Italy: € 70 M penalty cancelled for VLT operators

The Public Court of Lazio Region cancelled the € 70 million aggregate penalties issued by the Italian gambling regulator, AAMS, against ten Italian videolottery concessionaires, but such decision might have a much higher value.

Italian videolottery concessionaires have been facing a long battle with the Italian gambling regulator because of the lack of connection of their machines with the servers of the regulator at the time when the regulator’s network had been set up between 2005 and 2008.

Indeed, in order to ensure the proper functioning of AWPs and videolotteries operated by Italian licensed entities and the accurate calculations of taxes due, the Italian regulator set up a very sophisticated network connecting the machines to the servers of the IT provider of the regulator, Sogei so that machines could be monitored in real time and abuses/frauds could be prevented. This system represented a major innovation and it is something of which Italy is very proud which is confirmed by its implementation also for online operators.

However, the setting-up of such a sophisticated network required a very complex activity both by licensees and the regulator which led to malfunctioning/lack of service of the network. The system is now properly working, but the regulator challenged to the licensees their misconduct during the setting up phase of the network. In particular, the regulator challenged to the licensees first the aggregate penalties for € 30 M because of the delays in the installation of the machines, but such penalties have already been cancelled by the Italian Supreme Court. And now aggregate penalties for € 70 M because of the malfunctioning of the gateway allowing the monitoring of the machines by the regulator that have been cancelled by the Court of Lazio Region.

The reasoning of the court in the lasj decision has been that since a reporting system of the volume of plays was in place, therefore the State did not suffer any economic damage that could justify the penalties which therefore had been cancelled.

But the final stage of the battle between the regulator and the Italian licensees has still to come. Indeed, the Italian Accounting Court issued aggregate penalties of € 2.5 bn against Italian licensees for the lack of connection of their machines with the servers of the regulator. The point raised by the court was that the lack of connection of the machines to the servers of the regulator frustrated the investments taken by the State to set up such network aimed at properly monitoring the functioning of the machines.

The proceeding on the Appeal relating to the above mentioned decision of the Accounting Court is expected for early next year, but in the meantime it is possible to argue that such huge penalties (even if arguable) already triggered considerable damages on the operations of licensees as given the potential insolvency risk the transactions that might damage/reduce the assets of the company could be challenged.

Licensees are confident that the decision of the Public Court of Lazio Region will considerably support them in the Appeal against the decision of the Accounting Court and most of the commentators argue that the entire market would benefit from the cancellation of such penalties. This might open up new M&A and private equity opportunities targeting Italian videolottery operators which had been considerably limited because of the threat given by these potential massive penalties. In particular, a number of Italian VLT operators are controlled by private equity funds that have performed the investment several years ago and might decide to exit soon.

What is your view on the above? Feel free to contact me, Giulio Coraggio (giulio.coraggio@dlapiper.com), to discuss.