not performing in the best interest of the beneficiaries. Therefore, the law grants an added layer of protection in ensuring a system of checks and balances on the powers of the Trustee. Case Study: United Kingdom Gambling Commission (UKGC) The UKGC has placed considerable emphasis on the protection of players’ funds and recognises that if players’ funds are held with an independent Trustee, this affords high protection towards the players especially in the event of insolvency proceedings against the Gaming operator. To maintain this high level of protection the funds, the Trustee would ensure that the funds are held in a separate account, which is legally recognised as separate from the business. Moreover, the funds are controlled by an independent trustee and are also checked by an external auditor. Such a trust arrangement is considered to meet the UKGC’s requirements for the high protection of customer funds.

CSB Group advises a portfolio of corporate and private clients operating in Malta. Franklin Cachia is director for tax and related industries

Roger A. Stricland is CSB’s Group’s Director For additional information, please contact: +356 2557 2557

3 Article 3, Chapter 331 of the Laws of Malta. 4 Chapter 16 of the Laws of Malta, Articles 1124A – 1124J.

IMGL Magazine • July 2022 • 15

From our valued sponsors

PLAY’N GO: HELP THE FUTURE OF S COULD LOOK LIK Play’n GO has always taken a rigorous approach and licensing. At the forefront of mobile gaming fo decades, today we maintain licenses and/or certi more than 25 jurisdictions worldwide. We strongly believe the key for identifying and eff implementing what best protects players from har evidence-based and data-driven regulation. This harm relating to a lack of protection as a result of channelization failing by restrictions not meeting t needs and players choosing black market offering licensed offerings. We want regulators to see and use Play’n GO as to them in this context. We believe that understanding the problem and h it in a joint effort utilising new and existing techno evaluating what we do to keep improving and help awareness about the options available to players control and treat their gambling behaviour are par driving change and raising industry standards. Play’n GO want to actively contribute to raising in gambling standards by creating entertainment tha an industry to get ahead of the game. Player Education An area of interest for Play’n GO is seeking ways support we can offer to our customers to educate risks of gambling and specifics of our games. We already do this in our game design by ensurin (help) settings and relevant buttons are easily acc labelled in a way that their functionality is clear an to understand. The same applies to game rules, descriptions of w scenarios within pay tables and information on th winning including the RTP (return to player) perce within games. At all times during their gaming session, players w a display of their account balance, bet amount, an per game round. Moreover, we enable our partne display safer gambling information including for e age information and links to self-assessment test self-exclusion registries or a player’s limit settings while players play our games.

16 • IMGL Magazine • July 2022

EU taxonomy and AML developments

The growing tension between EU law and the gambling sector: the consequences of EU AML rules & EU taxonomy Philippe Vlamminck and Rob Verbeke outline the existing tensions between EU law and the gambling sector, and give a heads up on some relatively new European Union regulations which could have unintended and potentially damaging consequences for the gambling industry. T here is sometimes a tense relationship between EU rules and the gambling sector. Under the subsidiarity principle, gambling is regulated on the level of the Member States and not by EU law. The Court has repeatedly stated that legislation on games of chance is one of the areas in which there are significant moral, religious and cultural differences between the Member States. This means that Member States are free to set the objectives of their policy on betting and gambling and, where appropriate, to define in detail the level of protection sought. Any restrictive measures that they impose must satisfy the conditions laid down in the case-law of the Court as regards their proportionality 1 . Nevertheless, in principle, the general laws and regulations applicable to other sectors also apply to gambling and the gambling operators. Yet, for several legal instruments there are specific exceptions whereby gambling is excluded from the scope of application of EU rules (e.g. the e-commerce directive 2 ). This tension seems to be heading to new potential points of conflict, whereby European legislative instruments create an unwanted and potentially detrimental effect on the legal gambling business. We will highlight two specific instruments in this regard: 1) the EU taxonomy, and 2) the (4th) AML directive. 1 See e.g. CJEU, 8 September 2009, Case C‑42/07, Liga Portuguesa, EU:C:2009:519. 2 Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of infor- mation society services, in particular electronic commerce, in the Internal Market (‘Directive on electronic commerce’)

IMGL Magazine • July 2022 • 17

EU taxonomy and AML developments

EU Taxonomy As the name indicates, the EU Taxonomy is essentially a classification system. It establishes a list of environmentally sustainable economic activities in the context of the European Green Deal. The idea behind this EU Taxonomy is to provide companies, investors and policymakers with appropriate definitions against which economic activities can be considered for their environmentally sustainability. The objective is to redirect investors from potentially harmful businesses towards green companies. Obviously, any industry or company would prefer not to find itself on the list of undertakings in which investments are discouraged by the EU Taxonomy. The Taxonomy Regulation 3 , forming the basis for the EU taxonomy, entered into force on 12 July 2020. The taxonomy in itself is established through delegated acts by the EU Commission, some of which have already been issued and are applicable – most notably Commission Delegated Regulation 2021/2139 4 . The publication of this first delegated act was accompanied by the adoption of a Commission Communication on “EU taxonomy, corporate sustainability reporting, sustainability preferences and fiduciary duties: Directing finance towards the European green deal”. Article 2 of Commission Delegated Regulation 2021/2139 specifies that its Annex II defines the list of the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change adaptation and for determining whether that economic activity causes no significant harm to environmental objectives. Paragraph 13 of this Annex II is related to “Arts, entertainment and recreation” . Gambling is mentioned amongst the creative, arts and entertainment activities as follows: “Description of the activity Creating, arts and entertainment activities include the provision of services to meet the cultural and entertainment interests of their customers. This includes the production and promotion of, and participation in, live performances, events or exhibits intended for public viewing and the provision of artistic, creative, or technical skills for the production of artistic products and live performances. These activities exclude the operation of museums of all kinds, botanical and zoological

gardens, the preservation of historical sites and nature reserves activities, gambling, and betting activities as well as sports and amusement and recreation activities.” In the impact assessment 5 , the Commission also specifies that “the Taxonomy is set to be a dynamic tool that will develop and change over time” which “[reflects] market developments”. It also explains that “if, for any activity, there was a slight risk of harm to other sustainability objectives or further analysis was needed to assess potential impact, it would not be included. For example: Although “Gambling and Betting” has no obvious environmental impact, it has been left out due to significant social impact it can cause” . It is important to note that in the same context of the EU Taxonomy Regulation, a “social taxonomy” is currently in the works, in parallel to the environmental taxonomy. This comprises a classification of economic activities that are considered to contribute to social goals in the EU and should represent a guideline for investors, businesses and regulators regarding what is sustainable from a social perspective and what is not. A dedicated forum, Subgroup 4 of the Platform on Sustainable Finance (PSF), is tasked with advising the European Commission on further developing the EU taxonomy, improving its usability, and exploring its expansion to social objectives, activities that significantly harm the environment or activities that are neutral towards the environment. This group issued a draft report in June 2021 on the social taxonomy, in which gambling was mentioned. It is referred to somewhat bluntly as a “harmful sector”: “[…] To mitigate risks of unintended consequences or taxonomy loopholes, exclusion criteria or significantly harmful criteria could be introduced. This would ensure that harmful sectors or activities such as weapons, gambling and tobacco cannot qualify as socially sustainable despite e.g., good worker- related performance.” In the final version of this report, published on 28th of February 2022 following a consultation on its draft report, there is no mention of gambling. This is a positive evolution for the legal gambling business, but the unequivocally negative take on the sector in the first draft report suggests that the social taxonomy warrants close monitoring. If the entire gambling business were to find itself on the taxonomy

3 Regulation 2020/852 of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 4 Commission Delegated Regulation 2021/2139 of 4 June 2021 supplementing Regulation (EU) 2020/852 by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation and for determining whether that economic activity causes no significant harm to any of the other environmental objectives 5 http://ec.europa.eu/finance/docs/level-2-measures/taxonomy-regulation-delegated-act-2021-2800-impact-assessment_en.pdf

18 • IMGL Magazine • July 2022

Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44 Page 45 Page 46 Page 47 Page 48 Page 49 Page 50 Page 51 Page 52 Page 53 Page 54 Page 55 Page 56 Page 57 Page 58

www.imgl.org

Made with FlippingBook flipbook maker