« Controlled Opening » of the French Market Pierre Bruneau - International Relations Director - Française des jeux THE FRENCH ONLINE GAMBLING REGULATION BILL SPORTS BETTING HORSE RACING BETTING POKER

THE FRENCH ONLINE GAMBLING BILL : Spring 2010 SPORTS BETTING HORSE BETTING POKER INTERNET GAMING 3 CATEGORIES OF GAMES opened to competition

PRESENT SITUATION OF GAMBLING IN FRANCE MONOPOLIES General Prohibition (by 3 acts of Parliament) Legal Exceptions Gambling clubs (cercles) Horse racing betting (pool only) Sports betting (pool & fixed-odds) Lotteries Casino games in physical casinos Casino table games Poker 23 FDJ Offline & Online lotteries PMU Offline & Online horse racing Betting (tote) FDJ Offline & Online sportsbetting (fixed odds & tote) 1 « Jeux de cercle » including Poker sites offering illegal gambling 20 % in French 75 % of stakes on Internet from France are registered on illegal sites 12 stakes ~ M€ stakes ~9.500 M€Gross Product ~2.600 M€ Few charity & Promotional lotteries Slot machines

THE EXISTING REGULATION AUTHORITIES HOME AFFAIRS MINISTRY AGRICULTURE MINISTRY & MINISTRY of BUDGET MINISTRY OF BUDGET Casino table games Poker FDJ Offline & Online lotteries PMU Offline & Online horse racing Betting (tote) FDJ Offline & Online sportsbetting (fixed odds & tote) « Jeux de cercle » including Poker Slot machines

TODAY MANY GAMES ARE PROHIBITED ♠ No online casinos ♠ No slot machines outside casinos ♠ No permanent charity lotteries ♠ No commercial bingo halls (except small charity bingo establishments) ♠ No live betting ♠ No exchange betting & No spread betting ♠ No betting other than sports betting and horse racing betting ♠ No promotional lotteries with an obligation to buy a product or a service

CONSEQUENCES OF THE DEVELOPMENT OF ILLEGAL INTERNET GAMBLING ♦ French gambling regulations are challenged by the European Commission which opened infringement proceedings against France because of its sports betting and horse racing betting regulations ♦ Consequences of uneffective public control over illegal internet gambling : ♠ prohibition of gambling for minors not guaranteed ♠ fight against gambling addiction suffers ♠ no protection of players against risks (cheating, fraud, etc…) ♠ ethics of sports and horse racing not properly protected ♠ funding of good causes by on line illegal sites not ensured (except LFDJ & PMU) ♠ unfair competition between legal operators paying taxes and illegal operators

PURPOSES OF THE BILL ♥ Not a financial purpose : - fight against addiction - protection of minors - fight against fraud and crime - integrity of gambling ♥ Objectives ♦ Organize a public control of gambling in order to channel it ♦ Open to competition under strict public control through national licences ♥ Open to competition Internet gambling where illegal activity is developed ♥ Open to competition the 3 sectors, most popular and not the addictive if properly regulated: POKER SPORTS BETTING HORSE RACING BETTING

MANY GAMES WILL REMAIN PROHIBITED ♠ No online casinos ♠ No slot machines outside casinos ♠ No permanent charity lotteries ♠ No commercial bingo halls (except small charity bingos establishments) ♠ No spread betting ♠ No betting other than sports betting and horse racing betting ♠ No promotional lotteries with obligation to buy a product or service

THE FUTURE SITUATION (expected June 1st, 2010) General Prohibition Legal Exceptions Gambling clubs (cercles) Horse racing betting (pool only) Sports betting (pool & fixed-odds) Lotteries Casino games in physical casinos Slot machines Casino table games FDJ Offline & Online lotteries PMU Offline horse racing Betting (tote) FDJ Offline sports- betting (fixed odds & tote) 1 « Jeux de cercle » including Poker Small charity & promotional lotteries Online Games of Chance Online Poker Licensees Online sports- betting (fixed odds & tote) Licensees Online horse racing betting (tote) Licensees Poker No opening for online slot machines and table games such as roulette including live betting No exchange betting No spread betting Betting on actual competitions and actual results 5 years License type 1 5 years License type 2 5 years License type 3 Betting on actual competitions and actual results Monopolies Open to competition

Offline & Online lottery monopoly Offline sports betting (fixed odds & tote) monopoly Online Poker License (in partnership with Barrière) Online sports betting (fixed odds & tote) License Monopolies Open to competition FDJ Open to competition FDJ SITUATION AFTER THE VOTE OF THE ONLINE GAMBLING LAW

1-ARJEL: Autorité de Régulation des Jeux En Ligne Regulatory Authority for Online Gambling = independent Regulatory Authority for Online Gambling, specially created to regulate Internet gambling open to competition (=> not for online lotteries of LFDJ) ARJEL MISSIONS : ♦ establish the specifications ♦ grant 5 year licences to operators compliant with specifications ♦ homologate technical platforms ♦ verify operator compliance with technical standards and other specs ♦ active role in the detection and fight against illegal sites ♦ cancel license when required ♦ take part in the fight against illegal sites

1/ ARJEL Regulatory Authority for Online Gambling Advisory Gambling Committee 2/ C J C SET UP OF 2 REGULATORY BODIES

THE SPECIFICATIONS Bill provides the general characteristics. Details by decrees. General clauses applying to any type of gambling or betting: –Protection of vulnerable persons and prevention of addictive behaviors –Transparency and financial soundness of operators –Regularity of the game –Reliability and traceability of data involved –Fight against fraud and money laundering –Obligation to be established in Europe –Headquarters outside the French list of fiscal paradises –Access to technical and financial data for compliance verification Specific clauses, depending on the characteristics of each type of licence (horse racing betting, sportsbetting, poker) –Sportsbetting only on real sport events and for given types of bets –Horse racing betting only on authorized races –Poker: liquidity restricted to players accessing a dedicated “.fr” site Any kind of payment including prepaid cards & PSP such as paypal

A STRICT CONTROL OF GAMING PRACTICES

Operators will be required to respect the following obligations : ♦ Operators must have separate accounting for their activities on the French territory ♦ Players must have a bank account in Europe ♦ No anonymous means of payment ♦ Operators must have a permanent correspondent in France ♦ Operators must be certified by a recognized organization ♦ Website in. fr ♦ Owners, managers, staff of an operator cannot play on their website

GAMBLING MODERATORS The Specifications will contain many moderators, designed to protect the players from gambling addiction : ♦ Limitation of stakes ♦ Limitation of the monies in the player’s account ♦ Limitation of the player’s account balance ♦ Automatic payment of winnings exceeding a certain amount to the player’s bank account ♦ Indication of the time spent playing (clock) ♦ Indication of the losses during the game session ♦ Possibility of auto exclusion of the player ♦ Application to online gambling of the banning procedure already used in casinos

2- CCJ : Comité Consultatif des Jeux Advisory Gambling Committee An Advisory Gambling Committee* will be created to ensure a policy of Responsible Gambling in France ♣ a unique "moral" authority focused on responsible gambling for all gambling activities in France, both online and offline. It will strengthen the responsible gambling policy and guarantee its coherence (The chairman of ARJEL will be a member of the CCJ) ♣ have the means to conduct all the necessary studies to assess the reality of gambling addiction in France ♣ judge the quality of the action plans of all operators concerning responsible gambling and will give public opinions ♣ give opinions about the regulation of the monopolies and the coherence of organisation of the gambling sector

FIGHT AGAINST ILLEGAL ONLINE GAMBLING ♠ Players not to be able to make money transfers to illegal sites (today, only the payment of winnings is prohibited) ♠ Illegal Internet gambling be punished with 3 years of imprisonment and a € fine (7 years and € if the infraction is committed by an organised gang) ♠ Advertising for legal online gambling will be authorised in all media ♠ Advertising for illegal gambling will be prohibited: minimum fine € The amount of the fine may reach 4 times the amount of the advertising budget ♠ Blocking of bank transactions to illegal sites ♠ Blocking of access to illegal sites

FIGHT AGAINST GAMBLING ADDICTION Part of the taxes on online gambling to be allocated to the prevention of gambling addiction and to the fight against it allocations to : - the National Institute for Prevention and Health Education (INPES) - finance its activities of information, screening and management

INTEGRITY OF SPORTING COMPETITIONS Integrity of the competitions to be better protected than today by: ♦ limitation of the types of bets ♦ fight against illegal sites with tools not used so far ♦ rights granted to sport event organizers : ● an involvement in the decision making process : they will be involved in the definition of the types of bets and the events on which betting is proposed the operators will have to take into account their requirements for the protection of the ethics and image of the competitions ● a right of property : they will conclude non exclusive agreements with the operators This will be the end of the current situation where the major competitions are used as betting supports without any possibility for the organizers to intervene

FUNDING OF SPORTS Sports will benefit from a double financing : 1) For amateur and high level sports Sports betting operators will pay 1,3% of the stakes to the National Center for the Development of Sport (CNDS) CNDS is a public institution whose mission is to fund the development of sport for everybody, to participate in the financing of the construction and renovation of sports facilities and to help finance operations of the National Olympic Sports Committee (CNOSF) and the French Paralympic Committee. 2) For professional sports ♦ Sponsorship to be authorized if conflicts of interest avoided ♦ Signing of non exclusive agreements concerning the right of property of the sport event organizers

FUNDING OF HORSE BREEDING ♦ Now : funded only through the PMU ♦ Future law : will benefit from all the horse racing bettings - All the operators must contribute to the financing of the sector - through a fee for services rendered fixed at a rate of 8% on stakes

TAXATION ♦ Basis of taxation = Stakes and not the Gross Product (wagers minus payout) It is a legal requirement : only stakes may be taxed in France ; the gross product is taxed only in the country of establishment of the operators ♦ The tax rate = identical for online and offline sports betting and horse race betting operations open to competition The tax rate (including the levy for social security) will be : ♦ 7,5% for sports betting and horse racing betting ♦ 2% for poker with a maximum of 1 € per deal

LIMITATION OF THE PAYOUT ♦ Payout to be limited to a % of the stakes ♦ Common Cap for sports betting and horse racing betting ♦ Cap to be fixed by decree between 75% or 85% of stakes Why cap the payout ? ♦ To maintain the present French gambling policy : - PMU limited to an average of 78% - LFDJ limited to an average of 75% for sports betting ♦ The cap limits amount and frequency of gambling ♦ The cap also reduces the interest of money laundering

ALLOCATIONS TO GOOD CAUSES 3 elements: ♥ 1% of the Sports Betting stakes to be paid to the National Center for the Development of Sport (CNDS) ♥ A part of the 7,5% tax on Sports Betting and horse racing betting to be used to finance the fight against gambling addiction (information, screening and management) via the INPES ♥ A part of the 2% tax on Poker will be used to finance the renovation of historic buildings through the Center of National Monuments

♦ Games Development 1/ Sports Betting OnLine Physical Network 2/ Poker OnLine ♦ Branding Policy ♦ Partnerships with Federations & Media LFDJ PRO ACTIVE STRATEGY FOR LEADERSHIP Enhancements to be ready to compete

BRANDING POLICY ♦ Redefine global architecture of brands ♦ Corporate : distinction between: - Company Institutionnal Identity - Commercial Umbrella Global Lottery Brand ♦ New online Umbrella Brands for competitive field

BRANDING ARCHITECTURE Institutionnal Corporate Commercial Umbrella Brand Draw Games Brands Umbrella Brand Category Sports Betting Brand Poker Brand Competition NEW !

Commercial Umbrella Brand Point of Sale Material ing

GAMES DEVELOPMENT 1/ SPORTS BETTING ● Pari mutual games - enhancements of games portfolio - simplification for easier accessibility games slips - more matches on lists to bet on ● Oddsets - more matches, more sports, formulas - be ready for live betting 2/ POKER ONLINE : be ready for time to market

NEW RETAIL NETWORK POLICY ● SEGMENTATION FOR SPORTS BETTING ● based on past efficiency, motivation, potential ● 2 clusters : High & Lower ● TRAINING for OUTLETS on Betting Games ● EQUIPMENTS TO FACILITATE SELLING ♦ printers for lists of matches ♦ merchandising devoted to sports betting

PARTNERSHIPS FEDERATIONS & MEDIA MEDIA ● RADIO ● DAILIES NEWSPAPERS ● TV Broadcasted Sports Programs NATIONAL FEDERATIONS of Sports

A REAL JUMP TO MAKE

BLOOD, SWEAT AND TEARS TO BE READY

BUT….. DETERMINED TO BE THE WINNER THANK YOU