The French authorities questioned whether the measure could provide an advantage for the horse racing companies compared with the situation prior to the opening-up to competition of the online horse-race betting market. The measure was simply an adjustment needed in the light of the new situation in which there was now not just one gambling operator but several. The burden on the PMU prior to the change would simply be spread over all operators. The French authorities also considered that the PMU could not gain any advantage from the measure because it would pay the entire proceeds from the levy to the horse racing companies.

The French authorities considered that there was no potential distortion of competition in the online horse-race betting market because the levy applied uniformly to all online horse-race betting operators, nor was there any distortion of competition at the level of the organisation of the horse races themselves because the horse racing companies did not compete but worked together at the European, and indeed, global level (for example, the racing calendar was optimised to avoid conflicting dates).

Some interested parties explained that horse races throughout Europe were financed by the revenues from bets and were therefore totally dependent on these revenues.

There was therefore a correlation between the level of direct employment in the horse racing sector and the revenues generated from betting on horse races that were redirected towards this sector. A drop in revenues would have repercussions on the breeding industry and would not allow horse racing to fulfil its task of improving the equine species and promoting horse breeding.

Moreover, the horse racing sector was a considerable asset for Europe, and the 250 race courses in France played a very significant social role because of the attachment of the French to the horse racing tradition and because they were often located in the more disadvantaged regions of France.

It was also important to protect the totalisator betting system, as it provided the best possible guarantee of transparency and integrity and aimed to secure a fair return for the sport.

Some interested parties argued that the notified measure was not aid within the meaning of Article 107(1) TFEU for the following reasons:

Moreover, the measure did not affect trade and neither distorted nor was likely to distort competition because there was no market for horse racing in the strict sense that could be subject to a distortion of competition, but simply a market for horse-race betting.

Even if the Commission were to find that there was a market for horse racing, the horse racing companies benefiting from the measure were not in competition with horse racing companies in other Member States because the horse racing companies coordinated their operations at a Europe-wide or even worldwide level to avoid competition of this kind, by holding races on different dates for example.

Furthermore, should the Commission increase the scope of its analysis to include the horse-race betting market, no distortion could arise in this market given that the measure did not discriminate between betting operators.

Finally, certain interested parties also argued that the activities of the horse racing companies were local in nature and therefore had no effect on trade between Member States.

Some interested parties insisted on the Member States' margin of discretion in defining and organising SGEIs.

They also explained that the SGEI status of the horse racing companies' activities was justified by the historical, cultural and economic dimension of the French horse racing and equine industry. The organisation of horse races satisfied a public need and was in keeping with the choice to preserve a cultural and genetic heritage and specific areas of expertise in a context of spatial planning. Lastly, the organisation of horse races also had a sporting dimension.

Some interested parties argued further that horse racing was a structurally loss-making activity which relied on the non-recoverable contributions of owners, as well as a network of 6 000 volunteers, in order to exist. Consequently, horse racing could not be ruled satisfactorily by the market, and hence the SGEI status of the horse racing companies' activities was justified.

Some interested parties maintained that, should the measure be deemed to be state aid, it was compatible under the rules governing the financing of SGEIs.

All the resources of the horse racing parent companies were allocated to the performance of structurally loss-making public services and any overcompensation that could potentially feed into competitive activities was excluded per se. Moreover, the amount collected through the levy would be relatively marginal compared with the total amount of the costs borne by the horse racing companies in implementing the SGEI entrusted to them.

Some interested parties argued that the tasks entrusted to the horse racing companies served to support and develop horse breeding, an economic activity within the meaning of Article 107(3)(c) TFEU.

Without a horse racing and equine sector that was viable in the long term, horse races could no longer take place. A direct link between the levy and the organisation of horse races was therefore established. Inasmuch as all the costs of the horse racing companies contributed to the organisation of races and hence benefited all horse-race betting operators, it was also possible, according to these interested parties, using an approach based on Article 107(3)(c) TFEU, to approve the funding through a parafiscal levy of activities of common interest to a sector. All the costs of the horse racing companies should be taken into account in such an approach, which justified the rate of 8 % proposed by the French authorities for the notified measure, as well as the procedures planned for reviewing that rate.

The levy that would be imposed in a non-discriminatory manner on all online horse-race betting operators, including the PMU, could not in any way violate the principle of freedom to provide services set out in Article 56 TFEU or the principle of non-discrimination set out in Article 110 TFEU.

The interested parties emphasised that the specifications annexed to Decree No 2010–1314 of 2 November 2010 on horse racing companies' public service obligations and the intervention procedures of the horse racing parent companies, stated that the horse racing companies had to ensure that French horse races maintained the same level of appeal as those organised in other Member States. This provision confirmed the impact of the measure on trade between Member States and the possibility of distortion of competition at that level.

Given that the PMU was an EIG, it was only an offshoot of the horse racing companies, which were both horse-race betting operators and horse-race organisers. The distinction between both of these activities was artificial. Consequently, the levy was equivalent to forcing online betting operators to finance their rival, which was a clear distortion of competition between horse-race betting operators.

According to the interested parties, the French authorities had committed a manifest error in considering the activities of the horse racing companies to be an SGEI.

In particular, there had been no national debate prior to the creation of that SGEI and no specific explanation by the Council of State as to the need for its creation.

In the opinion of the interested parties, the objective in opening up the online gambling market was to support the PMU's policy of commercial expansion, a policy that was somewhat inconsistent with the concepts of general interest and public service, by allowing it, in particular, to diversify its activities into sports betting and online poker.

The interested parties expressed doubts about the risk, suggested by the French authorities to justify the measure, of a decrease in the PMU's revenues caused either by competition from other horse-race betting operators or by a cannibalisation of horse-race betting by sports betting.

• In 2010, the Internet turnover of the PMU had increased by 39 % overall and by 10 % for online horse-race betting. Thanks to the opening-up to competition, the PMU had been able to enter the online poker and sports betting markets and thereby expand its customer base. Its profits had grown by 18 % in 2010.

• According to the French competition authority (Autorité de la Concurrence), the PMU dominated the online horse-race betting market with an 85 % share of the market and was by far the dominant player in the market if one included the monopoly on brick-and-mortar betting. It was also the market leader when sports betting was included, with a market share of between 40 % and 55 %.

• There was no substitutability between sports betting and horse-race betting because the required expertise, age categories and incomes of the players as well as the bets offered by the operators were very different.

• offer gamblers a higher payout ratio, through the gamblers' winnings, than online betting operators;

• take advantage of its network of 10 000 sales outlets and the revenues generated by this network to finance and promote its online activities.

The interested parties argued that, in so far as the French authorities had not presented a clear budget for the expenditure that needed to be financed, the levy was not intended to cover the costs of the public service mission. Moreover, the levy financed activities which did not directly benefit online horse-race betting organisers.

Even if there were grounds for imposing a levy of that kind, the rate of 8 % proposed by the French authorities was excessive when compared with the betting levy paid by sports betting operators to the sports federations, which was of the order of 1 % of stakes.

Some interested parties pointed out that, among the premiums and allowances distributed by the PMU, some breeders' premiums were reserved for horses born in France. Such a state of affairs infringed the principle of non-discrimination set out in Article 110 TFEU.

• The transitional measure of the 8 % levy on online betting stakes, in combination with the reduction in the tax rate on all brick-and-mortar and online horse-race bets, favoured the PMU and was tantamount to circumventing the effects of the opening decision taken by the Commission. While online operators, including the PMU for its online activities, paid the 8 % levy, the PMU did not pay it for its brick-and-mortar activities. Moreover, the PMU gained a greater advantage than other operators from the 1,1 % reduction in the tax rate because of the volume of its brick-and-mortar betting business.

• The PMU and the horse racing companies were exempt from the tax on profits.

• The French competition authority had pointed to several PMU practices that could be deemed an abuse of a dominant position25. These included the use by the PMU of the same trademark (the PMU trademark) for its monopolistic and its competitive activities, the use of certain generic names (tiercé, trio, etc.) to identify certain types of bet, and the launch of the PMU card used to gather data on customers placing brick-and-mortar bets. These data could then be used to draw customers into online betting.

It should be pointed out that this Decision concerns only the compatibility of the measure notified by France in favour of the horse racing companies. It does not in any way prejudge the future position of the Commission on the additional objections mentioned in recital (89) above.

The common interest costs identified by the French authorities on the basis of the financial data from the year 2010 are presented below by cost category:

The incentives (EUR 493 million in 2010) consist in the distribution by the horse racing parent companies of premiums and allowances payable to breeders, owners and jockeys in relation to the horses entered in races by the horse racing companies. The French authorities propose to incorporate the incentives corresponding to premium races in the common interest costs. They propose to exclude the premiums paid to owners in flat races reserved for horses born and bred in France, thereby dealing with the reservations expressed by the Commission regarding the compliance of the levy with the principles of non-discrimination and freedom to provide services were the premiums reserved for born or bred horses to be financed by the parafiscal levy (see recitals (151)-(156)). Ultimately, the French authorities therefore propose to place EUR 321 million of common interest costs in this category (or about 65 % of the total incentives granted by the horse racing parent companies).

These costs are included by the French authorities in the calculation of the common interest costs only if they can be attributed to the organisation of premium races. Some costs which by nature benefit only the horse racing companies (marketing costs) are excluded in full, while others such as head office costs are distributed according to the ratio of horses entered in premium races. Ultimately, the French authorities place EUR […] (or approximately […] % of the parent companies' total organisation costs) of common interest costs in this category.

The total costs borne by the 230 provincial horse racing companies for organising races came to EUR […] in 2010. The French authorities include in the common interest costs only EUR […] (or approximately […] of the total organisation costs borne by the provincial horse racing companies), corresponding to the costs connected with the premium races organised by 49 of them.

The horse racing parent companies finance the recording and broadcasting of live premium racing action made available to online gambling operators. In particular, these video feeds are used to check the results of the races when they finish. The French authorities consider that these video feeds, which concern only premium races, are of benefit to all online gambling operators. Their absence would result in a major decrease in betting. The French authorities therefore include the total cost of recording and broadcasting the video feeds of premium races in the calculation of the common interest costs, that is to say EUR […] in 2010.

The fight against doping, which concerns premium races, is a key element in the organisation of high-quality racing and in ensuring the integrity of horse-race betting operations. The French authorities therefore include the full amount of these costs, i.e. EUR […] in 2010, within the scope of the common interest costs.

The total costs involved in training the highly qualified staff planning to work in the world of horse racing (drivers, jockeys, stable-lads, etc.) came to EUR […] in 2010. The French authorities include EUR […] in the common interest costs, which corresponds to the proportion of premium races.

The horse racing companies' own revenues (for example the admission charges paid by spectators) that can be attributed to the organisation of races (EUR […]) are deducted from the common interest costs.

In this instance, the levy on online horse-race betting is imposed in a binding fashion by the national rules (the Law of 12 May 2010) and allocated by the same rules to the horse racing companies, which are the beneficiaries of the measure. It is therefore financed using state resources.

The notified measure, which allocates the income from the parafiscal levy collected on online horse-race bets to finance activities that are currently financed by the horse racing companies out of their own revenues, prima facie confers an economic advantage on the horse racing companies. Routine activities of the horse racing companies, such as the organisation of horse races, are thus partially financed using state resources.

Moreover, the horse racing companies are de facto also online betting operators because of their capacity as associates of the PMU. By virtue of its status as an EIG, the PMU is a transparent structure. Consequently, the PMU's revenues from its horse-race betting business are transferred to the horse racing companies, which finance both the development of the PMU and the organisation of races using the revenues generated by horse-race betting. Moreover, only these horse racing companies are in a position to make substantial investments for the development of the PMU's own activities when this is needed.

Thus, the measure at issue, which aims to secure a certain level of revenues for the horse racing companies should there be a downturn in the PMU's business due to the opening-up to competition of the online horse-race betting market, has the indirect consequence of protecting and strengthening the PMU's position in this market.

Inasmuch as the lion's share of the income from the parafiscal levy collected from online horse-race betting operators would be paid to the horse racing companies members of the PMU, the measure is clearly selective.

The effect on trade and the distortion of competition must be assessed with regard to both the horse race organisation activity and the betting activity.

The levy, which will benefit only horse racing companies that are approved by the French Ministry of Agriculture, is by nature liable to distort competition in the market for horse-race betting operators and the organisation of races where the horse racing companies work together as an integrated group.

Moreover, it is worth noting that Decree No 2010-1314 of 2 November 2010 on horse racing companies' public service obligations and the intervention procedures of the horse racing parent companies provides that the horse racing companies must 'constantly maintain the appeal of French races in relation to races of a comparable level organised abroad in order to draw in the best possible participants'.

By distributing fairly the burden of funding horse races on which bets are placed between the different online horse-race betting operators, the measure allows fair competition between these operators in the newly liberalised market for online horse-race betting. Consequently, the measure contributes also to the objective of opening up the online gambling sector in accordance with the principle of freedom to provide services within the Union embodied in Article 56 TFEU.

The Commission therefore concludes that the aid measure notified by the French authorities pursues clearly defined common interest objectives.

An aid measure is deemed to be necessary and balanced when it constitutes an appropriate instrument for achieving a set common interest objective, acts as an incentive to the recipients of the aid and does not distort competition.

The French Government has decided to liberalise the online horse-race betting market. Prior to liberalisation, horse races were almost exclusively financed by the income generated by the organisation of horse-race betting by the horse racing companies through the PMU. The aid measure aims to spread the burden of financing horse races among all the operators that are authorised to offer online horse-race bets in the French market. It is therefore highly suited to ensuring fair competition between horse-race betting operators by preventing the PMU's competitors from obtaining a share of the online betting market without contributing to the costs of organising horse races. Consequently, the measure ensures the continuity of horse racing and its positive impact on horse breeding and on the entire equine industry.

In the light of the above elements, the measure notified by the French authorities is appropriate to achieve the objective of ensuring the continuity of horse racing and ensuring fair competition in the newly liberalised online horse-race betting market.

If the measure did not exist, the long-term effect of the development of competition in the horse-race betting sector would be a decrease in the horse racing companies' resources, which would lead to the contraction or even the collapse of the sector.

Given that the activities of the horse racing companies are financed by the income from horse-race betting, the aid measure has a direct effect on the behaviour of horse racing companies by encouraging them to maintain and develop their horse-race organisation activities.

The aid measure seeks to ensure a balanced financing between horse-race betting operators of the costs directly connected with the organisation of premium races. The method used to calculate the rate of the levy ensures that the total amount collected on online horse-race betting, and hence the aid granted to the horse racing companies, cannot exceed the total amount of the common interest costs.

All the other costs of the horse racing companies are consequently borne by the companies themselves, whether they concern the financing of non-premium races or costs that may benefit the PMU but not other horse-race betting operators.

In the light of the foregoing, the Commission considers that the aid measure satisfies the criterion of proportionality.

The aid in favour of the horse racing companies could hinder competition between European horse-race operators if it were not proportional. Given that the measure is proportional (see recitals (145)-(147)), the risk that it might confer a disproportionate advantage on French horse racing companies can be ruled out.

Moreover, there could be some negative effects of the aid on competition and trade between Member States if the financing method used (in this instance, the levy imposed on online horse-race bets) breached the principle of freedom to provide services set out in Article 56 TFEU and that of non-discrimination set out in Article 110 TFEU. On the basis of the analysis below, the Commission concludes that there are no such negative effects. In fact, the measure taken as a whole promotes competition in so far as it ensures fair competition between online horse-race betting operators.

The Commission identified three possible levels of discrimination and obstruction of the principle of freedom to provide services, described below, in the initially notified measure. The French authorities provided answers to each of the risks identified by the Commission by modifying the measure as envisaged in the initial notification or by supplementing it with adequate commitments.

The Commission considered it problematic that premiums paid to breeders and owners should be financed by the levy if they were reserved for horses born and bred in France (this was the case for non-harness racing). European operators who are not established in France would thus be taxed in order to finance premiums that would benefit only the breeders and owners of horses born and bred in France.

In order to remove the difficulty mentioned in the previous recital, the French authorities excluded from the calculation of the shared costs to be financed by the levy all those premiums which are reserved for horses born and bred in France (see recital (103)).

The levy, which de facto effects a transfer between the PMU's competitors and the horse racing companies also actively involved in online betting activities, would be discriminatory if it financed costs that were of greater benefit to the horse racing companies and the PMU than to other betting operators.

The Commission considers that the risk of discrimination between horse-race betting operators as regards the benefits from the levy is neutralised if the costs financed are in the common interest of all horse-race betting operators.

However, the Commission also considers, that, in so far as these common interest costs may change over time, this change, which is essentially the result of the choices made by the horse racing companies, particularly as far as incentives are concerned, must be managed in a controlled way. The objective is to prevent the horse racing companies from being tempted to increase the incentives excessively if their cost is borne in part by the PMU's competitors, who would then be subject to a higher rate of levy.

• The horse racing companies will be under the strict financial control of the State, and in particular of the Ministries of Agriculture and the Economy and Finance, regarding the finances of all the horse racing companies, as required by Decree No 97-456 of 5 May 1997 on horse racing companies and the totalisator betting system, including Title V 'Financial control'.

• Regulatory control by the Court of Auditors of all beneficiaries of parafiscal levies.

The Commission considers that the abovementioned control measures will allow the French authorities to ensure that the common interest costs remain within reasonable limits and will not increase the benefits that the horse racing companies gain from the levy being imposed. The trend in common interest costs will also be monitored by the Commission on the basis of the implementation report to be provided by the French authorities (see recital (94)).

It is worth recalling that the PMU holds a monopoly on the operation of brick-and-mortar horse-race betting and that it therefore also benefits from premium races, without actually being under an obligation to pay the parafiscal levy. The Commission considers that it is important to ensure that, as with the revenues of online horse-race betting operators, including the PMU itself, the revenues from the PMU's monopoly on brick-and-mortar horse-race betting contribute to the financing of premium races in exactly the same way.

• The revenues from the PMU's monopoly that are transferred to the horse racing and equine industry are structurally at a much higher level than the planned levy on online horse-race bets. The rate of return to the industry in 2011 and 2012, under the system introduced by the Law of 2010, is almost 10 % of stakes (report on the net result of the PMU from brick-and-mortar horse-race betting operations). This rate of 10 % is much higher than the rate of the levy imposed on online horse-race bets, namely 5,6 %.

• The horse racing companies that sit on the PMU's board of directors and the horse racing parent companies in particular, which represent 40 % of the votes, also have an interest in ensuring that the PMU's contribution, which defines their level of resources for the year, does not decrease. This is particularly the case since any decrease in the PMU's contribution would have an impact not only on the organisation of premium races but also on the organisation of non-premium races, which are financed exclusively on the basis of the revenues paid by the PMU to the horse racing and equine industry.

The French authorities have, however, made a commitment to ask the PMU, through the state representatives who are members of the PMU's board of directors and who represent 40 % of the votes, to pay each year to the horse racing and equine industry a fraction of the PMU's brick-and-mortar horse-race betting stakes that is greater than or equal to the level of the parafiscal levy on online horse-race betting.

Should the PMU present a budget which provides for a return to the industry below the level of the parafiscal levy on online bets, and should the horse racing companies approve such a budget, thereby placing the state representatives in a minority on the PMU's board of directors, the French authorities have given a commitment that the competent Ministers will exercise their right to reject the budget pursuant to Article 33 of Decree No 97-456 of 5 May 1997 on horse racing companies and the totalisator betting system, which states that: 'The budget of the horse racing companies and the joint bodies mentioned in Article 12(I) [including the PMU] and the modifications made during the financial year may be enforced only after approval by the authorities specified in Article 34 below. Such approval shall be deemed to be obtained in the absence of a reply from these authorities within one month of the documents being received. If no decision has been taken before the start of the financial year, no investment expenditure may be carried out and the operating costs entered in the previous budget may be carried forward, less 5 %, until the draft budget has been approved.'

The Commission considers that the neutrality of the levy between brick-and-mortar and online bets may be considered to be guaranteed by the above commitments by the French authorities, also taking into account the special relations that exist between the PMU, the horse racing companies and the State. This point will also be verified by the Commission on the basis of the implementation report to be provided by the French authorities (see recital (94)).

From the above analysis, the Commission concludes that the levy which finances the aid to the horse racing companies is compatible with the principles of freedom to provide services and non-discrimination. The method of financing the measure is therefore not likely to adversely affect trading conditions to an extent contrary to the common interest. Consequently, the Commission considers that the measure is compatible with the internal market under Article 107(3)(c) TFEU.