LONDON (Reuters) - Several European states have taken action against online gaming companies in a bid to protect their own gambling operations, but the tactic looks likely to accelerate the demise of their own monopolies.

A battle is unfolding across Europe for control of a sector that takes more than 70 billion euros ($89 billion) from European gamblers, rattling a market viewed until recently as a safe haven.

This summer's arrests in the United States of executives from Sportingbet and BETonSPORTS underlined the urgency for online gaming groups to diversify away from the U.S., where politicians are trying to outlaw the industry.

With Asia seen as risky and too fragmented, many gaming companies had pinned their hopes on Europe, but that changed last week when French prosecutors detained the two heads of Austrian betting firm Bwin.com to investigate alleged violations of gaming laws.

Bwin is also contesting bans on taking sports bets in the German states of Bavaria, Saxony and Hesse.

"Things are coming to a head," said Simon Holliday at gaming consultants GBGC.

"The industry is currently in a legal grey area, but we think this will accelerate the speed it opens up. But I wouldn't be surprised if it got worse before it got better," he added.

EU ACTION

Betfair Managing Director Mark Davies said it was wrong to equate the situation in Europe with that in the U.S.

"The two are completely different," he said. "In America it is clearly illegal to take sports bets over the Internet, but in Europe it's clearly legal."

Last week, European Union Internal Market Commissioner Charlie McCreevy said eight EU countries might be added to a list of seven already facing legal action for refusing to open their betting markets. France is said to be among them.

"France could have shot themselves in the foot by getting this aggressive, as it could bring the whole process forward," said Holliday. "We thought it would take five, six or seven years to sort itself out, but it now looks like two to three years."

Although European Union law allows cross-border trade by gambling companies under the Treaty of Rome, many individual states prevent it, claiming they are protecting the public from gambling addiction.

European Lotteries, which represents 74 organisations, said gambling was a unique activity, and states should be allowed to monopolise it to protect consumers and regulate crime.

But critics say these same states promote equally addictive national lotteries, and accuse them of hypocrisy.

BODY OF LAW

British gaming group Ladbrokes sparked three of the European Commission's investigations, with complaints against Sweden, Finland and the Netherlands, said John O'Reilly, managing director of Ladbrokes's Internet division.

"I think what we've seen in recent weeks is a bit of a backlash by European member states who want to treat betting as a national issue," he said.

After seven or eight years of trying to get national legal disputes heard at a European level, O'Reilly said he welcomed the prospect of clarity.

Evelyn Heffermehl at law firm Ulys in Brussels said France's action against Bwin did not signal Europe was becoming a riskier place for online gaming groups.

"They can be seen rather as a sign that the monopolies in general, and in France in this specific case, are concerned that they might not 'survive' for long," said Heffermehl.

"Europe is currently facing a transition period between old restrictive regulations, with monopolies etc, and opening of the market."

But Dr David Forrest at Britain's Salford University said he thought there was insufficient consensus in the 25-member European Union for a swift political resolution.

"Policy is likely to evolve in the courts rather than politically," he said. "It could go on for years on a case-by-case basis until there's a body of law."