The State of German Gambling Legislation

Overview, Update and Outlook By Dr. Matthias Spitz and Jessica Maier, LL.M.,MELCHERS Law Firm, Germany

Germany has been an attractive gambling market for a long time. This does not come as a surprise considering its population of roughly 83 Million and economic strength. However, the legendary German efficiency, which is sometimes attributed to Germany, seems to be lacking considerably when it comes to (online) gambling regulation. The gaming industry will primarily have come across Germany as a complicated jurisdiction in which EU law and constant monitoring of regulatory developments play very important roles.

The following is intended to shed some light on how gambling is regulated in Germany as well as on the trends and ongoing political reform discussions. The article will briefly touch on licences available in the land-based sector, but will focus on the regulation and reforms affecting online operations, specifically online sports betting and online casino.

Overview

In Germany, gambling regulation has been made subject to state law. In theory, each of the sixteen German states therefore can make its own decisions on how to regulate gambling for its respective territory. At the moment, the German states regulate gambling by means of a so-called Interstate Treaty on Gambling, which each German state has implemented into its respective state law. The intention of this Interstate Treaty, which was enacted in 2012, was to create uniformity between the states with regard to the cornerstones of gambling regulation. It provides for a state-monopoly on the operation of (online) lotteries (private companies may only apply for licences allowing them to act as brokers for the state-lottery companies), sets certain standards how the states should regulate their bricks-and-mortar casinos (which, depending on the state, will be state-run or can be privately-run) and gaming halls and prohibits online games of chance with the exception of horse race betting and sports betting.

In a sports betting context, the Interstate Treaty of 2012 introduced a licensing opportunity for the first time after the German states had been forced to do so following a judgment of the Court of Justice of the European Union (CJEU), which had held the previous state-monopoly to contravene EU law (Carmen Media-case).

Theoretically this licensing process should have led to the issuance of 20 sports betting licences, which would have been valid in all German states, covering online and land-based operations. The licensing process, however, failed and was rightly criticised from the start – as was ultimately confirmed by the CJEU in the Ince-case in February 2016. The CJEU held that the sports betting licensing process had been designed in a non-transparent and discriminatory manner and criticised the German states for not having introduced a licensing system fit to overcome the unlawful state-monopoly. It confirmed that EU based sports betting operators could not be blamed for operating without a German licence in such an unlawful legal environment and thereby made perfectly clear that reforms of the current regulation were needed.

Relevance of EU law

The Carmen Media and Ince cases referenced above already show the impact EU law has had (and still has) on German sports betting regulation. But also in the online casino sector, operators have relied on the freedom to provide services (Art. 56 TFEU) under EU law to justify their operations on the German market, arguing that the prohibition impacting on online games of chance is disproportionate (as it is unfit to achieve the Interstate Treaty objectives) and inconsistent (e.g. because there is no scientific evidence to support that land-based slot machines are less dangerous than online slots, and yet, gaming halls can be licensed whereas online casinos currently cannot).

Nevertheless, Germany’s highest administrative court, the Federal Administrative Court, handed down a judgment on 26 October 2017 stating that the prohibition of online gambling and advertising, as it is currently set out in the current Interstate Treaty, neither violates national constitutional law nor EU law. This has to be taken seriously by online operators, despite the judgment arguably applying an incorrect interpretation of CJEU jurisprudence and a constitutional complaint having been filed against the judgment.

Update: The Third Amendment Treaty

Over the past years, Germany’s gambling politics have been characterised by a back-and-forth and an ongoing dispute between the German states regarding the extent to which reforms should be agreed. In March 2019, the Prime Ministers of the German then signed an amendment to the current Interstate Treaty, which is supposed to result in the so-called Third Amendment Treaty following notification to the European Commission and ratification in each of the sixteen state parliaments. If the Third Amendment Treaty can be ratified before 31 December 2019, it is to enter into force on 1 January 2020.

The novelty of the Third Amendment Treaty is that it will introduce a new sports betting licensing process – this time one that will not be limited to 20 licences. The authorities in charge even intend to publish details of the application requirements ahead of the law entering into force. This is highly unusual and it still remains to be seen whether this new licensing process can resolve the problems German sports betting regulation has been facing, not least since the conditions of the future licences must currently be expected to be unviable. Some of these restrictions include: limitations to the permissible betting product range (severely impacting on popular forms of in-play betting), a 1,000 EUR monthly stake limit and a prohibition of parallel online casino operations. Such restrictions would not only lead to significant disadvantages of licensed operators but also mean that certain licence restrictions will (need to) be challenged for not being sufficiently based on empiric evidence. It further is unclear how long licences, once granted, will actually be valid as the Third Amendment Treaty has been referred to as only a temporary, transitional solution by a number of politicians including the host of the last Prime Ministers’ conference who mentioned this in a press conference when announcing that the German states had agreed on the Third Amendment Treaty.

The possible transitional nature of the Third Amendment Treaty is also relevant in the discussion regarding the potential future introduction of online casino licensing opportunities. At the moment, the Third Amendment Treaty is supposed to be valid until 30 June 2021 (but extendable until 30 June 2024) and maintains the prohibition impacting on online casino. A number of German states, most prominently the state of Hesse (who will be in charge of conducting the new sports betting licensing process under the Third Amendment Treaty) and the state of Schleswig-Holstein, however, are pushing for decisions on what the future online casino regulation will look like after 30 June 2021 to be made sooner rather than later. The reason for this is that these states would like to see a fundamental change in Germany’s gambling regulation. They would like to introduce online casino licensing. That said, the state of Schleswig-Holstein actually is experienced in regulating online sports betting as well as online casino already:

Back in 2012, when the current Interstate Treaty was enacted, only 15 of the 16 German states originally formed part of the Interstate Treaty. The state of Schleswig-Holstein initially pursued its own gambling regulation allowing for online gaming licences (sports betting and online casino) to be issued. Due to a change in the Schleswig-Holstein state government, Schleswig- Holstein then acceded to the Interstate Treaty already in 2013. However, a total of 48 licences for the operation of sports betting and/or online casino gaming were issued during the time the Gambling Act of Schleswig-Holstein was in force. All of these licences have meanwhile expired but in an attempt to maintain their regulated market, Schleswig-Holstein has introduced a transitional arrangement for sports betting operations in Schleswig- Holstein. With the blessing of the other 15 German states (received ahead of the last Prime Ministers’ conference in March 2019), it also introduced a state law, which revalidates formerly granted Schleswig- Holstein online casino licences. Both the sports betting transitional arrangement and the revalidated online casino licences shall remain valid until another licence is granted on the basis of German law which is applicable to Schleswig-Holstein. They are supposed to be valid longest until 30 June 2021. Although the group of states considering alternatives to a total prohibition of online casinos is slowly growing, some “hard-liner” states have not moved an inch in the discussions and could remain opposed to the idea. Still, it will be interesting to see if the revalidation of Schleswig-Holstein online casino licences might impact on the further discussions e.g. if the other German states can consider the regulation to be a success and provide for a possible blueprint for future online casino regulation.

Outlook

Despite the many remaining question marks on the new sports betting licensing process and conditions as well as a return to a state-monopoly not having been completely ruled out (however unlikely it may be politically) by the Germany states, it is clear that there is a lot less controversy between the states on how they intend to regulate sports betting than on how a future online casino regulation should look like.

For the time being, the German states expect that the Third Amendment Treaty will enter into force as planned, so that a change of the law impacting on online casino could only take effect as of 1 July 2021. As indicated earlier, the available potential regulatory options are, however, already being discussed now and the advocates for an introduction of online casino licensing are pushing for key decisions on the way forward being made as soon as possible. The options, which are currently being discussed between the states, range from suggestions of simply sticking to the prohibition of online casino to introducing a state monopoly or an open online casino licensing system. It even seems possible that Germany could split into states, who introduce online casino licensing, and states, who do not introduce online casino licensing. From an industry’s perspective, it is positive in this context that the group of states in favour of an introduction of online casino licensing opportunities (or at least alternatives to the total prohibition) is slowly growing and consists of states which cover rather interesting parts of Germany in terms of population and wealth.

*The authors would like to acknowledge Lisa Ruess’s contribution to this article. Her input has been invaluable.

Author information and contact details:

Dr. Matthias Spitz is a Senior Partner of MELCHERS Law Firm and specialises in the area of gaming law with a focus on European law and administrative matters. He is an expert in AML, advertising regulation and the implementation of new gambling products on the German market. Experienced in communication with regulators and administrative procedures, Matthias not only offers traditional legal services such as litigation but also lobbying advice and support. Since 2013, he has been a member of the International Masters of Gaming Law (IMGL). Matthias frequently publishes articles on regulatory developments in leading industry journals.

Matthias can be contacted at: m.spitz@melchers-law.com

His LinkedIn profile is:https://www.linkedin.com/in/dr-matthias-spitz-025b8935/

Jessica Maier, LL.M. is a Partner with MELCHERS Law Firm and advises on all aspects of gambling law with a focus on regulation, licensing and compliance. She has been involved in regulatory due diligence reviews in the context of corporate acquisitions and also supports clients in competition and antitrust related issues as well as in administrative court proceedings or out-of court negotiations and interactions. She has provided guidance to clients in various licensing proceedings and advises clients on the regulatory developments in Germany which impact on their business. Like allmembers of the MELCHERS Gaming & Betting Law Practice Group Jessica regularly contributes to gambling law and industry publications. She is a member of the International Association of Gaming Advisors (IAGA) and Global Gaming Women (GGW).