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Clash of the football shirts 16/06/2007
Simon Bowers
Online gamblers and local regulators are locked in combat over the right to advertise on a team's strip

European football shirt sponsorship has emerged as the bizarre battleground for an increasingly bitter fight between offshore internet gambling groups and a handful of continental regulators, determined to outlaw unlicensed online betting on their turf.

Leading the charge for the gambling groups is Gibraltar-based Bwin, already shirt sponsors at Champions League winners AC Milan. This week the group added Real Madrid to its sponsorship catalogue in a deal worth about €21m (£14m) a year - the third largest in Europe, behind insurance group AIG's tie-up with Manchester United and T-Com's deal with Bayern Munich.

The move, regarded by some as commercially nonsensical, is a calculated one to demonstrate that Bwin will not be deterred from promoting its betting and gaming websites despite the very public arrest in France eight months ago of the company founders, Manfred Bodner and Norbert Teufelberger.

The French authorities, furious that a number of Ligue 1 clubs had signed with gambling sponsors for the first time last season, had sought to make an example of Bwin, swooping on the two businessmen minutes before they were to give a press conference last September announcing a shirt deal with AS Monaco for the 2007/8 season. After several days in jail they were bailed and told they could ultimately face three years behind bars if found guilty of violating French gaming laws.

The crackdown, prompted by complaints from French betting monopoly the PMU, sent a wave of panic through the league and within weeks the LFP - the game's governing body - had issued a blanket ban on all gambling sponsorship in football.

The move forced Nantes to remove Gamebookers, a subsidiary of London-listed PartyGaming, from its shirts while Toulouse was compelled to blank out from its strip. In a gesture of defiance, however, at their first match following the ban the Toulouse squad turned out against Olympique Marseille in shirts reading "???.com - censored".

In February this year the Guardian revealed that the French authorities, unamused by such behaviour, had requested formal interviews in Paris with executives from about 20 offshore-based betting firms. 888, another firm quoted on the London Stock Exchange, was among those at the top of their list and has sent representatives to France to answer questions.

Elsewhere in European football, there have been other regulatory flashpoints. Last season Werder Bremen and 1860 Munich were both signed up with Bwin but were told by separate regional courts that the company's logo could not appear on shirts during home games. In defiance, the teams turned out every other week in jerseys emblazoned with "We Win", clearly printed in the same type as the Bwin logo.

The German courts challenged this cheeky move and ultimately forced the gambling firm to abandon the sponsorship deal. Already riled, local regulators again turned their attention to Bwin - said to be the largest online gambling group in Germany and in takeover talks with London-listed Sportingbet - when AC Milan turned out for the away leg of their Champions League quarter final against Bayern Munich in a Bwin strip.

The result was a €100,000 fine for the Italian club, which Bwin insists has not been paid. Meanwhile, the gambling firm has responded by firing off yet another letter of complaint to European competition regulators. The dispute comes down to a tension between domestic and European laws. About a dozen member states and regional governments across the continent are determined to outlaw what they see as online gambling businesses operating without a local gambling licence. They are a threat to gambling addicts as much as they are to local exchequers. But with computer servers located in Gibraltar and Malta, such firms are difficult for regulators to reach. Instead, the companies' advertising campaigns have become the battleground.

The gambling groups, for their part, believe they have European law on their side. They have won a number of landmark rulings from the European court of justice making clear that member states must not restrict gambling groups from plying their trade in the EU - in particular, in areas where member states are busy promoting their own domestic monopoly betting businesses.

But as the rulings from Europe's highest courts stack up in favour of the gambling companies, a band of determined member states continue to harden their stance, using local gambling regulations to pursue their clampdown.

Bwin's latest move to sign up with Real Madrid once again raises the stakes in the battle with hostile regulators. Whether or not Real turns out wearing the sponsor's name in unfriendly member states, the company will have once again achieved its goal of highlighting what it sees as a breach of European law.

"It is not us that is acting in a provocative way," a spokesman for Bwin said. "It is us that is following European law. National regulatory bodies that are willing to reject freedom of services rules - that is provocative."

In Britain, Europe's largest online gambling market, regulation is far more welcoming to offshore internet groups. The Gambling commission has made clear when new rules on advertising come into force in autumn there will be no limits on Gibraltar or Malta-licensed firms promoting themselves. The industry describes this stance as "progressive" and has led to many of the largest players floating on the London Stock Exchange.

Next season there could be a record five Premiership clubs sporting gambling logos on their kit, including recently signed Boylesport (Sunderland), Bet24 (Blackburn Rovers), 32Red (Aston Villa) and (Middlesbrough) - though the latter has yet to be confirmed. But the biggest UK deal, by some way, is Mansion's £34m four-year contract to have its gothic-script red "M" on the kit at Tottenham Hotspur.

With Spurs qualified for Uefa Cup football next season, it too could face the wrath of continental regulation. As one industry insider and shirt sponsor put it: "The Real deal has changed everything for us. It's a big, ballsy move, and the spotlight is going to be on us all like never before."

The Real deal
Bwin's shirt sponsorship deal with Real Madrid, believed to be worth €21m-a-year (£14m), is a milestone for the online gambling industry, which last season left its mark on the European game by signing 14 clubs in the top six leagues, up from four in 2005/6. It is the first gambling company to break into the major league of football sponsorship and follows Manchester United's decision last year to reject a similar offer with internet casino group Mansion. It leaves the industry second only to financial services in terms of how much it invests in European shirt deals. Real, with its international following, is among a handful clubs likely to command such fees. For gambling groups the high visibility logos help give customers the confidence to divulge credit card details over the internet.