Sorare: Is There Nothing to Declare?

(AsiaGameHub) –   The decision by CyLimit, a cycling-focused web 3 startup, to become the first JONUM operator to submit its regulatory declaration to France’s Autorité Nationale des Jeux (ANJ) has highlighted a company that most industry observers would have anticipated being first in line.

Naturally, when discussing web 3, NFTs and fantasy betting, that company is Sorare. However, to date, the former unicorn has yet to submit its own declaration to the nation’s gambling regulator.

With the JONUM legal framework finally launching in France, SBC-Gaming&Co sought to understand why the leading web 3 fantasy betting firm in the sector wasn’t the first to file a regulatory declaration, enabling it to commence operations as swiftly as possible in full compliance with its ‘home’ country’s regulations.

A Sorare spokesperson stated that there was “no delay and we are in ongoing and constructive discussions with the ANJ at the moment”. The company is also “taking the time to finalise the dossier properly and we will make the JONUM declaration promptly”.

“Our approach is to ensure that the submission is complete and robust from the outset,” they added, “the application file is comprehensive and requires a significant amount of detailed information to be provided”.

Nevertheless, there are several factors that could be weighing on the minds of Sorare’s leadership, and while they aren’t directly connected to its French operations, it’s inconceivable that the company wouldn’t be conscious of them.

UK court case

The first is a case filed against the company by the UK Gambling Commission, scheduled to begin on 15 June. The commission is suing Sorare for providing what it deems to be illegal gambling products without a licence to UK consumers.

A subsequent question for Sorare therefore is: if it declares that it operates as a JONUM company in France (where users purchase cards of football players as NFTs, with their value fluctuating based on the on-pitch performances of the players’ teams), could it be concerned that this amounts to admitting it is a real money gambling company?

Not at all, says the company: “The JONUM framework should not be interpreted, in any way, as an admission that Sorare operates as a real money gambling company. The JONUM framework is actually recognising the unique nature of our activity and explicitly confirms that it falls outside the scope of gambling regulations.

“This clarification provides an essential level of legal certainty, strengthens the confidence of our partners, investors and community, and represents a key step for the sustainable development of our model.”

EU questions

A second issue centres on European legal questions. Claire Pinson-Bessonet, a former ARJEL executive and now a public affairs and gaming lawyer, observed on LinkedIn that the European Commission has asked France how the JONUM framework aligns with the European eCommerce Directive of 2000, which permits the free movement of information services between EU Member States.

French lawmakers responded that the legislation fell under “the exemption of ‘real money gambling activities’ provided for in the eCommerce Directive, which therefore does not apply to JONUM”. In other words, the EU directive does not apply to JONUMs because those products fall under the real money gambling exemption, which the directive doesn’t cover.

“But in that case why did they (France) introduce specific legislation for JONUMs if the French authorities consider them to be games of chance?”, added Pinson-Bessonet. Interestingly, that appears to be what the Gambling Commission will attempt to prove in its court case against Sorare in June.

SBC-Gaming&Co asked Pinson-Bessonet if the EC enquiry about the eCommerce Directive suggests France considers that JONUMs are covered by the gambling exemption. “Yes it is,” she said, “hence the line between JONUMs and gambling remains very thin. And when it launched the experimentation in February, the regulator stressed that it would be very attentive to any cross-over.”

Market realities

Equally significant, however, have been Sorare’s business decisions. From expending substantial sums on marketing and partnership agreements with top-tier football clubs in the English Premier League and France’s Ligue 1, to occupying a space where the company fails to attract the high-spending VIPs that frequent many crypto sportsbooks while its own customers don’t produce sufficient volumes to support its ambitions, Sorare has encountered difficulties and fallen short of the hype surrounding its early days, when it was valued at over $4bn.

For the French authorities, the entire project has also proved disappointing and consumed legislative bandwidth that could have been deployed far more effectively on other crucial issues – online casino regulation being a clear example.

Aside from the bespoke regulatory treatment it received, for now the JONUM vertical will have little impact on France’s real money gambling stakeholders; the market will also determine whether the self-declared JONUM operators succeed or fail. Meanwhile, ANJ is embarking on a three-year regulatory experimentation period during which it will monitor companies like Sorare. How many will have entered or exited the market by 2029 remains to be seen.