As expected, the UK government's sale of the Tote at a price estimated by many as below market value will be investigated by the European's Executive (European Commission). The investigation will have to define whether the sale is an form of state aid that is not allowed under EU competition rules.

All interested parties will be invited to submit comments to the Commission regarding the sale.

The European Commission's press release is attached.

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EUROPEAN COMMISSION PRESS RELEASE IP/05/650

Brussels, 1st June 2005

State aid: Commission opens formal investigation into envisaged sale of the Tote The European Commission has opened a formal investigation under EC Treaty state aid rules to examine UK Government plans to sell the Tote, a British betting operator, to Racing, a consortium representing the various parts of the UK horseracing sector. The Commission believes that the envisaged sale might involve substantial state aid to Racing and has doubts whether the aid favouring racing and betting activities is necessary and proportionate.

Competition Commissioner Neelie Kroes commented “I fully support the British Government’s objective of opening up the UK gambling market. But I am not convinced that the way in which this is carried out, by selling the Tote to the Racing consortium well below market value, is necessary or proportionate to achieving this objective. Such a measure could distort competition in the betting market.”

The Tote (Horseracing Totalisator Board) was created as a statutory body in 1928 with a view to providing gamblers with an alternative to fixed odds betting and securing a stable source of income for the British horseracing industry. Since its establishment, the Tote has enjoyed a legal monopoly for pool betting on horseracing in the UK but is also active in the market for fixed-odds betting (bookmaking) in competition with other bookmakers.

In the context of the modernisation of the British gambling industry, the UK Government proposes to open the pool betting market to competition and to privatise the Tote. The UK Government envisages selling the Tote to Racing and replacing the monopoly on pool-betting with a seven-year exclusive licence for the Tote. After that transitional period, pool betting would be fully liberalised.

The Commission has a duty to ensure respect for EC Treaty state aid rules (Article 87). These rules outlaw all forms of state aid which distort or threaten to distort competition within the EU’s Single Market. The Commission has examined the terms of sale of the Tote because the Tote offers online betting services to gamblers in other Member States, including betting on sports events in other EU countries.

The Commission has concerns that the envisaged sale may involve a substantial amount of state aid because the Tote is to be sold to Racing well below the market value of the Tote, at only 50% of a so-called “fair value” which is itself below market value. The aid would benefit both racing and betting activities. However, the Commission has doubts about the compatibility of that aid because the UK Government has not demonstrated that the aid was necessary and proportionate. In this respect, the Commission is particularly concerned with the potential distortions of competition on the fixed-odds betting market.

The opening of the formal investigation will be published in the EU’s Official Journal, allowing interested parties to provide the Commission with their comments. The launch of this in-depth inquiry does not prejudge in any way the Commission’s final decision.

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