Hungary Sets Target for 2023 for Online Sports Betting Market & Licensing Conditions
Published August 7, 2022 by Brett C
Hungary has concluded its state monopoly in online sports betting. This dramatic move now allows operators incorporated within the European Economic Area (EEA) to enter the lucrative Hungarian market.
The Gambling Act codified the new online sports betting law on 22 July 2022. It is a significant amendment of Act XXXIV, 1991, Gambling Operations ("Gambling Act") that creates a market for players starting in January 2023. However, online casino games will continue to be the exclusive domain of those who hold national casino concessions.
A Years-Old Impasse Comes to an End
The current regulation creates a de facto betting bloc for the state-owned Szerencsejatek Zrt. The market has been defined since 2014. The status quo has been the subject of multiple legal disputes. Key stakeholders, such as Unibet (C-49/16) and Sporting Odds(C-3/17), brought the case to the European Union Court of Justice to ascertain whether Hungarian laws violated Article 56 of the Treaty and Functioning of the European Union. This Article is designed to prevent member states from disrupting the provision of services and trade across borders. CJEU declared that Hungary's online gambling licensing system was illegal and excluded EU/EEA licensed operators from the country’s licensing process. It also stressed that Hungary must have unbiased, clear, non-discriminatory, and proportionate rules vis-a-vis market regulation. In February 2022, the Hungarian Government presented its proposal for new legislation to the European Commission. Legislators adopted the approved scheme last Wednesday.
EEA Operators Need to be Prepared for Substantive Licensing Requests
Multi-licensing is a feature of the amended Gambling Act. Upon obtaining a license ("Licence") from SARA, EEA Operators can offer online sports betting services to legal-age Hungarian players. The legislator did not establish a limit on the number of Licences that can be issued to online gaming operators. The supervisory authority will later adopt secondary legislation that contains the requirements, per the Hungarian Gazette's text. Based on the earlier proposal to the European Commission (TRIS Notifications 2022/66/HU, 2022/67/HU), EEA Operators will need to meet the following prerequisites for license issuance:
- The applicant must have at least five years' experience as a gambling operator in another EEA nation.
- The applicant, the managing director of another company or another company owned directly or indirectly by the applicant, could not have been involved with the organisation of illegal gambling activities in the five years prior to the submission of this application.
- The applicant must establish a branch office in Hungary. It shall have a capital of HUF 1bln or less (approx. EUR 2.5 million).
- The applicant must provide securities in the amount specified by the SARA, but the bare minimum of HUF 250 million (approx. EUR 625,000) is required.
- The applicant must pay a license fee of HUF 600 million (approx. EUR 1.5 million) in full for the duration of the license.
- The applicant must prepare and implement a plan for player protection that the SARA has approved.
SARA must determine the validity period of the Licence issued, but it may not exceed seven years. EEA Operators should not operate more than one website under a single Licence.
Lengthy Processing Times
Before applying for a Licence, EEA Operators must appoint and register a local representative ("Representative") in order to be eligible for the SARA. A Representative must be Hungarian and be domiciled in the country. He must also be qualified with a master's in economics or law. EEA Operators can make legally valid declarations regarding the SARA after that only through the officially designated Representative.
Long administrative deadlines should be expected for EEA Operators and their Reps. The maximum time for the registration of a Representative is 75 days. The subsequent licensing process will take 120 days.
If licensed operators are not registered, there is a 15-day deadline. Today, the rate for corporate income tax in Hungary is 9%, and the rate for gaming tax applicable to online sports betting is 15% (of monthly net gaming revenues).
Market Scrutiny by Banking Providers
The SARA, in cooperation with the tax authority as well as the regulator of telecommunications, has struggled for many years to stop unlicensed online betting operators from entering the Hungarian market. Various measures were tried, including website blocking or punitive measures such as fines. However, they have not been successful in any meaningful way.
The amended Gambling Act will increase market scrutiny by focusing on monitoring payment accounts and transfers in compliance with anti-money laundering regulations. EEA Operators can only transfer money to players from payment accounts authorised by the Hungarian Acts on Payment Service Providers and Financial Enterprises ("Authorised Account Provider"). The new law also stipulates that an EEA Operator can only have such an account if issued a licence. The upcoming legislation will provide detailed rules for payment service providers regarding the mandatory restriction or blocking of unauthorised payment accounts and payment transactions involving unlawful operators.
Lingering Questions
EEA operators interested in obtaining a Licence can now begin to prepare for the procedure. Although there are many potential applicants, they are already present in Hungarian markets and offer services to a large number of Hungarian players, despite effective prohibitions. The question of how these types of operators will fare is a topic under discussion. It is unclear if the legislator will change the tax rules that apply to online sports betting income. Currently, winnings are paid through licensed operators (i.e. Szerencsejatek Zat., the incumbent), and there is no personal income tax obligation. However, the framework will examine incomes from illegal (unlicensed) sports betting platforms.
The SARA will soon issue its decree on licensing, operational, and technical requirements details. These rules should not differ significantly from the proposal presented to the European Commission (EC) in February 2022. EEA Operators could be left with uncertainty until the final set of conditions is approved and published. The SARA will likely retain certain discretionary powers regarding the validity period and the number of securities issued.
