Online Gambling in Bulgaria (Part 2): Betting Software Development and Outsourcing

The “Online Gambling in Bulgaria” article series highlights Kambourov & Partners’ expertise in gambling regulations, specifically in the fields of licensing of gambling operators, requirements for gaming software development and ancillary activities, ethical advertising, responsible gaming, and other areas of interest.

Be sure to regularly check the Kambourov & Partners’ website and social media accounts for analyses, news and updates regarding the regulatory world of online gambling.

The previous article of the series (see Part 1) covered the general requirements for organizing online gambling games in Bulgaria. The unlimited number of licenses and relatively open regulatory framework to foreign operators have made Bulgaria an online gambling hotspot in the region with the sector growing at a two-digit rate for a number of years[1]. While there are large revenues in the organizer industry which directly serves Bulgarian customers, there is an even larger opportunity for companies wishing to outsource or establish their gambling software development services in Bulgaria.

The general trends in the broader Bulgarian Information and Communications Technologies (“ICT”) sector with its “respected, highly-qualified and inexpensive pool of IT specialists” have earned the country’s nickname “the Silicon Valley of Southeastern Europe”[2]. The stable and favorable business environment, easy access to other European Union markets, a uniquely placed IT specialist talent pool, and a large number of multilingual individuals have made Bulgaria a popular destination for multinational gambling companies to outsource their global software and hardware development and other support activities.

Therefore, the sizeable but still very much able-to-grow business of providing ancillary services to the organization of betting games should be considered any time the discussion of the gambling industry in Bulgaria is brought up.

License for import/manufacturing, distribution, and servicing of gambling equipment    

Gambling equipment in the traditional sense relates to the physical technologies used in actual gaming rooms, e.g. slot machines, roulette wheels, bingo number generators, etc. However, when organizing gambling games online those machines are, of course, less machine than simply code. Letting those software products be produced without any regulation as to their quality and functionality would be contrary to the goals sought by the gambling legislation, which is why ‘virtual gambling equipment’ has been equated to ‘gambling equipment’ per the definition in §1, item 3 of the Additional Provisions to the Gambling Act.

Apart from the virtual simulations of physical gaming equipment covered by the above definition, the legislator has created substantive technical and functional requirements applicable to gaming software and communication equipment for online betting such as the requirement to create realistic expectations in participants about their chances of winning by accurately representing all results and/or events on which the games are based, the requirement to make clear the mechanics of the given game and especially to indicate unambiguously to the participant whether they can influence the outcome of the game[3].

While the need for regulatory oversight of the activities of gambling software development is obviously clear, it would be overly burdensome to require every developer to hold a license as a gambling game organizer, especially considering the high investment costs required by the law for being eligible for such. Furthermore, licensed gambling game organizers are prohibited by Art. 9(8) of the Gambling Act to import/manufacture, distribute, and service gambling equipment except for their own needs. This means that while organizers may directly develop or import the required virtual gambling equipment, they can only use it for the provision of their own services to customers, but B2B equipment development and import is reserved to only those holding:     

(i) either a license for import, distribution, and servicing; or   

(ii) a license for manufacturing, distribution, and servicing of gambling equipment.

It is crucial to note that while the import and manufacturing are often grouped together in the legislation, the two license types are separate and not mutually exchangeable - holding one does not allow for performing the activities of the other. This is important as it may require some B2B development entities to obtain both, especially when they are aiming to be established as go-to companies for online betting products, which requires both distribution of imported standard-type betting software and specific development for the needs of various clients. The obtainment of either license is subject to specific legal and technical requirements, including proof of prior investments. This amount as noted above, however, is significantly lower than for gambling game organizers and crucially, it need not be made in Bulgaria per se.

Furthermore, certain outsourced activities may entirely fall outside the scope of Bulgarian regulations – e.g., customer support when it does not qualify as an ancillary activity to the organization of gambling games as defined in the Gambling Act, or other IT services such as website design.

Consequently, the numerous terms included above – (virtual) gambling equipment, gaming software, communication equipment, etc. are not always clear to those looking to outsource to or establish in the Bulgarian market. Some activities require the obtainment of the above license(s), while others would only require the appropriate testing and/or registration of the given software product in the relevant public registries, or there would be no regulatory requirement whatsoever. An experienced and trained legal analysis by the regulatory specialists at Kambourov & Partners of the specific services, products, and goals of the given company and the applicable legislation and practice is, thus, highly recommended.

[1] https://kinsights.capital.bg/business/2023/04/10/4470621_whos_who_in_online_gambling_in_bulgaria/

[2] https://www.trade.gov/country-commercial-guides/bulgaria-information-and-communications-technologies   

[3] Ordinance on the general technical and functional requirements for gaming software and communication equipment for online betting and games via other electronic means of communication